The Retirement Picture: Piecing Together the Puzzle

Thinking about finances is often uncomfortable, but the thought of having enough resources to use in retirement can be absolutely terrifying.  Artists and other freelancers, for whom work-life is often more about fulfillment than just putting in time somewhere, have rarely had the luxury of receiving a pension to live on in retirement after working for a company for 30 years as did many mainstream workers in the past.  As those defined-benefit pensions become rarer and rarer, nearly all workers are now finding themselves in the same position.

Increasingly, the notion that the resources we will use in our post-working years will come from primarily one source is becoming obsolete, making it important to adapt our thinking to the realities of today.  In looking ahead to the future, the funds we will use to live on when we finish our working careers will come from several different sources.  These various pieces—which may look comparatively small and possibly insignificant on their own—will form a much more comforting picture when fitted together.

One of the bedrock components of our retirement asset picture is federally provided Social Security.  Throughout our working years we contribute to the fund from which we will eventually draw a benefit.  Ensuring that earnings have been properly credited is critical due to the fact that the amount of our future benefit will be based on our highest earnings years.  For artists and freelancers, who often have yearly income from multiple sources, this is especially important to monitor as the chance of the Social Security administration not capturing each source may be more likely .

A simple review of your earnings history online at the Social Security website will confirm that your benefits have been accurately recorded.  The site will also provide an estimation of benefits due to you at various retirement ages.  Knowing this estimate will help to fit the first piece of your retirement asset picture into place.  If you’ve worked extensively in countries other than the United States you may also qualify to receive something from their government program.  Be sure not to overlook that possibility as well.

Another important element of the retirement puzzle is industry pensions.  It is critical to understand early in your career—and as soon as you join a professional union—exactly what will be required in order to qualify for the pension offered.  Once you know the qualification criteria, monitor your progress throughout your career to ensure that you are getting proper credit for qualifying work.  This will ensure that you maximize the benefit received from this second piece of your retirement picture.

Personal retirement savings accounts can also be an integral element of retirement resources, especially for those who rely heavily on freelance income.   The two most common individual retirement accounts—commonly known as IRAs—are traditional and Roth accounts.  Both can be advantageous from a tax perspective and importantly, shelter asset growth such as dividends and capital gains from current income taxes.  Another type of IRA that is particularly helpful to freelancers is the SEP IRA, in which you can shelter a percentage of freelance income you receive.  Equally important, withdrawals from savings you shelter in IRAs may incur penalties if taken before you reach age 59 1/2.  This can be a good incentive to resist the temptation to tap into these funds prior to retirement.

At times in our careers we often find the need to take on ‘money jobs’ to make ends meet and to build up our assets.  Over the last few years, policy changes often allow you to participate in a company’s 401(k) plan (or 403(b) plan in the case of non-profit organizations) even for short-term work assignments.  In some cases, they are required to automatically enroll you in the plan unless you actively choose to opt out.  Check with the human resources department to be sure that you are taking advantage of these accounts to whatever extent that you can while working there.  When you leave the job you will have the option of keeping the account there—subject to minimum balance conditions—or rolling the funds over into an IRA under your control.

Finally, any regular savings and other investments that you’ve built up in emergency cash funds to help provide stability or in assets that generate supplemental income won’t suddenly evaporate once you reach retirement age.  In fact, they will often provide some added cushion, allowing you to delay using funds from your tax-sheltered accounts until you absolutely must—an important and useful final element to your retirement puzzle.

Viewed individually, each of these retirement asset pieces may not seem to be substantial enough to get you through your retirement years.  However, by maximizing the benefit you will receive from each component throughout your working life and then combining them together, artists and freelancers will find a much brighter—and more comforting—picture of their post-working financial health.

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