The Gig Economy and Retirement
Recently presidential candidate, Hillary Clinton, talked about the rise of the gig economy. Although she focused on the potential downside of freelance work, the gig economy could be a huge benefit for those looking to create a great retirement.
The Gig Economy is Changing How People Work
How people work is changing. The US economy is seeing a major shift to a freelance economy or "gig" economy. Studies say by 2020 20% of workers will be freelance workers. These freelancers will work for themselves, selling their services to firms large and small.
This shift could have major implications, not just for you in your career, but also in how you plan for retirement.
Traditional Retirement Planning Focuses on Spending
When most people think about managing cash flow, they spend ninety percent of their time on managing the spending side of the equation. Managing spending is important, but there's only so much "frugaling" you can do to move the dial in your financial life. Cutting your cable bill, turning the thermostat up or clipping coupons can only do so much. At some point, you've squeezed out all the excess.
Traditional Retirement Planning Limits Your Options
Once you've cut your budget to the bone, you're left with limited options when planning for retirement.
Let's say you had a goal of retiring at age sixty. Using the traditional retirement planning process you would look at your:
current income
current assets
current savings
expected retirement age
lifestyle during retirement
income sources during retirement (Social Security and possible pensions)
Then identify the gap between what your current assets are and what you would need at age sixty to achieve your retirement goal. This is called the Savings Gap. The financial planner would create an investment and savings plan designed to show you how to fill that gap.
The problem is, quite often the savings gap could be very large. Life expectancy, inflation, and medical expenses can all create a big mountain of savings to climb to reach your lifestyle goals for retirement. This means you'll have to sacrifice more of your current life in terms of spending to try to save and fill the gap the financial planner identified.
OR, if you're not willing to, or can't, you have one other option.
Sacrifice your retirement goals by:
Retiring later.
Lowering your lifestyle budget in retirement.
Eliminating extras such as travel or gifting.
Taking more investment risk.
Sacrifice your life now or sacrifice your life later, these are the two main options the traditional financial planning process presents you. Your life is more dynamic than that. There are many more options than just saving and investing you can use to work towards creating the life you want.
The Value of Working During Retirement
The baby boomer generation has never sat on the sidelines. Whether it was serving in the military, protesting for change, or building families and careers, baby boomers have always stayed in the game. They've never sat on the sideline and they're not going to sit on the sideline during retirement. They're going to continue to change the world and be engaged in contributing to a better society. If that's the case,
Why not plan your retirement that way?
Why not plan for the income potential of being engaged during retirement?
Why not plan now for what types of things you could do to contribute and earn income after "retirement?"
Doing so will change the way you plan your life for the better.
Doing so may allow you to avoid the awful choice of sacrificing your current lifestyle or settling for less tomorrow.
Ways the Gig Economy Could Help You Plan a Better Retirement
Finding additional ways to earn income right now or during retirement could change how you plan for retirement.
It could allow you to:
Retire from full-time work sooner.
Work less now.
Save less now. This would allow you to increase your lifestyle.
Save more so you can leave a bigger legacy.
Take less investment risk.
Plan on a greater lifestyle during retirement.
Travel more now and/or during retirement.
Live healthier.
Lower your stress about the future.
Stop for a moment and think about each of these bullet points.
Each of these options starts to become available if you embrace the gig economy and plan on working some during retirement. A few of the above may not be important to you. One or two, however, could significantly impact your life.
Maybe you hate the ups and downs of the markets. Each time you see a major down day in the markets or hear the latest doomsday forecast your stress level skyrockets. Using the gig economy to earn extra income now and during retirement may allow you to take less investment. It could allow you to live with less worry and increase the odds that you stick with your investment plan during volatile markets.
Or maybe it's not investment risk that worries you, it's not being able to retire soon enough. You don't mind working, but you don't like the work that you do. Incorporating earning extra income now or during retirement could literally buy you the option to retire from your full-time gig a couple of years earlier. How cool is that?
Are you starting to see how embracing the gig economy could help you create a better life now and during retirement?
How to Take Advantage of the Gig Economy
In truth, the options open to you are only limited by your imagination because in today's gig economy it's easier than ever to start a business, do freelance work or consult.
Consider Sally
Sally loved to sew. While still working in her corporate job, she noticed the flag outside her building was torn. After a few weeks of watching, she just couldn't take it anymore so she contacted the building's management and offered to fix it. They agreed, she fixed the flag and saw her handiwork on full display every day.
