The Working Performing Artist
Doing What You Want to Do
Your life of a performing artist is far from routine, it is not the typical 9 to 5 workweek, there are no employee benefits, annual leave, or a need to climb the corporate ladder, however, you are working in an extremely competitive industry, and especially in New York City. Accordingly, your life needs to be on-the-ready, searching for that next performance opportunity, the next audition, and doing your best to create your own luck. To operate like this you do what is needed to pay your bills, you are a freelancer, waiting for your 1099, that always seems to arrive late, living and loving the “gig-life”.
How would you feel if I were to tell you? “You are never going to retire; your future is going to be about doing more of what you want to do and less of what you don’t want to do”. Maybe you would say - “That’s already my plan”. As a performing artist you are leading the way in what I call - “The New Model of Work and Retirement”, you are already focused on doing more of what you want to do, this is your passion, your art form, and you give 110% to that endeavor. The new model of work and retirement will be all about doing more of what you want to be doing and aspire to, and less of what you do just to get by. The question is, how?
The traditional view of work and retirement has been that you work for about 40 years then retire and receive a pension for the rest of your days (we call this a defined benefit plan). This makes sense, because why would you work if you were paid not to. However, this retirement model began to change in the 1980s, and the change was about who was holding the retirement risk. I am referring to the risk that your retirement money runs-out. In the past, this risk belonged to the pension plan provider, your past employer and it became very expensive for employers to fund. As a result, pension plans have become a thing of the past (along with the one job for 40 years). This risk now belongs to you, the retiree. Today people provide for their retirement by saving a portion of their income each year in a retirement account such as a 401(k), 403(b), IRA, or a SEP IRA (we call these defined contribution plans). The goal has not changed, we want there to be enough money in our account so we can live the rest of our days with dignity and independence.
Some stats - In 1975 the total participants of defined benefit plans (pensions) were 33,004, and the total participants of defined contribution plans were 11,507. In 2013 the participant of these plans was 39,084 (an 18% increase) and 92,547 (an 804% increase) respectively. Today, saving for retirement is up to the individual. This is not news for the performing artist everyone else is catching up to the way you have always had to manage your financial future.
A Little Financial Confidence Can Go a Long Way
To be a performing artist you must have a healthy level of confidence in your abilities. However, being financially confident is very different, because you probably are not a fan of numbers, and there is so much financial mumbo-jumbo out there, but you would like to be able to say - “My debt is under control and my bills are all paid”, “I have a good idea of where I am financially”, “My budget is a big help,” “I’m saving enough,” and “I am investing wisely”. There is no quick fix to improving your financial confidence, just like your artistry, it has taken a lot of time and effort to get where you are, (rest assured it will take a lot less time to build your financial confidence). So, how can you achieve some financial peace of mind? I recall listening to an interview with the actor Michael Caine, he talked about the philosophy he has applied in his life which came to him as a result of a mishap during a stage play rehearsal, and it is simple:
“Use the difficulty”.
Things often do not go to plan, on stage or in life, so he found the best approach was not to ignore or blame the difficulty, but to use it and weave it into the solution. I was listening to a lecture and the speaker said something that made me sit up in my chair and gaze out of my office window at the sky. It just so happens that NASA’s Apollo 11 mission was off-course 95% of the time! The whole mission, it seems, was about getting back on course.
Destiny has a lot to do with it, but so do you. You have to persevere, you have to insist.
– Andrea Bocelli
Performing artists know about pushing on, persevering, insisting and overcoming and using the difficulties. Let me offer you some financial strategies that when applied as part of a plan developed in the context of your goals and your circumstances, and with a trusted financial planner, will boost your financial confidence and also move you toward your financial goals.
Financial Tools and Strategies for the Performing Artist
As a financial advisor, my job is to look for ways to achieve my clients’ lifestyle needs and aspirations. For example, a client’s financial goal may read as follows: To be financially confident in my future so I can devote more and more of my time to my passion and for as long as I wish. That sounds like an attractive goal. Below I have listed some tools and strategies that can help you achieve this goal under the following headings: Saving for Retirement, House Keeping Matters, Debt, and Income.
SAVING FOR RETIREMENT
1. Leverage the power of compounding, start saving something early, the sooner the better!
Ideally, you will have opened a deferred tax retirement account such as an – IRA, Roth IRA, Solo 401(k) (my favorite for the self-employed), or SEP IRA. I can help you determine which is best in your circumstances. Let me demonstrate the power of compounding with an example. We will assume an average investment return of 8%, for your tax-deferred retirement account. Sally saves $5,000 a year from age 25 to 65, a total of $200,000; Harry also saves $5,000 a year, but from age 35 to 65, a total of $150,000. At age 65 what will Sally, and Harry have in their retirement accounts? All things being equal Sally’s balance will be $1,295,000, and Harry's balance will be $566,000. The difference in what they both saved was just $50,000 ($200,000 for Sally less $150,000 for Harry), but the power of compounding started 10 years earlier for Sally and her first $50,000 generated the additional savings of $729,000! ($1,295,000 less $566,000). The message here is to start early with whatever you can.
