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A Guide to the Gig Economy

Millions of Americans are trading full-time jobs for the freedom (and risks) of going it alone. Here’s how to manage your finances if you’re thinking about joining them for a few years—or for keeps.

NEARLY A CENTURY AFTER JAZZ MUSICIANS of the 1920s coined the term "gig" to describe a temporary engagement at a club or concert hall, it has reentered the workforce lexicon. In today's booming "gig economy," millions of people, empowered by advances in digital technology and often motivated by difficulty finding full-time work, are relying on temporary engagements to earn a living.

While estimates vary, a recent study by prominent labor economists Lawrence F. Katz and Alan B. Krueger reported that 16% of American workers are involved in gig-type "alternative work arrangements," up by half from just a decade earlier.1

The prototype could be the ride-share driver, a contract employee who's primed to pick up passengers at the buzz of a smartphone. There's also the recent graduate getting a foot in the door by doing project work at a company. Or a woman easing back into the workforce after raising her family. They're all joining mid-career professionals looking for a more flexible lifestyle, aspiring entrepreneurs, moonlighters and retirees whose talents remain in demand.

"Gig work has afforded me the opportunity to explore a new field, while still having time with my family as I transition back into the work force." thum
—Jane MacKeenWellness Coach, pictured above

"Many retirees aren't quite ready to stop working, so they've created gigs to stay busy and enhance their finances," says Karin Kimbrough, head of Macro and Economic Policy at Bank of America Merrill Lynch.

How to Succeed in the Gig Economy
Thriving in the gig economy takes a combination of skills, hustle, good luck and sound advice. Here are three people who are making it work for them.

Just starting out. Matthew Daray, 25, of Palatine, Illinois, studied journalism and creative writing in college and is currently on a six-month contract as a medical writer for a large pharmaceutical firm. "It's not a bad gig—for now," he says. "But full time is definitely the goal."

Daray is making his present situation work by living with his parents and staying on their health-care plan for as long as he's eligible. Meanwhile, he's talking with his family's Merrill Lynch Financial Advisor, Randi Merel, about ways to boost his savings so he'll be prepared for emergencies—not to mention long-term goals such as buying his own home. To bring greater discipline to Daray's savings strategy, "we've set up a regular transfer from his check-ing account to a savings account. We can then withdraw those dollars to invest," Merel says. "That way, he doesn't really miss the money."

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Not ready to retire. Another of Merel's clients, 59-year-old Ric Noreen, joined the gig economy at a different stage of his career. Five years ago, he took an early-retirement offer from his job as a senior marketing and strategy executive. "It was an opportune time to start what I call a virtual consulting business," he says.

Thanks to technology, his new Chicago-area business, Waypoint Strategic Solutions, is able to serve a wide variety of clients across the country. And Noreen is loving the challenge. "One of the surprises to me is how transferable my skills are across industries," he says.

Noreen and his wife and business partner, Sarah, are empty nesters; their health insurance is covered by a provision in his early-retirement agreement. Still, with concerns about the uncertainty of their future income, the Noreens have worked with Merel to remove some of the risk from their portfolio. Says Noreen, "When the steady paycheck goes away, asset preservation becomes a bigger part of the strategy."

"I am working harder, making more, and am more satisfied than thum I ever was."
—Ric NoreenMarketing Consultant

Jumping back into the job pool. After 15 years devoted to raising four children, Jane MacKeen of Sudbury, Massachusetts, was ready to return to the workforce, but not to her previous career in media sales. Instead, she earned a masters degree in dietetics. Starting in 2014, the former college swimmer began her current gig teaching corporate employees and private clients about wellness.

"Jane and her husband, Mike, did all the right things when she was younger—opening an IRA, putting money in a 401(k), starting to save for her kids' college," says Mary Mullin, MacKeen's Merrill Lynch Financial Advisor. Combining experience in sales with her love of wellness, gig work "has afforded me the opportunity to explore a new field, while still having time with my family as I transition back into the workforce," MacKeen says. And using her gig work as a bridge, she recently landed a full-time position at a company that uses wellness programs to help employers improve the well-being of their employees while reducing health-care costs.

Working Without a Net
Whether you're making the move by necessity or choice, supporting yourself without such traditional benefits as paid vacations and employer-sponsored health-care and retirement plans requires careful planning and a clear sense of what's ahead. Here are some basics to consider if you're contemplating diving into the gig economy.

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When you’re self-employed, investing  for retirement is entirely up to you. For  tips on ways to do that, read “DIY Retirement  Planning” next.    

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The health-care puzzle. Rising health-care costs are especially challenging for self-employed people if there's no employer chipping in. For some, the answer may be joining the plan from a spouse's job. Others may find coverage through HealthCare.gov, or through professional organizations that offer plans for freelancers. "You can also try to negotiate health care with some of your gig employers, perhaps in exchange for a lower salary," Mullin suggests.

An emergency fund. Keep in mind that in the gig economy your main client can cut payments, extend payout periods or even go out of business with little notice. "You'll need an emergency fund to be able to withstand those unexpected gaps between gigs and checks," says Thomas Carter, vice president of Personal Retirement Strategy & Solutions at Merrill Lynch. Finally, don't underestimate your regular expenses. Most of them, from your computer to your business car to tech support, will now fall on your shoulders.

Attention to taxes. "When you're working gigs, there's no automatic withholding," notes Carter. Instead, you'll likely be paying quarterly estimated taxes. This requires a greater degree of control over your spending, so that you have enough to cover taxes when they're due. Work with a tax professional who can help you set a strategy for paying taxes, taking advantage of any appropriate deductions.

Equally important advice, once you've gotten all your financial ducks in a row, is to enjoy being your own boss. As Ric Noreen puts it, "I am working harder, making more, and am more satisfied than I ever was. And my pedal is still to the metal—maybe even with a little bit more resolve."

3 Questions to Ask Your Advisor

  1. How could my retirement savings be affected if I work on my own?
  2. What steps can I take to help ensure steady cash flow, even if my income fluctuates?
  3. Am I putting away enough to cover my health-care costs?

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1 Lawrence F. Katz and Alan B. Krueger, The Rise and Nature of Alternative Work Arrangements in the United States, 1995–2015, 2016.

Bank of America Merrill Lynch is a marketing name for the Retirement Service business of Bank of America Corporation.

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