Last week, I attended an interesting (really!!) event on retirement security in the new economy, sponsored by the Brookings Institution’s Retirement Security Project. The event, and related study, offered another look at the thorny issue of how we provide a social and economic safety net for workers operating in the 1099 or “Gig” Economy. As we regularly discuss in this blog, the 1099 Economy offers tremendous opportunities for more flexible work and career options. But, at the same time, this new way of working creates many risks for the workers themselves. Most public attention has been on the fate of on-demand economy workers who toil with relatively low pay from firms like Task Rabbit or Uber. But, another challenge comes in the form of retirement—how can we make it easier for 1099 workers to save sufficient funds for their retirement?
Sadly, this independent workforce doesn’t do retirement savings well. They make less money and generally don’t have easy access to retirement savings tools. Various types of IRAs are available, but, at present, less than 14% of eligible people contribute to them in a given year. If we peer out into the future, we may see a 1099 workforce that works for decades at lower pay, limited health and other benefits, and little if no retirement savings. This is not a formula for a secure retirement, or even for building wealth over one’s lifetime.
The Brookings research paper presents a variety of tools and options for closing this retirement gap. I won’t get into all the potential options here, but the general consensus is that the problem is challenging, but fixable. As the fintech sector gets more market reach and more sophistication, new IT tools are emerging. At the same time, we need to focus policy solutions on the large share of 1099 economy workers who have both “real” employment and 1099 income and those who may move from covered employment to independent work over lifetimes. Here, the solution involves creation of a universal retirement account, which, in practice, may simply be a retirement account that moves with you across your working life. This account is available to you regardless of your work status, providing a ready source to invest retirement funds and preventing the many hassles that occur as you have to create a new retirement account for every new job or new career circumstance. Models like this are being used elsewhere, like New Zealand’s KiwiSaver plan. Not surprisingly, creating this universal retirement account number is much more complicated than it sounds, but, it is doable even in a political environment as charged as ours. This paper is yet another sign of important new thinking about new ways of working and how we can integrate the independent workforce into our current social safety net systems.