Trending
The supposedly strong March jobs report revealed that more than 5% of the U.S. workforce has at least two jobs. Add to that, a recent Redfin survey indicates nearly 15% of those polled are engaging in side hustles (driving for Uber, delivering food, etc.) to earn money needed simply to afford housing.
Ominous data points to be sure, but they underscore shifts in how the U.S. workforce is comprised. Point is while advisors are accustomed to client rolls chock full of people working traditional W-2 jobs or business owners, the future of work is changing before our eyes. More workers are opting for the freedom associated with freelancing while many more are taking on gig work.
Freelancing and/or contract 1099 work has its perks, but there are drawbacks, including likely not being tethered to bonus plans, no employer-offered healthcare and no access to an employer-sponsored retirement plan. So it’s easy to understand why employers like those forms of work, but it also leads to some retirement planning burdens for workers.
That confirms that freelancers and gig workers, some of whom earn respectable and beyond salaries, need advisors because their retirement planning and savings needs are often on par with if not above those of clients working traditional jobs.
Data Confirm Opportunity for Advisors
For advisors that don’t believe there’s value in working with clients that are freelancers, consider the following. It’s estimated that by 2027, there will be 86.5 million freelancers in the U.S., representing nearly 51% of the total workforce.
“This seismic shift in the workforce presents both opportunities and challenges, not only for freelancers, but also for financial professionals who must adapt their advice to meet the unique needs of clients with irregular income streams,” according to Nationwide.
Today, freelancers comprise 37% of the workforce, indicating there is already a compelling reason for advisors to engage these prospects. Other reasons include including freelancers’ vulnerability to inconsistent earnings patterns, lack of access to employer-sponsored retirement plans and lack of knowledge on how to set up retirement plans themselves.
That is to say budgeting matters for freelancers and it pays for advisors to help those clients isolate fixed and variable expenses.
“One of the key strategies for managing irregular income is to develop a variable budget that can adjust based on income fluctuations. Encourage clients to categorize expenses into fixed and variable—ensuring basic needs are always covered,” adds Nationwide.
Exploring Retirement Options
Freelancers are like any other client – they want their hard work to pay off and to have something to show for it. That includes building strong retirement savings.
This is prime opportunity for advisors to add value because many freelancers and gig workers don’t know about the various retirement account options at their disposal that can mitigate some of the effects of not having an employer-sponsored 401(k). Many clients may know about or already have traditional and Roth IRAs, but they might not be aware of some of the other options, including solo 401(k) and SEPs.
“Sometimes called a Solo-k, Uni-k or One-participant k, is a traditional 401(k) plan that covers a business owner (and potentially their spouse) with no employees3 that may be a good option for qualifying freelancers,” observes Nationwide. “A simplified employee pension plan, or SEP IRA, allows self-employed clients to contribute as much as 25% of their net earnings in retirement accounts.”
Related: For Their Own Good, Parents of Gen Zers Should Try Some Tough Love