• $10,125 in taxes ÷ 45 working weeks = $225 per week held in escrow for taxes.
• 30 weekly lessons x $30 = $900 per week gross income from lessons, minus $225 tax escrow = $675 net for living expenses and retirement.
• $500 per month contribution to retirement = 17 lessons per month (17 x $30 = $510) or four lessons per week.
• Four lessons x $30 = $120 per week saved for retirement.
• $675 weekly net income minus $120 retirement savings = $555 remaining for other living expenses (rent, food, insurance, credit payments, utilities, and so on).

The above scenario is very tight financially; however, I made it ultraconservative on purpose. Additional gigs and lessons would add a buffer. Higher rates of return would result in less money needing to be saved, or a larger nest egg in retirement. (A 5-percent annual return increases the nest egg from $500,000 to $633,000).

Investing in the Future
Now that we have discussed how much you may need to save to make retirement enjoyable, it’s time to talk about where to invest it. Many vehicles exist for people who are employed by corporations and businesses. 401k and 403b plans are the most typical. For self-employed individuals, however, the SIMPLE IRA (Savings Incentive Match Plan for Employees IRA) has real benefits, principally because you can place pretax earnings (as of 2005) of $10,300 per year into it. Other IRAs, which may be based upon a percentage of (sheltered) income are attractive if you make hundreds of thousands of dollars per year. As studio teachers, that income bracket is not likely for us! So the dollar limit instead of the percent limit makes the SIMPLE IRA attractive to musicians.

SIMPLE IRAs are intended for small-business owners. Employees of such small businesses may contribute up to $10,000 annually, and the employer may elect to contribute up to 3 percent of the employee’s contribution. Since we are self-employed as studio teachers and gig musicians, we function as both employee and employer, thus can contribute the additional 3 percent to equal $10,300 total. The only drawback to a SIMPLE IRA is that if you work at another job with an employer-sponsored retirement plan (for example, a private teacher also works at a school job and makes contributions to a retirement account through that employer), the IRS allows a maximum annual contribution to all retirement plans of $14,000 (in 2005). Excess contributions must be taken back and interest earned is taxed.

So, as a conscientious retirement planner, you will need to keep in mind these important pieces of information:
1) annual amounts contributed to the retirement plan
2) approximate annualized rates of return on the money invested for retirement
3) approximate rates of inflation and how inflation might impact current and future amounts contributed to retirement
4) diversification of the retirement investments to decrease risk
5) the condition of Social Security over the next 25 years

There is no one plan that is guaranteed to succeed, since the future is nothing but uncertainty! Still, starting early, and keeping current with world affairs and your finances is a safe way to bet that your future will be secure and that you will have the financial health to enjoy your well-deserved retirement.

For more information on SIMPLE IRAs, go to www.irs.gov/retirement/article