Can the Gig Economy Help You Retire?

Can the Gig Economy Help You Retire?

One of the most profound changes that has been taking place over the past decade is the rise of the gig economy. Loosely defined, the gig economy involves companies hiring freelancers, independent contractors or temporary workers to complete individual assignments or perform specific tasks. From being an Uber driver to a photographer, there are plenty of options that offer flexible hours.

So how can we expect the gig economy to help us retire? I’ve been reading a lot of stories recently of people leaving their “normal” 9 to 5 jobs and fully dive into the gig economy. Sure, if your “gig” offers everything you want to fulfill your lifestyle, then dive right in! But keep in mind that not all “gigs” are created equal. For most of us, before you put all your eggs into the gig economy basket, be sure to consider all the potential pitfalls and drawbacks.

Appeal of the Gig Economy

Innovations related to technology such as mobile apps and online payment has been the driving force of the gig economy. For example, companies can track customer feedback through rating systems on a smartphone app. Businesses can accept payments through an app and thus cash never has to physically change hands. GPS software allows you to see where the driver of your Uber is at every minute. Complex algorithm can determine which driver delivers which customer orders and how to track reliability or customer satisfaction.

The appeal of the gig economy is numerous. You can set your own hours and have flexible work arrangements, leaving you free to pick up your kids from school every afternoon. Setting your own schedule and being your own boss means you may no longer have to deal with the dreaded daily commute, or be chained to a desk.

It may also be exciting to participate in the gig economy. The opportunities seem endless as more and more companies such as DoorDash, GrubHub, Uber, Lyft, Postmates, and TaskRabbit (to name a few) populate the market. These businesses compete with traditional industries like taxi cabs to food delivery services.

The Evolving Business Model

Since most of these “gig economy companies” are still in their early stages of growth, they are still trying to figure out the ideal business model so that they can generate an attractive return to the capital that had been invested in them. Before that can occur, most of these businesses continue to suffer significant losses from their operations. Which one of these will survive 5 years from now is anyone’s guess.

These companies have been built on the availability and abundance of the gig economy workers. There are advertisements everywhere for the recruitment of workers. Companies embrace the gig economy because they can have people work to help grow the business, while not having to carry the burden of the gig workers as full time employees.

Things to Consider Before Jumping into the Gig Economy

There are many concerns I have about working as an Uber driver or DoorDash delivery person. One of the biggest downsides associated with the gig economy is that you are not guaranteed any number of hours or minimum pay each week. You have to be available and constantly look for the next job. Sometimes there are too many workers competing for the same jobs, thus diluting what each worker can make. This lack of stability and financial security can easily cause stress and sleepless nights. If you get sick or get into an accident and can’t work, then you don’t get paid.

Since companies always prefer to minimize cost and liability, some people feel that the gig economy exploit workers. Companies do not, for example, have to provide health and life insurance, paid time off, maternity leave, retirement savings, or financial assistance for continued education. Workers in the gig economy don’t have the same rights as regular employees do.

Typically the workers are independent contractors who file 1099s and not W-2s for income tax purposes. This means workers have to keep track of their own mileage and expenses, and pay quarterly tax estimates. 

There is very little in terms of career advancement in the gig economy, since many of the jobs are repetitive and mundane. There is minimal training, learning, or development of new skills. The jobs are mostly performed independently, so social interaction with other coworkers will not be likely. You need to be mentally prepared, be self-motivated and have the self-discipline to keep hustling. Most likely there is nobody to mentor you and you have to figure things out yourself. 

So Can the Gig Economy Help Me Retire?

If the gig is something you actually enjoy doing, then congrats, you are one of the lucky ones! I’m sure there are gigs out there that can provide the lifestyle that you may want, but I believe those are very rare unless you have a special skill or talent that allows for this type of work. 

Personally, I think the gigs that are available to most people aren’t the most fulfilling. For example, driving passengers or food delivery are common gigs that are frequently advertised. I don’t know too many people who enjoy driving strangers all over town or pick up food from restaurants. Images of happy people delivering food or groceries may be a pipe dream.

In my opinion, it is very risky for people to leave their full time jobs and replace that income with a variety of side gigs. I don’t think the gig economy provides some magic solution to your tiresome 9 to 5 office job. What it has done is enable people to make money on the side, to supplement their full time job which historically has been their sole source of income. 

The gig economy can provide some temporary financial relief if you lost your job and need income before landing that next full time job. If you are in the midst of pursuing your passion project and need some cash to pay the rent and expenses, the gig economy can help. 

So in a temporary or supplementary role, the gig economy may be a good thing. If you are looking at the gig economy as the main source of income to reach your retirement goals, I would advise you to think long and hard before taking a leap of faith.