Six impossible things

The Business of Writing: Addendum (Retirement)

So after all these business posts, people wanted me to write about retiring. I’m not surprised; it was kind of exhausting to think about doing all that stuff.

In any case, this is the retirement-for-writers post. The very first question is: what does retirement mean to you, as a writer? Writing isn’t quite the same as other jobs; most of us can’t imagine retiring in the traditional sense (leaving a day job and not doing it any more). Writers also have more of an option to continue working than people in normal jobs – as long as our brains and our fingers continue to work properly, so can we. I’ve known a good many older professional writers who’ve worked into their eighties, right up to the last minute.

So what does “being retired” mean for a writer?

For me, the main thing it means is having a choice. The majority of professional writers have historically worked on portion-and-outline, meaning that we write an outline and 50-100 pages of a book, sell it, then have to write the rest to a deadline set in the contract. At some point, this gets more than a little old. “Being retired,” for most of the writers I know, means not having to work to deadline – being able to write what we want, when we want, and then sell it. Some still choose to sell on portion-and-outline, but even then, having a choice makes a difference.

Choice also means the ability to experiment more – to write in other genres, for instance, without needing to consider the potential financial downside of trying to build a whole new readership. It means not needing to feel guilty for skipping one’s writing time for a few days in a row. It means being able to slack off on some (though not all) of the less enjoyable tasks involved in running a business (the ones I’ve been droning on about for eight or nine posts now).

In order to have those choices, a writer, like everyone else, needs retirement savings. How much you need will depend on the lifestyle to which you would like to become accustomed and on how you have managed (and will continue to manage) your writing career. Because there are so many different paths for a writing career to take, planning for retirement has to be a bit more active than for most people.

On the one hand, writing income is irregular, which means Social Security payments (which are based on average annual income) may not be as large as you might have expected (that’s assuming you think that there will still be Social Security payments by the time you retire, whenever that is). On the other hand, if you have managed your writing so as to generate royalty income and keep your backlist available and productive (as opposed to concentrating on big money advances), your existing work can continue to generate income for a long time even if you aren’t putting out anything new.

What this means is that your preference for your career changes how you handle your retirement planning. If you’ve been getting irregular big-money advances and not worrying so much about your books earning out or about the backlist, then your income will drop as soon as you stop writing (or slow down significantly, so you’ll probably need to sock a fair chunk of the big money away for later (and you’ll want to, too, because there are tax benefits to shoving money into your retirement plan). You’ll also want to keep an eye on how much Social Security thinks it’s going to pay out when you start getting it. As with most people, you want enough of a retirement-fund-plus-Social-Security to live on; there are plenty of financial counselors and online web sites to help you figure out what that will be. On the plus side, if you’re not writing new stuff and don’t need to manage the backlist, you’re pretty much done with your writing business.

If you’ve managed your career with a vast quantity of work-for-hire or low-to-medium advance originals that come and go and never come back again, you’re in the same shape as the big-money advances people, except that your annual income is likely to be more regular and therefore your Social Security payments will be larger and you may not need to sock away quite as much in your retirement plan. Once you stop writing, you’re done with the business.

If your books are the sort that earn out their advances and continue to sell for a long time, or that can be re-sold after the first publisher loses interest, you likely won’t need quite as large a bundle in your retirement savings because your backlist will continue to bring in income. However, you will need to continue managing your backlist, making sure that things stay in print and get resold and reissued over and over. In other words, you have to keep running the business to some extent, even if you aren’t writing anything new.

And if you absolutely intend to keep writing at full speed until the day you drop, you still need a cash cushion, albeit a smaller one, to deal with everything from medical emergencies to unanticipated changes in the writing market that affect your ability to generate adequate income. The older you get, the greater the likelihood that you will lose a year or two of writing time to illness or unexpected surgery. Medicare and health insurance may pay your doctor and hospital bills, but they won’t replace the income you lose…and illness is a huge drain on one’s creativity.

How much you sock away into a retirement plan under each of these circumstances depends on how much you make and how much you want to be able to spend once you decide to declare yourself retired. The calculation is pretty straightforward: you decide how much income-per-year you want to have, figure out how many years you expect to live after you retire, and plug the numbers into one of the many retirement-planning calculators online (be sure you pick one that adjusts for inflation and that has a reasonable rate of expected return on your investments).

Once you have determined what you think you need in your retirement account, it is wise to consider it a minimum, not your whole goal. The more money you have in the bank (or investment account), the more options you have. Options are good.

As a self-employed person, there are several kinds of tax-advantaged retirement accounts that you can use to accumulate your savings: a traditional IRA, a Roth IRA, a SEP (Simplified Employee Pension), a solo 401K, etc. You probably want to educate yourself about these and then consult with your accountant or a financial planner, because they all have different rules, advantages, and disadvantages. Or you can ignore the tax benefits of these and just stick money in a bank or a normal investment account, but seriously, you’ll be far better off going with one of the tax-deferred plans that works for you. Myself, I have a Roth IRA, an SEP, and a normal investment account, and I max out my contributions to the first two every year and try to add to the third as well.

