5 Smart Strategies for Gig Economy Workers to Build Retirement Savings
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We are witnessing a significant economic transformation. Unlike previous generations, who often enjoyed stable, long-term employment with traditional employers, today’s workforce frequently juggles multiple gigs or supplements a modest salary with freelance work. While it’s possible to earn a decent living in the gig economy, this lifestyle poses unique challenges, particularly when it comes to retirement planning.
Without employer-sponsored retirement accounts, many gig workers find themselves inadequately prepared for retirement. A recent report by Betterment revealed that 70% of full-time gig workers feel unprepared to maintain their lifestyle in retirement, and 30% do not regularly set aside any funds for this crucial phase of life.
So, what can gig workers do to avoid the prospect of working into their 70s and 80s? Here are five strategies to help save for retirement while navigating the gig economy. (See also: 15 Lucrative Side Hustles for City Dwellers)
1. Take Stock of What You Have
Understanding your financial situation is the first step in planning for retirement. Begin by assessing your current assets, including checking and savings accounts, any retirement accounts from previous jobs, cash on hand, and other financial resources. You may be surprised at how much you have accumulated.
Even if your total is minimal, having a clear picture of your finances is essential for effective planning. (See also: These 13 Numbers Are Crucial to Understanding Your Finances)
2. Open an IRA
If you don’t have a retirement account, it’s crucial to set one up as soon as possible. Individual Retirement Accounts (IRAs) are designed for individual investors and can be easily established online. If you have a 401(k) to roll over, you’ll have more options, as some IRAs require a minimum investment (typically $1,000). If you have less, consider a Roth IRA, which often has no minimums.
The main difference between a traditional IRA and a Roth IRA lies in tax treatment. Traditional IRAs allow you to contribute pre-tax income, reducing your taxable income now, but you’ll owe taxes on withdrawals in retirement. Roth IRAs, funded with after-tax dollars, allow for tax-free withdrawals in retirement, making them appealing for those expecting higher future earnings.
As of 2018, the contribution limit is $5,500 for those under 50 and $6,500 for those 50 and older.
3. Avoid the Bite of Investment Fees
Investment fees can significantly erode your portfolio, making it vital for gig workers to choose low-cost investment options. Index funds, which track specific market indices like the S&P 500, are a smart choice as they typically have lower fees due to the absence of a portfolio manager. (See also: How to Start Investing With Just $100)
4. Embrace Automation
Given the variable income of gig work, it can be challenging to contribute consistently to retirement savings. Automating your savings can help. Set up automatic transfers to your IRA, even if it’s a small amount you won’t miss. Additionally, consider using a savings app like Digit, which analyzes your spending and automatically saves a safe amount for you.
5. Invest Found Money
Maximizing your retirement contributions can also involve rethinking how you handle “found money.” For example, if you receive a birthday check, consider saving half of it for retirement. Similarly, allocate a portion of any tax refund to your retirement account. If you often receive cash tips, you might decide that every $5 bill goes directly into savings, helping you boost your retirement funds.
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Wise Bread Picks
We are witnessing a significant economic transformation. Unlike previous generations, who often enjoyed stable, long-term employment with traditional employers, today’s workforce frequently juggles multiple gigs or supplements a modest salary with freelance work. While it’s possible to earn a decent living in the gig economy, this lifestyle poses unique challenges, particularly when it comes to retirement planning.
Without employer-sponsored retirement accounts, many gig workers find themselves inadequately prepared for retirement. A recent report by Betterment revealed that 70% of full-time gig workers feel unprepared to maintain their lifestyle in retirement, and 30% do not regularly set aside any funds for this crucial phase of life.
So, what can gig workers do to avoid the prospect of working into their 70s and 80s? Here are five strategies to help save for retirement while navigating the gig economy. (See also: 15 Lucrative Side Hustles for City Dwellers)
1. Take Stock of What You Have
Understanding your financial situation is the first step in planning for retirement. Begin by assessing your current assets, including checking and savings accounts, any retirement accounts from previous jobs, cash on hand, and other financial resources. You may be surprised at how much you have accumulated.
Even if your total is minimal, having a clear picture of your finances is essential for effective planning. (See also: These 13 Numbers Are Crucial to Understanding Your Finances)
2. Open an IRA
If you don’t have a retirement account, it’s crucial to set one up as soon as possible. Individual Retirement Accounts (IRAs) are designed for individual investors and can be easily established online. If you have a 401(k) to roll over, you’ll have more options, as some IRAs require a minimum investment (typically $1,000). If you have less, consider a Roth IRA, which often has no minimums.
The main difference between a traditional IRA and a Roth IRA lies in tax treatment. Traditional IRAs allow you to contribute pre-tax income, reducing your taxable income now, but you’ll owe taxes on withdrawals in retirement. Roth IRAs, funded with after-tax dollars, allow for tax-free withdrawals in retirement, making them appealing for those expecting higher future earnings.
As of 2018, the contribution limit is $5,500 for those under 50 and $6,500 for those 50 and older.
3. Avoid the Bite of Investment Fees
Investment fees can significantly erode your portfolio, making it vital for gig workers to choose low-cost investment options. Index funds, which track specific market indices like the S&P 500, are a smart choice as they typically have lower fees due to the absence of a portfolio manager. (See also: How to Start Investing With Just $100)
4. Embrace Automation
Given the variable income of gig work, it can be challenging to contribute consistently to retirement savings. Automating your savings can help. Set up automatic transfers to your IRA, even if it’s a small amount you won’t miss. Additionally, consider using a savings app like Digit, which analyzes your spending and automatically saves a safe amount for you.
5. Invest Found Money
Maximizing your retirement contributions can also involve rethinking how you handle “found money.” For example, if you receive a birthday check, consider saving half of it for retirement. Similarly, allocate a portion of any tax refund to your retirement account. If you often receive cash tips, you might decide that every $5 bill goes directly into savings, helping you boost your retirement funds.
Like this article? Pin it!
