How to plan for retirement in a gig economy
Be your own boss. Make your own schedule. Take control of your career. These and other benefits, including not worrying about being cut back by your business, keep professionals self-employed at all times. In fact, the concert economy continues to grow year after year.
How big is the concert? Quite huge. The month before the 2020 pandemic explosion, CNBC reported that independent contractors made up between 10% and one-third of workers. Then Covid struck, and while some freelancers lost their jobs, others joined the fray in the gig economy in an attempt to protect their jobs from the recession. As a result, Forbes estimates that the percentage of workers in the odd-job economy is expected to hit the 50% mark by 2023.
While the immediate benefits of working for yourself are high, it takes intentionality to think about retirement and what it will look like.
The retirement years, concert style
For concert workers, the idea of retirement is very different from that of an employee with a pension. Gig economy professionals only occasionally get help building their wealth. More often than not, they need to take a “we will do it ourselves” approach. It is commendable but difficult. It can also put them at a disadvantage if they do not consider their “future self”.
What’s wrong with waiting until later to start thinking about life after middle age of retirement, than Yahoo! Finance specifies that about 64? The main problem is that it takes time to build a nest egg. Saving for retirement is not like weeds that seem to bloom overnight. They are more like trees which, once planted, take decades to grow. This means that the later a gig worker starts saving, the less the money can flourish.
The alternative to being forced to work indefinitely or to live with meager savings in recent years is to start planning for retirement early. While the topic may seem daunting, saving money for retirement doesn’t have to be difficult or overwhelming.
Even independent entrepreneurs who have never taken an accounting course in their life can do anything, anything, to get ahead. And as Ty J. Young Wealth Management notes, every dollar managed now can increase sevenfold over time. This is especially true for very young entrepreneurs in their twenties and thirties who have just started.
Investing for Retirement When You’re a Gig Economy Worker
The process of setting up a personalized retirement plan begins with understanding the many options available to professionals. Most people don’t realize how many opportunities they have to store and develop their wealth. The more they know, the smarter they can make with the income they earn.
Below are several proven ways to stock up and save for retirement. Of course, each method varies in its risk, but all have been of benefit to countless other workers together. And most of these methods can be deployed quickly to start the process of growing wealth faster.
1. Look in CDs.
Financial institutions, such as banks and credit unions, frequently offer certificates of deposit or CDs. These vehicles can become low-risk, long-term parts of a larger retirement portfolio. The way they work is simple: give money to the financial institution for a specified period of time. In exchange, the financial institution agrees to repay a certain amount of interest when the CD “matures”.
Pretty easy, right? The only downside is that the CD rates are not high. They are normally well below the 1% mark. For example, Bankrate places the five-year CD average at 0.31% in August 2021. This means that $ 1,000 will “turn” into $ 1,015.60 over a five-year period. Not stellar, but better than keeping the money locked in a savings account.
CDs are obviously not good for raising short-term funds. However, when used as part of an overall lifelong wealth building strategy, they can crush anyone’s finances in retirement. The trick is to allow CDs to renew automatically, unless the cash is needed in an emergency. This way the CD becomes a “set it and forget it” part of the background.
2. Set up a private IRA.
Many freelancers and independent contractors don’t realize that it is possible to set up an IRA account without an employer. IRA accounts vary in types, such as Roth IRAs and Traditional IRAs. For example, most IRAs are tax-deferred with tax-free withdrawals. However, all IRAs have caps on the amount that a concert worker can contribute per year.
Setting up an IRA account doesn’t mean hiring a financial advisor, either. Many companies and financial institutions offer people the option of choosing an IRA online. However, workers should spend time knowing the pros and cons of each IRA before making a decision. They should also commit to regularly investing money in their IRA if they can. Otherwise, the IRA will have no chance to evolve. That being said, everyone has a rough year now and then. As a result, gig workers may vary on their annual IRA contributions, especially when they are just starting out.
It should be noted that it may be possible to transfer a 401k from a previous employer into an IRA. This may be an appropriate decision for someone who has worked for a company but has entered entrepreneurial circles.
3. Start a 401k solo.
A 401k solo allows concert workers to make contributions as both an employer and an employee.
How much money can be set aside? The IRS has pretty clear guidelines when it comes to contributions for solo 401ks. Example: the amount of the annual contribution for a worker under 50 is $ 19,500 per year. On the employer’s side, the IRS rules are a bit trickier. So it may be worth working with a financial planner on a 401k solo setup, or at least getting some pro advice.
4. Research (and maybe invest in) stocks.
Before going too deep into this tip, it’s important to note that the stock market should never be used as the sole vehicle for anyone’s retirement wealth management. Stocks can fluctuate wildly, although CNN notes that they have historically generated gains of 10%. (That’s pretty impressive, quite frankly.) Yet that’s just an average of all stocks over several decades. The apple stock shot up at one point and became coveted. On the other hand, RadioShack collapsed years ago to the point that the company labeled its own stock as worthless by CNBC.
In other words, the stock market is volatile. Nonetheless, a diversified equity portfolio can work for many people, especially independent entrepreneurs who are young. The younger the wallet is put together, the longer it can work. A New York Times Gen Z investing playbook explains that young people are in a strong position to get real traction with stocks. With the young on their side, they can afford to experiment in a way that a person in their late 50s probably wouldn’t.
Really, stocks are a long term solution. In fact, they’re often used to augment a less risky retirement vehicle like a 401k solo or IRA. Still, that doesn’t mean they should be put on the back burner. Anyone can invest in the stock market, not just the rich and famous.
Harvest gold in the golden years
It’s so hard to imagine life in 40, 50 or 60 years. Consider all the changes that have taken place over the past three decades. The rise of the Internet alone has transformed many industries, right down to the way people communicate. It is also one of the reasons for the rise of work in the general economy of odd jobs.
Still, it’s important to look ahead from time to time, especially when it comes to personal money management habits and opportunities. Being a gig worker can be a challenge for the portfolio, especially at first. Putting aside taxpayer dollars and building a family budget takes time. Nevertheless, the idea of creating a haven of peace for the future remains critical.
No matter how much the landscape changes in the years to come, people will always need money to survive. (People are unlikely to go to other exchanges. Even a cashless company uses the cash principle!) To scale up. And that means they can breathe easier and dive into the gig economy with positivity and seriousness.
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