I have a friend—she has a graduate degree but has lost interest in working in her field. She has a little bit of money, around $100,000. She’s in her 50s, but she’s planning to withdraw from the W-2 economy. Her kids are grown. Her plan now: buy a house rent out part of it on Airbnb and drive for Uber.
I’m sure she had a retirement plan at her old job. I wonder if she’s thought about setting up a 401(k) when she starts gigging.
Gigging as Plan B
Not infrequently I get an Uber driver who is clearly past 65. We talk, and I wind up asking him (for me at least, most of the time it’s a “him”) why he’s driving Uber. Some say they need the money. Some say mainly just to get out of the house. My suspicion is it’s some of both.
I recently attended the 2017 Defined Contribution Institutional Investment Association (DCIIA) Academic Forum and heard Carol Bogosian speak about retirement readiness. I was struck by one point on which Ms. Bogosian was emphatic: we focus on financial readiness, which is important, but just as important for a retiree is social and spiritual “readiness.” For a lot of people, a job—the office or the work crew—provide not just money but also a social world and a purpose in life.
And so, in a less structured and demanding way, does a gig—whether it’s driving people around or hosting travelers in your home. Or both.
All in all, that’s a really positive thing. In the (regular-economy) benefits policy world we’re struggling with how to fit things like “phased retirement” into our current workplace and regulatory paradigms. But the gig economy is already out there, right on everybody’s cell phone, providing retirees who want it with the opportunity to get out and earn some extra spending money and connect with people.
That is a beautiful thing.
Gigging as Plan A
But it’s not just retirees. The gig economy was pretty much invented by Millennials. They’re doing the same thing, not to supplement retirement income—they’re doing it for a living. And, for retirement policy, that’s an issue.
Our current retirement savings policy paradigm goes something like this: We need to get as many employers as possible to adopt automatic enrollment, payroll deduction retirement savings plans. Ideally, a 401(k) plan, but an auto-IRA might work in some cases. We need to get workers to begin saving early in their careers and to leave their money in the system for as long as possible. And then take it out as some form of retirement income that addresses longevity risk.
Most of our policy—under the Tax Code and ERISA—is focused on the employer and the employer-employee relationship. Critically, in even the “lite-est” of the current proposals to expand coverage, the employer applies a payroll deduction policy that implements the automatic, nudged savings that are the most important element of this paradigm. Employer-provided education and matching contributions are in many cases an important bonus.
I haven’t done a survey, but I’m pretty sure none of that is happening in the gig economy. If you’re an Uber driver, you get an app (of course) that allows you to set up your own savings program, which (as far as it goes) is great. But it doesn’t do any of those things we’ve found to be critical in driving employee savings in employer-based, workplace savings plans. Most importantly, there’s no automatic enrollment and no payroll deduction.
We need a retirement savings policy that works for the gig
This is like another kind of leakage. Every time a worker leaves the W-2 universe for gigging, she leaves a world of structured savings and enters one that is for all intents and purposes structure-free.
In many respects that is great—an enhancement of personal freedom and agency. But if it turns out that all these gig-ers, when they reach age 65 (or 70), have nothing saved for retirement, that’s a problem.
A 2014 study found 53 million workers were freelancing, and it is estimated that by 2020, 60 million workers (40%) will be contingent employees. That number seems high. Probably a lot of those gig workers also have W-2 jobs. But most believe that gig workers are here to stay and are and will remain a significant part of the workforce.
So we need to start thinking about how we will implement nudge principles—or some equally effective alternative—for those practicing gig economics. We should at least start talking about the issue.
And there’s another issue. We need to get good data on the gig economy. The Bureau of Labor Statistics (BLS) is primarily focused on employees. From what I can tell, BLS knows this has to change—that it has to begin developing numbers for gig workers.
It seems to me that a good start would be a comprehensive survey of gig employee economics. And not just employment data. We need to know whether we have a retirement savings problem in the gig economy and, if we do, how big it is.
We need this data. If nothing else, we can use it to drive policy focus on the issue.
I’m a strong believer in nudging as a way to overcome human beings’ hard-wired propensity to spend rather than save, without violating the individual’s fundamental freedom to do whatever they want with their own money. “Libertarian paternalism,” as Cass Sunstein and Richard Thaler describe it.
We have to figure out how to implement those principles, or something equally effective, in the structure-free world of gigging.
Michael Barry is president of the Plan Advisory Services Group, a consulting group that helps financial services corporations with the regulatory issues facing their plan sponsor clients. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly http://moneyvstime.com/ about retirement plan and policy issues.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Asset International or its affiliates.