2. Roth IRA’s and Roth Conversions.
As a general rule, a Roth IRA is a great place for all asset, on the way in the funds are after-tax, and the capital gains and income in the account grow tax-free, and it is also tax-free on the way out. As a result, we want to think of ways to build your Roth accounts with low taxed income. The gig-life can result in years of low income, so how can we use the difficulty? A Roth conversion (converting a traditional IRA to a Roth IRA) is a good way to take advantage of a temporary period of low income. Your financial advisor can direct you on how best to plan for this.
3. Can you afford to take a retirement contribution holiday?
What do I mean? For example in your latter years, you may stop contribution to retirement accounts for five to ten years, and during this time you are living off your earnings, and do not access your retirement savings. During this time your investments can grow significantly (the power of compounding) in addition, you have also reduced the time period these savings are needed, i.e. the years you will need to draw on your retirement savings has been reduced. Your financial advisor can direct you on how best to plan for this.
4. Social Security.
Remember your social security benefit increases 8% each year from age 62 so if you can, it is best to wait until at least full retirement age (66-67 years old) and bank the 8% annual increase in benefits.
5. Health Savings Accounts (HSA)
Contributions to an HSA are tax-deductible (limits and other requirements apply), they grow tax-free and remain tax-free if used for medical expenses. I suggest you contribute to an HSA in your early years and do not draw on it (you can always “break in the case of emergencies”), invest the funds and allow it to grow to a “healthy” balance ready and available to use in your later years when you will no doubt have medical expenses - death, taxes and medical expenses.
Keep good records of expenses and income.
As a freelancer, you need to keep good tax records of your 1099 income and supporting documentation for your expenses. I recommend you obtain a list of tax-deductible expenses from your tax preparer or financial planner and spend 15 minutes a week to summarize and organizing your records chronologically, ready for your tax filing. You will find performing this task weekly is ideal as your memory is fresh and it will take less time.
7. Separate business and personal accounts and create a buffer.
Separate your business activities from personal. At a minimum have a separate bank account and credit card for all business activity. Also, have a separate bank account for your emergency fund and for your tax installment payments. Having an emergency fund is critical to managing your inconsistent cash flows, we know your 1099 payments often arrive later than expected which means a cash buffer is needed.
8. Build your financial confidence by creating a budget and cash management system and keep a weekly rhythm.
A cash management system may not sound like a fun activity. Do what you can to get yourself into a rhythm and you’ll start to reap the benefits, don’t worry, it’s OK to miss a beat now and again, this is not surgery. Don’t give up, perfect budgets can fail, persist as this will guide you to living within your means, build your financial confidence, and progress towards your goals.
Rhythm, for me, is everything. Without rhythm, there’s no music. Without rhythm, there’s no cinema. Without rhythm, there’s no architecture. The cosmos is a system of rhythms that come in many ways: Images. Sounds. Colors. Vibrations...
-Film director Alejandro González Iñárritu
9. Financial advice.
As a freelancer, you have a lot of moving parts to your financial life. To keep on track to achieve your financial goals give serious consideration to working with a financial planner. I suggest you meet with a few advisors and determine if you are going to have a positive working relationship, and that you can trust and get along with them, and that they are able to explain things to you in an understandable way and that they are interested in a long-term relationship. They should also be on call and able to return calls and reply to your email within 24 hours.
For me - I enjoy and want to work with and for people that are passionate and excited about what they are doing.
10. Avoid “bad” debt.
Keep debt for the purchase of long-term assets – Rental Property, Motor Vehicle, business assets. Do not build and carry credit card debt. Average interest rates for credit cards are at their highest level in 25 years.
11. Protect your credit score and pay-off the outstanding balance each month.
The factors that drive your credit score are listed below:
- 35% - Pay your bills on time,
- 30% - Keep you Debt to Credit limit low, e.g. $1,000 debt for a Credit limit of $5,000 (20%) is better than $2,000 debt (40%).
- 35% - Protect your credit score, minimize new accounts, spread loan applications over time.
Our goal is to lower your finance costs and have access to finance when you need it.
12. Investing in Yourself.
Your own dance classes, voice classes, coaching and training lessons are a critical part of your vocation, these need to be planned for, funded and maintained, whatever it takes.
13. Consider Creating Passive Income.
Wouldn’t it be great to have a source of reliable passive income that would free up your time to spend on your passion? You may think this is pie-in-the-sky thinking, talking about owning an investment property, having royalty income, or revenue from training material you have created, and on-line subscriptions. Yes, it is easier said than done, but it is something worth working towards even though it may take a few years to save for that apartment down payment. An investment property, royalty income, and other sources of passive income are ideal and can provide you with the time and financial freedom to peruse your passion.
 Form 5500 filing with the U.S. Department of Labor.
 There are no joint retirement accounts, each retirement account has one social security number.
 See below, SAVING FOR RETIREMENT, 2. Roth IRA and Roth Conversions.
 The lowest 30-year return for the SP 500 since 1926 was 8.6% for the period 1929 t0 1959.
 Report to the Congress on the Profitability of Credit Card Operations of Depository Institutions [banks]. July 2019