While not a complete solution, providing better guidance can make a big difference. Retirement depends as much on information as it does on access, and the benefits of starting early make that clear.
Freelancers saving $300 a month ($3,600 a year) at a 7 percent annual return would have:
• $746,000 by age 65 if they start saving at age 25.
• $516,000 by age 65 if they start saving at 30, or $230,000 less than age 25.
• $353,000 by age 65 if they start saving at 35, or $393,000 less than age 25.
• $237,000 by age 65 if they start saving at 40, or $509,000 less than age 25.
That’s half a million dollars in lost retirement savings, because of time, not income.
Our retirement infrastructure was designed for yesterday’s economy, one of lifelong employment, employer-sponsored benefits and steady payrolls. It hasn’t evolved to keep pace with the modern workforce.
While systemic reform is essential, solutions already exist. Simplified Employee Pensions IRAs, for example, offer freelancers a modern retirement vehicle tailored to their inconsistent workflows. SEP IRAs allow contributions of up to 25 percent of income, or $70,000 a year, giving freelancers flexibility to save more in profitable years and scale back in slower ones. Yet few independent workers are aware of this option.
When nearly half of the U.S. workforce is projected to be outside traditional employment by 2027, we can’t afford to keep patching a broken model. It’s time to rebuild retirement from the ground up, for the soon-to-be self-employed majority.
We need a collective response.
Financial providers must design tools for fluctuating income, not just legacy payroll systems. Policymakers must accelerate portable benefits that workers can carry with them, gig to gig, job to job. And industry leaders must stop waiting for someone else to act.
Source: Commentary: Gig economy helps power economy, but its workers can’t retire
