Retirement

Why gig workers should focus on retirement savings

The gig economy allows people to work when they want and provides opportunities to pursue alternative careers. However, this arrangement is posing challenges in retirement planning.

Regular nine-to-five workers are struggling to save for retirement too, but they're faring much better than their gig economy peers. The average savings gap – the difference between what someone has saved and what they expect they need to save for retirement – among employees uninterested in digital-enabled jobs is $576,000, among employees currently with or interested in digital-enabled jobs (gig workers), it's $893,000, according to Manulife's latest Investment Sentiment Index (MISI).

Given those figures, it is perhaps unsurprising that MISI also found that 61% of investors who perform digital enabled jobs full-time "agree" or "strongly agree" that they "worry about potentially unstable income and the lack of medical, insurance and/or retirement protections," and 54% "agree" or "strongly agree" that they need to increase insurance protection.

It is a worrying state of affairs, but one that should not be taken out of context. By offering more flexible forms of employment, the digital platforms driving the growth of the gig economy are challenging the conventional understanding of retirement as a passive state of wilful unemployment.

Flipping the script on retirement

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Coupled with large increases in Singapore's average life expectancy, which is currently sitting pretty at 83.1 years1, the emergence of technology-supported flexible working arrangements is encouraging workers to look at retirement in a different light.

Singaporeans are starting to view retirement not as the beginning of the end, but simply as a new beginning – a time to learn a language, buy a set of watercolours, and, every now and then, tap into their lifetime's experience and offer advice or consult on projects, be it to keep the cash trickling in, or to prove to themselves that they've still got it.

In fact, MISI found that 82% of investors were willing to work after 'retirement'; 47% on a full-time basis and 35% on a part-time basis. But given that the majority of employers treat gig workers like independent contractors and thus deny them the level of protections and benefits offered to regular employees, even gig workers who continue to work after retirement run the risk of suffering financial hardship. Unless, of course, they grab the bull by the horns – and they do so today.

Taking matters into your own hands

The Singapore government has accepted "in principle" the recommendations2 of the Tripartite Workgroup (TWG) on the gig economy, to introduce a 'Tripartite Standard' contract for engaging gig workers to reduce payment disputes, an insurance product to mitigate the loss of income and a contribute-as-you-earn Medisave contribution model to help and protect freelancers. But any agreed upon changes will not happen overnight. And nothing will ever change the fact that gig workers are often going it alone, which means the onus is on them to safeguard their financial future.

Fortunately, if you're a gig worker, there are a few things you can do to make life a little easier. For starters, you need to make sure you have a savings account and it should pay an acceptable amount of interest, under conditions that meet your needs.

As the TWG has highlighted, two of the most common problems faced by gig workers are "loss of income due to prolonged illness or injury" and "lack of CPF savings for healthcare and retirement". So, if you are a gig worker, the second step you should take towards safeguarding your financial prosperity is to obtain a private health insurance.

Whether it's a hospitalisation policy that reimburses your medical bills, a personal accident plan or critical illness plan that provides you with financial support in the event of critical illnesses, having adequate health protection plans in place would provide gig workers with financial buffers during unexpected events.

Nine-to-fivers often find it difficult to pay for healthcare, but gig workers without a steady supply of income may find it impossible. Insurance protects you and your family from being forced into selling assets to pay for any expensive, out-of-the-blue medical bills.

Automate your savings

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In addition to obtaining insurance, you should also consider paying yourself a monthly salary. That is, instead of accepting that some months you earn more than others, you should ask clients to pay your invoices into a separate business account and, after working out how much you earn on an annualised basis, transfer an invariable monthly salary from this business account into your personal account. Doing this will encourage you to save any extra cash you make during busier months, so that you can make ends meet whenever business temporarily slows down. Coupled with budgeting, this can really help to shine a light on the state of your finances.

In a similar vein, it would be wise to consider making your savings contributions automatic, too. After budgeting for three months, you should have a pretty good idea of how you're spending your money, and where you could easily save a few dollars. Based on these findings and your annual income, decide on an amount you can save each month. Aim to save at least 10% of your income but leave a little leeway for contingencies. If you feel that the amount is too much, visualise both what will happen if you do save that money and what will happen if you don't. That should provide enough motivation for you to commit to a savings plan.

Striking a balance between flexibility and commitment, Manulife's RetireReady Plus is an ideal plan for retirement for gig workers. The plan allows you to choose your intended retirement age, your ideal monthly income and how long you wish to receive it for, and Manulife works out how much you need to contribute on a monthly basis for the plan.

Buying into investment plans that offer varying interest rates, liquidity and flexibility, gives you an opportunity to increase your income. Getting your money to work harder for you in this way alleviates a lot of the pressure associated with saving for retirement. However, do note that risks accompany all investments.

Of course, the exact pressure you experience will greatly depend on the lifestyle you wish to maintain during retirement and how much you will need to save to achieve such a level of comfort. According to MISI, 23% of respondents face a half a million to one million savings gap for their retirement and 70% would consider savings insurance to secure their retirement life.

Whether you believe you need to save more or less, the sooner you start saving, the less stress you'll face as you approach your golden years. And the sooner you start, the sooner you'll realise that all you need is a plan, and the belief and willpower to stick with it.

Disclaimer:

These insurance products are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. Buying health insurance products that are unsuitable for you may affect your ability to finance your future healthcare needs. This advertisement is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.

This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC web-sites (www.lia.org.sg or www.sdic.org.sg).

We recommend that you seek advice from a Manulife Financial Consultant or its Appointed Distributors before making a commitment to purchase a policy.

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