Editors' pick: Originally published Dec. 7.
Aaron Norris well remembers his days of freelance work off-Broadway.
He also remembers his little-to-no savings.
"The only time I saved anything as a performer was when I worked on longer-term contracts where room and board was included and the gig lasted three months or longer," said the 39-year-old who now works as a vice president at the Norris Group in Southern California. "However, we're talking about saving a few thousand in a checking account, not a savings account."
Norris's freelancing experience is not uncommon. While everybody loves how the so-called "gig economy" lets people work when they want, there seems to be a downside when it comes to people's savings, according to a new survey by payment solution provider Hyperwallet. While 46% of Americans are not saving for retirement, 70% of freelancers and work-for-hire workers are not saving for retirement -- despite the fact many financial experts advise workers to put 12% to 15% of their pay into retirement savings.
However, there are options for the self-employed and those working in the gig economy.
"First, no company is too small to start a 401(k)," said Stuart Robertson, president of Capital One Advisors 401(k) Services. "Even the self-employed can start a solo 401(k) plan."
Robertson said if a person does not yet have an individual 401(k) plan, he should think about setting up one by the end of the year, because there are a number of distinct tax benefits offered by these plans compared to other vehicles like traditional IRAs — including higher tax deferral limits -- that could even drop a person down a tax bracket.
He added there are a number of factors to consider when selecting investments -- and investment selection and managing investment expenses are important ones.
"When reviewing the choices your 401(k) offers, make sure they're appropriate for retirement," Robertson said. "Some plans may offer you access to most of the stock and bond market, but that may be overwhelming and have inappropriate options for long-term investing."
Barbara Delaney, founder of StoneStreet Advisor Group, offers freelancers a different route. While high-deductible health plans in conjunction with a health savings account, or HSA, are often associated with employer-based offerings, contract and freelance workers can also take advantage of the great retirement benefits an HSA can offer.
She said the funds placed in the HSA are triple tax deferred up to the predefined limit set by the IRS and FICA taxes.
"Funds in the HSA can be invested and gains on those investments are not taxed if used for medical expenses," Delaney said. "Unlike flexible spending accounts, HSAs do not have a time limit to use the funds, thus can grow over time to a significant amount. Monies remaining in an HSA can be withdrawn for non-medical expenses after the age of 65 without incurring a penalty."
However, the biggest mistake many freelancers and entrepreneurs make is not in what plan they choose, but simply in not choosing any retirement plan, Robertson said. The easiest way to get started and keep a plan going is by setting up regular, automatic contributions.
"Once you have an Individual 401(k) set up, it's important to think prudently about your investment selections and the risk and return," he said. "Make sure you've established a diversified strategy in line with your goals that will help your nest egg grow until the assets are needed in retirement."
Robertson said if one is uncertain about a strategy, they should think of getting help form an advisor.
However, Norris said it's important to remember many freelancers are constantly strapped for cash — so paying advisors to talk to them about things like 401(k) plans or IRAs are not high on their list, especially when retirement savings in general may just be a pipe dream.
"Forget about retirement," he added. "I was just trying to survive."