Although they may be treading a different path, sooner or later, most independent workers (“gig workers”) would like the option of slowing down, even if no one will be giving them a gold watch. Many gig workers alternate between stints at corporate employment and periods of self-generated projects. Others have fully embraced the independent workstyle for years.
Those who have followed a less conventional career path as their own bosses may find that a traditional savings approach does not fit with their individualistic choices. They may prefer a different model, perhaps one based on flexibility and ready access to their money. With less stable cash flow, they are often uncertain when they might need liquidity.
Life in the gig economy
The world of self-employment is expanding, especially as workers shift their focus from career paths to career portfolios. The former leans toward specialization; a career portfolio is more likely to span a range of skills and competencies. Today’s workplace tends to encourage more job hopping, and many workers are more willing to sacrifice a steady paycheck and security for freedom and control. Gig workers may regard themselves as small-business owners with a client base.
In 2023, Statista projected the gross volume of the gig economy at $450 billion, up from $401 billion in 2022. The pool includes freelancers, consultants, temps, and other non-permanent contract workers alongside the majority, who hold an additional full-time job. Platforms range across all skill levels and industries, from information technology, law, and design to finance and media. As businesses compete to attract talent, some have been offering increased pay, bonuses, and incentives.
On a more concerning note, a 2021 Statista survey showed that 27% of gig workers had no retirement savings. Remember that independent workers will not get a nudge from a human resources department. They may not even have co-workers in adjacent offices who can pass on friendly advice. Yet they need to organize their future finances, even if saving is harder when paychecks are unpredictable.
Retirement accounts
Over half of independent workers use some type of tax-advantaged retirement account, with the majority in traditional and Roth individual retirement accounts. Only 14% have solo 401(k)s, and even fewer use simplified employee pension IRAs, all of which offer distinct advantages for self-employed people:
- Simple IRA — Best for the self-employed or for small-business owners with fewer than 100 employees.
- Solo 401(k) — Pretax contributions are deducted from income, similar to a 401(k), but these are limited to self-employed individuals.
- SEP IRA — Earnings grow tax-deferred, allowing larger contributions in good years. These flexible accounts do require minimum distributions.
Taking ownership
It is a struggle to be a one-person band. Sole operators and smaller business owners are often preoccupied with building their operations or serving clients, leaving little energy and fewer resources for saving or funding retirement.
Gig workers must be extra proactive to secure a comfortable retirement. That discipline is part of the price they pay for their independence. They must be prepared to set more funds aside and invest them more wisely. Besides taking advantage of the plans noted above, gig workers might consider buying health, life, or disability insurance to tide them over when problems occur.
Since their incomes are likely to fluctuate from year to year, it may make sense to contribute a percentage of their disposable earnings instead of a specified sum to their plan. Amounts may vary, but the key principle is to keep setting something aside consistently. It may also help to organize automatic transfers at regular intervals from a checking account to a retirement account.
It might feel isolating to tackle retirement “on your lonesome,” but remember, there are over 57 million other gig workers out there in the U.S. facing similar challenges. You might check out organizations such as Freelancers Union or other communities such as millo.co or The Global Freelance Mastermind. Ideally, you could bring in a professional estate planner to discuss your options to help put you on the right path to protect your nest egg.
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