The main trick to retirement savings is to start early. The power of compound interest is amazing. When I was in B-school, they made us do the actual calculations, comparing the amount of money at retirement generated by two strategies: one person who put $2000 in an IRA starting at age 20, but who stopped at age 30; and one person who did the same thing, only starting at age 30 and going on for the next 30 years. The one who only saved for 10 years, but who started early, always came out significantly ahead of the one who got a late clue. In other words, the sooner you start, the less you are likely to have to contribute out-of-pocket over the years.

  1. Neat! I like the concept of viewing retirement as a time of increased choices.

    And totally off topic – I just saw the cover for The Far West (Frontier Magic book 3). It is really nice! The book looks like it will be out in August, so I will have to wait and distract myself by rereading Thirteenth Child and Across the Great Barrier.

    • JP – I kind of wish they’d put the whole team on the cover, but they didn’t ask me.

      David – It looks pretty straightforward to me, but then, I used to be a financial analyst. 😉

      Kellie – No, I don’t have an exact date yet, but the others were in August, so fhis one probably will be, too.

      Tiana – The whole discipline thing is one of the problems with writing on spec, being your own boss, etc. You have to be honest with yourself. You ALWAYS have the choice of not writing; it just has consequences if you want to depend on writing for your income.

  2. I worked in the pension field my whole working life; I’m now sampling the company’s product.
    The pension factor for a male age 65 is about 10.5; for a female age 65 about 12.5. This means that a man age 65 who wants $50,000 a year for the rest of his life needs the sum of $525,000. (female $625,000). This is the amount of money you would have to take to an insurance company to buy an annuity. (You’d probably get a bit less as they charge expenses and pay salesmen.)
    If you’re married or equivalent and want to provide for someone else the price goes up (or the annual amount goes down).
    This amount is for your life only;nothing more comes out after you die. You can provide for that, but the cost goes up (like buying insurance on top).
    If you come from a long-lived family, this may be a good deal; you may live longer than the insurer expects. If you are in bad health, it can be a bad deal. What is important here is that the money will continue as long as you need it (as long as the insurer stays solvent).

    If you are supporting another person, and you want to continue that in case you die, you have to pay more.

    The cost for females is more. Currently they live longer if they survive to retirement age. One good point, one bad point.
    The factors are for a flat annuity. If you want inflation covered, it will cost more.
    A lot of people will advise you to manage your money yourself and live off the income or draw down the capital. That’s up to you. How interested are you in looking after money?

    (I hope this isn’t too technical.)

  3. I also just recently saw the The Far West’s cover, and I’ve looked up dates of release. Do you know the exact date yet? I’ve seen varying days through August, and I’m just curious about exacts. I’ve been eagerly waiting for this book since I finished reading the second, (the day it came out!), so I hope to hear sooner rather than later. Thanks in advance!

  4. I like the idea of having a choice – especially because that’s how I operate right now (I’m not published yet, so I don’t have to feel guilty about skipping a few days, etc.) Though, this is also a bad thing for me at this point, because I am not always as focused as I need to be.

  5. Your post totally agrees with Dave Ramsey’s way of doing retirement. Just put money aside and DON’T TOUCH IT! You’ll have something to live off of then once you do retire. Nicely put!

  6. I hope to write until the day I die. I’ve come to it late, and it’s too much fun to ever give it up. But I also know that sickness and injury are never in anyone’s plans. Best to be prepared. I like the way you’ve stated it: have options! So if my brain or eyes or something critical gives out, I can still pay my bills!

    Thanks for sketching out the different career paths and explaining the ramifications. I’ve thought about retirement quite a bit, but about retirement as a writer . . . not so much. Your perspective is enlightening!

    BTW, I just finished Sorcery & Cecelia and enjoyed it very much. What a fun read! I’m looking forward to The Grand Tour. (I had not encountered your work until I encountered your blog. A happy discovery. Thank you!)

  7. Could you answer a question as to why successful writers incorporate? For businesses, the usual benefits are potential eternal life and limited liability. I don’t know how those apply to writers — for the writer’s name as a writer to go on after the death of the writer, and the concern that someone might slip and fall on the front doorstep of a business.

    • Mark – There are a variety of reasons why some writers incorporate, and most of them have to do with taxes. At various times, for various levels of income, corporate tax rates have been MUCH lower than individual income taxes. Also, if you’re the sort of writer who’s getting million-dollar advances every five years, creating a corporation so you can spread the million out over five years of salary instead of taking a huge tax hit all in one year can SOMETIMES be useful. The liability protection is another factor (writers do get sued, just not for the same kinds of things as other businesses), though really, any lawyer worth his fee can pierce the corporate veil on an S-corp (which is usually what writers use). At present, I don’t think there’s much tax advantage (the tax code keeps changing, so I could be wrong) and the extra paperwork and annual fees make it DEFINITELY not worth it as far as I’m concerned, but other people are in different tax situations and it might work for them. The main thing is that anyone who is seriously considering doing this needs to educate themselves a LOT about the pros and cons for their individual situation, and then talk with an accountant and several financial advisors before going ahead.

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