Dear Carrie, I'm 55 and in a position to leave my full-time job and work freelance from home. I'm trying to weigh the financial benefits vs. costs. Any tips? --A Reader
Dear Reader, When thinking about working at home, most people focus only on the pluses: no commute, flexible schedule, more personal time, little or no cost for things like transportation, wardrobe and eating out. It all sounds great. And it can be. By working freelance from your home, you'll certainly cut down on a lot of work-related expenses.
But what might you be giving up? Most full-time jobs come with a package of benefits that may far outweigh the everyday costs of going to work. And what additional expenses might you be taking on?
Working for yourself means a lot of freedom, but it also means a lot of responsibility. Many of those responsibilities are financial, so you're wise to consider them carefully before you start planning your going away party.
You are your own benefits provider
This is probably one of your biggest costs. If you've had group health insurance through your employer, you may be in for a shock at just how expensive an individual policy can be. You may be able to get health insurance through a professional organization, but chances are it will still be considerably more than you're used to paying.
Likewise, if you've been getting life insurance through work, you'll now be on your own for that as well. At 55, even the cost for a term-life policy can be significant.
And what about sick days and vacation pay? When you work for yourself, there's no one to cover for you.
You pay all Social Security and Medicare taxes
When working for a company, it's easy to forget that your employer picks up half the bill for Social Security and Medicare taxes. And we're quite used to having the other half deducted from our paycheck. But working for yourself, you pay the whole amount in the form of self-employment taxes. For 2013, that tax is 15.3 percent on earnings up to $113,700. If you earn more than that, you'll still pay a 2.9 percent Medicare tax on any additional earnings -- plus a 0.9 percent surtax on incomes over $200,000 for singles and $250,000 for married filing jointly. This can add up to quite a tax bite.
The cost of doing business can increase your bills
Insurance and taxes are probably the biggest costs, but the everyday cost of doing business can add up, too. Since you'll be working from home, you'll use more water, heat and electricity. Utility bills are bound to go up.