Millennials are now the largest generation in the U.S. workforce. Constituting just over one-third, a considerable number of this cohort are working as independents rather than as employees.
Their work life, unlike the experience of their parents, is likely to leave them without a stable income stream and ready access to retirement plans and other benefits.
Over the next decade and beyond, millennials — those ages 23 to 38, according to the Pew Research Center — will drive a trend toward a new "gig economy" that is defined by the growing proportion of independent workers.
This trend includes workers who are independent by choice and others driven by necessity, including members of older generations who seek to supplement their incomes.
Independent workers include self-employed workers, agency temps, independent contractors, and so-called "gig" workers (online platform workers, like Uber and Lyft ride-share drivers). According to McKinsey Global Institute, roughly 68 million workers (27% of the U.S. working age population) are performing independent work, with about 46% of them earning most of their income from independent work.
Regardless of whether independent work is full- or part-time, or a matter of choice or necessity, various studies show that nontraditional workers want and need creative solutions for income stability and access to benefits.
In one survey, one-third of independent, full-time contract workers considered planning for retirement a top challenge. Another survey found that 34% of independent contractors reported having no retirement savings. And more than three-quarters of respondents to a 2014 Pew survey of both independent and traditional workers said they would prefer to receive employer-provided health insurance or retirement benefits rather than an increase in their cash pay of equivalent value.
Recent legislative and regulatory efforts to loosen restrictions on multiple-employer plans should increase access to qualified plans for groups of independents who have common business or economic interests. While MEPs are employer plans, the definition of an employer includes the owner of a one-person enterprise.
The growing number of state-sponsored auto-enrolled IRA programs for workers without access to ERISA plans (including self-employed workers) may offer another way to encourage independents to save for retirement.
For example, the first state auto-IRA program, OregonSaves, has attracted thousands of participants so far with more than $12.8 million invested in individual Roth IRA accounts.
The OregonSaves program offers easy access to a sound retirement savings vehicle. It includes capital preservation and growth fund options, as well as target-date funds.
It also has good governance processes in place, including a concise investment policy statement to guide the plan fiduciaries, which are the state board that runs the program and relevant contractors. Other state-sponsored IRA programs generally have comparable features.
A big unknown is how willing independent workers will be to use new retirement savings vehicles. What we do know is that independent workers are significantly less likely to have access to traditional retirement plans and, even when they do, they are less likely to use them than employees who don't work independently.
They are also more likely to focus upon having "rainy day" savings to smooth the impact of their variable income than on longer-term goals, and to rely on means-tested government programs like Medicaid and Social Security.
All of this suggests that working independently jeopardizes future financial well-being. Independent workers need good, holistic financial advice.
The trend toward a "gig economy" may be converging with a trend in financial services towards promoting financial wellness. Facilitating wellness involves budgeting, cash and debt management, goal funding, and health and retirement program management. It requires financial planning backed by tools and support for faithful execution of the plan.
The big financial firms are working to build financial wellness capabilities into workplace benefit programs with the company retirement plan as the featured attraction. But independent workers rarely have access to comprehensive workplace benefits programs, even as they arguably need it the most.
The business model that may resonate best with independent workers may be one that is crafted by an objective financial wellness adviser. For this clientele, the wellness adviser acts more like financial diagnostician, evaluating the client's situation, exploring available employer benefits, identifying gaps in coverages and savings, finding solutions to fill the gaps, and guiding the fulfillment process. The process is personal rather than corporate, so it is likely to be more sequential, pragmatic, and flexible than a workplace solution. The adviser's compensation is more likely to be fixed-fee, hourly or retainer-based rather than based on assets under management or commissions.
Independent workers are an underserved market today. They could be an important business niche in the future.