Episode 008 – Scott Stratton on Retirement Options for Self-Employed Musicians

Summary

When I graduated from college and was first starting my music school, I knew saving for retirement was a thing I should be doing, but I really didn’t know how to get started.

Today’s guest, Scott Stratton, is a financial advisor and blogger behind FinanceForMusicians.com. In this episode he explains some of the retirement options available to self-employed musicians.

The specifics of this episode apply mostly to American teachers, but the general savings principles apply to everyone.

Takeaways

This episode discusses financial planning in the United States. Options in other countries will be different. Do your research!

Social security benefits probably won’t be enough to fund your entire retirement savings
“Four Percent Rule” – plan to withdraw no more than 4% of you total retirement savings per year during retirement. Don’t forget to adjust for inflation!
- $1 million savings = $40k/year during retirement (in today’s dollars)
- $1.5 million = $60k/ year during retirement
- $2 million = $80k/ year during retirement
- If $40k is enough for you now, adjusted for inflation, you will need around $80k/yr to retire in 2050)
Start saving yesterday. If you don’t have a time machine, start today.

Three types of retirement accounts musicians should know about

Traditional IRA

Contribution limit $5,500/year ($458/mo)
Everyone can invest, but only some are eligible to deduct contributions
If you can’t deduct, look at another option first
If you make a deductible contribution, the money goes into the account pre-tax and it grows tax-deferred. It is taxed when you withdraw the money during retirement when you are (potentially) in a lower tax bracket)

Roth IRA

Contribution limit $5,500/year
Money is contributed after taxes have been paid on it and it grows tax-free. You can also withdraw from a Roth IRA tax-free.

SEP IRA

Contribution limit determined by income – up to $55,000 contribution (in 2018)
If you can save more than $5,500/year, consider SEP

First Steps

Have 3-6 months of savings in emergency fund
Have a plan in place to pay off student loans
It’s never too early to get started, even if it’s only a small amount at first
Create a net worth statement and come up with a plan to increase income and decrease liabilities (student loans, credit card balances, mortgage, etc.)