retirement fund

5 Ways Gig Economy Workers Can Save for Retirement

Emily Guy Birken — Mon, 16 Nov 2020 22:12:58 +0000

We are in the midst of a major economic shift. While workers in the past could expect to keep a stable job with a traditional employer for decades, workers of today have found they must either cobble together a career from a variety of gigs, or supplement a lackluster salary from a traditional job by doing freelance work in their spare time.

Though you can make a living (and possibly even a good one) in the gig economy, this kind of work does leave gig workers vulnerable in one very important way: retirement planning.

Without the backing of an employer-sponsored retirement account, many gig workers are not saving enough for their golden years. According to a recent report by Betterment, seven out of 10 full-time gig workers say they are unprepared to maintain their current lifestyle during retirement, while three out of 10 say they don't regularly set aside any money for retirement.

So what's a gig worker to do if they don't want to be driving for Uber and taking TaskRabbit jobs into their 70s and 80s? Here are five things you can do to save for retirement as a member of the gig economy. (See also: 15 Lucrative Side Hustles for City Dwellers)

1. Take stock of what you have

Many people don't have a clear idea of how much money they have. And it's impossible to plan your retirement if you don't know where you are today. So any retirement savings should start with a look at what you already have in the accounts in your name.

Add up how much is in your checking and savings accounts, any neglected retirement accounts you may have picked up from previous traditional jobs, cash on hand if your gig work relies on cash tips, or any other financial accounts. The sum total could add up to more than you realize if you haven't recently taken stock of where you are.

Even if you truly have nothing more than pocket lint and a couple quarters to your name, it's better to know where you are than proceed without a clear picture of your financial reality. (See also: These 13 Numbers Are Crucial to Understanding Your Finances)

2. Open an IRA

If you don't already have a retirement account that you can contribute to, then you need to set one up ASAP. You can't save for retirement if you don't have an account to put money in.

IRAs are specifically created for individual investors and you can easily get started with one online. If you have money from a 401(k) to roll over, you have more options available to you, as some IRAs have a minimum investment amount (typically $1,000). If you have less than that to open your account, you may want to choose a Roth IRA, since those often have no minimums.

The difference between the traditional IRA and the Roth IRA is how taxes are levied. With a traditional IRA, you can fund the account with pre-tax income. In other words, every dollar you put in an IRA is a dollar you do not have to claim as income. However, you will have to pay ordinary income tax on your IRA distributions once you reach retirement. Roth IRAs are funded with money that has already been taxed, so you can take distributions tax-free in retirement.

Many gig workers choose a Roth IRA because their current tax burden is low. If you anticipate earning more over the course of your career, using a Roth IRA for retirement investments can protect you from the taxman in retirement.

Whether you choose a Roth or a traditional IRA, the contribution limit per year, as of 2018, is $5,500 for workers under 50, and $6,500 for anyone who is 50+.

3. Avoid the bite of investment fees

While no investor wants to lose portfolio growth to fees, it's especially important for gig workers to choose asset allocations that will minimize investment fees. That's because gig workers are likely to have less money to invest, so every dollar needs to be working hard for them.

Investing in index funds is one good way to make sure investment fees don't suck the life out of your retirement account. Index funds are mutual funds that are constructed to mimic a specific market index, like the S&P 500. Since there is no portfolio manager who is choosing investments, there is no management fee for index funds. (See also: How to Start Investing With Just $100)

4. Embrace automation

One of the toughest challenges of being a gig worker is the fact that your income is variable — which makes it very difficult to plan on contributing the same amount each month. This is where technology comes in.

To start, set up an automatic transfer of an amount of money you will not miss. Whether you can spare $50 per week or $5 per month, having a small amount of money quietly moving into your IRA gives you a little cushion that you don't have to think about.

From there, consider using a savings app to handle retirement savings for you. For instance, Digit will analyze your checking account's inflow and outflow, and will determine an amount that is safe to save without triggering an overdraft, and automatically move that amount into a savings account. You can then transfer your Digit savings into your retirement account.

