Most people picture retirement as their Golden Years: a time when they can kick back, relax, and lead the lifestyle of their choosing. The ability to realize that dream, however, is largely dependent on one’s financial situation.
Unfortunately, that situation is bleak for many. In a recent study on retirement readiness, Northwestern Mutual found that 67% of Americans expect to outlive their retirement savings. It’s becoming increasingly clear that many will need to earn supplemental income during retirement to maintain their current lifestyle.
But financially tenuous retirees may have a savior: the gig economy. Millions of Americans are supporting themselves by taking on a steady flow of short-term jobs that allow them set their own schedule and be their own boss. You’ve likely heard of this in the context of apps like Uber and Airbnb. However more traditional jobs in retail and food service, as well as a plethora of opportunities in professional and consulting work, are increasingly being outsourced to independent workers.The flexibility and part-time nature of these jobs could make them the perfect vehicle for retirees to earn the money they need to enjoy retirement -- and even to keep them active and engaged in the years following their primary careers.
Retirement dreams in trouble
Why exactly are so many Americans’ retirements in peril?
One reason is the disappearance of pensions. Company and government pensions used to form the foundation of retirement for many households, but they’ve become much rarer over the last 30 years. While 48% of current retirees say that employer-provided pensions are a significant source of retirement income, only 24% of employers still offer a traditional pension plan, and even those remaining plans are being pared back. Government pensions aren’t faring much better, with a 2016 report from Pew Charitable Trusts revealing that state governments are over $1.4 trillion short of fulfilling their existing pension obligations, portending continued program cuts.
As pensions disappeared, retirement accounts were supposed to fill the gap. But approximately half of all American households have no retirement accounts at all: no 401(k)s, IRAs, or even significant savings. Even those who do have retirement savings often fall far short of the amount they’ll need to quit work. Retirement planners generally advise retirees to limit withdrawals from their savings and investment accounts to no more than 4% per year. According to the Bureau of Labor Statistics, average annual spending by Baby Boomers -- who at ages 54-72 are either at or near retirement age -- is just shy of $60,000. Going by the 4% rule, those households should have a portfolio balance of $1,500,000 in order to maintain their current lifestyle. Unfortunately, the average Baby Boomer’s retirement account value is just $147,000 -- less than a tenth of what it should be to keep up with spending.
Increased healthcare needs in retirement exacerbate this income gap. Like pensions, retiree health insurance plans used to be a key offering of long-time employers’ retirement packages, but these offerings have dried up significantly in a short period of time. According to a recent survey of HR professionals, companies offering retiree health insurance plans have declined from 25% in 2010 to 18% in 2014. Similarly, long-term care insurance and elder care plans have decreased by 25-50% in that same period, leaving individuals to pick up the slack.
Added up, this perfect storm means that the typical American needs to work longer before retiring. But this isn’t possible for many -- life tends to get in the way. 33% of workers say they plan to retire at age 66, but only half of them end up sticking it out that long. Only 9% of workers say they plan to retire at 60, but in reality, 35% end up retiring sooner. Overall, nearly half of retirees say they departed the workforce earlier than they planned. Those people don’t just miss out on income from the years they don’t work -- they also get less from Social Security. The average retirement age in the U.S. is 63, which is four years short of the Social Security Full Retirement Age. That means the average retiree gets 25% less in Social Security income than those who work until the Full Retirement Age.
The average American is woefully underprepared for retirement, and the sources of relief they’re depending on might not provide all the benefits they need.
Gig economy to the rescue
The financial reality is that many retirees will have to continue working to support themselves. But the good news is that the gig economy can empower them to do so on their own terms. By taking jobs on a freelance basis, retirees can make money and stay active while still attaining the independence that comes with not having a fixed employer.
The McKinsey Global Institute reports that up to 68 million Americans -- including 44% of seniors -- have already participated in the gig economy to some degree. These workers choose to freelance for a variety of reasons, though the McKinsey study identifies two key differentiators: whether they pursue independent work out of choice or necessity, and whether freelance work is their primary source of income or something that provides a bit of extra money on the side. Looking at it through that lens, retirees often fall into the camp of taking on independent work as a secondary source of income out of necessity to cover the day-to-day expenses of their post-career lives.
The jobs available in the gig economy are as varied as the participants themselves -- it turns out independent workers have options beyond Uber. Sites like UpWork allow independent contractors to find project-based opportunities in professional fields like writing, legal consulting, software engineering, graphic design, and more. Meanwhile, online marketplaces like Etsy let retirees monetize creative passions like crafting, while sites like TaskRabbit allow users to hire workers on a one-off or ongoing basis household labor. Retirees’ biggest advantage over the rest of the job market is their experience, whether it’s from a previous career, a hobby they’ve honed for years, or life skills they've picked up over time. These sites let them turn that experience into flexible income.
A study by JPMorgan Chase found that the average participant in any online gig economy platform made $837 per month. While that study doesn't account for how many hours per week participants are working platform-provided gigs, Uber has released data showing that over half of its drivers drive 15 hours or less per week. Assuming that figure roughly holds true across all other online gig economy platforms, it stands to reason that retirees can make more than the average $837 per month depending on how many hours they're willing to work.
Of course, for all the attention online platforms get, only 15% of independent workers use them to find jobs. There’s a whole host of hourly, blue collar jobs in warehouses, factories, distribution centers, and stores that hire independent workers part-time. Seasonal jobs for outdoor work during the summer and retail positions around the holidays also offer flexible opportunities for extra income, many of which require little or no experience. Temporary positions in professional office environments are also commonplace. If you have a background in construction or maintenance, home improvement retailers like Lowes and Home Depot partner with local contractors to offer installation of everything from ceiling fans to bathroom sinks.
Overall, temporary staffing is a $150 billion industry in the United States. If we assume that the average staffing agency bills clients at a 20-50% premium over worker pay, that industry alone represents a total wage opportunity between $100 and $125 billion. McKinsey also estimates that currently unpaid household work could represent an additional $45 billion total wage opportunity should people decide to outsource it. The dollars are there for the taking, and could provide the extra income retirees need.
The silver lining
Gig economy work isn’t just a way for retirees to make some extra money. It could also benefit them in mind, body, and spirit. One of the common complaints about retirement is the sudden decrease in social interaction and physical activity. We don’t realize how much of our lives are wrapped up in our career until it’s over. The gig economy can provide retirees a chance to interact with new groups of people while remaining active.
When you combine the all-too-frequent inadequacy of retirement income with the vast opportunity offered by the gig economy, it’s easy to see why retirees ought to explore this.