Gig workers, like everyone else, deserve a pension. Freelancers, contract workers, self-employed, temp workers, on-call employees, and individuals with side hustles make up a significant component of our economy.
Currently, 57 million Americans are estimated to be part of the gig economy. Since March of last year, freelancing and gig marketplaces like Gigspot and Upwork have reported growth in users. Freelancers may make up half of US employment by 2023. Statista reported data from a 2018 poll in January indicating 27% of full-time gig workers had no retirement savings.
About 57 million Americans are doing gig labor. Freelancers to self-employed. We should all be able to retire well. How? People ask questions.
A lack of employer-sponsored 401Ks, unpredictable income, and inadequate financial counsel may make long-term financial planning difficult and scary.
But this need not be the case. Gig economy workers may save for retirement and enjoy advantages not available to full-time employees. However, many freelancers are already planning for retirement.
How can I save for my retirement?
Before you are paid, start saving for retirement. Whether you work gigs full-time or as a side business, retirement is an expenditure to consider. Calculate your rates accordingly, says Misty Lynch, CFP. It’s important to set and keep to the proper charges early on, she adds, because newbies often under-price their services or take whatever business is available.
If you want to make $30 an hour, charge your clients $50. With a little planning, you’ll hit your net hourly target while saving for retirement. So long as you know how much money you want to keep after all other financial responsibilities, this strategy can work. Savings don’t seem like they’re taking away from your everyday needs. Incorporating retirement into your business strategy made it seem more feasible, says Wudan Yan, a freelance journalist, and business consultant. She co-hosts The Writer’s Co-op, a business podcast for freelancers, with Jenni Gritters. To cover all expenditures and perks owing to “Employee You,” “Employer You” must charge clients enough.
Is there a better option in the gig economy?
No HR department or company is going to force you to auto-enroll in this 401K plan. Gritters cites this as a primary reason why many self-employed people lack retirement accounts. It’s not as simple as checking a box, and no one will ever “nudge” you to do it. Contract and gig workers still have plenty of retirement choices. Anyone who earns income can contribute to an IRA, Lynch explains.
Online services like Fidelity or Charles Schwab make it easy for freelancers to open an IRA or Roth IRA. It’s easier than most people assume. However, both accounts have annual contribution caps of $6,000, and a Roth IRA includes income limitations. A Solo 401K or SEP-IRA is a good option for contract employees who earn too much to contribute to a Roth IRA. These programs are designed for company owners, even if you’re the only employee.
What should I give?
Like many financial talks, it will depend on the individual’s position. Yan contributes a maximum of $6,000 per year to her Roth IRA. She helps see it as the cost of one huge feature article or a few projects over a year. Others may give monthly, biweekly, or on any other schedule that works for them. Lynch emphasizes thinking about the ultimate result. Some individuals simply want to work for a limited period, or maybe they want to save as much as possible. Knowing your final objective, whether it’s money saved or time worked, allows you to “reverse engineer” your way back to a monthly or annual budget. She also mentions that donations might vary based on income.
I’m only freelancing for a while.
Others are professional freelancers who use gig work to supplement their income between full-time jobs. In any case, Lynch advises opening and funding a retirement account as soon as feasible. There’s no negative she says, unless you’re continually thinking this is temporary. Even if it’s only temporary, you’re setting yourself up for future success.”
How can I “catch up” without saving?
Contract employees may go years without contributing to their retirement. Even if it took longer to start saving, there are methods to make it up. The best thing to do is start Lynch advises. She warns people against attempting to save more than they need to make up for the lost time. Then, if you say, “Now I’ve got to put in 20 percent,” you’re likely to stop. Start small and increase your donations as you progress.
Is there more to know about gig economy retirement?
Gig economy employees have complete control over their retirement plan, just like self-employed individuals. Unlike a workplace-sponsored plan, where your firm may have already picked a broker and investment alternatives, Lynch says you may make all the selections. While it may take more effort upfront, having ultimate control over your retirement plan is a value you should not overlook. In summation, you can delay paying taxes — but you can’t make them disappear.