While some workers enjoy the security of the nine-to-five job, an increasing number of people are ditching the idea of going to the office every day in exchange for a more freelance style of earning income. The gig economy refers to members of the workforce who, rather than working one job full time, opt to work several short-term, freelance “gigs” or in the form of on-demand services. Uber drivers, wedding photographers, and even web developers are just a few examples.

According to Intuit, 34 percent of the American workforce is a part of the gig economy, and the number is expected to rise to 43 percent by 2020. Not only does the gig economy break up the monotony of the 40-hour-a-week office life, it also is a means of diversifying income. But how do these varied sources of income affect retirement saving?

If you are considering switching to the gig economy, here are a few factors to keep in mind in terms of how your retirement savings efforts may be affected.

  • Your income may be lower. The average annual income for gig workers ages 56 and older was $43,600 in 2017, according to Prudential. For gig workers ages 18 to 35, the average annual income was $27,500, and it was $36,300 for those ages 36 to 55. This shows that in general, gig workers yield lower income than full-time workers (who average $62,700 annually). If you decide to go the gig route, make sure you are OK with the fact that you are likely to make less.
  • Your income may fluctuate. In addition to your income being lower, it may also be fickle. As opposed to being a salaried worker who makes the same guaranteed amount every paycheck, gig workers may experience lulls from time to time when there is no work available. Conversely, they may also experience bouts of prosperity. This inconsistent income makes budgeting—and saving—more difficult.
  • You may be sacrificing benefits. Working as an independent contractor can mean sacrificing the opportunity for benefits that often come with working for an employer. These benefits include access to cheaper health insurance, a 401(k), disability insurance and others. When considering the gig economy and its effect on retirement saving, the absence of a 401(k) with an employer match may be the most detrimental. If you are a gig worker, make sure to implement ways to save for retirement regardless, via an IRA or individual 401(k), for example.
  • You may not be able to rely on gig work forever. Gig workers tend to need to work longer than traditional workers (since they are not able to save as much due to lower income and lack of benefits), but relying on gig work later in life can be risky. For example, a health problem could limit you from being able to work, leaving you with no form of guaranteed income. It is possible to use gig work to build substantial savings; however, you just have to be smart as to how you go about it.
  • You will have to scale your savings to fit your income. Financial experts suggest saving at least 15 percent of your income each year for retirement. However, if you are making less in the gig economy, that percentage may not be feasible. Instead, you may have to save 5 to 10 percent of your annual income. As long as you are at least saving something consistently, you will be in better shape than you would if you delayed saving.
  • You should invest in yourself to be successful. Stocks and mutual funds can be productive ways to yield gains, but gig workers should also invest in themselves. Whatever type of work you are doing, make sure you have the equipment and support necessary to be successful. You can also invest in yourself via training and continuing education to make sure the services you are offering are ones that people will benefit from.

The gig economy has its pros and cons, but it can be a viable option for someone who is jaded by the full-time nine-to-five career setup—or someone looking to make a little extra cash in retirement. Just make sure you adjust your retirement saving efforts accordingly.

For more retirement-related advice and insight, continue to follow Ty J. Young Inc.’s Retirement You Earned blog! If retiring with guaranteed income in retirement is your ultimate goal, then call our qualified Ty J. Young Inc. advisors today at 877-912-1919!


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