5. Invest found money

An excellent way to make sure you're maxing out your contributions each year is to change your view of "found money." For instance, if you receive a birthday check from your grandmother, only spend half of it and put the rest in your retirement account. Similarly, if you receive a tax refund (which is a little less likely if you're a gig worker paying quarterly estimated taxes), send at least half of the refund toward your retirement.

Any gig workers who often receive cash can also make their own rules about the cash they receive. For instance, you could decide that every $5 bill you get has to go into retirement savings. That will help you change your view of the money and give you a way to boost your retirement savings.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Choose the Perfect Country to Retire In

Nick Wharton — Mon, 16 Oct 2017 08:30:10 +0000

Many of us harbor dreams of retiring overseas in some far-flung, exotic country. Whether it’s for pure adventure, to make retirement dollars stretch further, or both, retiring abroad is becoming more common. But choosing exactly where to go can be difficult. Without proper planning and consideration, a country that appears perfect on the surface could end up being a nightmare. (See also: 9 Things to Know Before Retiring Abroad)

I know just how daunting the task of choosing a country can be. I’ve been living a semiretired life in multiple countries over the past eight years and I’ve written many articles on early retirement. I’ve found it helps to start with a list of all the countries where you can envision yourself living. Maybe it will be made up of places you’ve fallen in love with while visiting in the past. Perhaps you’ll include countries you’ve never visited, but have heard are great retirement havens for Americans. From there, follow these guidelines to shorten your list and eventually pin down the perfect retirement destination for you. (See also: Retire for Half the Cost in These 5 Countries)

Figure out your finances

Finding a country that fits your finances is probably the most important part of the puzzle. It’s crucial that you opt for someplace where you can enjoy the lifestyle that you dream of without draining your bank account in the process. (See also: 5 American Cities Where You Can Retire On Just Social Security)

As a first step, you need to calculate exactly how much you have in your retirement savings and how much you can withdraw every month. Then, project how much income you’ll have from other sources, such as Social Security or any private pension or annuity plans you have. Account for any taxes you might have to pay, and come up with a ballpark figure for how much you’ll be able to spend every month during retirement. (See also: 5 Incredible Places to Retire Abroad That Anyone Can Afford)

Rule out unaffordable destinations

Once you have your estimated income, start researching the cost of living in each place on your dream list and determine whether it fits your finances. Tools like Numbeo and Expatistan are great for estimating the cost of living in different countries. Cross out the places you can’t afford. This will naturally narrow down which countries are realistic to put on a short list. (See also: 5 Countries Where You Can Retire on $1,000 a Month)

Check out the quality and affordability of health care

Health care is one of the most significant factors to take into account when choosing a retirement destination. Medicare generally won’t cover you outside of the U.S., so you need to put a plan in place for how you’ll afford any medical requirements. Fortunately, some of the most affordable countries to live in also have top class medical services, but it’s something you’ll need to research for each country on your list. (See also: Don't Let These Expenses Spoil Your Retirement Abroad)

If the health care is cheap, it may be possible to just pay as you go, but you should also look into suitable insurance plans. In particular, think about how you’d pay for treating a major illness or catastrophic injuries.

Take your hobbies and interests into account

No doubt you have a good idea of how you’d like to fill your free time once you’re not working anymore. But make sure you double check that you’re able to do the things you love most in the country of your choice.

If you’re a keen golfer, there’s no point in selecting a country that has no golf courses, as it’s probably something you’ll want to do more of in retirement. Don’t just assume that every country will have the facilities or resources you need for your hobbies and pastimes.

Consider your security

Unrest and crime are two factors that can quickly endanger your life, affect your finances, and hamper your dreams. Though it’s impossible to predict what will happen in the future, it is possible to make educated assumptions based on the historical and current security situation in the city, region, and country you’re considering. Is it somewhere prone to civil unrest, gang activity, or petty crime? Are there upcoming elections that may significantly alter the political landscape?

Check out the U.S. State Department’s travel website, which provides advice on every country in the world. Also read articles and check with local residents to see whether any problems reported in the media ring true in real life.

