The Gig Economy and Retirement – Are You Saving for Your Post-freelance Life?

Published on March 6, 2018

Here’s a sobering statistic: 52 percent of employees have access to an employer-sponsored retirement plan but only 16 percent of independent workers have a retirement savings plan.

If you’re making money writing, consulting, or even renting rooms on demand, you might be enjoying your freelance life and the freedom that comes with making your own schedule. But are you thinking ahead for retirement?

As many more traditional independent contractors already know-creatives, certain commission sales people, consultants—gross pay must be allocated to cover self-employment tax, contributions to FICA, and money that’s set aside to save for the future.

It seems the federal government is concerned about this. In fact, the US Senate held a hearing in early February to discuss the gig economy and retirement savings.

Of course, there are more ways to save for retirement than investing in a company-sponsored 401(k) plan or defined benefit plan of some kind. So why aren’t more independent contractors opening an IRA—whether a Traditional or Roth, or for the self-employed, a SEP IRA?

A 2017 survey of freelancers by Small Business Majority shed light on a few key reasons:

• Forty percent of freelancers have no retirement plan
• Thirty-eight percent say they are not generating enough income to save
• Thirty-one percent state they don’t get paid on a regular basis so it’s hard to set money aside

Fluctuating income can certainly be an impediment to saving, no question. And, because independent contractors are not treated as employees, they typically do not have access to a workplace retirement plan; without the automatic contributions from a paycheck into a retirement plan, it can be hard for some people to be disciplined about making their own contributions, even if they are doing well financially.

One retirement savings solution that came up at the Senate hearing is for gig economy workers to have “Multiple Employer” plans, in which a single 401(k) plan is sponsored by multiple employers. Some states are working on state-sponsored retirement plans for independent contractors as well.
Some of the digital apps driving this gig economy are ahead of that curve. Lyft offers something called Honest Dollar to its drivers, and Uber offers a retirement savings option in some cities through Betterment. The investing platforms are voluntary.

In the meantime, motivated, savvy investors can put their hard-earned freelance dollars to work for them through a self-directed retirement plan. For those who like their independence in terms of occupation, self-direction offers greater independence in terms of investment options. With self-directed retirement plans, you as the account holder make all your own investment decisions and you can include a wide array of alternative assets not typically allowed in traditional retirement plans. If you’re self-employed, you can open a self-directed SEP IRA and enjoy all the same tax advantages with the ability to contribute more out of pocket (see IRS website for annual contribution limits). You may also self-direct a Traditional or Roth IRA, and include real estate, precious metals, private equity, loans, and many more nontraditional investments.

Whether your freelance life is full time or on the side, you can build a more diversified retirement portfolio with self-directed investments. Want to learn more? Watch our informative videos or contact our team at Info@NextGenerationTrust.com or 1-888-857-8058.