How Can Freelancers and Gig Workers Save for Retirement?

If you're a freelancer or gig worker, retirement planning can be daunting. Learn how to fund a retirement that will give you a secure future.
Written by Shannon Lee
Financial Expert
Managing Editor
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There was a time when freelance work was considered a “side hustle” and not the main event. That has changed dramatically in recent years. A 2019 study by Upwork and Freelancer’s Union found that 57 million Americans are in the freelance market – that represents 35% of the overall U.S. workforce. Among the 6,000 freelancers surveyed, those who freelance full-time rose from 17% in 2014 to 28% in 2019.

And that’s just the start. According to a 2021 Upwork report, 10 million of the Americans fueling the “Great Resignation” across the nation are looking to freelancing, most citing the freedom offered by remote work as the biggest draw.

What does this mean for retirement? The median age of freelancers is 51, according to the Transamerica Center for Retirement Studies. This is right at the age when people begin to seriously consider what retirement looks like. However, for far too many freelancers, there isn’t enough money in the coffers to give them the freedom to retire.

Why Is Retirement Different for Freelancers and Gig Workers?

When someone gets a regular paycheck from an employer, they often have the option of putting money into a retirement plan. This money is taken out of their paycheck, so they never see the cash and thus, learn to easily live without it.

Freelancers and gig workers won’t have that luxury. They must remember to save for retirement, including setting up the plan themselves or with the help of a financial advisor. Then they have added worries that cut into their potential retirement savings, such as the lack of steady income, healthcare expenses, education expenses, and the costs of running their own business. In addition, 46% of freelancers have college loans or other debt with payments looming, compared with 36% of non-freelancers.

A report from The Pew Charitable Trusts found that about 56% of full-time freelancers reported less than $5,000 in savings, and only 23% said they were on track for retirement. About 70% of freelancers prefer to manage their own benefits from higher pay than receive less pay in return for benefits provided by a client. The good news is that better savings rates and retirement funds are within reach of the freelance or gig worker.

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Steps to Start Planning for Retirement

When saving for retirement, every penny adds up. The good habits you create while saving over time will help you increase your savings later when you can afford to put more toward the things you care about, like a retirement fund. Here are some ideas to get you started.

Create an Emergency Fund

Before you even think about investing anywhere, make sure you’ve got a solid emergency fund. Start with $1,000 – that comes first. Then focus on building it up until you have a minimum of six months of expenses in the bank.

Put Money Aside for Taxes

Uncle Sam comes calling for freelancers or contract workers every quarter. This helps you keep up with your tax requirements so you aren’t hit with a gut-punch of taxes due in April. Calculate how much you will owe on a quarterly basis and put away a percentage each time you get paid.

Create Automatic Savings

Now that you know what money you have to work with, look at how much you can contribute to savings. If you can automate this transfer from your checking to savings, that’s great – but many freelancers have more volatile incomes that don’t allow that. In that case, set a calendar reminder to look at your finances once a month and contribute the maximum you can afford.

Build Good Habits

Just as you pay your rent or mortgage on time each month, put savings on your list of “mandatory” bills. Once you get into a strong habit of putting money into your savings account as religiously as you pay your electric bill, you’ll see savings add up fast.

Find a Good Financial Advisor

A good accountant, especially one with experience in working with freelancers, can help ensure you make good decisions in the vast, complex financial market. Be ready to talk about your ultimate goals, your saving habits, and how much you can reasonably contribute to your retirement fund.

Make Deals with Yourself

If you’re having trouble saving money, bargain with yourself to make it happen. If you absolutely have to have that latte every day, contribute an equal amount of cash to your retirement fund. Do this with most purchases and you’ll see the numbers add up.

Where to Put Your Retirement Savings

If you’re a freelancer, contractor, or gig worker, you don’t have an employer that allows you to contribute to a 401(k). So what other options do you have? It turns out there are quite a few.

Traditional IRA

This is the best choice for those just starting out. You can contribute $6,000 per year in 2021 (or $7,000 for those 50 and older). It lowers your taxable income and has low maintenance fees. It’s very easy to set up, but the choices for investing the money can be confusing. If you withdraw from the fund before the age of 59 ½, you’ll face income taxes plus a 10% penalty.


