The freelance retirement crisis no one is talking about

Americans don’t save enough for retirement. And gig economy workers are likely to struggle more than others.

The freelance retirement crisis no one is talking about
[Photo: S./Unsplash]

The job market may be heating up, but Americans still aren’t saving enough for retirement. And the growing number of gig economy workers–freelancers, independent contractors, and sharing economy workers–are struggling even more.


A 2018 Bankrate survey found that 40% of respondents save 5% or less of their income, and half of those save nothing at all. And another survey by online investment company Betterment found that:

  • Seven in 10 full-time gig economy workers are unprepared to sustain their lifestyle in retirement
  • One in three of them set aside no money for retirement
  • One-third associate retirement with anxiety

And relying on Social Security as a backup likely isn’t going to cut it. As a recent Fast Company story detailed, Social Security is only projected to pay full benefits until 2035, then will cut benefits by 20%. The average benefit today is $1,369 per month, just slightly above the poverty line.


Gig economy workers are one-person businesses. If they’re able to support themselves, why can’t they manage their retirement savings, too? The self-employed face challenges that may make it more difficult to save for retirement, says Susan J. Ashford, chair, Management and Organizations Department at the University of Michigan’s Ross School of Business in Ann Arbor. They may have highly cyclical “feast or famine” income streams. In addition to a regular paycheck, they lack some of the employer-provided or employer-subsidized benefits that may contribute to greater economic stability, such as health and disability insurance, access to unemployment benefits during lean times, financial counseling, and paid time off. “These people report living very close to the economic edge,” she says.

The self-employed may also not understand the financials of their business and may be taking home less than they think. And they’re also responsible for paying 100% of their Social Security and Medicare taxes through self-employment tax, while employers pay a portion of those responsibilities for their employees. And they also may not have the benefit of an employer establishing an easy way for them to automatically contribute to a retirement account, while ensuring account fees are reasonable and possibly even offering an employment match.


The good news is that gig economy workers have some advantages, too. First, unlike employees, they can deduct most of their business-related expenses from their gross income, reducing the amount of money on which they’re taxed.


“The tax code favors self-employed individuals when it comes to saving for retirement,” says Ric Edelman, founder and executive chairman of Edelman Financial Services based in Fairfax, Virginia, and author of The Truth About Your Future: The Money Guide You Need Now, Later, and Much Later.

In addition, the government has established several  vehicles that allow self-employed individuals to save significantly for retirement in a tax-advantaged way. For example, in 2018, Simplified Employee Pensions (SEPs) allow self-employed people and their employees to contribute as much as 25% of net self-employment earnings up to $55,000. Other retirement savings options include solo 401(k) plans and Savings Match Plans for Employees (SIMPLE IRAs), which vary in their thresholds and administration requirements. Of course, for gig workers who may not even make as much as the annual thresholds for savings, contributing to these plans may be challenging.

In addition, gig workers, because they know how to find their own work and be paid for it, may have the opportunity to supplement their retirement income, says Matthew S. Ruttledge, a research economist with the Center for Retirement at Boston College in Chestnut Hill, Massachusetts. They may also be able to work longer and keep saving, as well as delay claiming Social Security, which could increase the benefit to which they’re entitled. They may be able to scale their workload up or down as needed while getting the social interaction and cognitive stimulation that work provides.

“Freelancing or independent contracting or consulting is often a good way for workers to step back without completely removing themselves from some of those benefits that they might get,” he says. He also reminds gig workers to fully report their income because their retirement benefit will be based on how much they earn.

Possible solutions

Some believe that more from a policy perspective to help self-employed people prepare for retirement–and that the time to do so is now. Edelman is gravely concerned about the future of Social Security and what cutbacks will mean for future retirees and taxpayers. If the projected cuts come to fruition, “it will be a disaster of magnitude that we haven’t seen since the depression of the 1930s,” he says. The result will likely be wholesale tax increases to increase benefits.


Edelman created the T.R.U.S.T. (Tomorrow’s Retirement for the U.S. Today) Fund for America to facilitate bringing ideas on how to deal with Social Security shortfalls and facilitate solutions. That effort led to Funding Our Future, a coalition created in partnership with the Bipartisan Policy Center, a Washington, D.C.-based think tank. While the coalition does not make recommendations about solutions, it is working on raising awareness of the issue among voters to help them better understand the issues and encouraging new ideas about the current system and potential changes to it.

There are some promising ideas and programs that may help the self-employed more easily save for retirement and achieve greater overall financial security, says David Mitchell, senior program manager with The Aspen Institute’s Financial Security Program. Portable benefits programs, Open Multiple Employer Plans (MEPs) or Pooled Employer Plans (PEPs) let employers combine resources on behalf of independent workers to purchase group health and disability insurance without having to meet onerous Employee Retirement Income Security Act of 1974 (ERISA) minimum protections for health insurance and retirement savings accounts. In May 2017, Senator Mark Warner (D-VA) and Representative Susan DelBene (D-WA) introduced The Portable Benefits for Independent Workers Pilot Program Act, which would establish a $20 million portable benefits pilot program at the U.S. Department of Labor.

At the state level, California, Connecticut, Illinois, Maryland, and Oregon are launching automatic-enrollment IRAs, government-facilitated programs administered by private financial firms, according to the Pew Charitable Trust. However, it’s unclear whether these will be routinely available to self-employed individuals. The myRA program, which was introduced in 2014 by the Obama administration and provided access to retirement accounts for low-income workers, was shuttered in 2017.

While there is no silver bullet for gig workers to achieve financial security in retirement, helping them understand the advantages and challenges they face is a first step. And, as Social Security’s future benefits generate questions, some are looking for solutions to a subset of workers for whom retirement may look particularly grim.

About the author

Gwen Moran is a writer, editor, and creator of Bloom Anywhere, a website for people who want to move up or move on. She writes about business, leadership, money, and assorted other topics for leading publications and websites