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We are in the midst of a major economic change. While workers in the past could expect to keep a stable job with a traditional employer for decades, today’s workers have found that they either need to cobble together a career from a variety of appearances or complement a poor salary from a traditional job with freelance work in her spare time.
While you can make a living (and possibly a good one) in the gig economy, this type of job makes gig workers vulnerable in one very important way: retirement savings.
Without the support of an employer-sponsored retirement account, many gig workers don’t save enough for their golden years. According to a recent report from Betterment, seven in ten full-time gig workers say they are unprepared to maintain their current retirement lifestyle, while three in ten say they don’t regularly put money aside for retirement.
What can a gig worker do if they don’t want to drive for Uber and take TaskRabbit jobs into the 70s and 80s? Here are five things you can do to save for retirement as a member of the gig economy. (See also: 15 lucrative sideline jobs for city dwellers)
1. Take stock of what you have
Many people don’t have a clear idea of how much money they have. And it’s impossible to plan your retirement if you don’t know where you are today. Therefore, any retirement plan should start with a look at what you already have in the accounts on your behalf.
Add up how much is in your checking and savings accounts, neglected retirement accounts you may have received from previous traditional jobs, cash if your gig work relies on cash tipping, or other financial accounts. The grand total could add up to more than you think if you haven’t recently taken stock of your position.
Even if you really have nothing but pocket fluff and a few quarters of your name, knowing where you are is better than proceeding without a clear picture of your financial reality. (See Also: These 13 Numbers Are Crucial to Understanding Your Finances.)
2. Open an IRA
If you don’t already have a retirement account to contribute to, you need to set up an account as soon as possible. You can’t save for retirement if you don’t have an account to deposit money into.
IRAs are specifically designed for individual investors, and it’s easy to get started online. When you have cash from a 401 (k) to rollover, you have more options as some IRAs have a minimum investment amount (usually $ 1,000). If you have less than that to open your account, you can choose a Roth IRA as these often have no minimum requirements.
The difference between the traditional IRA and the Roth IRA is how taxes are collected. A traditional IRA allows you to fund the account with pre-tax income. In other words, every dollar you invest in an IRA is one dollar that you don’t need to claim for income. However, once you retire, you will have to pay normal income tax on your IRA distributions. Roth IRAs are funded with already taxed money, so you can make tax-free distributions in retirement.
Many gig workers choose a Roth IRA because their current tax burden is low. If you’re looking to make more over the course of your career, using a Roth IRA for retirement investment can protect you from the retired finance officer.
Whether you choose a Roth or a traditional IRA, the contribution limit per year as of 2018 is $ 5,500 for employees under 50 and $ 6,500 for those over 50.
3. Avoid the bite of investment fees
While no investor wants to lose portfolio growth through fees, it is especially important for gig employees to choose asset allocations that minimize investment fees. That’s because gig workers are likely to have less money to invest, so every dollar has to work hard for them.
Investing in index funds is a great way to ensure that investment fees don’t take the life of your retirement account. Index funds are mutual funds that are designed to mimic a specific market index, such as the S&P 500. Since there is no portfolio manager who selects investments, there is no management fee for index funds. (See Also: How To Start Investing With Just $ 100)
4. Embrace automation
One of the biggest challenges as a gig worker is the fact that your income is variable – which makes it very difficult to make the same contribution every month. This is where technology comes in.
First, set up an automatic transfer of an amount of money that you won’t miss out on. Whether you can save $ 50 a week or $ 5 a month, investing a small amount of money in your IRA gives you a little cushion that you don’t have to think about.
From there, you can use a savings app to manage retirement savings for you. For example, Digit analyzes the inflow and outflow of your checking account and determines an amount that can be safely stored without triggering an overdraft, and automatically shifts this amount to a savings account. You can then transfer your Digit savings to your retirement account.
5. Invest money found
A great way to ensure that you are maximizing your contributions each year is to change your view of “money found”. For example, when you get a birthday check from your grandmother, you only spend half of it and put the rest in your retirement account. If you get a tax refund (which is a little less likely if you’re a gig worker who pays estimated quarterly taxes), send at least half of the refund to your retirement.
Any gig worker who receives cash frequently can also set their own rules for the cash they receive. For example, you might decide that every $ 5 bill you receive must go towards your retirement plan. This will help you change the way you view money and increase your retirement savings.
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