“Plan ahead” is a good motto for that thing they call “adulting.” Sure, as a gig worker, you might find it hard to be flush enough to pay the bills each month, so putting hard-earned cash into a retirement fund might seem like a luxury you can’t afford to think about until the far-flung future comes to pass. Don’t be fooled. The truth is, especially as an independent contractor, you need to start planning, and saving, for retirement as soon as possible.
Before you let a wave of overwhelm knock you backwards, read this post to the end. We’ll show you a three-step process that helps you save for retirement so you can start stashing cash long before it’s time to hang up your car key once and for all. Here’s what we’ll discuss:
- Is it even possible for gig workers to retire?
- What a gig driver retirement plan might look like
- Your three-step plan
Is it even possible for gig workers to retire?
As a gig worker, it’s hard to picture yourself, feet up on a chaise lounge, cold drink in hand, musing on just what you’ll do with your days now that you’ve retired from your long-time job. Why? Well, as independent contractors, gig workers don’t get the cushy benefits packages that come with working for a corporation.
Most companies contribute half of an employee’s Social Security tax and also offer retirement plans. There are pensions for some workers, too. Most of the time, though, employers will match the savings their workers put into a 401(k) or other retirement plan, and after a few decades of investment, there can be a tidy sum waiting for the newly minted retiree.
Sadly, there’s no guarantee any such thing will be waiting for gig workers. Companies talk a lot about gig driver benefits, but so far, in terms of saving for retirement, gig workers are still pretty much on their own.
This situation reveals the downside of what it means to be “independent” – but don’t despair. You’re not the only one who’s grappling with ways to create plans for your retirement. A December 2021 Pew research survey found that most 1099 workers don’t have a retirement plan. Even if they had the money left over to put aside, they found another obstacle: a lack of access to retirement savings plans.
And, when you look at how much wages fluctuate for gig drivers, the situation gets even more complicated. How can you project an amount you’ll put into a retirement plan when it’s often impossible to know how much you’ll make in a given week or month? This often stands in a gig worker’s way of regularly scheduled saving.
Often, when you set up a savings program, you could be looking at automatic payments coming out of your account that you can’t always afford. That’s enough to scare even the most retirement-minded gig worker away, but it shouldn’t be.
Obviously, all gig workers, at some point, will reach retirement age, and will need to stop working. If we want to be able to do this without relying on the goodwill of our relatives or the state (and we don’t mean winning the lottery), it will be up to us to put together a retirement plan for ourselves. How can this be done? Let’s look at what you might be left with when it’s time to retire, and how you might formulate a plan.
What a gig driver retirement plan might look like
No matter what you do, it won’t be like you’ll be left with nothing. The one thing you can count on as part of your 1099 benefits (if you play the game correctly), is Social Security. If you pay into Social Security, there will be some benefits in the pot at the other side of that retirement rainbow – but don’t get too excited. The amount of money you ultimately get from Social Security will probably fail to support even a very modest lifestyle.
Still, you’ll want to make sure you collect as much from Social Security as you can. To do this, you must file and pay self-employment tax. Although you have no employer to pay the other half of that tax, there are deductions that let you balance your payment so it isn’t too much different from what you’d pay as an employee of a company.
You’ll also get work credits for Medicare when you file self-employment taxes. That happens, of course, as a result of paying a tax for Medicare, so be prepared for that, too. Another thing: Be aware that your gig company won’t always send you the forms or information that’s required. See this article from the Social Security Administration to learn about all the forms and procedures you’ll need to successfully pay self-employment tax.
The other necessary component of a gig driver’s retirement plan is a solid retirement account. There are no real 1099 benefits beyond Social Security, at least not under the umbrella of the average gig company. You’ll have to find a way to open an Individual Retirement Account of some kind. Many drivers favor the Roth IRA because it’s easier to withdraw money for emergencies.
Follow this link to learn more about the varieties of retirement fund options available for 1099 workers. The different types have complex rules about taxation on withdrawals and maximum annual contributions. It can be a lot for anyone, even the cleverest gig driver, to contemplate without help, so it’s wise to seek informed advice.
It wouldn’t be fair to say that the gig companies don’t do anything toward helping their workers plan for retirement. In California, since Prop 22 went into effect, the companies have offered to do more for drivers. Elsewhere, there are options for an Uber 401(k) and a Lyft 401(k), both of which give you access to a robo advisor to help you choose the right plan with a third-party company.
