As of 2015, an estimated 15 million U.S. workers have said "no, thanks" to a regular 9-to-5 gig, opting instead to go the self-employment route. While being your own boss offers a degree of freedom and flexibility that's not always present in a traditional career, one thing that's lacking is access to an employer's retirement account.
Self-employed workers need to be acutely aware of what that means for their long-term retirement plans, says Grey Merryman, senior director of wealth planning for Wells Fargo Private Bank in Charlotte.
"With no company pension, 401(k) match or other benefits to assist them, the financial burden is on them to make it happen," Merryman says.
While you don't need to be a financial expert to invest for retirement when you're self-employed, it certainly helps to do your homework. If you own a business or operate as an independent contractor, here are some common missteps you'll want to steer clear of.
Choosing the wrong retirement plan. Self-employed individuals have several ways to save for retirement and it's important to pick the right plan the first time around, advises Jeremy Torgerson, CEO of nVest Advisors in Brownsville, Texas.
"Although you can change plan types later on, it can be complicated and expensive," Torgerson says, so it's critical to choose the plan that's the best fit at the outset.
He advocates evaluating different retirement plans based on three specific criteria, starting with its features. For instance, if you think you may need to take a loan from your retirement plan at some point, a 401(k) would allow you to do that -- but an IRA-based plan wouldn't.
Torgerson says you also have to take into account your choice of plan if you run a business that has employees.
"The general rule of employer-sponsored plans is whatever you do for the owner, you must do the same for eligible employees," he says.
Finally, Torgerson says it's important to make sure the plan you choose fits the way you want to invest. With a 401(k), your investment choices may be limited to mutual funds while a SEP or Simple IRA may offer more variety.
Underestimating how much you can save. Something many self-employed workers often fail to understand is which retirement plan will allow them to max out their savings, says Patricia Cathey, an investment advisor with Denver-based Smart Retirement.
A 401(k) offers the highest contribution level. As of 2016, you can contribute up to $53,000 in one of these plans, or $59,000 if you're over 50. A Simple IRA, by comparison, has an annual contribution limit of $12,500, with an additional $3,000 allowed if you're 50 or older.
When you're not sure how much you can funnel into a particular plan, the potential to shortchange your retirement increases.
For example, a sole proprietor earning a net income of $125,000 annually would be able to save $23,233 in a SEP IRA, based on the annual contribution limit for 2016.
With a solo 401(k), on the other hand, the same person would be able to set aside $41,233. Assuming a decent rate of return, a higher contribution rate could add up to a substantially larger nest egg over time.
Not thinking investment choices through. Drew Horter, founder and chief investment strategist at Horter Investment Management in Cincinnati, says self-employed savers need to make sure the risk they're taking on matches the level of risk they're comfortable with.
"Too many times we see clients who want low risk that in actuality have portfolios with high risk," Horter says, throwing their entire investment strategy out of balance.
Cathey points out that self-employed savers may also misunderstand certain nuances of investing on a granular level.
"Savers may think that buying Apple (ticker: AAPL) is different from buying Google ( GOOG, GOOGL) because they're in different businesses but truly, they're the same in terms of correlation," Cathey says.
The result is that their portfolios may lack enough diversification to insulate them against market volatility.
Taking a hands-off approach can be equally detrimental, Merryman says. "Often times, a self-employed saver will establish a retirement plan, fund it with a few securities or a handful of mutual funds and forget about it.".
When plan participants don't take time to rebalance, they end up with a portfolio that offers less than optimal returns or otherwise carries too much risk. Instead, they should choose a target asset allocation, diversify with an appropriate mix of mutual funds, ETFs and individual securities, then rebalance periodically.
Overlooking your tax situation. When you're self-employed, your tax outlook can have a significant influence your choice of retirement plan.
For example, is your business taxed separately or does it flow through to your personal return? Do you claim partnership profit or loss as your income or do you pay yourself a salary?
Those are questions Torgerson says self-employed workers need to ask themselves. He recommends involving a tax preparer and financial advisor in the decision-making process if you're struggling to come up with answers.
Paul Jacobs, a certified financial planner and chief investment officer with Palisades Hudson Financial Group in Atlanta, says self-employed workers should also be taking advantage of key tax benefits whenever possible.
"A great tax break that's available to the self-employed is the ability to deduct health insurance premiums," Jacobs says, noting that as premiums rise, the deduction becomes more valuable.
When you're able to maximize deductions and reduce your tax liability, that in turn frees up more of your income that can be invested towards your retirement.
Forgetting to factor in Social Security. Determining where Social Security fits in is a must for anyone but even more so for self-employed workers who may not be saving enough on their own, says Scott Tucker, president and founder of Chicago-based Scott Tucker Solutions.
In that scenario, life expectancy and the timing of Social Security benefits are critical.
"If you take benefits beginning at age 62, you're giving up eight years of 8 percent raises that Social Security will you give if you wait until age 70 to file," Tucker says.
For someone who's self-employed and expects to live longer, delaying those benefits may be the smarter course.
Merryman cautions self-employed workers against relying on Social Security as a safety net in retirement. "For younger people, those benefits could be eliminated or greatly reduced once they reach full retirement age," he says.
Bottom line, while self-employed workers should be looking at scenarios that include Social Security income, it's not a substitute for saving regularly in a qualified retirement plan.
Rebecca Lake has been writing about investing, finance and small business for nearly a decade. Her work has been featured on The Huffington Post, Fox Business and Investopedia. Follow her on Twitter @seemomwrite.