Securing a decent retirement is getting harder, not easier, and there’s no one fix.
One problem is the growing number of Americans in the so-called “gig” economy, where earning one’s wages is usually defined by independent, short-term working relationships between a worker and employer, or series of employers.
Tens of millions of Americans—36% of the U.S. workforce—fell into this category in 2019, said a pre-pandemic survey by Gallup. Self-employment has plenty of things going for it, but a built-in retirement plan isn’t one of them.
Adding to this challenging reality is new data from the Washington-based Pew Charitable Trusts, which says that accessing retirement savings through a spouse or partner’s retirement plan probably isn’t an option for gig workers, either.
Here’s some of the key data from their study:
56% of “nontraditional” workers were married or living with a partner. Which means right off the bat, more than two-fifths of gig workers are on their own when it comes to saving for retirement.
Half of these “coupled workers”—50.6%—had a spouse or partner whose workplace offered a traditional defined-benefit plan, a defined-contribution plan, or other type of retirement plan, such as an annuity.
The good news here is that when these plans are offered, the vast majority of “traditional” workers participate in them, Pew’s research says. Of course, how comfortable that traditional worker may be depends on a lot of variables, like what a defined plan will pay, and/or the size of a nest egg from contributions, how long and at what rate those assets have been growing, and so forth.
These variables make it all the more important for couples to communicate and be transparent about their situation, so the gig worker can save and invest accordingly.
Here, the news isn’t so hot. Notes Pew: “Just 25.5% of married or partnered contingent workers without their own workplace plans reported that they had figured out what they need for a secure retirement and coordinated with their spouse or partner to save accordingly.” And 10% don’t even know whether their spouse or partner had a retirement plan to begin with.
Absent coordination with a spouse or partner, there are certainly ways for gig workers to save on their own. There are solo 401(k) plans, traditional and Roth IRAs, and SEP-IRAs that give the workers the possibility of salting away tens of thousands of dollars a year (here are the details on a SEP-IRA, to give but one example).
The problem here is that many folks think of saving for retirement as an afterthought, perhaps putting whatever’s left at the end of the month into a plan. My advice here—I can’t stress this enough—is to pay yourself first. Be disciplined. Go out of your way to fund your retirement by setting up, say, an automatic transfer from your bank account each month. This may be difficult for gig workers who go from job to job, assignment to assignment, but if you can do it, by all means do so. As for what you should invest in, my advice is always talk things over with a trusted investment adviser before making any moves.
The problem is that most gig workers don’t do this: “Only 21.9% of nontraditional workers participated in a defined-contribution plan, such as a 401(k), at their current workplace(s) during the year leading up to the survey,” Pew says. Given the stock market’s rip-roaring gains of the last few years, a lot of people have lost out on an awful lot of money.
On this point, Pew states the obvious: “The many workers without employer-provided retirement plans risk entering retirement without adequate savings, or they may be unable to retire.”