By Robert Stitt
A gig economy is an economy where much of the work that is done is temporary and businesses use independent laborers for numerous short-term projects. According to a study by Inuit, nearly 40 percent of the workers in the United States will be independent contractors by the year 2020. That is just four years away. Is this a far-fetched idea? According to The New York Times, the number of Americans who participate in the gig economy already increased by 9.5 million individuals between 2005 and 2015.
While many who participate in the gig economy enjoy the freedom and flexibility that short-term contracts afford, there are drawbacks. For example, independent contractors don’t have company-sponsored health plans or retirements. What is going to happen when it is time to retire? Is it possible to save enough to live comfortably?
America’s Wealth Coach, Deborah Owens, shared some tips with NewsOne Now about ways freelancers can piece together a retirement plan.
The first piece of advice Owens offered was to make sure you are dividing up income. She recommends limiting expenses to 30 percent, setting aside 30 percent for taxes, and putting 10 percent aside for retirement.
With the money set aside for retirement, there are several options. Owens recommends investigating both the regular IRA and Roth IRA if you are just beginning to save or if you are over 50-years-old and playing catch up. Other options include the Sep-IRA and personal 401K.
A Sep-IRA (Simplified Employee Pension) can be started by any business owner who has at least one employee, or anyone who is a freelancer. The account is really just a traditional IRA, and it follows the same rules for investment, distribution, and rollover.
A personal 401k is a regular 401k, but it is designed for a person who is a sole proprietor or for that person and their spouse. The plan has the same rules as a 401k, except the contribution limits are more favorable.
The biggest lessons here are that money must be set aside for retirement and that there are options available. Even if you have to start with $50 a month, the most important word is START.