Retirement: A Ticking Time Bomb for Independent Workers

Reuters published the article, “As More U.S. Workers Go Independent, a Retirement Time Bomb Is Ticking,” discussing this retirement time bomb. It reviewed the lack of retirement planning and the underfunding of retirement plans for self-employed workers. As it stated, “If you ask self-employed workers about retirement savings, a shocking number will give exactly the same answer, ‘What retirement savings?’”

This is a major problem, not only for the self-employed, but for the United States as a whole. With more and more people without regular jobs and the benefits that come with them, the article says that our nation faces a ticking retirement time bomb.

Here’s why:

  • 28% of the self-employed were not saving at all, and another 40% were only saving occasionally, according to TD Ameritrade Holding Corp.’s Self-Employment and Retirement Survey.
  • 40 percent of the workforce will be freelancers, contractors and temp workers by 2020, according to a study by Intuit.

While the traditional way of saving for retirement wasn’t designed for the freelance culture, those working on their own need to take responsibility for their retirement. The article highlights some of the methods available, including:

  • For those who have a large profit margin each month, a simplified employee pension individual retirement account (SEP-IRA) may be appropriate. Contribution limits are much higher than for traditional IRAs: 20% of income, or $52,000 (whichever is less) in 2014. (Consult IRS
  • For those with less to save, a traditional IRA or a Roth IRA will probably be a good fit. Those have annual contribution limits of $5,500 (plus an extra $1,000 for people over 50).
  • For those whose cash flow is erratic, as often is the case with freelancers, then a percentage system may be more appropriate, allocating a specific percentage of earnings each month to retirement.

Time is of the essence to get the self-employed to start saving. According to the article, only a third of all Americans are contributing to 401(k)s right now, and if these workers are not motivated to plan for retirement, the retirement-savings system will become even more broken than it already is, and government funded programs are not the solution.

Also keep in mind that life insurance, disability insurance and long-term care insurance need to be part of the overall plan. If you die before completing your retirement savings goal, or become sick and are unable to work, you must still have resources for you and your family to fall back on. Insurance can provide this safety net.

by Marvin H. Feldman

Marvin H. Feldman, CLU, ChFC, RFC, is president of the Feldman Financial Group in Palm Harbor, Fla., and president and CEO of Life Happens. He is a 41-year Million Dollar Round Table member and was the 2002 president. He is a 33-year member of the MDRT Top of the Table and a past Top of the Table chairman. He also is the recipient of the 2011 John Newton Russell award, the highest honor bestowed on an individual by the insurance industry.

  1. This is such a great post! So informative and so easy to understand. My grandparents are just starting their relaxing lives as retired citizens, and the other day, my grandma said that they have been saving up for this period of their lives for a long time. I can’t think of a more deserving couple to have a relaxing retirement. I just started looking into ma life insurance to get me started out as a small investment in my future. I’m really hoping that it pays off in the end.

  2. True, many of us don’t save enough. If you have great cash flow and are middle aged or older, a 412i may be a choice for you as it is a defined benefit program. You’d have to have the right structure in place but you can stash a lot of cash away tax-deferred.

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