The gig economy is a relatively new concept, but research shows that by 2020 nearly 40% of the workforce will be involved in “gig” work in some capacity. While this can be intimidating for some who have been exclusively full-time corporate employees, it’s actually a trend that has some huge benefits for pre-retirees (and current retirees!).
What is the Gig Economy?
Currently, somewhere in the ballpark of 150 million Americans have left their 9-5 jobs to work on their own in one way or another. This can be to leverage short-term employment contracts to gain fulfillment in the twilight years of their career, focus on projects they’re passionate about without distractions from internal organization logistics or the desire to continue “climbing the ladder.”
This trend, called the “gig economy”, means that people are leaving their stable, organizational jobs for the life of an independent contractor. This switch is often a benefit for both the individual and the organization. Many people associate the gig economy with millennials and Generation Z, but the truth is that the gig economy can benefit pre-retirees and current retirees, as well, and often in a bigger way. The common misconception is that the “gig economy” is comprised exclusively of freelancers and other temporary workers. However, this couldn’t be further from the truth.
How are Retirees Part of the Gig Economy?
To be part of a gig economy, you’re either an independent contractor, or someone who has a temporary contract with a specific organization. The work that these types of workers pursue is often short-term, and these engagements can be challenging to find. But when an expert finds a short-term contract in a leadership role within their industry, they accomplish two things:
- They’re able to truly dig in and focus on a project that they’re passionate about in the short-term. This means they’re not distracted by climbing the corporate ladder or advancing their career within the organization. Instead, they’re 100% zeroed in on delivering exceptional results.
- They can often command a higher salary or bonus in the short-term, and can leverage their role to both boost retirement savings and grow their reputation as a thought leader in their chosen career field.
Even though there’s some risk involved with being an independent contractor or short-term leader, there are also many benefits. For example, independent contractors are able to focus on the project at hand without feeling bogged down by traditional corporate “hoops” that traditional leaders and employees might have to jump through. They’re also completely in control of their income – they can accept short-term contracts that fit their personal income needs, and search for upcoming contracts that will continue to help them grow their retirement savings and reach their other financial goals as they near retirement.
Pre-retirees and retirees can use the gig economy to their advantage in several different ways. First, pre-retirees can engage as a freelancer or independent contractor as a “side hustle” alongside their full-time job to boost retirement savings. Second, pre-retirees and retirees can both use “gig economy” work to create a larger-than-average stream of income that either provides for them during retirement. This increases the lifespan of their savings, or can help to reach pre-retirement financial goals. Finally, retirees often benefit from short-term contract work as a kind of “encore career.” This type of short contract work allows them to pursue their passions and find fulfillment, while still keeping a more “traditional” retirement schedule and lifestyle.
Benefits of Short-Term Contract Income
Having income from a short-term contract can benefit you both before and after you retire. Typically, short-term contract leaders are offered a notable salary or stipend that’s heavily dependent on results of the project they’re assigned to complete during their contract with a company.
Organizations don’t have to worry about keeping pace with your salary for the next 30 years, so there’s more flexibility in how they can compensate you. As you near retirement, this type of income “boost” can be incredibly beneficial to beef up savings and find personal fulfillment in the work you’re doing. It can also help you to achieve short-term, pre-retirement goals like paying down your debt (namely your mortgage) before you retire, or fund other savings goals – like traveling.
After you retire, short-term contract income can help you delay taking Social Security or boost your cash flow. Having extra income during retirement can also open up some interesting and beneficial tax planning strategies around when and how you take your RMDs, or tap your other retirement savings accounts.
Contract Work During Retirement
Retirement is often thought of as a non-stop vacation. But the truth is that after a few months or years of waking up each morning without an agenda or a purpose, retirees can grow to feel a little lost. This is completely normal, but it does pose a dangerous problem:
What do you do when you’re no longer fulfilled as a retiree?
The answer may be to seek out short-term contract work in your chosen industry. In addition to being a beneficial stream of income, short-term contract work can be a way to find fulfillment and purpose during your years as a retiree. You may not want to launch into a full-blown encore career, where you pursue full-time work for the next few decades beyond your pre-retiree career; but finding short-term contracts to fill your days with meaning can provide some structure that you may have felt was missing in your life.
Additionally, short-term contracts during retirement free you up to experiment with different kinds of jobs and work to see what you like doing best. There’s low commitment, but a potentially high payoff if you enjoy the work you’re doing and are interested in pursuing more of it over the next several years.
Note: For additional reading on how the gig economy can benefit you as a leader in your industry, I encourage you to check out this book.