401 (Yay!)
How to Save Your Creative Future
ZEL McCARTHY / WNW MEMBER
At the beginning of 2018, Laura Dambuleff did something she thought she’d never do: she “went corporate.” After working for several years at small companies in the music industry and even running her own shop providing management and label services for independent artists, she was hired as a day-to-day manager by Three Six Zero, the company known for guiding the careers of Frank Ocean and Calvin Harris. While the responsibilities of the job itself were of primary interest to Dambuleff, the consistency and stability of being on-staff was something she felt she needed for her future.
“Music is a short game,” she says. “Everyone is so involved in the now that no one thinks about how they’re going to afford to live when they’re 60. But living month-to-month isn’t a lifestyle. I wanted a structured way to plan for my future rather than do it all on my own.”
As at many larger companies, that structure at Three Six Zero includes biweekly paychecks, health insurance, and a highly coveted employer-sponsored retirement account that allows for pre-tax contributions, known as a 401(k) plan. Like other retirement savings plans, the 401(k) is designed to be a long-term investment, quietly multiplying by investing in the stock market and accruing compound interest over many years, getting ready for you when you retire. The appeal of 401(k) plans is that they allow you to transfer a portion of your paycheck directly into them, bypassing any tax deductions. But what really gives them the reputation as the sexiest employee benefit is a feature known as employer match.
“As the economy has shifted in recent years, fewer companies with 401(k) plans offer a match. Those that do make forgoing the freedom of freelance life that much more enticing.”
With a match benefit, a company literally matches an employee’s 401(k) contributions (up to a fixed percentage of their salary). It’s essentially free money and a 100% instant return on your investment. As the economy has shifted in recent years, fewer companies with 401(k) plans offer a match. Those that do make forgoing the freedom of freelance life that much more enticing. With money on the table, opting-in to her company’s plan was a no-brainer for Dambuleff, but she admits to feeling under-informed about exactly what else she should be doing to save for her future.
“It’s overwhelming for most people,” says David Rae, a certified financial planner based in Los Angeles. “If you’re lucky enough to have a 401(k), you usually don’t know how much to put in, and what investments are best and which one to chose.”
The allure of the 401(k) match alone is so strong in our modern workplace folklore, it’s often the only benefit new employees ask about, according to Antiouse Boardraye, Director of Human Resources at Pride Media and High Times.
“When they ask about a match, it’s because they know it means that they’re getting money from the company,” says Boardraye. “But they’re often not willing to contribute to their own 401(k) if there is no company match because they feel like if the company isn’t going to invest in them, there’s no reason to put the money away.”
In focusing on the employer match, Boardraye says employees are overlooking other virtues of a 401(k) plan, including the option to take out a loan from your account in hard times or increase your contribution when the stacks are fat. Still, amid the flurry of new hire paperwork, for many people, the hardest part of enrolling in any retirement plan can be deciding how much of your paycheck to divert from your checking account today to stash away for your golden years.
“People want you to tell them what to do,” says Boardraye, who has encouraged companies he’s worked for to save some of the guesswork by auto-enrolling employees into their plans. “They want to know how much they should invest. I tell them what’s common or what I do, but it really is up to them. People under 30 typically do the bare minimum of 3% but more than that, they feel like they can’t afford it.”
Some people are averse to putting their money into the stock market out of concerns they might not get it back. That shouldn’t be a primary worry, says Rae. “Realistically, if you’re giving it enough time, you’ll make more money with a retirement plan invested in the stock market than you will anywhere else. Even at the depths of the 2008 financial crisis, people had still doubled or tripled their original investments, and that’s not counting the tax breaks that come with retirement saving.”
Your age, current income level, and target retirement date all influence the savings choices, but Rae points out that the only wrong choice to make is to not save at all. “You don’t have to find the perfect, best answer for investment choices right away,” he says. “People are so scared to get started. But just get started.”
“Getting started seems to be a widespread problem. Recent studies show that the average American doesn’t have enough saved for retirement, including two-thirds of millennials who have nothing saved for retirement at all. This isn’t just because we’re all living high on that avocado toast lifestyle.”