The Simplified Employee Pension Plan allows you to contribute $58,000 in 2021 or up to 25% of your pay, whichever is less. This is best for self-employed workers or small business owners with a few employees. It lowers your taxable income and has low costs to set up and maintain, but it can be difficult to calculate contributions. You don’t have to contribute on a regular basis, which provides better flexibility.

Solo 401(k)

This defined contribution plan is readily available at places like Fidelity and Schwab; there are often no setup or maintenance fees. Maximum contributions must stay under $58,000 for 2021. Catch-up contributions over the age of 50 allow for an additional $6,500 or 100% of income, whichever is less. You might need a dedicated business bank account to set up regular deferrals, and the IRS gets involved with Form 5500 once you reach over $250,000 in savings.

Solo Defined Benefit Plan

This is best for those who have a higher income and want to contribute to a retirement fund on a regular basis. Contributions are tax-deductible, and distributions in retirement are seen as income. Essentially, you’re setting up your own pension. How much you can contribute depends upon your income, retirement age, and expected investment returns; figuring this out requires an actuary, which means high setup costs.

From the Expert

Katharine Earhart is Partner and Co-Founder of Fairlight Advisors, a women-owned financial advisory business based in the San Francisco Bay Area. They help both for-profit and not-for-profit organizations with their investment and retirement planning, as well as help individuals and families with their financial planning, investing, and retirement planning needs.

Q. How should a freelancer plan for retirement?

A. It’s important to have an income forecast like you would for any other business. That way you can plan on how much income you are targeting for the year and can save in your retirement plan accordingly. While the IRS allows you to contribute in one lump sum before April 15th in some plans, it’s much easier to budget your retirement contributions on a bi-weekly or monthly basis. Even if you’re not ready to contribute those bi-weekly savings amounts directly to a retirement plan, you can set them aside in a special savings account for when the time comes.

Q. How much should a person save to have a healthy retirement fund?

A. Ideally, it’s best to start as young as you can, even if it’s only a little bit a year. The compounding effect of your savings will have more effect than if you start much later but contribute more. If you are starting later (e.g., in your 40’s), then saving the maximum allowable amount by IRS rules is ideal. However, you don’t want to impact your financial health in other ways to do so. For example, it’s more important to first have emergency savings of three to four months of expenses than to contribute the max to your retirement plan. If you’re a freelancer, you may want more saved if the nature of your work is seasonal or volatile.

Q. What are some of the best platforms for investment?

A. If you’re investing with platforms like Fidelity, Schwab, or Vanguard, they will have a wide selection of low-cost, index-based alternatives. Newer investors should look at Life Cycle or Target Date funds that match your planned retirement age. This takes the complexity out of choosing the right funds and the Fund Managers will automatically re-balance your portfolio for you. If you are more experienced, then you generally want to look at both your risk tolerance and your retirement needs. The investing platforms mentioned above have great asset allocation tools you can use to support choosing your investments. You can also hire an independent financial advisor or planner to support you.

Frequently Asked Questions

Can I have a 401(k) as a freelancer?

Not a traditional 401(k), but you can have a defined contribution plan, which means you can contribute in a way very similar to the traditional route. Brokerage firms can help you set up a Solo 401(k) and even facilitate regular funding into it if you prefer.

What is the difference in IRAs?

Individual Retirement Accounts (IRAs) come in two main forms: The traditional, and the Roth. The big difference lies in taxes. With traditional IRAs, you deduct contributions now and pay taxes later, which can have tax advantages from year to year. With the Roth IRA, you pay taxes now and take tax-free distributions later. Anyone can contribute to a traditional IRA, but there are income limits on the Roth. Traditional IRAs require you to take distributions starting at age 72, whether you need the money or not, but you can leave it all in the Roth for as long as you want. This makes the Roth a great way to transfer wealth to your beneficiaries.

How much do I need to save for retirement?

The rule of thumb is that you will need 70% of what you make right now after you retire. That’s because there will likely be other sources of income to keep you in your current lifestyle, such as Social Security, investments, pension, part-time work, and the like. Check out our retirement calculator to figure out the bottom line for you.

About Author
Shannon Lee
Shannon Lee, a versatile contributor to MoneyRates, is a freelance writer with a passion that spans over two decades. Her extensive writing portfolio encompasses a myriad of topics, ranging from personal finance and home improvement to education, relationships, and medical and health subjects. In addition to her prolific freelance career, Shannon is also a novelist. Shannon’s dedication to providing insightful and informative content makes her a valued voice in the world of personal finance.
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