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How to DIY your retirement savings if you work in the gig economy

Aug 05 2019 13:20
Lauren Willoughby

As more people turn to gig economy work (freelancing, temping, contracting, part-time work), traditional methods of saving for retirement are becoming obsolete. In the second of a three-part series on how gig economy workers can better handle their finances, Lauren Willoughby, Retail Administration Manager at Sygnia, suggests five steps to DIY retirement.

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In my first article I covered the three major challenges gig economy workers face when it comes to handling their money: not having a stable income; no time for financial planning; not enough know-how to execute these plans.

When it comes to retirement savings in particular, there’s another major hurdle to overcome – a giant psychological leap.

When you’re a nine-to-fiver you get a pay cheque with tax, and often medical aid and retirement savings already deducted, which is far less psychologically painful than having to do it yourself.

As independent media consultant, Melanie Commeignes, put it to me: “When you have to physically hand over a chunk of cash, it’s so much harder to part with – especially if you know you won’t see it for the next 20 or 30 years. So you end up putting it off, but at the same time you always stress that you’re not saving for retirement. It’s kind of a vicious cycle.”

She’s not alone. Betterment’s Gig Economy And The Future Of Retirement 2018 survey found that three out of 10 people who are “full-time giggers” don’t regularly set aside money for retirement, “leaving a sour feeling when thinking about their retirement”.

The survey, which canvassed gig workers 24 and older in the US, also found that 7 out of 10 gig economy workers are not prepared to maintain their current lifestyle after retirement.

I believe the real issue for gig workers is that retirement planning and saving is not quite as simple as clenching your jaw and handing over a set amount of cash each month or year, like you do for medical aid, insurance and all those other grudge deductions. You have to make some tough decisions, but doing it yourself doesn’t have to be so complex or daunting.

5 steps to DIY retirement savings 

1. Get help

The first thing you have to consider is whether or not you need a financial advisor.

Financial advisors come at a cost, but if you have a non-standard income you may need a suitable and reputable advisor who will be able to guide investment decisions and goals. If you do go this route, however, don’t just handover and forget about it; insist on an (at least) annual review of your financial affairs.

If you’d rather go it alone and save on advisor fees, there are advanced online tools – like Sygnia’s RoboAdvisor – which will design an investment strategy based on your current personal circumstances and savings objectives.

2. Set goals

With your online tool or financial advisor, you need to work out what your income needs will realistically be at the time of retirement, taking inflation into account.

Once you’ve set your goals against a timeline, you can begin working out how much you need to save.

3. Choose your vehicle(s)

The next step is to look at the types of investment vehicles that best suit you and your goals.

There’s a myriad of choices out there and I’ll cover those I believe are the best for gig workers in my next article. Whichever you choose, though, there are two important things to consider:

First, your age and exposure. If you are young, your investment choices can be a bit more risky than if you’re closer to retirement, because you still have time to make up any losses. That said, your portfolio should always be diversified to minimise your exposure to risk.

The second is to always look at the fees associated with your investment vehicle. According to the National Treasury, high fees can cost you up to 60% of your retirement investment over 40 years. It’s a big deal, and that’s why Sygnia always advocates low fees, starting at 0.35% ex VAT per year.

4. Do regular stress tests

Stress testing your retirement savings at least once every tax year is crucially important to see if your investment portfolio will still achieve your goals under current market conditions. If not, a stress test will help identify what needs to be adapted.

A stress test is basically conducting a thorough due diligence on your retirement savings portfolio:

  • Is it keeping up with inflation?
  • Is it growing sufficiently each year to meet your goals?
  • Is your savings time-line sufficient to save what you need, or do you need to work longer or save more?
  • Could you afford to increase your monthly savings? If so, where should you add to make it grow faster?

5. Stay informed

Always remember this is your nest egg and therefore ultimately your responsibility. Be an educated investor who keeps a close eye on your portfolio – this includes being aware of current news and the effects on your savings plan, and adapting your portfolio in response to market conditions.

Willoughby is retail administration manager at Sygnia. Views expressed are her own.

wealth  |  retirement  |  savings
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