The U.S. Bureau of Labor Statistics has reported that upwards of 10% of the workforce is employed in an "alternative work arrangement." These alternative arrangements take many forms: independent contractors, freelancers, gig workers, and more. It's difficult to put nontraditional careers into a bucket for statistical purposes, but there's no doubt that they're playing an increasing role in today's transforming economy.

While it's a good thing that diverse career opportunities are available, research has shown that those following a nontraditional path are far less prepared for retirement than their traditionally employed counterparts. Without the benefit of employer-sponsored retirement plans, it's crucial for nontraditional individuals to take a proactive approach to their financial future.

But how can nontraditional employees close the retirement gap? This article will provide you with a variety of concrete strategies you can use to do so.

Are you in a nontraditional career and looking for a financial advisor? Set up a complimentary introductory meeting with a Wealth Enhancement Group financial advisor.

First, Understand Your Retirement Needs

You can't plan for something you don't understand. Traditional retirement planning often comprises saving up as much money as possible to eventually fund your next phase of life. While this approach works well for many people, it doesn't necessarily apply to you.

Begin by envisioning your ideal retirement. Our society's visions of retirement are changing rapidly; while your grandparents might've desired golf, warm weather, and beach relaxation, people today are rethinking what retirement really means to them. Ask yourself many questions:

• What excites me at the start of my day?
• Which activities give me energy?
• Who do I spend time with, and what do they value?

Retirement success for nontraditional career paths starts with a vision. Your financial plan comes after you formulate that vision.

Maximize Tax-Advantaged Retirement Accounts

Without access to employer-sponsored retirement plans, it's important to utilize available retirement accounts to their fullest potential. As with your overarching retirement vision, understanding is key to success.

IRAs

• Traditional IRA. Contributions to the traditional IRA may be tax-deductible, and investment growth is tax-deferred until withdrawals, which are then taxed as ordinary income. This type of account can be advantageous if you expect to be in a lower tax bracket in retirement (which can often be the case).
•  Roth IRA. Contributions are made with after-tax dollars, but withdrawals in retirement are tax-free, including the earnings. This is beneficial for building your own tax-diversified retirement portfolio.
• SEP IRA. Designed for self-employed individuals and small business owners, SEP IRAs allow for larger contributions than traditional IRAs, up to whichever is lower than 25% of your income or $69,000 in 2024. Like the traditional IRA, contributions are tax-deductible and will be taxed upon distribution.

Solo 401(k)

When you think of a 401(k) plan, you may think of a traditional employer retirement plan. With a Solo 401(k) plan, you get to wear two hats: employee and employer. The dual role allows you to make both employee and employer contributions. Employee contributions can be made up to the lower of 100% of compensation or $23,000. Employer contributions can generally be made up to 25% of compensation depending on whether you are considered self-employed. 

Optimizing IRA and Solo 401(k)

One of the primary ways to get the most out of your IRA or Solo 401(k) is to contribute regularly. Even small, consistent contributions can grow significantly over time due to compound interest.

Note that each type of account has annual contribution limits. These limits often change every year, typically rising by some amount to account for inflation. If you are 50 or older, many types of accounts allow you to contribute an extra amount, known as a "catch-up contribution." Doing so can maximize the amount you save as you near the traditional retirement age.

Diversify Your Income Streams

Many nontraditional employees are accustomed to the idea of diversification when it comes to income. Some may work multiple gigs at the same time; others sprint on high-priority contracts for intense periods, then take time off afterwards.

When it comes to retirement, diversifying your income streams looks fairly similar. Your retirement income comes from three main building blocks:

1. Retirement plans, such as IRAs or 401(k)s.
2. Social Security payments.
3. Savings and investments.

We explained how IRAs and Solo 401(k)s can fit into your plan above. Social Security payments will also be a critical part of your retirement income, and can be optimized through careful planning. However, the third building block, savings and investments, is where your diversification efforts can really shine.

Consider a mix of passive income sources, such as rental property, dividend-yielding stocks, or even digital goods like eBooks to augment your portfolio. Before retirement, the proceeds from these investments can generate income for you to reinvest and build your nest egg. After you retire, these developed income streams can provide you with enhanced financial stability outside the confines of a retirement plan.

Leverage the Mighty HSA

Health Savings Accounts (HSAs) are a valuable yet often underutilized tool for those following a nontraditional career path. They offer a unique triple tax advantage:

1. Tax-deductible contributions, lowering your taxable income.
2. Tax-free growth, allowing your investments to grow to their fullest potential.
3. Tax-free withdrawals, when used for qualified medical expenses.

No matter what career path you're on, an HSA can be a powerful tool to augment your retirement plan.

Strategies for Maximizing Your HSA

To contribute to an HSA, you need to be eligible. Eligibility hinges on being enrolled in a High Deductible Health Plan (HDHP), which are popular among nontraditional workers thanks to their lower premiums and higher deductibles. You must also not be claimed as a dependent on someone else's tax return.

Many HSA providers offer investment options similar to those found in employer retirement accounts, such as mutual funds. However, not all HSAs are created equal, so look for one that matches your needs, such as low fees and good customer service.

While it's critical to know the basics, there's one secret to HSAs that trumps all others: if you can afford it, pay medical expenses out of pocket instead of dipping into your HSA. While medical expenses can quickly mount up, paying out of pocket will allow your HSA funds to continue growing. This way, when you run into eventual health care expenses later in life, you can benefit from years of tax-free growth that would've been impeded by any prior withdrawals.

A Wealth Enhancement Group financial advisor can help you incorporate an HSA into your retirement plan. Get in touch today.

Navigating Retirement for Your Career Path

Being on a nontraditional career path often comes with an entirely different lifestyle. While advising freedom and flexibility can be rewarding, retirement planning requires careful consideration and strategic actions to ensure security. Fortunately, it's entirely possible to craft an effective retirement strategy.

At Wealth Enhancement Group, we understand that each financial journey is unique, especially for those with nontraditional careers. Our comprehensive financial advisory approach is designed to address your specific needs from every angle, no matter how complex your situation.

To help you make the most of your nontraditional retirement planning, book a free, no-obligation meeting with one of our advisors today.