America is fast approaching a historic milestone. By 2027, freelancers will make up more than 50 percent of the workforce, marking a fundamental shift in the U.S. labor market. Yet, many of these workers will have no retirement plan.
According to the Pew Research Center, only 13 percent of single-person business owners are saving for retirement compared to nearly three-fourths of Americans in traditional jobs. That leaves tens of millions of freelancers and independent workers at risk, just as other forms of retirement security begin to falter.
Freelancers, contractors, creators and small-business owners are set to become the backbone of our economy. When they do, they’ll be working without a retirement system that supports their earnings. That’s a national crisis in the making.
Digital services companies are expected to contribute 70 percent of new value to the global economy in the next decade, radically altering the way we work. This transition has been underway for some time, accelerated by the COVID-19 pandemic and the rapid growth of apps like Uber and DoorDash.
Since 2020, millions of Americans have joined app-based platforms as drivers and delivery workers, transforming a nascent industry into a $150 billion global industry. The National Bureau of Economic Research documented this massive shift: between 2020 and 2021, the gig economy added 3.1 million additional contractor workers, the majority of whom reported income from transportation and food delivery.
Today’s workers are independent. They consult, hustle, drive, create and juggle multiple income streams, often without employer matching contributions, automatic enrollment or HR guidance. Their economic contribution already exceeds $1 trillion, but it no longer comes with the financial safety nets that traditional employment provides.
Between 1989 and 2019, most U.S. employees received guaranteed retirement income through pensions. As pensions gave way to 401(k)s, employers steadily shifted responsibility for retirement security onto workers. The rise of contract work and decline of traditional benefits has deepened the gap.
While not a complete solution, providing better guidance can make a big difference. Retirement depends as much on information as it does on access, and the benefits of starting early make that clear.
A freelancer saving $300 a month ($3,600 a year) at a 7 percent annual return would have:
— $746,000 by age 65 if they start saving at age 25.
—$516,000 by age 65 if they start saving at 30, $230,000 less than age 25.
—$353,000 by age 65 if they start saving at 35, $393,000 less than age 25.
—$237,000 by age 65 if they start saving at 40, $509,000 less than age 25.
That’s half a million dollars in lost retirement savings, lost to time, not income.
Our retirement infrastructure was designed for yesterday’s economy, one of lifelong employment, employer-sponsored benefits and steady payrolls. However, retirement as we once knew it is dead. Not because Americans don’t want to retire, but because the system hasn’t evolved to keep pace with the modern workforce.
While systemic reform is essential, solutions already exist. Simplified Employee Pensions (SEP) IRAs, for example, offer freelancers a modern retirement vehicle tailored to their inconsistent workflows. SEP IRAs allow contributions of up to 25 percent of income, or $70,000 a year, giving freelancers flexibility to save more in profitable years and scale back in slower ones. Yet, few independent workers are aware of this option.
When nearly half of the U.S. workforce is projected to be outside traditional employment by 2027, we can’t afford to keep patching a broken model. It’s time to rebuild retirement from the ground up, for the soon-to-be self-employed majority.
We need a collective response:
—Financial providers must design tools for fluctuating income, not legacy payroll systems.
—Policymakers must accelerate portable benefits that workers can carry with them, gig to gig, job to job.
—Industry leaders must stop waiting for someone else to act.
Retirement is increasingly an individual responsibility, but that doesn’t mean workers automatically know what needs to happen and when. Companies like Uber, Grubhub and Instacart don’t need to reclassify contractors as employees to make an effect. Providing guidance and improving access to retirement products could be enough to give millions of workers a better chance at financial security in old age.
The freelance economy is powering American growth, but we risk leaving millions exposed to old-age poverty because they’re working differently, and we’re not adapting to it. For today’s workforce to retire comfortably, we need a new system. One that is flexible, personal and portable.
