As retirement plans become uncertain, how does the rise of the gig economy fit in? Read on to see what retirement strategies will look like in the future.
The rise of the gig economy has revolutionized how many of us work. From freelancers to Uber drivers to short-term contractors, more and more people are choosing flexible work options over traditional 9-to-5 jobs. Currently, around 57 million Americans are believed to be involved in various gig jobs.
But, as we bask in the flexibility and autonomy that the gig economy offers, it begs the question: How will retirement look in this new working world, and how can you create a feasible retirement plan?
Individual Benefits
Most regular jobs have retirement benefits like a 401(k). In the gig world? Not so much. Gig workers often have to save for retirement on their own. This could mean opening individual retirement accounts and regularly setting aside a part of their income.
Here are some retirement plans you can choose based on your needs, goals, and business size:
1. Traditional/Roth IRA: For those saving up to $6,500 annually.
2. SEP IRA: Best for businesses with minimal employees, caps at 25% of income or $66,000.
3. Solo 401(k): For solo entrepreneurs, caps at $66,000 with flexibility in contributions.
4. Simple IRA: For businesses with up to 100 employees, employee contributions are capped at $15,500.
5. Defined Benefit Plan: Complex but high contribution potential for consistent savers.
6. Catch-up Contributions: The latest plans like 401(k), 403(b), SARSEP, and governmental 457(b) allow folks over the age of 50 to make annual catch-up contributions of up to $7,500.
Multiple Jobs, More Options
In the dynamic world of the gig economy, having multiple roles offers not just a diversified income stream but also a safety net for uncertain times. Some gigs, particularly digital ones, can morph into passive income sources, like online courses or royalties, providing a steady flow of funds in the golden years.
While these multiple streams are beneficial, balancing them with adequate savings is essential, as the desire or ability to work might wane over time.
Social Security
If you're working gigs, you still need to pay your self-employment taxes. Why? These taxes are a legal obligation and contribute toward your Social Security benefits. It's how the system recognizes your contributions and determines your eligibility and amount for benefits in your retirement years. Neglecting or skimping on these payments can result in reduced benefits when you need them the most, potentially impacting your quality of life in later years.
Awareness About Money and Budgeting
The gig economy means you have to be your own financial planner sometimes. Learn the basics of budgeting, taxes, and saving for retirement. There are a lot of tools and advisors out there to help.
Professional Guidance
Gig workers have different money challenges because of how they work. It's a good idea to talk to financial experts who know about the gig economy. They can give advice that fits gig workers' needs, helping them save and plan better for the future.
To Wrap Up
The gig economy is great for flexibility, but it means you've got to think differently about retirement. The key is planning, saving, and educating yourself. With the right moves, retirement can be just as comfortable for gig workers.