Freelancing and Retirement in the “Gig Economy”

man with laptop on the beach

Freelancers are used to looking for savings in every possible place — making a sandwich at home instead of ordering a pizza, to save $20; that 10% reduction in heating and cooling costs from installing a programmable thermostat; coupons to shave a few dollars off a grocery bill. But there’s a question that’s probably plaguing most freelancers as they look toward the future: Will those savings be sufficient to finance retirement?

In some cases, a Washington Post story assured readers last month, freelancing can provide a healthy retirement fund if set up correctly. The story followed the situation of one freelance photographer and teacher, Barbara Southworth, who has been setting aside funds in traditional Individual Retirement Accounts. She also has a cash emergency fund that could cover about a year’s worth of expenses.

Freelancing is in some ways becoming easier, especially as changes such as the Affordable Care Act have created routes for self-employed people to gain access to benefits traditionally funneled through employers.

But the so-called gig economy is leaving quite a few people on uncertain ground. According to financial advisers queried by the Post, Southworth should be able to meet her expenses after retirement, assuming her living costs don’t go up. But not all freelancers are so diligent about saving for the future, and that poses a problem.

Freelancing in Retirement

Even people with more traditional career paths, however, might see freelancing as a way to make retirement more feasible.

USA Today suggested in a Feb. 14 article that freelancing after the conclusion of a traditional career can grant retirees the flexibility and freedom they desire, while still allowing them to supplement Social Security or other retirement income.

The strategy is becoming more popular. According to Sara Horowitz, founder of Freelancer’s Union, the organization has seen a 380% increase in members aged 50 or above since 2007. Some retirees choose to work in the same fields as their careers, while others are taking advantage of opportunities such as those offered by the ridesharing companies Uber, Sidecar and Lyft.

Profitable Freelancing

However, there are a few things retirees (or any other prospective freelancers) should keep in mind regarding the financial and logistical aspects of freelancing. First of all, they should know that Social Security benefits may be reduced if their earnings exceed a certain amount.

Freelancers also should take seriously the amount of administrative work — including bookkeeping and taxes — that comes along with contracted employment.

And finally, in order to make freelancing commercially viable in the long run, freelancers must be aware of when they’re getting involved in a so-called race to the bottom on sites that offer extremely low-priced contracts. As Entrepreneurcautioned Feb. 27, “[F]reelancers often undervalue their services by pursuing jobs barely worth their time. This can lead to frustration, burnout and their perpetual status as a ‘hobby’ freelancer.”

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