The contemporary economy has seen a seismic shift from the stability of traditional employment, where jobs were held for decades, to a new normal of piecemeal, gig-based work. Today's workforce often builds careers from an array of gigs or supplements their income with freelance tasks outside of their regular employment.
Although the gig economy can provide a decent livelihood, it presents a significant challenge: planning for retirement. Without the support of employer-sponsored retirement plans, many gig workers are not adequately preparing for their post-work years. A recent Betterment report revealed that seven out of 10 full-time gig workers feel unprepared to sustain their present lifestyle during retirement. Furthermore, three out of ten reported they don't consistently save for retirement.
So, what should gig workers do to avoid being reliant on gigs like driving for Uber or TaskRabbit jobs well into their senior years? Here are Five Savvy Strategies to Secure Retirement in the Gig Economy to help gig workers save for retirement.
Assess your financial status
Before planning for retirement, it's important to evaluate your current financial status. By tallying your assets, including the amounts in your checking and savings accounts, any leftover retirement accounts from previous jobs, and any cash you may have on hand, you'll have a clearer picture of your financial situation. Even if your current holdings seem minimal, having a grasp of your actual financial position is a crucial first step in planning for retirement.
Establish an Individual Retirement Account (IRA)
If you don't have a retirement account, it's essential to set one up promptly. IRAs, designed for individual investors, are a great place to start and can be easily created online. Roth IRAs are often preferred by gig workers due to their low initial investment requirement and the tax benefits they offer during the distribution phase in retirement.
As of 2018, the annual contribution limit for individuals under 50 is $5,500 and $6,500 for those aged 50 and above.
Minimize investment fees
For gig workers, who often have less capital to invest, minimizing investment fees is crucial. A practical approach is to invest in index funds, which have low management fees and replicate a specific market index, such as the S&P 500.
Leverage technology for automated savings
Given the inconsistent income inherent in gig work, it can be challenging to commit to a fixed monthly contribution. Here, technology can provide a solution. Setting up an automatic transfer of an amount you won't miss can build a small, steady retirement fund. Additionally, apps like Digit can automate savings by analyzing your income and expenditure and transferring a safe amount into a savings account, which you can then move into your retirement account.
Reinvest unexpected income
Consider reinvesting any windfalls or "found money" you come across. This could include money from a birthday check or a tax refund. For example, you could decide to invest any $5 bill you receive, creating a habit of boosting your retirement savings.
Navigating the gig economy can be challenging, particularly when it comes to planning for retirement. Remember, the key to a secure financial future lies in taking active steps now.
Start by understanding your current financial standing, setting up an IRA, minimizing investment fees, embracing automated savings, and investing unexpected income.
The road to a comfortable retirement may seem daunting, but with proactive planning and disciplined saving, it is entirely achievable.
So don't wait, start your journey towards financial security today.
Your future self will thank you!