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.