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Saving for Retirement in the Gig Economy

The gig economy is evolving in the way products and services are sold, impacting how workers plan their financial futures. While freelancers and independent contractors may have more flexibility, their jobs typically don’t come with built-in retirement plans. For those in the gig economy, here’s how you can plan for retirement.

Know Your Options

There are a variety of retirement accounts, such as:

  • Simplified Employee Pensions (SEP-IRAs)
  • Roth IRAs
  • Traditional IRAs

These plans offer tax-advantaged ways to save, however they differ in regards to who can contribute and how much someone can stash away.

If you’re part of the gig economy and you’re self-employed without any employees, you might want to consider contributing to a 401(k). For the tax year you can save a significant amount in this kind of retirement account as both an employee and an employer.

SEP-IRAs and SIMPLE IRAs can be great tools for independent contractors who want to prepare for retirement. If you can’t decide where to stash your savings, you can think about your long-term withdrawal strategy or just opt for the plan with the highest annual contribution limit.

Prioritize Your Savings

A difficult component to working in the gig economy is getting paid on an irregular basis. Instead of receiving a steady paycheck monthly or bi-weekly, you may be paid sporadically as you complete tasks or assignments. Not having a set pay schedule can really complicate the process of designing a saving plan.

One way to boost your savings is to set aside a certain percentage of your income each time you receive a payment from a client. Even if you can only save 5% of each paycheck, that’s better than not saving anything at all.

Look Beyond Retirement Accounts

Not having a “regular” job normally means you’ll lack certain job benefits, such as health and disability insurance. Having enough insurance coverage is important because if you get sick and can’t work, you might not be able to cover basic expenses.

Building an emergency fund is another way to set aside money for the future. Having three to six months’ worth of expenses set aside in a savings account is especially important when you’re self-employed. Without an emergency fund to fall back on, you may have to rack up credit card debt or raid your retirement accounts to pay for unexpected expenses.

Whether you’re an Uber/Lyft driver or a freelance writer or photographer, it’s important to make saving for retirement a top priority. Even if you don’t have access to a 401(k) or a similar employer-sponsored plan, there are many ways to begin creating a safety net.

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