The so-called gig economy is reshaping the way companies sell products and services, and it’s having an impact on how its 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. If you’re part of the gig economy, here’s how you can plan for retirement.
1. Know What Your Options Are
There are many different kinds of retirement accounts. For example, there are Simplified Employee Pensions (SEP-IRAs), SIMPLE IRAs, Roth IRAs and traditional IRAs. All of these plans offer tax-advantaged ways to save but they differ in terms of who can contribute and how much someone can squirrel away.
If you’re part of the gig economy and you’re self-employed (and you don’t have any employees), you might want to consider contributing to a 401(k). For tax year 2016, you can save up to $18,000 in this kind of retirement account.
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.
2. Prioritize Your Savings
One challenging aspect of 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 make saving money difficult.
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.