As a songwriter, retirement isn’t exactly at the forefront of your mind - finishing your song, setting up that next gig, and getting new equipment is more likely. However, retirement is ultimately still a top financial goal that you should be working toward.
While it may be the furthest goal out, any good financial plan starts with calculating how much money you’ll need to live on during your retirement years (aka your golden years), putting a strategy in place to get there, and then addressing your shorter-term needs, like upgrading your equipment or booking studio space. Many financial professionals believe you’ll need approximately 80 percent of your peak pre-retirement income to maintain your current lifestyle in retirement - seems like a lot right?
If your peak income (or the most you’ll ever make at one time on a consistent basis) is, for example, say $100,000, then you may need roughly $80,000 or more each year. Multiply that annual figure by your expected years in retirement and that’s your target. Given today’s longer life expectancies, you could be nearing the $1.5–$2 million range.
Don’t let those numbers scare you, everyone is different. Maybe you’re accustomed to living on $40,000 per year, in which case your goal is roughly $32,000 times your retirement years - that’s a big difference. Here are a few things to keep in mind when thinking about retirement.
Envision the Retirement You Want
Another factor in figuring out how much income you will need during retirement is envisioning how you want to spend your retirement years. Are you still planning on performing well into your twilight years or do you want to enjoy the spoils of your hard work? Do you want to travel or open your own label? Leave a legacy to your family, charity or alma mater?
Maybe you just want to live a simple lifestyle with the primary goal being to cover your basic expenses. Now’s the time to think through the world of possibilities, because the sooner you start planning — and saving — the better able you are to reach your retirement money and savings goal.
Time Is Your Friend When Saving for Retirement
Setting aside even a small amount of money each month can add up over time. One common and effective strategy is to use traditional retirement vehicles, such as an employee-sponsored 401(k) or Individual Retirement Account (IRA) and set up automatic contributions. While each of these types of retirement accounts has unique rules, all offer tax benefits that can add up over the long-term. Even if nearing retirement, it’s not too late. If you are 50 or older, “catch-up contributions” help pre-retirees stash even more money into their 401(k) or IRA than the basic contribution limits each year.
Do some research with your bank and other musicians in your space about what works best for you and your situation. Start now though, even if it’s pennies to the dollar, a little goes a long way.
How Should You Allocate Your Money?
How you decide to allocate the money you've accumulated — and the goal-related products you choose — are probably the most critical factors when it comes to creating a retirement plan. As mentioned, there are IRAs for retirement goals, as well as guaranteed lifetime income products, but depending on your life stage you may want to consider other solutions as well. Maybe that means permanent life insurance to help protect your financial security and as an effective estate planning tool.
Diversification Helps Balance Risk
Diversification can be summed up in one phrase: Don’t put all of your eggs in one basket. Regardless of what types of retirement product solutions you choose to buy, don't bet your retirement nest egg on just one. The types of products you select will vary depending on several factors, including your risk tolerance and retirement time horizon. These two factors work hand in hand. The more years you have left until retirement, the higher your risk tolerance may be.
When it’s time to determine which method and financial strategy that’s best for you, you may want to consult with a financial professional who can help you map out a plan. In the meantime, make sure you have a clear vision for your goals so you’ll be better prepared to plan your financial future, and start saving.
Provided by Shawn Kilmurray, a financial representative with Fortis Lux Financial, courtesy of Massachusetts Mutual Life Insurance Company (MassMutual). California insurance license number: 0L72749