The COVID-19 pandemic heightened the gig economy, with freelance and gig marketplaces like Gigsmart and Upwork both reporting increases in their users. Some projections show freelance workers will account for half the U.S. workforce by 2023. In January of 2021, 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. “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.” 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 (named after the late Delaware Senator William Roth) extremely quickly with online companies like Fidelity or Charles Schwab. The former is funded with pre-tax dollars; the latter after-tax. “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 (which stands for simplified employee pension plan). These plans have higher contribution limits but are specifically for business owners, even if you’re the only employee. 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. “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.” 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. 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.”
