Working in the "gig economy" can make it tougher to stay on top of saving for retirement.
Four in 10 self-employed workers don't have a retirement account such as an IRA or 401(k) plan, according to a new survey from Small Business Majority, an advocacy group. They polled 500 self-identified contractors, freelancers and temporary employees in December, with a margin of error of plus or minus 4.4 percentage points.
Most of those workers without a formal retirement plan said they don't earn enough, or get paid regularly enough, to warrant contributing, said Brian Pifer, director of entrepreneurship for Small Business Majority.
"Not knowing if you'll have a really good month or a really bad month makes it difficult for them to save on a predictable basis," he said.
Even independent workers who do have a retirement account don't have the best habits. Nearly 40 percent of U.S. self-employed workers say they aren't saving for retirement, and 19 percent are doing so only occasionally, according to a February report from the Transamerica Center for Retirement Studies, in conjunction with the Aegon Center for Longevity and Retirement. Even worse, in the past year nearly a quarter of independent workers have borrowed from a retirement plan, cashed one out or both, the Small Business Majority found.
"What we found is, they need to be doing a much better job saving," said Catherine Collinson, president of the Transamerica Center for Retirement Studies.
Much of the planning advice for the self-employed is identical to that for workers in full-time jobs. Start early, save consistently and bump up your contributions when your budget allows, said certified financial planner Becky Krieger, senior director for wealth management teams at Accredited Investors Wealth Management in Edina, Minnesota.
"It's common for the self-employed to pay themselves last," she said.
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Even if your income is volatile, aim to set aside a portion of each paycheck toward retirement. Come up with a business plan and a personal budget so that you know the right times to invest in the business and in your personal financial goals, said Collinson, who is also the executive director of the Aegon Center for Longevity and Retirement.
An IRA or a Roth IRA are easy options for those looking for a starting point on retirement savings, Krieger said. Self-employed workers also have access to options including a SEP or SIMPLE IRA or a Solo 401(k). Those let you put aside more pretax dollars for retirement but can also entail more paperwork and a greater expense to manage, she said.
Don't focus solely on traditional retirement accounts, however.
Many self-employed workers consider their business to be a big part of their retirement plan, and that's a key planning consideration, said certified financial planner Richard Stumpf, founder of Financial Benefits in Wichita, Kansas. Others leverage their business during their working years to create investments for retirement, like a homebuilder client of Stumpf's who has kept some properties to rent out and eventually sell.
If you expect the sale of your business to help you retire, it's important to come up with an exit strategy early, he said. Depending on your business and aims, it can take time to find a buyer and transition clients.
"Just because the self-employed don't have traditional investment vehicles, doesn't mean they aren't thinking about retirement," Stumpf said.