Are you Part of the Gig Economy? How is Your Retirement Account Doing?

Published on May 2, 2017

There’s no question that services such as Lyft and Uber, Air BnB and others have created what’s now known as “the gig economy.” Of course, musicians, actors, creatives, and those in hospitality have been part of the gig economy for decades—picking up work when it’s available, often as an independent contractor. Whether part time or full time, the work for these gig workers is not the traditional 9-5 corporate job that comes with benefits (including a retirement plan).

That brings us to the retirement planning part of what it’s like for workers in the gig economy. Are they saving enough for retirement? Are all those people opening and funding retirement plans?

We sure hope so.

When you consider that before the 2008 Great Recession, part-time workers constituted about 17 percent of the labor force and increased to just over 20 percent during those stormy downturn days. According to the Bureau of Labor Statistics, part-timers account for more than 18 percent of the current workforce. Therefore, it’s possible that a noticeable portion of the U.S. labor force is not building a secure retirement fund, which puts additional pressure on them to work longer.

A recent research report by the Pew Charitable Trusts focused mainly on millennials, Latinos and African Americans—workers who tend to be employed in “lower-hour” industries with more prevalent part-time work (such as retail, arts and entertainment, recreation, hospitality and food service). Pew’s research (based on U.S. Census Bureau survey data) found that:

• Fifty-six percent of part-time workers in lower-hour industries do not have access to a 401(k) or other retirement plan, nearly double (29 percent) the percentage of full-time workers in higher-hour industries.
• When a plan is offered, participation rates are also lower than average for part-time workers.

A study by the U.S. Government Accountability Office (GAO) published in October 2016 noted that even long-term part-time workers can be excluded from retirement plans if they work less than 1,000 hours annually (about 19 hours weekly).

Back to those gig workers – who may also be older people, not only millennials. In fact, Uber reported in 2015 that nearly 25 percent of its drivers are over age 50. Add to that the rising number of older workers who start small businesses to supplement income and retirement savings, and to delay claiming Social Security benefits so they can optimize those benefits. These are often part-time gig jobs – again, with no access to an employer-sponsored retirement plan.

What’s a gigger to do? Open an IRA and start saving! Even in the face of uneven income and the absence of employer contributions, it’s still possible to put a little away for the retirement years.

Uber recently entered into partnership with Betterment, which offers IRAs and retirement planning advice to Uber drivers and gives Betterment access to a growing labor force. Lyft offers its drivers savings plans through Honest Dollar. There is an app called Even that helps people who have fluctuating incomes save by automatically pulling money in and out of savings accounts depending on whether income that month is higher or lower.

Saving early and often, even in small increments, will add up over time, in part due to the power of compounding. According to the GAO, a worker who contributed about $2,600 by age 20 could accumulate more than $85,000 at retirement age (compare that to someone starting at age 48 who would need to contribute ten times that amount to accumulate that $85,000 nest egg).

Self-directed retirement plans can be a great way for those in the gig economy to boost their retirement savings by investing in what they know and understand. Again, even in small increments, owners of self-directed retirement plans can invest in a broad array of alternative assets to grow a potentially more lucrative portfolio. Think that Broadway show could be a hit? Your self-directed IRA can invest in it. Like the idea of that restaurant that’s opening up? Your self-directed retirement plan can be an investor in that startup. Do you have your eye on an investment property that could return sustainable rental income over time? Real estate is the largest asset class within self-directed retirement plans.

Whether you are a younger worker or older adult nearing retirement, but are savvy about investing and want to make your own investment decisions, read more about self-direction as a retirement wealth-building strategy at any age – and from any “gig economy” walk of life. If you want to open a new self-directed IRA, our starter kits take you through the process, step by step and our helpful professionals at Next Generation Trust Services are available to answer any questions you have. Contact us at Info@NextGenerationTrust.com or (888) 857-8058.