Gig workers, like everyone else, deserve the opportunity to retire. That means freelancers, contract workers, the self-employed, temp workers, on-call employees, and those with side hustles; the number of people who earn a living outside of traditional full-time employment makes up a huge portion of our economy. There are current estimates of 57 million Americans participating in some form of gig work.
The COVID-19 pandemic has only heightened the gig economy, with freelance and gig marketplaces like Gigspot and Upwork both reporting increases in their users since March of last year. Some projections show freelance workers will account for half the U.S. workforce by 2023.
In January of this year, Statista published results from a survey conducted in 2018 showing 27 percent of full-time gig workers had no money saved for retirement. While the flexibility and autonomy of self-employment can be appealing to many, the lack of employer-sponsored 401Ks, fluctuating incomes, and insufficient financial guidance can make long-term financial planning difficult and daunting.
But this doesn't have to be the case. Saving for retirement as a gig worker is not only possible; it also affords certain benefits full-time employees might not find. While retirement may feel far away for many freelancers, preparation for it starts today.
How can I afford to save for retirement?
Retirement planning should begin before you're even paid. Whether gig work is your full-time job or a side hustle to supplement other income, retirement is an expense you have to consider. "Calculate your rates accordingly with [retirement] built-in," Misty Lynch, CFP, explains.
"A lot of times, people who are starting out maybe underprice their services, or they take whatever business is available because they're looking at it like, 'I need to be working,'" she says, noting the importance of setting—and sticking—to the correct rates early.
If your end goal is to make $30 an hour, maybe you charge your clients $50 per hour. You know you'll set some aside for retirement, pay taxes and other expenses, and still come out with your net hourly goal. This system can work similarly if you're paid per job or project, so long as you know how much you want to keep after all other financial obligations. This way, saving doesn't feel like it's taking anything away from the money you need for daily life.
"Once I accounted for retirement in my business plan, I actually saw how manageable it is," Wudan Yan, a freelance journalist and business coach for freelancers, explains. She also co-hosts The Writer's Co-op, a business podcast for freelancers where she and Jenni Gritters discuss the importance of setting prices that account for more than just take-home pay.
If you're self-employed, "Employer You" has to charge clients enough to cover all of the expenses and benefits owed to "Employee You."
What retirement account should I use?
"There is no human resources department or corporation saying 'auto-enroll in this 401K plan,'" Lynch says, citing this as a major reason many self-employed individuals don't have a retirement account. It's not as simple as checking a box, and you'll never get a "nudge" from anyone telling you to do it.
Luckily, contract and gig workers still have plenty of options when it comes to retirement accounts. "Anyone who earns an income of any kind is able to contribute to an individual retirement account (IRA)," Lynch explains. Freelance workers can set up an IRA or Roth IRA—the former funded with pre-tax dollars, the latter after-tax—extremely quickly with online companies like Fidelity or Charles Schwab. "It's easier to open these accounts than most people think," Lynch says.
However, both of these accounts have $6,000 annual contribution limits, and a Roth IRA even has income restrictions for who can contribute. Contract workers who make too much to contribute to a Roth, or want to set aside more than $6,000 can look into Solo 401Ks or SEP-IRAs. These plans have higher contribution limits but are specifically for business owners, even if you're the only employee.
How much should I contribute?
Like so many financial discussions, it's going to depend on each person's specific situation. Yan maxes out her Roth IRA, contributing the max limit of $6,000 annually. She helps conceptualize this by thinking of it as the price of one larger feature story or a few projects over the course of the year.
Others may contribute monthly to their chosen retirement account, bi-weekly, or on whatever schedule works for them. Lynch explains it's most important to think about your end goal. "Some people know that they only want to work for a limited amount of time, or maybe they want to save as much as possible," she explains, with countless scenarios applying to different people.
By knowing your end goal, whether it's a certain amount of money saved or a certain amount of time you want to work, you can "reverse engineer" your way back to an amount you'd have to set aside monthly or yearly to get there. She also notes that contributions can change yearly depending on how much you earned.
What if I'm only freelancing temporarily?
Some people see gig work as a means to an end until the next full-time job comes around; others will be career freelancers. Either way, Lynch suggests setting up a retirement account and contributing to it as soon as possible.
"There's no downside," she explains "if you're constantly thinking 'this is temporary,' that might not be the case. But even if it is temporary, at least you're setting things up right off the bat to benefit you in the future."
How can I "catch up" if I haven't been saving?
Contract workers may let a few—or many—years pass without any retirement contributions. "It's a mindset, and I think a lot of people don't yet have that mindset," says Yan.
Still, even if it's taken more time to begin saving, there are ways to make it up. "The best thing to do would just be to start," Lynch says.
However, she encourages others to be cautious of trying to save more than what's comfortable just to rectify time lost. "If you say, 'now I've got to put in 20 percent,' and then 20 percent feels really uncomfortable, you're likely to stop."
The best thing to do is to start contributing what feels doable; then increase your contributions as you grow.
Is there anything else to know about retirement in the gig economy?
Like the flexibility and freedom that comes with being self-employed, gig workers similarly get full control over their retirement plan. This is a huge benefit, according to Lynch: "You're able to make all the decisions," she says, as opposed to a workplace-sponsored plan where your company may have already chosen a broker and the investment options.
While it could be more time-consuming on the front end, having total authority over your retirement plan is a benefit you shouldn't shrug off.
"It's really possible. It's a matter of prioritizing it, figuring it out," Yan explains to fellow freelancers.
"The more people who create what they think the world needs, the better," Lynch says. "But they just need to make sure that they do it right—and that they help themselves out."