As more and more people work as freelancers, independent contractors, and sharing economy workers, concerns grow regarding retirement for this group. A recent study revealed that very few full-time gig economy workers have an adequate retirement plan. Relying on Social Security is probably not enough since those funds will not likely cover retirement living expenses.

Most gig economy workers are one-person businesses, many with limited financial literacy.  As a result, they do not properly plan for retirement savings.  Self-employed individuals also face the challenge of volatile income streams. And, they lack employer-provided benefits, such as health and disability insurance, unemployment benefits, and paid time off. In addition, these gig economy workers are responsible for paying 100 percent of their Social Security and Medicare taxes through self-employment tax.

Some advantages of gig economy workers are:

• deducting most business-related expenses, reducing their taxable income.
• access to Simplified Employee Pensions (SEPs) that allow self-employed people to contribute to a tax-deferred retirement fund.
• the ability to supplement their retirement income as they may continue to work part-time with customers and clients in their later years.

While gig workers face several financial challenges, programs are surfacing to help the self-employed save for retirement and achieve better long-term financial security. These include:

• Open Multiple Employer Plans (MEPs) or Pooled Employer Plans (PEPs) that let employers combine resources for independent workers to purchase group health and disability insurance.
• A proposed Portable Benefits for Independent Workers Pilot Program Act to establish a fund through the U.S. Department of Labor.
• Several states are creating automatic-enrollment IRAs involving government-facilitated programs administered by private financial firms.

For additional information on retirement planning in the gig economy, go to:

Teaching Suggestions

• Have students talk to a freelancer or independent contractor to obtain information about their financial planning activities.
• Have students create a financial plan with recommendations for a freelancer or independent contractor.

 Discussion Questions 

1. What do you believe are the benefits and drawbacks for gig economy workers?
2. Describe actions you would recommend to self-employed individuals for improved personal financial security.