Self-employed Americans value flexibility in their work and are looking for that same quality in their retirement, according to a study.
Half of self-employed respondents chose to work for themselves because they wanted to set their own hours and schedule, and 53% said they like being their own boss, according to the report released in late January by Transamerica Center for Retirement Studies (TCRS) and the Aegon Center for Longevity and Retirement (ACLR).
Those respondents apply that same mindset to retirement. Almost 70% picture a flexible transition into retirement, either by slowing down before they fully retire, continuing to work occasionally through retirement, or just not retiring at all. Their top reason for continuing to work in retirement isn’t because they have to, but because they want to keep active and engaged, the report found.
TCRS and ACLR surveyed 1,600 self-employed workers from 15 countries for the report. Those self-employed workers include small business owners running their own business, partners in professional businesses and micro-firms, as well as sole proprietors, freelancers, contractors and seasonal workers.
The Bureau of Labor Statistics found that in 2015, 15 million people were self-employed, accounting for 10.1% of total employment in the United States.
The rise of the gig economy makes it more important for investors to think about retirement, as there are more opportunities for earning outside traditional employment.
“At a time of rapid technological advances and societal changes, the increasing prevalence of the self-employed not only represents a change in how people work, it also calls for changes in how people save, invest and plan for retirement,” the report noted.
Catherine Collinson, president of the Transamerica Center for Retirement Studies, noted that as more people are earning income in nontraditional ways like the “gig economy, it’s more important than ever to focus on the self-employed and ensuring that they too are saving and planning for retirement.”
She told ThinkAdvisor.com, “societally, we have all sorts of mechanisms in place to help workers plan and save. Now is the time that we also need to expand and make sure that the self-employed have the same access and ability to plan and save and, most of all, that they’re actually following through.”
As employer-sponsored defined contribution plans have taken over as the predominant way Americans save for retirement, self-employed workers can struggle to keep up with their counterparts at other companies. They obviously have a greater burden in finding and implementing a retirement plan than employed workers, and most don’t get the benefit of an employer contribution to pad their savings, according to the report.
Furthermore, only a third of self-employed respondents called themselves habitual savers. (The report noted that statistic is skewed by the sole proprietor respondents, who account for two-thirds of the self-employed sample.) Self-employed workers who employ others, like small business owners, were much more likely to say they’re regular savers: 44% compared to 29%.
Another distinction between sole proprietors and self-employed workers who employ others is the role the business will play in funding retirement. Just 11% of sole proprietors said the sale of their business will provide a source of income in retirement, compared to 20% of the employ-others cohort. In the U.S., 15% said they were planning on selling their business to prepare for retirement.
“In both cases,” Collinson said of sole proprietors and self-employed employers, “it is so important to do a reality check in terms of their true ability and potential to monetize those assets. Valuations fluctuate tremendously, and human nature may be to err on the side of being optimistic.”
Savings, Not Sale, Main Source of Income
Self-employed workers around the world said their savings and government benefits will be their greatest sources of income in retirement.
One area advisors can play an important role in self-employed clients’ planning is “helping guide [them] through the types of tax-advantaged retirement accounts that are best for them; if it’s a traditional IRA, a Roth IRA, a SEP,” Collinson said. There are many different options that could work, and advisors can be “invaluable” in deciding what’s best for a particular client “and then, of course, getting it set up and running, and ensure they are consistently contributing to it,” she added.