Design Dilemma: Retirement Planning for the Freelance Designer

Daniel A. writes: I’ve come to realize that I can never afford to retire and I’m scared! I worked some staff positions for about half my career and I have nothing to show for it. Two IRAs (Individual Retirement Accounts, usually set up by your employer. Also know as a pension in some countries) are gone.

Creatives are not great financial geniuses. It’s embarrassing to admit, but it’s the most necessary part of surviving as a creative, as well as a person. Join us as we delve into another Design Dilemma, helping to answer your questions, queries and concerns about the murky world of design…

Daniel continues by examining his freelance career:

Freelancing has been good to me, I mean, we pay the bills and got through the tough times, but our retirement savings got eaten up by some unexpected expenses, some slow times and lower rates from my clients. I have no idea what my kids will do for college tuition.

I sent Daniel a link to an article on figuring out what you really need to charge to cover expenses, surprises and savings. He took a few days and a few emails of questions to come up with his required hourly rate. “I can’t charge this!” he wrote in an email. “Who’ll pay these kind of rates?”

This is the problem with why so many freelancers face the same financial problems as Daniel. Staff positions may have financial advantages over freelance, with medical insurance, profit sharing (like that happens much, anymore), retirement plans and matching funds. Unfortunately, I can’t say I know anyone who worked a staff position, then lost it and went broke, eating up all of their savings. Perhaps it’s just the current economy, perhaps it’s our creative nature, it just might be just impossible for too many these days.

Personally, with so many years of corporate experience behind me, dotted with a long freelance career since out-aging my last position, large child support order based on my previous corporate salary and clients who cry poverty, I’m… well, not exactly broke, but life gets a little nervous at the end of the month. There are no more cushions for emergencies, sitting in banks here and there. All of the corporate IRAs were drained, and I can only hope that I will leave some kind of intellectual property legacy for my kids. I’m not being funny.

Honestly, being the international traveller I had been during better times, I just figure I’ll have to wait until I’m 70. claim a bigger social security payment and find a small island or country with WIFI, satellite TV and a cheap standard of living.

Hopefully this will make many people happy to know others are struggling and have questions about the future. Will others wonder how I thought of their retirement plans A, B and C?

How Did This Happen?

  • Tomorrow. There was always tomorrow.
  • Tax refunds, a bonus or bigger check, a good month and we run off for things we want and don’t actually need. Sure, there’s traumatic causes for a sudden loss of wealth. I’m the king of that!
  • They don’t teach financial planning in art school, so that means we have to learn from our parents. Good luck there for most people!
  • We spend too much. Eating out every day for lunch, straying from the fast food dollar menu in the hopes that items that cost more will have more flavor and less poison.
  • Coffee and cigarettes are an expensive drug habit.
  • People want to spend and live while young and not worry about the future.

There’s lots of reasons why we’re short on savings. The biggest challenge we face is to look at the situation clearly and decide our longterm plan to survive and hopefully, live comfortably in our golden years, if not today.

What Avenues are Open for Savings?

Any expert will tell you that there will be one or two things you can give up from your life and use that money to put into savings. Most people say, “oh, it’ll only be $ 200 per year for this and $ 150 per year for that,” but enough this and that, and you can probably bank a thousand dollars or more every year. It won’t make you rich, but invested wisely, added to each year and left untouched, it does pile up to a nice amount.

“Talk to your bank financial advisor. It’s free and they will give you options that fit your needs and abilities. Don’t be shy or feel embarrassed.”

Perhaps, as a freelancer, you can work a part time job and still service your regular customers while seeking others to increase your income. Even at minimum wage, with taxes being removed, you can end up with a good amount for savings. Firstly, the taxes being removed will negate paying quarterly estimated taxes. Then, if you can, deposit the entire paycheck into an IRA or growth account. At $ 7.25 per hour (U.S. minimum hourly wage — which means employers really wanted to pay less, so they had to pass a law guaranteeing how low payments for workers could be) and a 20 hour work week, you will be able to bank about $ 124 per week, after taxes. That’s $ 6,200 a year, or about the average IRA contributions made by mid-level corporate employees.

As a staff person, especially at a large corporation, with even the smallest contribution to the company IRA/Pension program, including the matching funds the company gives you, you can amass a small fortune.

At my last employer, the matching funds on the minimum I would have deducted from my paycheck allowed me to save $ 50,000 in just seven years. Add in the cash balance retirement fund and profit sharing, and it was closer to $ 70,000.

Talk to your bank financial advisor. It’s free and they will give you options that fit your needs and abilities. Don’t be shy or feel embarrassed. As I removed money from my IRA, my bank financial officer assured me that I was doing better than most other customers. Misery may love company, but it feels much better when others are more miserable than you are!

The Harsh Reality

Just the other day, a met a local designer who was chatting with me on speaking to students at art schools and colleges. He mentioned another designer, who I really don’t care for. He said this designer spoke to some students and told them to have two careers, basically major in two completely different industries, because being a designer is no longer a lifetime career for most.

“Many of us went freelance, hoping lifelong connections would help us sign new clients from the stable of big names we all worked with at our corporate positions. Unfortunately, those contacts were also out of work.”

“He just went up a few points in my book,” I said aloud. He’s right. When my time came to be released from corporate life, it seems my age peers were all being let go. We were not old, but old enough to not be as cheap as much younger workers. Many of us went freelance, hoping lifelong connections would help us sign new clients from the stable of big names we all worked with at our corporate positions. Unfortunately, those contacts were also out of work.

Sometimes you have to face a harsh reality — your design career isn’t going to work out. Well, what are your choices? Do you have other talents and loves? It is a fact, that many successful people started the career for which they are known, after they were 65 years old. Retirement age, oddly enough. There are many things the creative individual can do and always a secret desire to do something else. Sometimes you are forced to pursue other roads.

No one can predict the future, nor can we tell if Social Security will be around when it’s our turn to collect the money we’ve been shaving from our salaries for many years to support the current batch of retired individuals. We are lucky we do something we love, and, in most cases, can continue in one form or another, so who would want to retire? Still, having at least some money put away for rough times and unplanned events is a necessity, so talk to your bank financial planner and start somewhere. A little becomes a lot… a lot faster than you’d think!

Try this retirement calculator to see where you stand financially.

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Speider has created designs for Disney/Pixar, Warner Bros., Harley-Davidson and Viacom among other notable companies and is a former member of the board for the Graphic Artists Guild and co-chair of the GAG Professional Practices Committee. He writes for global blogs on design ethics and business practices and has contributed to several books on the subject of business for designers.

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