At 28, Investor Bitten by a Bad Market but Still Forging Toward Retirement

As a full-time freelance writer, I'm one of the 26 million sole proprietors in the United States tasked with providing for my retirement on my own. But I'm only 28, unmarried and a homeowner living in the relatively low-cost city of Richmond, Va.. So I have a head start.

My income varies drastically in proportion to how much I can -- and need -- to work. In the glory days of pre-2008 when business was booming, I could barely work fast enough to keep my clients happy. I was earning between $5,000 and $8,000 a month and felt energized and eager to save.

Since the economic downturn, however, business has been a struggle; I feel pleased if I can bring in even half of what I used to earn. Unpredictability is the nature of my business; I can't predict my income, annual retirement contributions, retirement age or many other components critical to making wise financial decisions.

Small-Business Owners Bear Repercussions of Clients' Frugality

Earning a comfortable income has become harder over the last two years. Clients are staying in their shells; they're afraid to come out in full force, lest they get knocked further down by an unexpected economic blow.

And when clients are ready to do business, many are much more frugal than they once were -- sometimes even asking for half-price discounts when they used to comfortably accept my going rate.

The big question among many of my self-employed friends is this: How can freelancers possibly save for retirement in this temperamental economy when we can't even predict our month-to-month incomes? Sometimes, our savings accounts are the only things keeping us from declaring bankruptcy.

We can't file for unemployment income when work is scarce. There's no severance plan when clients zip shut their pocket-books. While I continue to contribute to my retirement savings when I can, my financial focus is simply staying out of debt.

For retirement, I'm on my own. I've never had a plan through another employer. I'm OK with that independence, but I'd love for someone else to pay for my coffee breaks, sick days and health care expenses.

Yet, thanks to my parents' influence, I've made wise decisions that are helping me secure a financially comfortable retirement. Here are some:

Invest in Real Estate

I bought my house at 23, five days after graduating from college. It's an 86-year-old Richmond row house, purchased using a zero-down payment FHA mortgage loan for an astoundingly low $143,000 -- just months before comparable houses on my block sold for more than $300,000. Despite decreasing home values across the country, my home is currently appraised at about $240,000.

When I decide to move, I can either rent the house out (it's located about two miles from Virginia Commonwealth University, where there are thousands of eager renters), or I can sell it for a hefty profit. Either way, the house will contribute significantly to retirement.

Plus, while my mortgage draws away a substantial portion of my earnings, because I have a home office, I can deduct a percentage of my mortgage -- and associated home expenses -- from my annual income tax burden. Ideally, I can roll that savings into my IRA.

Save and Invest While Young

In my first two years after college -- before I became a full-time freelancer -- I had a salaried job as the assistant director of a nonprofit business resource center. I made $25,000.

At the end of every month, I was at least $600 deeper in debt from basic living expenses, which broke down like this:

• mortgage: $1,200 (including taxes and insurance)

• groceries: $250

• fuel: $100

• utilities: $300

• health care: $200

• miscellaneous: $150 (car insurance, home supplies, car maintenance and repair)

There was no budget for entertainment and personal expenses. I remember my boss telling me I needed to purchase a better professional wardrobe. I nearly broke down in tears, thinking, "I can't even pay my heating bill and you want me to buy pin stripes and high heels?"

Trying to save for retirement was out of the question.

The financial demands of grown-up life forced all my extra energy into developing my writing business. My efforts paid off; within a year, I was making more money freelancing than I was through my salaried job.

I soon accrued a retirement savings of about $20,000 that I dispersed between my Roth IRA, brokerage investment account and personal savings. After two years, I left my salaried job and focused full-time on writing.

However, in 2006 and 2007, I followed some bad investment advice. I bought stock in oil and banks on margin. My loss was about $10,000 -- about the cost of a full year of in-state graduate-school tuition. My dad justified the loss as "tuition to the school of life."

And then 2008 arrived, and the entire U.S. economy turned into a financial Tilt-A-Whirl that left so many plastered against a wall as the ground dropped out from below.

Exercise Self-Employment Retirement Savings Options

Sole proprietors have a unique retirement savings opportunity: In addition to being able to have an individual IRA (Roth or traditional), we can also tuck money away into tax-deductible, employer-sponsored IRA plans (SEP or Simple).

Employer-sponsored IRA plans are similar to 401(k) plans in that employers and employees can contribute. There are annual contribution limits and rules associated with each plan, so sole proprietors should be sure to investigate both options thoroughly.

When I opened my Simple IRA in 2008, I made the maximum employer contribution allowable ($10,500), followed by an employee contribution of about $3,000. My account manager invested my money into American Family mutual funds.

But I again watched my savings account dwindle from a comfortable five figures to just four measly digits, where it has hovered for about a year, give or take $1,000. My gut reaction has sometimes been to pull money from the stock market.

Yet, partly because I agreed to accept the up-and-down pattern of long-term investing -- and partly because Warren Buffett says the first rule of investing is to "never lose money" and the second rule is to "never forget Rule No. 1," -- I refuse to sell those mutual funds at such a loss. If the mutual funds don't begin to rebound after another year or so, I may cash out then.

Maintain Perspective, Even if It Requires Sticky Notes to Do So

Despite financial losses, it's increasingly important to remind myself of the positive things I can accomplish by continuing to work hard and staying enthusiastic.

And when the global economic situation becomes too overwhelming and clouds my positivity, I sometimes find it helpful to refer to the well-placed sticky notes peeking out from above my computer with trigger words like, "Successful," "Positive," and "Energetic."

I now tell myself to not invest on margin. The worst that can happen if the economy continues to putter along at its current pace -- or somehow gives out -- is that I'll end up with zero retirement savings. In such a case, I'd find myself in the same place as millions of others.

Moreover, like my mother reminds me, at least I'm not losing money because I have to pay for a serious illness or other devastating situation.

Learn About Finances and Personal Frugality in Tough Times

I'm now revisiting my father's investment advice by spending the summer bolstering my understanding of investment principles.

In light of the Federal Reserve's second-quarter decision to keep interest rates low, I, like the Fed, am not confident the economy will dramatically improve soon. Therefore, I'm moving forward with my retirement plan cautiously.

I've invested roughly half my Roth IRA into stocks that pay between 6 percent and 12 percent annually; I've invested the other half into companies that I think will grow by the time I retire in 40 years or so.

I know my situation is not unique. People are hurting everywhere. I'm grateful for loved ones who are eager to picnic and walk around the park, rather than spend an evening taxing our wallets at a restaurant or bowling alley.

I've become more frugal, like my cost-conscious clients, and I worry about the sustainability of the businesses I am no longer frequenting.

Yet, I feel optimistic that consistent contributions to my retirement savings accounts will have a positive long-term impact, even if I'm seeing a whole lot of red right now. After all, my house I love so much was built one significant, well-shaped brick at a time until it became a cozy shelter.

Here's to having experienced advisors, two hands capable of working hard and boundless energy to keep moving forward and trying again.