Research visa options and other relevant laws

Residency laws differ from country to country and can come with significant costs attached. Check these requirements thoroughly. In most cases, you can find information put out by the country’s immigration office online. You can also contact the closest consulate or embassy of the country you’re considering. Often, you will need to apply for residency while you’re outside that country, but check first. (See Also: 5 Countries That Welcome American Retirees)

Consider other relevant laws and regulations, too. Perhaps you won’t be allowed to work if you’re on a retiree visa, or you won’t be allowed to buy property in certain areas. You may or may not be subject to local taxes, as well. Remember also that moving overseas does not preclude the requirement to pay taxes in the U.S., even if it’s necessary to pay them in your new home. And even if you don't owe anything to Uncle Sam, it's possible you still need to file a tax return. You'll have to meet certain status and income requirements before the IRS says you don't need to file a return.

Consider cultural fit

Moving to a new country, not understanding the language, and trying to adjust to the culture all at the same time can be a singularly isolating experience. Ask yourself if you’re ready to learn a new language if necessary, and whether you’re able to change to fit in with the culture of the places you’re considering. Are there things that you don’t like about a particular culture that you think you’d grow accustomed to? On the other hand, could annoying local biases or customs that you’ve put up with on a vacation grow unbearably wearisome once you’re living in that place full-time?

Get to know the weather

It’s a good idea to check year-round weather forecasts, too. Even if you think you’re familiar with the outlook somewhere, it could drastically change throughout the year. If you’ve always visited during high season, make a conscious effort to check what the weather is like during low season. There’s often a reason why tourists don’t visit then. Temperatures may rise or drop to uncomfortable levels, storms may make living dangerous or at least inconvenient, and drawn-out rains may just make everyone miserable. Many weather websites or destination-specific websites have data on historical temperatures and precipitation for every month of the year. (See also: 33 Places to Retire If You Love the Rain)

Do a test run

Possibly the biggest mistake that retirees can make before heading abroad is to take the plunge without having tested the waters first. Do yourself a big favor and complete a test run in the country that you settle on. It may cost you a little extra, but the expense is usually worth it.

Consider where you’ll go if you don’t like your new retirement country. Maybe you’ll want to move back to the home you own in the U.S. If so, it makes sense not to sell right away. Perhaps you can rent it out temporarily while you do your test run.

Then make a semi-permanent move. Rent a temporary home, preferably furnished, and get by with whatever you can take in suitcases. Give yourself enough time to experience different seasons, get to know a few people, and see if your monthly budget will really work. If it doesn’t work out, you may be disappointed, but at least you’ll have minimized your moving expenses and you’ll have a place to go when you move back. (See also: 4 Questions You Need To Answer Before Relocating in Retirement)

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This article is from Nick Wharton of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Countries That Welcome American Retirees

Nick Wharton — Wed, 08 Feb 2017 11:00:15 +0000

Retiring abroad can be a great way to secure a fun and affordable lifestyle for years to come. Of course, you'll need to plan out some important logistics if you think retiring overseas might be right for you. It helps that some countries have very welcoming policies for U.S. retirees who are looking to relocate.

Some things to consider when choosing a location include residency requirements, taxes, property ownership laws, and health care options. You'll also want to choose a place that allows you to do the activities you're interested in and offers you the quality of life you're looking for. (See also: Retire for Half the Cost in These 5 Countries)

Here are five excellent countries for Americans to retire in.

1. Mexico

Mexico has many advantages going for it, which might explain why there are already a million U.S. citizens retired there. In fact, it has the largest established American expat community of anywhere in the world.

Its proximity to the United States makes it easy to visit home. There's no shortage of direct flights to the U.S., and airfare is generally affordable. You can enter the country on a tourist visa that lasts for six months and then later apply for a temporary or permanent retiree visa. You will have to meet certain income or asset requirements to get one of these visas.

Mexico offers a vibrant culture, sun-soaked beaches, scenic highlands, delicious cuisine, and beautiful colonial architecture that all contribute to an enjoyable retirement here. Depending on what kind of community and lifestyle you choose, Mexico's cost of living can be a fraction of that north of the border.

