The gig economy is thriving and the number of workers in this fringe sector has been rising steadily. There are, for instance, 57 million gig workers in the US alone. Today, ‘gigs’ are no longer just side hustles, but have become a fitting substitute for traditional employment. The COVID-19 pandemic has further heightened the demand for gig workers as companies switched to remote working models. It is predicted that up to half of the global workforce in the western world could be gig workers.
The bad news, however, is that in many parts of the world, gig workers are not considered employees. This means that they are not entitled to the benefits of employment such as, health insurance, paid leaves and more relevantly, retirement benefits. Even despite recent successes in the UK and the US in gaining employee rights for gig workers, much of the world still views freelancers as temp workers and therefore not deserving of employee benefits.
What this means is that most gig workers are left to fend for themselves with regard to all of their needs. A freelancer will have to pay for healthcare, take a financial hit if they are unable to work for one reason or another and plan for their retirement on their own.
With retirement especially, the situation in the gig economy is dire. Many freelancers seem to be living from paycheck to paycheck with no impetus for saving for retirement. A study done by Statista in 2018 found that more than 27 % of gig workers had not saved any money for retirement. The reasons for this vary from low incomes, fluctuating incomes, insufficient financial guidance or just a general disregard of the importance of saving for retirement.
Now this does not mean that it cannot be done. Freelancers can still save successfully and secure their futures. One only needs guidance, a proper plan and most importantly, discipline. I can help you with the first part.
Can I afford to save for retirement?
In a word, yes. Saving for retirement doesn’t have to be expensive. It is however very necessary. Misty Lynch, CFP advises gig workers to “Calculate your rates accordingly with [retirement] built-in.”
Here she also stumbles onto one very important piece of advice, to first ensure that you are paid rates commensurate with the quality and quantity of your services. Many freelancers tend to underrate the work they do and thus end up earning a lot less than they are supposed to.
Misty explains that “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.” This is further compounded by the fact that, unlike traditional employees, gig workers do not have the power to demand a raise even they know they deserve it. It is usually a take it or leave it kind of deal as there are plenty of other workers who would happily accept those rates.
The only power you have as a freelancer is the freedom of choice. When looking for a ‘gig’ it is important to check whether the rates offered are industry-standard. And in this calculation, it is imperative to include some/all of the perks that come with traditional employment of the same job. This includes taxes, health insurance and yes, retirement benefits. Factoring in these numbers will ensure you do not underprice yourself in the job market and hence allow you to save for retirement.
How much do I save?
The rule of thumb for traditional employees is to save 10% of their annual income for retirement. This I feel should also be applied in the gig economy. And while the temporary nature of gig employment may pose a challenge in achieving this goal, it shouldn’t stand in your way. In fact, some studies posit that freelancers may actually save more than their traditional counterparts.
This is in part due to rising wages for gig workers all over the globe and also due to the fluctuation of incomes in different jobs. Where a traditional employee may earn a steady constant income for years, a freelancer such as a cab driver may have high seasons where his/her income may be double or even triple the norm.
When do I start?
As the saying goes, there is no time like the present. However miniscule your earnings and no matter how young you are, saving is vital. Its all about creating the right mindset so that when you do earn a little bit more, you can easily set aside a good amount for your old age.