Self-employed workers might be setting themselves up for failure in retirement, a report released Tuesday by TD Ameritrade found. The “Self-Employment and Retirement Survey” found almost 70% of self-employed workers like contractors and entrepreneurs aren’t saving regularly for retirement.
Head Research conducted the survey for TD Ameritrade among over 2,000 self-employed and non-self-employed workers. The report found 40% say they don’t save on a regular basis, while 28% don’t save at all. By comparison, 12% of non-self-employed people say they don’t save regularly, and 10% aren’t saving at all.
Even as they’re neglecting to save, many expect to rely on those savings in retirement. Fifty-nine percent of respondents said they expected to live on their savings after they stop working, and 38% said they would rely on income from investments in their IRAs. Just 14% said they would rely on the income from selling their business for retirement funds.
TD Ameritrade referred to research from Economic Modeling Specialists Intl., a CareerBuilder company, that shows the number of self-employed workers in the United States has increased by more than 14% since 2001 to about 10 million. Of those, 30% are 55 or older, and more than 28% are between 45 and 54.
It’s possible that self-employed workers are struggling with the same obstacle many low-income and entry-level workers face. EMSI found the average annual income for self-employed workers is just under $27,000. The study seems to support this. Among all respondents, 31% acknowledged that it’s hard to save as much as they want, and 83% of people who are saving said they’ve had to cut back on savings for one reason or another.
Lule Demmissie, managing director of investment products and retirement services for TD Ameritrade, noted, however, that the EMSI is only part of the story.
“The median is riddled with outliers,” she said. “You could have a skew because there could be a chunk of self-employed workers that are way beyond that $27,000.” Low income does make it difficult to save, Demmissie acknowledged, but the variability of your salary is another factor. “If you’re making say $100,000 of $200,000 a year and you’re self-employed, it may not be coming at the same time. It may not be dripping, it could be feast or famine; that could also be just as hard, even if it’s not a low-income situation.”
Another contributing factor to self-employed workers’ low savings rates is what Demmissie called friction. “When you’re self-employed you’re going to have to set up your own IRA and one that is applicable to your situation. You don’t have some of the ease of implementation that a traditional employer has. All that adds up to what we call friction. It becomes friction for you not to do this.”