As she drove home from work daily, she started to notice that every office building had three or more flags outside. And there were a lot of buildings. Whenever she saw a flag in need of repair, she'd contact the building management and offer to repair it.
It turns out that in a windy state like Texas, there are a lot of building flags that need mending. Over time, Sally struck up deals with multiple building management companies to maintain their flags. Eventually, she began earning enough income from her flag repair work to replace the income from her "real" job. Ultimately, she was earning roughly ninety thousand dollars a year doing what she loves, sewing, repairing flags, managing her own time and spending life on her own terms.
Then There's John
John likes to play in the mud. For years, he worked a desk job at a local telecom.
company. Until while in his early fifties he was offered a buyout package. Rather than feel like he was getting laid off, he viewed this as an opportunity. John is a handyman-type and loves working outdoors. He's the guy we all love to have in our neighborhood because he'll stop by and fix anything. When he received his buyout notice, he decided to take it so he could do more of the work he loved.
Over the 20 years I've known John, it's rare I don't see him driving a pickup truck and with mud on his boots. See, to earn extra income after his buyout, John started a sprinkler repair business. Again, this is in the Dallas/Fort Worth area. It's hot here. Irrigation is important. He started small, just him and a truck. He built his sprinkler repair business one client at a time.
His hardworking, honest and friendly demeanor built him a reputation as a great guy that does great work. His one truck grew to two trucks as he hired crews to help him with his expanding business. Then three trucks. Then four.
Ultimately, he brought both of his sons into the business and was able to maintain his lifestyle, earn a great income, and build a large sprinkler business. All because he loved to play in the mud.
When it got too big, he sold the business to his sons and now he works with a crew of ten, serving a few select families in the ritzy part of Dallas. He still plays in the mud, still earning income, and having a blast at the age of seventy-two.
The cherry on top of this story is that John has been able to pay it forward by mentoring the mostly immigrant workforce he employs. He speaks into their lives about basic personal finance and building a great life in their adopted country.
How to Get Started
Find your sweet spot. A great way to start is to identify your skills and passions then to find where they intersect with the market place. What can you do that people are willing to pay for? My favorite resource for finding this is Dan Miller's 48 Days to the Work You Love.
Keep it lean. You don't need to spend a lot of money to participate in the gig economy. Unlike traditional businesses with franchise fees, leases and employees, work in the gig economy shouldn't take a lot of investment (other than your time and creativity). Here are just a few ideas of ways to make extra cash:
Drive for Uber.
Rent a room in your home via airbnb.
Offer creative services via 99designs.com, or Upwork.com.
Sell on Amazon or eBay.
Do administrative work as a Virtual Assistant.
Start a handyman service.
Work part time locally.
Get Coaching. If you're not sure where to start, hiring a coach can be well worth the cost. A good coach can help you identify your skills and challenge you to think creatively about your future. I hired a coach two years ago and it was life changing. Although I was skeptical at first, he helped me to think big, challenge my assumptions and focus on concrete action steps. Here are a few quality resources to help you start:
Test the waters before you retire. I recently had a conversation with a client (we'll call him Sam). Sam is about six years from retirement. Sam and I were discussing his retirement plan one day and ways he might be able to earn extra income. He brought up the idea of doing a very basic lawn maintenance and light landscaping business. He figured when he retired, he'd buy a new truck, a bunch of equipment and get started. As we talked through it, I suggested a different strategy. Rather than make a big investment and bet at retirement, why not take small steps now to work your way into the business. This would give you time to test the market, see if it is something you enjoy and spread the start-up costs over a period of years. Testing your passion this way can help you build it the right way or allow you to cut your losses easily if you find out it's not for you. If you discover there is a profitable market and you enjoy it, you can slowly build this new venture over the next four or five years and coast into retirement having something that's already well thought out with a mature market and a proven concept. Conversely, if you find after some months that it's not all that profitable and it's just too much work you can cut your losses.
Create a Life You Don't Want to Retire From
Your generation is changing the meaning of retirement. Unlike past generations, you'll most likely live a longer, healthier more active retirement. It's up to you to use this to your advantage as you plan for retirement.
By embracing the gig economy and thinking creatively about your life after your "career" you could secure a more balanced life NOW. The sooner you embark on this journey and factor it into your retirement plan the sooner you could create a life you don't want to retire from.