Retiring in a Freelance Economy

One of the most profound challenges in navigating the freelance economy lies in financial planning. Picture:

One of the most profound challenges in navigating the freelance economy lies in financial planning. Picture:

Published Nov 24, 2023


By: Nosipho Nhleko

In the age of rapid ongoing digitisation, traditional employment structures are undergoing a metamorphosis. Mirroring global trends, there has been a noteworthy rise in South Africa’s freelance economy, carrying with it the allure of independence, flexibility and financial possibility. But there are caveats.

One of the most profound challenges in navigating the freelance economy lies in financial planning, particularly for retirement.

Recent data from the Southern African Freelancers’ Association revealed that two out of three freelancers reported losses between 25% and 100% of their income between 2020 and 2021 – amid challenges brought on by the Covid-19 pandemic and the prevailing digital disruption in the communications sector.

But this turbulence isn't restricted to our borders. Research into the US gig economy – with a formidable freelancer force of 73.3 million in 2023 – found that a significant portion remains underprepared for their golden years. In fact, a startling 30% never expect to retire.

It's easy for young freelancers, buoyed by the promise of flexibility and potential income, to think retirement is a distant concern. However, the magic of compounding interest is time sensitive. To put this into perspective: if a 25-year-old invests R10,000 annually with a 10% return, they could amass R3.2 million by 60. Starting at 35 would reduce this figure to R1.2 million, highlighting a loss of R2 million due to a ten-year delay.

This underlines the fundamental principle – time in the market is more crucial than timing the market.

Understanding the importance of early retirement planning is one thing but implementing it in the dynamic world of freelancing is another. Traditionally, permanent employment provides structured pension plans. Freelancers, on the other hand, need to take the wheel themselves. But with options like Retirement Annuities (RAs) or Pension and Provident Preservers, the journey can be less daunting. These tools offer tax benefits, from deductions on RA contributions to non-taxation of capital gains, dividends, and interest income.

Retirement offerings by financial services companies like Liberty, echo these sentiments. With an emphasis on flexibility and consumer-centric solutions, Liberty has crafted retirement products tailor-made for freelancers.

However, there exists an elephant in the room: the unpredictable income of freelancers. Freelancers' variable income streams often become roadblocks to consistent savings, making retirement planning difficult. The age-old mantra 'pay yourself first' might just be the beacon here. By reserving a portion of every earning for savings, a safety net starts forming. And when it comes to retirement plans, opting for lump-sum contributions over monthly ones can make this journey penalty-free and more accommodating.

The first step towards retirement planning is seeking expert guidance. Financial Advisers assess individual needs, financial goals, and risk appetites to curate personalised solutions. With multiple remuneration models, there's always an adviser suited for every pocket.

What is most important is to remember that retirement planning isn't static.

It demands periodic reviews, at least annually, to align with market dynamics and personal changes. Such reviews, in collaboration with Financial Advisers, can help freelancers stay on track and adapt to new circumstances.

The freelance economy is here to stay. As it grows and evolves, so should one’s approach to financial security and retirement. By understanding the nuances, starting early, and leveraging expert advice, we can chart a course towards a financially secure sunset phase.

* Nosipho Nhleko is an investment product specialist at Liberty.