Financial planning for the voice-over professional
Jun 03 2016
Where will you be financially 10-20-30 years from now? If you’re a U.S. taxpayer, you may or may not be confident that the Social Security system will still be around when you retire. In any case, it’s best to think of Social Security Income as a foundation, not your full retirement income. So you most likely want to do some additional retirement planning. Whatever your age, the time to start on that is now.
We’re not financial advisors, except to advise everyone to educate themselves on financial planning issues, or seek the advice of a reputable expert. If you use an accountant for your taxes, they may be able to advise you, but be aware that a tax preparer may or may not also be a financial planner. Or they may not view overall planning to be what you hired them for, so they might not give you important guidance unless you ask. Discuss that with them – ask if there is anything that you as a solo practitioner should be aware of, or should be doing, that they just assumed you have covered elsewhere. Meanwhile, here are a few more planning tips …
Reading is good. With the Internet, self-education has never been easier. But so is self-inundation. Be sure what you’re reading is current, and that the author has no particular axe to grind. For example, the array of self-employed and employee retirement account options (IRAs, 401(k), etc.) has changed over time. So has your age. For a dry but dispassionate overview or your options, breeze over to IRS.gov, starting at www.irs.gov/retirement-plans/plan-sponsor/types-of-retirement-plans-1. And while you’re there, click around further.
There’s a bit of good news for investors recently, in the form of a regulatory change. Last April, the Department of Labor announced that it will begin to hold retirement investment advisors to a new standard — new rules will require them to serve in a “fiduciary” capacity. That is, they’ll be required to put the client’s best interest ahead of their own interest in profits. Responsible investment advisors already hold to this standard, but now it’s a rule. Even so, no doubt there will remain lots of inept and shady advisors, so we suggest continuing to review all advice very carefully. You can read more in news reports and at the Department of Labor.
Do you know how your eventual Social Security retirement benefit will be calculated? As we said, we can’t predict if or how it might change, but currently, it’s based on your highest-earning 35 years. So if you’re able to earn more each year, do! An attitude of “I’ll just spend a surplus anyway” will cost you. And if for some reason you didn’t work for at least 35 years, or if you showed a loss in some of them, those will count as zero, bringing down your average. (It seems that if you make a LOT in part of a year, but very little in the rest of it, the overall year might not make the 35-year cut – so, although we haven’t confirmed this with an expert, it might make sense to shift those income spurts to an adjacent prosperous year if you can.) The good news is that past income is adjusted for inflation so that the calculation is done entirely in today’s dollars (“today” being the year when payment is calculated). Learn more at the National Endowment for Financial Education, and see some examples at the Social Security Administration. Be sure to click “next” to see the bottom-line benefit for each.
But wait … does the above news mean you should not take maximum deductions now? They’ll reduce the bottom-line taxable income on which your Social Security benefits will be calculated. Again, we won’t play Financial Planner or Tax Advisor, but we can give this thought: We haven’t done the complicated financial math (hey, our thing is sine waves and decibels), but our guess is that you might as well benefit from the deductions now, especially IF you invest the deduction for your future, rather than buy a new couch.
Or, you could use those savings to set up a special account for a special purpose. In fact, set up an array of special accounts, one for emergencies, one for college, one or more for special purposes, and one for retirement. This way, it’s easier to watch your progress toward your various goals, and it discourages swiping from yourself when tempted. Establish them using an appropriate savings/investment plan for each purpose, in the appropriate institutions (bank, mutual fund, etc.) based on the type of investment, term, need for liquidity, etc..
Remember what you learned in 8th Grade about the benefits of compound interest? It means that if you can save a little bit more each month, over a long time it will have grown exponentially – becoming significantly more. Skip a latte a week. Give it a shot.
In short – You’ve invested in your future as a voice-over professional. Just as “Learning Never Ends,” neither should investment. And the sooner you start, the more it compounds. Make a Financial Plan part of your Business Plan, and look to your future, this month, next year, and way down the road.