While relocating to Mexico is the perfect opportunity to brush up on your Spanish skills, you should also know that there are many English speakers that can help make your transition as smooth as possible.

2. Cambodia

If you're trying to get the most bang for your buck, you may want to look to Cambodia, which has the best cost of living for U.S. expats, according to InternationalLiving.com. You can find a rental apartment for as little as $250 a month and eat out at a restaurant for under $5.

The weather is warm year-round and there is an abundance of cultural sites to visit, such as the temples of Angkor Wat located on the site of the ancient capital of the Khmer Empire.

Some challenges might include learning the local language, although there is a significant expat community and many locals speak English as well.

And while buying a condo above the ground floor is much easier for expats these days, thanks to a 2010 law, foreigners looking to buy land will encounter more restrictions. If you specifically want to buy property abroad you might be better off looking elsewhere.

3. Spain

If you want a European lifestyle without the hefty price tag, Spain may be the perfect option for you. With the greenback doing well, European destinations are becoming more affordable for retirees with dollars. Rent is variable but you can find a place for as little as $500, and a dollar can often buy you a beer at a local bar.

Spain offers a temperate Mediterranean climate in the winter, although summer can be hot, with temperatures rising to over 100 degrees Fahrenheit.

To move to Spain permanently, you'll need a residence visa for retirees, which requires you have a certain level of income, among other things. (See related: Don't Let These Expenses Spoil Your Retirement Abroad)

4. Colombia

Colombia is an attractive place for retirees for a few reasons, including the warm climate and affordable high-quality health care.

Plus, there are many direct flights to and from the U.S. for reasonable fares. For instance, you can find a round-trip ticket from Medellín to the states for as little as $350, which is less than some domestic tickets can cost.

Medellin has changed dramatically since it was dubbed the most dangerous city on earth in the early 1990s. The colonial town is now charming, with parks, museums, and plenty of other cultural activities to keep retirees busy and entertained.

5. South Africa

South Africa is a country of stunning beauty and diversity for retirees, with both an expansive coast and mountainous landscape offering many opportunities for outdoor recreation. The country's crown jewel is Cape Town, but Johannesburg is also a cosmopolitan city with many cultural offerings.

Rural areas offer ample opportunities to see exotic wildlife and experience diverse ecosystems. The temperate weather is another great draw for people who are considering moving here.

The cost of living is attractive, too. According to Numbeo, consumer prices are 44% lower in South Africa than in the United States and rent is nearly 50% less expensive, so your retirement funds will go much further here.

While crime is still high in the country, if you stick to the right neighborhoods and take precautions, you can stay safer. English is the language used for business, politics and the media, so it's easy enough for Americans to get around.

There are two visa options: a retired person's permit, available on both a temporary (four-year) and permanent basis; and an independent financial person's permit. The main qualifying criteria for both of these options is that the applicant is able to support themselves financially.

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This article is from Nick Wharton of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't Let Poor Health Kill Your Retirement Fund

Michael Kling — Fri, 04 Jul 2014 13:00:04 +0000

Poor health can destroy your finances in retirement if you fail to build both a healthy retirement fund and a healthy retirement body.

Research shows that physical and financial health are closely linked. In a 2002 University of Michigan study, married couples with excellent health averaged $500,000 in net worth, about three times that of married couples with poor health who had an average of $164,000. (See also: 10 Easy Ways to Supercharge Your Retirement)

When it comes to costs, many Americans may underestimate how much money they'll spend on health care in their golden years. Over half of the respondents to a Fidelity Investments Retirement Savings Assessment survey say they'll need about $50,000. But Fidelity predicts an average couple will need more than $220,000 over the course of their retirement — just for health care!

Indeed, retirees now spend more on health care than they do on food, and at the present rate, health care will be retirees' largest expense after housing.

So to help you prepare, start thinking hard about the following steps.

Building a Healthy Retirement Budget

Investment broker Fidelity recommends taking these four steps to prepare for health care costs in retirement.

1. Set a Savings Goal

Set an annual savings goal of 10% to 15% or more of your income, including 401(k) plans and IRAs. Consider saving part of any raises, bonuses, or tax refunds and increasing contributions to savings plans by 1% every year.

