Meet Chris Gatto, a 49-year-old New Yorker and sharing economy double threat, tasking by day with TaskRabbit and hosting by night with Airbnb.
Gatto is one of the 600,000 (and counting) people in the on-demand workforce, according to new research from Alan Krueger of Princeton University and Lawrence Katz of Harvard University.
Consequently, he's also one of the many Americans who is living and working without some of the employer-sponsored benefits traditional 9-to-5ers are accustomed to: namely health insurance, retirement, disability insurance and life insurance. On the whole, independent contractors, temps and other non-traditional workers are about two-thirds less likely than traditional workers to have access to an employer-provided retirement plan, according to a 2015 General Accounting Office report.
Whether you call it gig, sharing or on-demand, this new and growing way to work may offer more freedom and flexibility — but both of these can come at a cost, says Joseph Coughlin, director of the Massachusetts Institute of Technology AgeLab, especially if you’re not proactive about preparing for the unexpected as well as your future.
Here are a few things to know to put your own safety net in place:
Your health comes first
The biggest threat to your financial security is your health. In fact, medical debt is the leading cause of personal bankruptcies in the United States, pushing an estimated 1.7 million people into bankruptcy in 2014, according to NerdWallet. You’re required to be insured under the Affordable Care Act.
But that doesn't mean that everyone is (9 percent of Americans still don't have insurance) or that those who are are satisfied with their plans.
If you're in either group, remember to shop the exchanges come November 1. Purchase the best health insurance policy for your needs that you can afford. And if that turns out to be a high deductible policy, pair it with a health savings account that you can fund to net a tax-deduction then dip into when medical bills come your way.
(Bonus: This money grows tax free just like retirement account funds. In fact, if you can fund one continually — and stay healthy — your HSA may turn out to be a valuable supplemental retirement account.)
Build your own nest egg
All independent contractors should have retirement accounts, says Ann Boger, chief operating officer of Freelancers Union. “Everyone should, even if you’re only putting in $20 dollars a month. [Especially] if you’re young, it adds up.”
She encourages people to start with an Individual Retirement Account, be it traditional or Roth, to which you can contribute up to $5,500 in 2016 and an additional $1,000 if you’re age 50 or older.
Another option is myRA, a starter retirement account developed by the U.S. Treasury Department.
The main differences between IRAs and MyRAs? You set up IRAs on your own with a bank or brokerage firm, then can invest your funds in pretty much any stocks, bonds, mutual funds or other investments of your choosing. Contributions to the MyRA can be set up via automatic paycheck deduction and are invested in US Treasuries. You won't lose money, but right now the return is 1.87 percent, so you're not making as much as you'd likely earn in a diversified portfolio overtime either.
(If you've been wary of the stock market, however, it can be a good way to start.)
Finally, once your myRA balance hits $15,000 (or has been open for 30 years) you'll need to transfer your earnings into a private-sector Roth.
Protect your paycheck and loved ones
Filed under “good to have, but hope to never use” — and often overlooked by freelancers, says Boger — are disability insurance and life insurance. Disability replaces a portion of your income if you become injured or ill and are unable to work.
It's important, particularly for singles, because by most estimates, if you’re between the ages of 35 and 65, you have about a 30 percent chance of becoming disabled. If you have no other person's income to fall back on, it should come high on your list.
Ditto for life insurance if others are counting on the income you bring in. Shop quotes for both disability and life insurance on sites like insurance.com and PolicyGenius.com. Many life insurance agents also sell disability coverage, and you can find an agent through the National Association of Health Underwriters, NAHU.org.
--- with Kelly Hultgren