Getting started seems to be a widespread problem. Recent studies show that the average American doesn’t have enough saved for retirement, including two-thirds of millennials who have nothing saved for retirement at all. This isn’t just because we’re all living high on that avocado toast lifestyle. Despite the popularity of 401(k) plans, fewer companies offer them as a benefit today than they did 20 years ago, shifting the responsibility to save for retirement entirely to employees. Among small businesses that do offer retirement plans, it is increasingly without a match. This means it’s more important than ever to be aware of your options, especially when flying solo.
When Tom O’Connell gave up his 9-to-5 in finance to be a freelance commercial and video producer, he didn’t want to give up his retirement saving habits. “As a freelancer or small business owner, you can start what’s called a SEP (self-employed person) IRA, or an ‘individual 401(k),” he explains. “You make your own contributions up to 22% of your income, and the contributions grow, tax-deferred until you withdraw them when you retire.”
Different plans come with different advantages, including the option to make “catch-up” contributions after a certain age, but O’Connell emphasizes that opening an account is something every freelancer can do for themselves. “I have an individual 401(k) that I started through E-Trade,” he says. “There’s a little tax deduction dance you have to do when you get paid partially by W-2 and partially by 1099, like I do, but it’s worth it.”
In addition to now managing his retirement plan himself, the predictability of O’Connell’s month-to-month income has changed too, making it harder to budget how much he can plan to save. It’s a problem Dambuleff has seen many of her artists confront too, especially when playing a classic game of chase-the-invoice.
“If you’re not getting paid on time, you’re preoccupied with the money you’re owed for work you already did instead of planning for the future. When they finally get that money, not many people think, ‘I’m going to put it in my retirement account.’”
“If you’re not getting paid on time, you’re preoccupied with the money you’re owed for work you already did instead of planning for the future,” she says. “When they finally get that money, not many people think, ‘I’m going to put it in my retirement account.’”
Rae says that’s exactly what they should do. “Pay yourself first. Every time a commission check comes in, set aside a little money. Throw extra money in when you get a big job. For self-employed people, the tax savings are even bigger so you’re going to be better off saving something than nothing.”
Whether you have retirement benefits through work or you’re setting up a type of IRA on your own, the process can be daunting, but it is manageable. These action items can help flip the script and empower you in an ominous task.
1. Save now, invest later.
As long as you are putting money into a designated retirement account (not a regular savings account), you’re off to a good start. You can choose how those funds are invested after they’ve been saved. “The later you start the more you’ll have to save, but there’s still time to earn that compounding interest and to take the tax breaks,” says Rae.
2. Talk about it.
The only time anyone thinks about their 401(k) is when they get a new job. Change it up! Ask HR for more information. Ask to speak with the outside financial advisor who looks after your company’s fund. Ask your bank or credit union if they offer any complimentary financial advising. Talk to friends and colleagues about what you’re doing and why. Keep the conversation going and you’ll feel rich with information!
3. Make it a habit.
Nobody ever thinks they have extra money lying around at the end of the month, but a monthly contribution can be as little as a dollar (though ideally it’s a little more). Put it away before you even know it’s gone. Starting small is ok because the practice of saving will already be in place when you can add a few zeros to that $1.
4. If you don’t pay yourself, why would anyone else?
You are always your number one client and perennial employee of the month. Treat yourself like you know your value by investing in the future you.
The days of company pensions are long gone and we’re staying alive longer than ever. There is no doubt that we need to save aggressively for our retirement so we can afford to live when we can no longer work. While there are many choices as to where to invest your money, there is one place Rae is clear you should avoid: “You can guarantee you won’t have enough to retire on if you just stick it in the bank.”
WNW Member Zel McCarthy is a Los Angeles-based Journalist, Writer, and Producer. He's recently worked on freelance projects for The New Yorker and Coachella, and has worked on the teams of Vice, Billboard, and Taschen.
Illustration by WNW Member James Clapham