2. Go on Auto-Pilot

Sign up for automatic savings plans with your financial services company. Use the automatic increase feature in your 401(k) plan if it's offered.

3. Use Health Care Savings Accounts

HSAs, offered through employers, offer a triple tax advantage. Contributions and investment earnings accumulate tax-free and roll over year to year if not spent. Distributions for qualified medical expenses are not subject to federal taxes. (See also: How to Choose a Health Insurance Plan)

4. Understand Medicare Options

Most people qualify for Medicare hospital insurance, or Part A, at age 65 and don't pay for the coverage if they paid Medicare taxes while working, according to Fidelity.

However, you pay monthly premiums for Medicare medical insurance, or Part B, which covers doctor visits and other medical services. Plus, there's no limit on out-of-pocket expenses.

4. Understand Unbundled Vs. Bundled Coverage

Unbundled coverage involves using Medicare Part A and Part B along with Veterans benefits, former employer retiree plans or purchasing supplemental, or Medigap, insurance from a private insurance company. That route may be best if you want to fill in gaps in coverage and keep the original Medicare coverage. You can use any doctor or facility you like but may pay higher premium. The policies don't include prescription coverage so you'll need to buy Medicare Part D to cover prescription drugs.

Bundled coverage is Medicare Advantage or Managed Care plans, privately managed plans that combine Medicare Parts A and B, and supplemental coverage you purchase. They often include prescription coverage and can offer lower premiums or better benefits. Simpler than unbundled coverage, it requires just one ID card.

The disadvantage is that it can limit you to only network providers.

Medicare's website offers a useful tool for comparing supplemental insurance in your state.

Building a Healthy Retirement Body

Maintaining a healthy lifestyle and being informed during your working years is key to your financial fitness in retirement. Here's ten actions to take now to improve your health in the future (some pulled from health care insurer Aetna's excellent website, Plan For Your Health):

1. Know Your Cholesterol

Cholesterol has a big impact on heart health. Healthy cholesterol levels are 200 milligrams per deciliter (mg/dL) or lower for total cholesterol, 100 mg/dL or lower for LDL cholesterol, and 60 mg/dL or higher for HDL (or "good") cholesterol, and 150 mg/dL or lower for triglycerides (fat).

2. Don't Smoke

Smoking raises blood pressure, increases fatty plaque in arteries, and increases chances for heart attacks.

3. Check Your Blood Sugar

Have your blood sugar level tested once a year. High blood sugar levels indicate higher chances of diabetes, which in turn means higher odds for other health problems.

4. Eat Right

Eat high-fiber foods, fruits, vegetables, legumes and whole grains. Apples can decrease the risk of cancer, according to AARP. A handful of nuts a day may help prevent both heart disease and cancer. Beans and lentils are good for your colon, garlic fights off digestive-tract cancers, and curry has ingredients that may offer protection against brain tumors. (See also: Eating at the Intersection of Cheap and Healthy)

5. Exercise Daily

Daily exercise reduces the ill-effects of aging, such as worsening eyesight and less bone density. Even 10 minutes of exercise a day helps, writes James Rouse, a naturopathic physician and host of "Optimum Wellness." The many simple exercise options, he says, include going for walking, dancing, bicycling, playing water volleyball, or jumping on a trampoline.

6. Be Friendly

Stress builds up if you keep your feelings bottled inside. Talk to your friends and family and ask for support. If you don't have a good support system, work to develop one to have someone to talk to when you're upset.

7. Relieve Pressure

To prevent or manage high blood pressure, use less salt, limit alcohol and caffeine, quit smoking, mind your cholesterol, and exercise daily. Besides making you unhappy, too much stress can increase your heart rate and raise your blood pressure. Try meditation, deep breathing, muscle relaxation, listening to relaxing music, or picturing pleasant scenes.

8. Take Health Tests

Women should have a Pap smear annually until age 65, a mammogram annually starting at age 50, a bone density test to guard against bone thinning, advises Dr. Mehmet Oz, host of "The Dr. Oz Show."

