What will retirement look like for gig workers? It isn’t a pretty
picture, according to preliminary research presented by Jack VanDerhei,
research director of the Employee Benefit Research Institute, at a policy forum
earlier this month. In the worst-case scenario, the potential impact on
national retirement income adequacy is staggering: The nation’s overall net
retirement savings surplus at retirement age would decrease by $2.2 trillion
(in 2018 dollars). And the retirement savings shortfall for those who run out
of money in retirement would increase by $61 billion.
“The potential dollar value is truly significant,” VanDerhei says. Of
course, with the gig economy evolving, there are lots of assumptions: For
example, how the percentage of the workforce in the gig-only economy will
change over time. “Do you stay in the gig economy or grow up and get a real
job?” VanDerhei asks. “For a certain percentage of these people, once a gig
worker, always a gig worker.”
His worst-case assumptions: Gig-only workers have no access to workplace
retirement plans like 401(k)s. And the probability of being a gig-only worker
doubles immediately. The baseline for the percentage of people who identify as
gig-only workers today comes from T. Rowe Price data: Millennials (9%), Gen
X (19%), baby boomers (11%) and the silent generation (5%).
“The number one disadvantage to working in a gig model is the lack of
access to savings and benefits through an employer,” says Jake Biscoglio, vice
president of strategic initiatives with Prudential Financial. “They have to
figure it out and fund it on their own.” Lower income than their W2 peers hurts
too. The average annual income for gig-only workers is $36,500, compared to
$62,700 for full-time workers, according to a Prudential report, Gig Workers In America.
“Employers recognize this growing problem,” says Julie Stitzel, managing
director of policy and strategic initiatives for the U.S. Chamber of Commerce.
In some cases, employers are stepping in. She cited Uber, which teamed up in
2016 with the online financial firm Betterment to give drivers access to IRAs
through payroll deductions. Nearly 2,000 Uber drivers have saved $2,000 on
average in Betterment IRAs, for a total of $3.7 million so far.
Yet most employers are hesitant to push creative ideas because of
obstacles in the labor law. “Congress is not at the forefront, and we’re not
solving this today,” laments Kendra Isaacson, senior pensions counsel with the
Senate Committee on Health, Education, Labor and Pensions.
There are promising solutions at hand, VanDerhei says, and he hopes to
incorporate those into future research, which would mean more optimistic
numbers. While the idea of a federal law to mandate automatic Individual
Retirement Accounts, or auto-IRAs, has been languishing for over a decade,
states are starting mandatory auto-IRAs (Oregon, Illinois), and another state
idea—a marketplace where small employers and employees can connect to IRA and
401(k) providers—is underway in Washington and will soon be in New Jersey.
Another possibility is a federal marketplace for retirement plans. The trick is
to get gig workers to open up and fund IRAs, SEP-IRAs or even solo 401(k)s.
“Things will be coming down the pipe soon,” VanDerhei says.
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