There’s also a DoorDash 401(k) of sorts. It’s known as CalSavers and is offered by the State of California, but you don’t have to be a Cali resident to qualify. The program is available to Dashers in all 50 states. DoorDash also offers an information source to help drivers with saving and investing in preparation for retirement. The motion toward better conditions for gig workers might someday bring us Uber benefits and DoorDash benefits that go beyond extra perks on the app or waivers of food delivery charges.
Still, there’s no contribution offered yet. Working for these and other gig companies leaves drivers to fend for themselves. So, let’s look now to a more concrete kind of plan you can start to put together now, years and maybe even decades before you ultimately plan to retire.
Your 3-step plan
Now you have some idea of what your retirement savings needs to look like. You know you have to start saving. But … that’s not so easy. Drivers have expenses such as car repairs, fuel, and extra insurance, on top of the usual items such as housing, utilities, taxes, and food. Because you don’t have a big company pitching in, you have to know what you’re doing and stay on top of your game. Here’s how you can do that.
Step 1: Track every penny you earn
As you may have noticed while reviewing the material about Social Security taxes and the various options for IRAs, you’ll need to maximize your tax deductions so you can keep as much of your money as possible.
The best way to do this is to track your earnings and expenses with a state-of-the-art tracking tool such as Gridwise. As the world’s best gig driver assistant, Gridwise offers you the ability to sync your gig apps so all earnings and mileage are recorded on every shift. You can record every expense you incur manually. After that, simply tap a few times on your Gridwise app screen, and you’ll get all the facts and figures you need in graphs like these:
Keep track of all your larger, recurring expenses, too. These include car insurance, inspection, maintenance, registration, and other charges that you must pay to keep your vehicle legal and in running order. Plus, there are other big-ticket items such as income tax, health insurance, and life insurance you’ll have to think about. When you have all the details about your earnings and expenses at your fingertips, you’ll be able to calculate how much you can reasonably expect to save toward retirement.
Another way to maximize your earnings is by driving the routes that make you the most money. Gridwise has got everything you need to help you stay on track with your driving strategy. Use Where to Drive, When to Drive, and Compare Services to see where drivers are making the most, and once you find the right strategy for you, stick to it. Variety is nice when you’re driving and delivering, but when you’re trying to make more money, consistency is a better way to go.
Step 2: Cut costs where possible
Find affordable benefits
The cost of running your gig business is high enough, so adding on costs such as medical insurance, life insurance, and AD&D insurance can push it sky-high. You need benefits, that’s for sure, but you can’t have them take a super-sized bite out of your earnings.
Gridwise Dollar Benefits is a program developed to bring you what you’ve been hoping for: real and affordable gig worker benefits. You can get the quality insurance coverage you need at incredibly low rates. Taking just this one step toward cutting insurance costs can easily leave you with enough savings to invest in your retirement.
Cut back on larger, recurring expenses
There are even more ways to cut costs, and Gridwise has the help you need.
Fuel prices have gone through the roof, but Gridwise Gas keeps them within reach. Save up to 25 cents on every fill-up!
Gridwise + CarAdvise
Leaving your car with a mechanic for repairs or maintenance can be as nerve-wracking as waiting for a loved one to come out of surgery – you never know what might go wrong, and the costs can pile up. Gridwise + CarAdvise can get you amazing discounts off retail prices – as much as 40 percent! Now you can breathe easy while your automobile’s in for a once-over or emergency triage.
Research more deals, discounts, and tools to help gig drivers
There are plenty of discounts, deals, and giveaways around, and Gridwise has a whole bunch of them. Also, you can get gig driving tips and tricks from the Gridwise blog. Gridwise is always looking out for ways drivers can pump up their earnings, and that will help you get that extra money for your IRA.
Step 3: Be diligent with your savings
Now that you know how to get your earning – and adulting – acts together, you’re ready to take steps toward building that retirement fund. Some steps you can take include:
Use a banking app or another system that automatically deducts money from your earnings and sends it to a very safe place: your retirement fund. Research different banks, and find some that will assist you in choosing the right kind of 401(k).
Consistency is key to higher earnings, and it’s even more important when it comes to saving. If you keep contributing to your 401(k) or Roth IRA over time, your savings will grow, and a nice nest egg will be waiting for you when you’re ready to retire from your gig. Get ready to sip on that cold drink somewhere under the sun, someday.
Until then, make sure you plan ahead for that time, and all the time, with Gridwise.