Men should have a prostate-specific antigen, or PSA, test at age 50 for a baseline reading, followed by yearly testing. Both men and women should have a colonoscopy at age 50, then once every 10 years.

9. Watch Your Weight

Over 60% of American adults are overweight and a third are obese. An average woman of 5 feet 4 inches is obese at 175 pounds. An average man of 5 feet 9 inches is obese at 196 pounds, says Dr. Oz. Measure your waist above your hip bone and below your rib cage. It should be less than half your height.

10. Beware the Sun

Use sunscreen and reapply it every two hours when you're in the sun, Dr. Oz advises. Men should remember their ears and scalp where they're more prone to skin cancer than women. Wear sunglasses in bright sun to help ward of failing eyesight in latter years.

How are you planning for health care costs in retirement? Please share in comments!

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This article is from Michael Kling of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Boost Your Retirement Savings Fast With This 6-Step Plan

Carrie Kirby — Wed, 09 Oct 2013 10:24:04 +0000

What do you do when you're in your last decade of your working life, but you don't have enough money saved for retirement? Sausalito, CA financial planner Bob Goldman shared his top tips for maximizing savings during the home stretch. (See also: Essential Truths for a Successful Retirement)

Goldman created this step-by-step list for Carol Dorsett, who relocated to the San Francisco Bay Area after being laid off as photo editor at a Midwestern newspaper. Carol moved in with her sister and began training in computer skills and started job hunting.

At 56, Dorsett hopes to work for another 11 or 12 years before beginning a financially secure retirement. She has a small pension and a 401(k) account, but she had to take an early withdrawal from her 401(k) to pay health insurance premiums, for which she paid a penalty and taxes.

"My concern is, once I get a full time job, how do I start really focusing on retirement?" Dorsett said.

Goldman had her fill out a detailed questionnaire, and then offered a basic six-step plan for how to make the most of her last decade of work. While this is specific to Carol Dorsett's situation, the strategies apply to many who are nearing retirement. (See also: Retirement Planning If you're Under 30)

1. Don't Touch Your 401(k)

If you withdraw money before the age of 59 ½, like Dorsett did, you have to pay income tax on the amount you take out, as well as a 10% early withdrawal penalty.

2. Maximize Retirement Contributions

Goldman advised Dorsett to contribute the maximum to her employer's 401(k) plan, and then open an IRA to save even more. There is an $11,500–$17,500 annual limit on 401(k) contributions, depending on the type of plan. But the IRS allows workers over age 50 to make additional catch-up contributions of $2,500–$5,500, again depending on the type of plan.

People over 50 can deposit up to $6,500 into a traditional or Roth IRA each year, which is $1,000 more than younger workers can save in these accounts. (See also: How to Choose a Retirement Account)

3. Start a Savings Account

Your savings shouldn't stop at retirement contributions. Goldman advised Dorsett to accumulate six months to two years' expenses in her savings account as an emergency fund.

An emergency fund enables you to cover the bills if you lose your employment, or to pay unexpected expenses like car repairs, without going into debt or being tempted to borrow from a 401(k).

4. Invest in Index Funds

Once the emergency account and retirement accounts are fully funded, start investing in index funds, which give you a diversified portfolio with low management costs, Goldman said.

A recent white paper, "The Case for Index Fund Portfolios" (PDF) compares low-cost index funds with actively managed funds and concludes that investors are better off investing in all index funds. (See also: 3 Steps to Get Started With Index Funds)

5. Put Savings on Autopilot

Investment adviser Betterment advocates having your investment deposit taken out of your checking account on the first day every paycheck is available to maximize the amount of time your money is in the market and minimize the temptation to spend it.

6. Ignore Your Investments

This last step can be the toughest, Goldman said, but it's important to stay the course unless your circumstances change drastically.

"Assuming you have the right investment portfolio, you don't want to be changing it based on random opinions of friends, neighbors, relatives, or experts on TV. No one can predict the future, and 'everyone' is usually wrong," he said.

Are you nearing retirement? What steps have you taken to accelerate your retirement saving?

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: