Wise Bread Picks
We are currently experiencing a significant economic transformation. Unlike previous generations who could rely on stable, long-term employment, today’s workforce often juggles multiple gigs or supplements their income with freelance work. While it’s possible to earn a decent living in the gig economy, this flexibility comes with a major drawback: retirement planning.
Many gig workers lack employer-sponsored retirement accounts, leading to insufficient savings for their later years. A recent report by Betterment reveals that 70% of full-time gig workers feel unprepared to maintain their lifestyle during retirement, and 30% do not regularly save for retirement.
So, what can gig workers do to avoid working for Uber or TaskRabbit well into their 70s and 80s? Here are five strategies to help you 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 crucial for effective retirement planning. Begin by assessing your current assets, including checking and savings accounts, any retirement accounts from previous jobs, and cash on hand from gig work.
Even if your total savings seem minimal, having a clear picture of your finances is better than proceeding without one. (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 essential 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 funds from a 401(k) to roll over, you may have more options available.
Consider a Roth IRA, especially if you have less than $1,000 to invest, as they often have no minimums. The main difference between a traditional IRA and a Roth IRA lies in tax treatment: traditional IRAs allow pre-tax contributions, while Roth IRAs are funded with after-tax dollars, allowing for tax-free withdrawals in retirement.
For 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
Minimizing investment fees is crucial for gig workers, who may have less capital to invest. Opt for index funds, which replicate specific market indices like the S&P 500 and typically have lower fees since they don’t require active management. (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.
Consider using a savings app like Digit, which analyzes your spending patterns and automatically saves small amounts for you, making it easier to contribute to your retirement account.
5. Invest Found Money
Maximize your retirement contributions by rethinking “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 towards your retirement savings.
If you often receive cash tips, create a rule for yourself, such as saving every $5 bill you receive. This mindset shift can significantly boost your retirement savings. (See also: 5 Savings Tricks You Haven’t Tried Yet)
