Saving for Retirement by Side Hustle

While employment rates may be higher now than in previous years, many economists note that wages haven’t budged in a decade. With flat wage growth but increasing inflation in other areas, like housing and health care, saving and retirement saving specifically, may benched from the budget action.  Some employee’s response to rising daily living costs without a corresponding increase in earnings has been to pick up second or seasonal jobs. This side hustle has become such a staple that some lifestyle writers even coined a term for those with two work identities – the slash workers. Those would be bookkeeper/yoga teacher or teacher/blogger, or on a more mundane level it could be office worker/retail associate.  The slash worker’s side hustle has also been a go to for saving for retirement.
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Robo-investment platform Betterment recently conducted a study and found that nearly one third of those it studied had a side hustle because they lacked the income to save for retirement. A survey by Bankrate found that nearly 44 million Americans have a side hustle.  Some used the side hustle to increase retirement savings so that they could retire earlier, where others had no other means to save for retirement. Others used the side hustle to pay off debt (student loans or consumer credit cards) so that they could later save for retirement. But before employee’s jump on the side hustle train, there are a few drawbacks to saving by side hustle.
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First, employees should consider how much time and money they are spending to make money on the side hustle. “You don’t want to end up hustling backwards,” notes one employee. That is, monitor how much spending you are doing on business costs and compare to how much you are actually earning. This should include the traditional costs, such as business cards, websites, sales kits, and travel. It should also include extra costs, like the getting takeout or pizza more often because you are short on time, or paying higher parking costs to save time on your commute. Hustling backwards would occur when you pay more for the side hustle than you earn.
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Employees should also monitor how much time they spend on the side hustle. While saving for retirement is essential, so too are social connections, family relationships and sleep. Juggling multiple jobs or appointments turns the side hustle into the struggle juggle. Burning out or getting sick from working too much will obliterate the potential income and savings from extra work.
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Second, financial planning experts recommend that the income from the side hustle be directed to something specific, so that workers aren’t tempted to spend it on other needs. Giving the side hustle money a job can help prevent workers from overspending on everyday luxuries. Additionally, workers may need help directing the side hustle money into retirement. Some advisors suggest using the side hustle for an individual retirement account, and saving as much as possible in your company’s 401k plan.
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Another crucial aspect for workers to consider are the tax implications of the side hustle. Income from a side hustle may be taxed differently than income from employment, depending on the slash identity you might have. Where as an office worker/retail associate might have two W-2s, a teacher/blogger may have income from the blogging that is taxed as self-employment income.
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Finally, another alternative has been popping up among workers lately: side-hustle by passive income. As some look to the example of start ups that use excess capacity (think Zipcar) for how to harness their earning power, many workers are using AirBnB or similar sharing systems as possible retirement funding sources.
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Side hustles aren’t only for those working full time. Many retirees supplement their retirement through their side gigs. And many who work full time and have a side gig say they plan to keep working the side gig after retirement. The side hustle may become a way of life even if wages increased.