Freelancers, Sole Proprietors, and Other Nontraditional Workers Have Little Retirement Savings

A large proportion of nontraditional workers—sometimes known as contingent, gig, alternative, or independent workers—do not have access to workplace plans to save for their retirements, according to a survey conducted for The Pew Charitable Trusts.

These workers often lack job security, may have volatile incomes, and generally do not have employer-provided benefits such as health insurance or workplace retirement savings plans. And without adequate savings, many may face impoverished retirements or may be unable to stop working.

To help understand the barriers to saving faced by these workers and to inform policymakers considering new approaches, Pew surveyed 1,026 workers in 2020 who said they worked at nontraditional jobs.

Somewhat more than half—58.4%—of these workers report having a defined contribution (DC) plan balance, typically in a 401(k) or similar plan with a current or former employer. That means 41.6% do not. (See Figure 1.) By comparison, in 2018, 64.9% of the total civilian labor force had a DC balance with a current or past employer, according to Department of Labor statistics.

Individual retirement accounts (IRAs) are another tool for putting away money, but only 21.9% of nontraditional workers said they have IRA savings. There is some overlap among savings categories; for example, 18% of nontraditional workers said they have savings in both a workplace DC plan and an IRA.

When nontraditional workers do have retirement savings, average balances tend to be relatively low: 31.1% said they hold $50,000 or less in a workplace DC plan, and 14.3% hold $50,000 or less in an IRA. (See Figure 1.) Higher balances are rare, with only 17.8% and 5% holding more than $100,000 in a DC plan or IRA, respectively. Those with savings of more than $100,000 tended to be age 50 or older, White, and have at least a college degree.

Many of these workers have multiple jobs, including some that could be considered traditional employment relationships, such as a freelancer who also works full time in retail. Having a traditional job in addition to nontraditional work increased the share of those with defined contribution savings: 68.7% of those with a mix of traditional and nontraditional work had a DC plan balance, compared with 51% of those with a single nontraditional job and 52.5% of those with multiple nontraditional jobs but no traditional job.

In many cases, workers had no savings in a defined contribution plan because their workplace didn’t offer one, or they weren’t eligible, in many cases because they didn’t work enough hours. A separate  analysis of the data found that in the 12 months before the survey, only 46.3% of nontraditional workers had a workplace that offered any type of retirement plan. Fewer were eligible and participated; only 21.9% of all nontraditional workers took part in a DC plan, such as a 401(k), in the year leading up to the survey.

The survey found that nontraditional workers with no savings in a workplace plan tend to be under age 50, female, and have a high school education or less. In terms of the type of nontraditional work that serves as the primary job, 61.7% of those who did seasonal work had no workplace savings, as did 54.7% who were working as sole proprietors, 48.3% of temporary help agency workers, and 21.2% of freelancers.

Finally, 54.4% of nontraditional workers said they have some nonretirement savings or investments, such as a brokerage account, a mutual fund, or a bank account. These accounts do not benefit from the tax preferences—tax-free accruals and, for some accounts, pre-tax contributions—that qualified retirement accounts can offer. Still, bank accounts may provide easier access to funds for health or financial emergencies.

Limited retirement savings balances may reflect the needs of a nontraditional workforce that often faces irregular and unpredictable income streams, but the end result imperils their retirement security. Future research by Pew will explore alternative approaches to encouraging retirement saving among these workers and others. For example, pairing retirement savings initiatives with rainy day accounts for emergency savings might prove attractive. Policymakers also could look at initiatives such as state-facilitated auto-IRA programs that enroll private sector workers in a savings plan if they do not have a workplace option. Policies also could encourage savings through the tax system or through a financial institution or financial technology apps that help automate retirement savings transactions.

Nontraditional workers face a variety of work situations and are paid through different mechanisms. That may mean that more than one solution will be necessary to address the varied needs of this diverse segment of the labor force.