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O'Connor: Saving strategies for the gig economy

Patrick S. O’Connor
Patrick S. O’Connor

If you’re one of the growing legions of gig workers, freelancers or commission-based employees, your income stream might feel a bit like a roller coaster.

And that can make it tough to save for retirement.

More and more people are participating in the gig economy. It’s a challenge to figure out how to save when you only make a small amount one month and a large amount the next month.

It’s a challenge, but it’s an important one to overcome.

Make saving a monthly must-do.  People with variable incomes should make retirement savings part of their monthly budget. Consider retirement savings as one of those expenses that occurs on a monthly basis.

To find the right amount to save, you need to determine what amount you can or should save for the year, and then convert that into a percentage of the income you expect to receive.

With each payment you receive, you should set aside that percentage in a separate account that you won’t use for expenses.

Transfer those funds into a retirement savings account, such as a traditional or Roth individual retirement account, either once a month or when each payment comes in.

Fifteen percent of your income is a commonly cited rule of thumb for retirement savings, but ideally, you’d consult with your financial adviser to determine how much you should be saving based on your age, time horizon, risk constraints and circumstances.

Know your investment options. There are multiple ways workers with variable incomes can save. Gig workers with spouses who have steady paychecks might ask their spouses to contribute the maximum to their qualified employer-sponsored retirement plan, such as a 401(k), 403(b) or governmental 457(b).

You and your spouse also could contribute to an IRA as long as you both have earned income. However, IRAs, like QRPs, have limits. In 2019, the total IRA contribution limit is $6,000 ($7,000 for those age 50 or older) per person.

You can contribute to a traditional IRA up until the year you turn 70. Contributions to Roth IRAs are allowed at any age as long as you are at or under the modified adjusted gross income limits.

Your tax adviser and financial adviser can help you understand what kind of IRA may be best for you.

If you and your spouse both have maxed out your IRA contributions, you still can save more if you are a business owner. You could set up a business plan and get access to higher limits.

Simplified employee pension and savings incentive match plans for employees allow significantly higher contributions.

These kinds of plans, however, must be offered to all employees of the business, so they may cost more if you have employees.

Even if you can’t save more in a retirement account, you still can save in taxable accounts, or consider annuities. Any savings, no matter the source, can be used to fund your future retirement.

Stick to your plan. Whatever the method, consistency is the key. Keeping that consistent percentage is a good strategy to help ensure that you’re doing all you can to save the right amount for retirement. Never assume you’re going to make it up the next month.

• Patrick S. O’Connor is the managing principal, senior financial adviser and a chartered retirement planning counselor at Wells Fargo Advisors Financial Network in Algonquin. Reach him at 847-458-0150 or, or visit

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