Retirement in America Part V: The Rise of the Gig Economy | Schwab - Millennium Trust Company

Retirement in America Part V: The Rise of the Gig Economy

December 17, 2019
By Millennium Trust
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We’ve discussed the main factors that have influenced the state of retirement in America today: lack of retirement savings, retirement leakage and retirement income shortfalls.

Another issue that is exacerbating the retirement crisis is the explosion of the so-called “gig” economy. Made up of freelancers, the self-employed and 1099 contract workers, the gig economy has exploded with the rise of ridesharing apps like Uber and Lyft, as well as other profitable outgrowths of our digital age that allow anybody, anywhere, to sell goods and services.

Estimates of how many Americans work in the gig economy can vary widely, mainly due to a lack of agreement on a true definition of gig work. Even the Department of Labor identifies three separate variants. In 2017, the CEO of Intuit estimated that gig workers made up 34% of the U.S. workforce, and the number would increase to 43% by 2020.

Data from Nation1099 estimated that the true number of full-time adults working primarily as full-time independent contractors will be closer to 11%. Even that is a large number, and it fails to consider that many gig economy workers will string together several part-time “gigs” to constitute their income.

This rise in freelance work coincides with the coming of age of the Millennial generation. Millennials became the largest generation in the labor force in 2016, supplanting Gen Xers. By 2020, Millennials may make up as much as 42% of the gig economy.

Statistics show that workers are dramatically more likely to save for retirement if they have access to a payroll-deducted option through their workplace. As this generation continues to dominate the labor force on their own terms, it presents a problem for the 401(k) industry and its reliance on the traditional employer-based retirement savings model.

So what is the retirement savings answer for our evolving workforce? A few options jump to mind:

Individual retirement accounts (IRAs) are the most readily available option for individuals, but features a $6,000 contribution limit for those under age 50.

Solo 401(k)s feature much higher contribution limits (from $19,000 to as much as $56,000 depending on certain factors), but administering a 401(k) plan, even if only for a single person, can be expensive and complicated.

A Simplified Employee Pension (SEP) IRA is typically less expensive and administratively complex than a Solo 401(k), and also features high contribution limits (up to $56,000 depending on certain factors) for the self-employed.

Perhaps the eventual solution is in development somewhere, saved on the laptop of a fintech entrepreneur, or on a whiteboard at the DOL. Regardless of where it comes from, innovation is needed to help our retirement system evolve to meet the needs of the next generation of our workforce.

Visit the Millennium Trust Blog to catch up on the Retirement in America series.

The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.

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