The third article in our Financial Literacy for Artists series explores financial building blocks for mid-to-late-career artists: understanding social security, buying property, and managing career peaks and valleys.
In Southwest Contemporary’s Financial Literacy for Artists series, we bring you financial content that can apply to artists working in any medium and at any career stage.
Over the past three years, Tamara Bates, founder of the fellowship the dots between, has worked with hundreds of artists in the Southwest and across the country. Her articles share information on the core topics she has been asked about and what she learned as a financial advisor. The images in this series are all from previous dots between fellows.
This is the third article in a series exploring financial topics pertinent to artists at different career stages. The columns in this series include:
- What You Need to Know as an Emerging Artist
- What Mid-Career Artists Need to Plan For
- What Late-Career Artists Need to Consider
- Basics of Managing Uneven Income
- Protective Factors for Managing Uneven Income
- Aligning Revenue, Time, and Values
- Student Loan Updates
- IRAs Explained
- 401(k) and 403(b) Employer Retirement Plans
- Sandwich Generation Financial Planning and Family Needs
Financial Lifespan of an Artist: What You Need to Plan for in Your Mid to Late Career
One recommendation I like to follow is to make a plan based on the information I currently have, because trying to account for any foreseeable event in the future leads to fear and paralysis. I make my plans for the future based on what is presently happening, and then I change my plan when new information arrives. With that in mind, let’s look at some issues that can impact us over several decades.
Social security is an area that I see many artists ignoring or choosing pathways that leave them with very little invested into the system to support them in their older age, increasing what may already be an economically fragile time of life. Let’s look at how the system works so you can make choices around your earnings and how much you are claiming on your taxes if self-employed.
Social security is based on your highest-earning forty quarters, or ten years. These high-earning years can happen at different points in your career; they don’t have to be contiguous. You can look up your amount at “FRA,” or full retirement age (depending on your birth year, this will be around age sixty-six or sixty-seven), and your amount at age seventy at ssa.gov. Withdrawing funds earlier than FRA is not recommended. You can run different scenarios on ssa.gov’s calculators to see how much you will gain or lose depending on the age you begin.
The downside for people who have been self-employed over their entire careers, and have sought to reduce their taxable income through lots of deductions, is that you may have paid very little into the system and have an amount of $700 or $800 a month to collect. Social security will probably never be enough to cover all of your living expenses, but you would hope for it to pay for about one-third. Claiming at least $60,000 to $80,000 a year of income for those ten years will come out to about $2,700 to $3,000 a month in social security. Again, you can run different scenarios to see what may work for your situation.
It’s not too late to make choices that can greatly impact your social security if you are still working. I met with an artist who was able to triple her social security at the very end of her career by getting a PhD and working for a university for eight years making more than $100,000 a year—and this was all accomplished in her sixties. She’s now seventy-three and her social security is $3,200 a month. Previously, the amount was $800.
Home or Land Ownership
A topic that frequently comes up in my conversations with artists is the desire for a home or property where they can live, build a studio, or even host a residency. Buying a home without W-2 income or mixed income sources can be tricky—there’s nothing lenders like more than a stream of fixed, predictable income. It can be extremely hard to obtain a mortgage if you have a lot of 1099 income and variable income (and you may end up paying a higher interest rate). If you are a first-time home buyer, start by looking at what programs are offered through your city and state. Visit your city’s website and look under housing to see what’s there.
To prepare to qualify for a loan if you have 1099 income, keep your tax deductions to a minimum for two years as lenders look at your income after deductions. Other items that can help you qualify for a mortgage are paying down debt, increasing your credit score, and saving for a larger down payment.
Also, think about the full picture of costs. It’s not enough to have money for the down payment—you will need to plan for a significant cushion for repairs each year, property taxes, and increased insurance costs. I love this calculator from The New York Times that gives a full picture of all the issues.
Once you purchase a property, one protective factor can be access to a low-interest line of credit for expensive repairs or other problems. Explore a HELOC (home equity line of credit) or another type of loan against an asset, like a securities backed-loan. If you can qualify for these at a set interest amount, you won’t have to pay any interest until you borrow. Establishing the line of credit before you might need it can be important for qualifying for a lower interest rate.
Managing the Peaks and Valleys of Your Career
A case scenario in which the advice I told you at the beginning of this article doesn’t quite apply: experiencing a period of big success at some point in your career, and making plans with the expectation that your success will continue in the same fashion. Sometimes you may be riding the wave of a new trend—receiving acclaim, grants, and invitations. This attention may or may not continue over your career lifespan.
Think about saving and investing for the future while you have extra funds from a windfall. You can also consider saving a specific percentage of your overall income—say, putting away 10 percent in cash in an emergency fund and 10 percent in investments in some type of individual retirement account. As your income varies, these amounts change, but if you have a baseline set, then you know you are always protecting yourself for the future, no matter how your income and opportunities fluctuate.
Lastly, one helpful tool I use is the retirement planning calculator at dinkytown.net. The site has a funny name and looks a little wonky, but it’s a great resource if you are trying to figure out how much to save now to be financially secure in the future.
I look forward to exploring many of these topics in greater detail with you over the next two months. Drop a line to email@example.com if you have a financial question or topic you would like to see me write about.
Disclaimer: This information is for educational purposes only and should not be construed as official financial, legal, or tax advice. Please seek specific advice for your situation from authorized individuals.