Retirement planning may not be top of mind for entertainment professionals whose careers often involve irregular income and uncertain schedules. However, planning for the future is essential to maintaining financial stability long after the curtain falls or the camera stops rolling. By embracing practical strategies tailored to the unique nature of entertainment industry careers, entertainment professionals can build a solid financial foundation for years to come.
We explore some key considerations and actionable steps to help entertainers achieve long-term financial security.
Understanding Your Unique Financial Landscape
Actors, musicians, and other creative professionals frequently face fluctuating income streams, seasonal work, and gaps between gigs. These factors can make traditional retirement planning feel daunting, but the first step toward a secure future is understanding one’s financial baseline.
- Irregular Income: Entertainment professionals often earn sporadic paychecks, which can make budgeting feel daunting. Nevertheless, budgeting based on average monthly income rather than peak earnings can create a more realistic picture of your finances.
*Please refer to our previous post for more information on how to prepare for and budget on unpredictable incomes.
- Career Longevity: Some entertainment careers peak early, but residuals, royalties, and secondary career paths, such as teaching or producing, can extend earning potential. Incorporating multiple streams of income into a financial plan is critical.
By tracking your income patterns and expenses, you will gain a clearer understanding of how much you can realistically save and invest within your means well past the end of your career.
Building a Financial Safety Net
Before diving into retirement-specific investments, it is wise to consider establishing a financial cushion. An emergency fund can help you navigate periods of unemployment or unexpected expenses without dipping into long-term savings.
- Aim for 6-12 Months of Expenses: Given the unpredictable nature of entertainment work, having a more substantial emergency fund is often advisable. This fund should cover rent, utilities, insurance, and other essential costs.
- Use High-Yield Savings Accounts: Additionally, consider depositing your emergency fund in a high-yield savings account (HYSA). This specific type of investment account allows for your savings to grow modestly by offering a higher interest rate compared to traditional savings accounts, allowing your money to grow faster over time. It is worth noting that some HYSAs may require minimum balance requirements or have monthly withdrawal limits, so it is important to review each bank’s specifications.
Once your financial safety net is in place, you can turn your focus to retirement-specific planning.
Saving for Retirement: Start Early, Stay Consistent
One of the biggest challenges for entertainer professionals is the lack of employer-sponsored retirement plans, such as 401(k)s. However, several alternatives can help you build wealth over time:
- Individual Retirement Accounts (IRAs):
- Traditional IRAs offer tax-deferred growth, meaning you will pay taxes on withdrawals in retirement.
- Roth IRAs allow your money to grow tax-free, as contributions are made with after-tax dollars.
- If you withdraw money from Roth IRA earnings before you reach age 59½ and before the account is five years old, the earnings may be subject to taxes and penalties.
- However, if you are 59½ or older and choose to withdraw earnings, you will only be subject to taxes on the withdrawal if you have not met the five-year holding requirement.
- Annual contribution limits for IRAs in 2024 are $7,000 (or $7,500 if you’re 50 or older).
- Solo 401(k) Plans:
- Solo 401(k) plans are meant for those who are self-employed or have a freelance income, as it allows for higher contribution limits than an IRA.
- In 2024, self-employed individuals can contribute up to $22,500 ($30,000 if age 50+) as an employee, plus additional profit-sharing contributions as the employer (i.e. you can contribute as both the employer and the employee).
- Simplified Employee Pension (SEP) IRA: A Simplified Employee Pension (SEP) IRA is another excellent option for self-employed professionals, allowing you to contribute up to 25% of your net earnings from self-employment.
Planning for retirement as an entertainment professional is not about perfection, it is about progress. Whether you are saving small amounts during slow seasons or ramping up contributions after a big project, consistency is key.
Taking small steps today can create significant financial security for tomorrow.
This blog is intended for informational purposes only, and should not be construed as tax, legal, or accounting advice. Please consult with your tax, legal, or accounting professionals for any advice and guidance.