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AEA Pension

Hello Creative Financiers!  It’s been a little while, just a little while.  But very soon you and I will be one, two, three, four again.  Saving and growing our wealth once more!  In today’s post, we’re going to chat about the AEA pension, and what it means for your retirement.

You: “Wait a minute, just a minute, no, no, no, no!  Where’ve you been, Broadway Joe?!”

Me: “I know, I know!”  There were no new blog posts this summer or fall.  And frankly not because there hasn’t been anything interesting in personal finance to talk about.  There’s been plenty to discuss!

In the USA and around the world we’re battling record high inflation.  Earlier this year the IRS announced limit increases to some of our favorite retirement accounts, including the Roth IRA.

The stock market continues to be all lions, and tigers, and bears.

So where have I been?

Well dear reader, it’s been a busy time in my world!  

I got a new job in theater management over the summer, now working for Broadway Asia managing productions all around the world.  Including the freshly minted global tour of The Sound of Music (Singaporean readers, come see us at Marina Bay Sands!).

Also hot off the press, front page of your morning papes, I got engaged to the lovely Sara Gallo!  I found someone who will listen to me talk constantly about the power of index funds, and I’m never letting her go.

Meanwhile our young pup Juergen continues to run the roost, and while he can be a pain in the butt (see below: 10 month old puppy), he also brings the most joy to our lives on a daily basis.

AEA Pension
Our Star Barker!

So I’m sorry we haven’t seen each other in a while.  But there’s been a lot of good stuff going on in my life, and when life calls, you can always put your blog on hold (even only for a moment).

Which brings us back to today- let’s chat about the AEA pension!

Pretty Pension, Fascinating…

If we’re going to understand the AEA pension, we should start by reviewing the basic idea of a pension.

The early readers will remember back in the day one of the first posts here at Creative Finance was a guide to union retirement benefits.  Check it out if you’re new to the blog!

But here’s the TL;DR for those readers who are racing to their half hour call.

A pension plan is a mechanism where an employee makes regular contributions to a pool of money, and then that employee is sent regular, usually monthly, distributions from that pool of money when they enter retirement and start to “collect” from their pension.

The pension payments in retirement then act as a kind of “fixed income” for the participants.  

Assuming you have stopped working and aren’t contributing more money to the pool/plan, those payments will be consistent and the same size from the time you start collecting, until the death of the participant.  And then even after that all kinds of pension plans have provisions such that part of the benefit will continue on for the surviving spouse of the deceased.

I know it’s hard to grapple with life & death in relation to money, but it’s such a big part about why we’re here.  The whole purpose of this blog is to ensure you and your loved ones have enough money on hand to manage the period in life in between working, and leaving this world.

So, pensions seem pretty great, right?  They really can be!  There’s one major problem though, and unfortunately for many it’s really not in our control.

Pensions are disappearing.  ALL OVER OZ.

AEA Pension
Something baaaaaad, is happening to pensions!

They’re not literally disappearing, but starting in the 1980s many companies began moving away from pension plans due to cost, and more towards 401(k) plans, which put a much greater onus on the employees themselves to save for their own retirements.

However, Actors Equity members rejoice!  In choosing to be a part of a professional union, one of the greatest perks you will enjoy as a member of AEA, is access to a pension program for which the union mandates employer participation.

You see, whenever an AEA member works on an AEA contract, it’s a requirement of Actors Equity that the theater/employer makes a contribution of 8% of your salary to the Equity League pension plan.  And that’s on top of what they’re paying you as a salary.

Let that sink in for a moment.

A Brand New DAY-EA Pension

Let’s say you get hired to perform in the regional premiere of “The Stunning Collapse of FTX: The Musical!”.  To be honest, it would probably be the NYMF premiere for a show like that, but we don’t have NYMF anymore so let’s dream bigger.

You are offered $1,000 per week to play the lead role of Sam Bankman-Fried.  The drama is intense.  The story is timely.  The wigs are incredible.

As you receive your salary each week minus taxes, that theater is also making an 8% contribution, or $80, to the pension pool on your behalf.

So what does that mean for your future pension payments?  How do you quantify that?

Well, it turns out the Equity League website has a nifty little pension calculator that can help you understand how much your pension *might be* during retirement, based on some assumptions of future work.

But I also want you to know, you can calculate your future pension right now, based on your past earnings.  Here’s the formula:

  1. You take the total amount of money you’ve earned as an AEA actor and add it all up.
  1. You multiply that number by 3% (0.03).
  1. You take the number of years you’ve worked as an AEA actor and multiple that number by $144.
  1. You add those two together, and that’s your annual pension.  Divide that number by 12, and that’s what you’re getting each month from the Equity League in retirement.

Let’s see an example!  

Lida Rose is a 34 year old AEA actress.  She’s made a nice career in some regional theatre, a whole bunch of workshops, and a national tour along the way.

But Lida is ready to go do something else in life.  Her time onstage has been swell, but Lida recently discovered that elementary school education is more her calling.  Go Lida!

So what about all those 8% pension payments she earned along the way?

Well by now Lida has “vested” in her pension, and she has earned a right to collect this pension at retirement.  Vesting usually occurs after a minimum of a few years of contributions.

Let’s see what Lida can expect from her pension:

  1. From when she received her AEA card at age 24, to age 34, Lida earned about $20,000 per year as an AEA actress, for a total of $200,000 over ten years.  
  1. We’ll multiply $200,000 by 3%, and that’s $6,000.
  1. Ten years multiplied by $144 (10 x $144) is $1,440.
  1. Thus, Lida is entitled to a $7,440 annual pension ($6,000 + $1,440).  $620 per month.

So Lida goes on to enjoy a long career in teaching, she saves more money in other retirement vehicles along the way, and all of a sudden Lida is about 62 years old and ready to retire.

In addition to other monies Lida managed to save, she can start taking her pension also.  She’s going to get a check for $620 mailed to her every month, for the rest of her life.

Finale Thoughts

You have to admit, that’s pretty cool right?!

Like I said earlier, pensions are much more rare than they used to be 40+ years ago.

It’s quite likely that your living grandparents are receiving and enjoying some kind of monthly pension payment, and your retirement age parents might not be.

This is just an overview, but think about what a seismic shift that represents in the way different generations prepare for retirement.  

The AEA pension can be an incredible lifeline for someone who makes a life in the theatre as a professional actor.

It’s no secret that arts workers are widely underpaid, especially compared to other industries.  But folks in other industries aren’t going to necessarily have access to this kind of benefit.

I’m not saying your pension is going to make you feel rich in retirement.  But it could very well make you feel secure for the rest of your days.  And frankly, I’ll take secure over rich 7 days of the week.

Wealth can come and go, but security is a thing of beauty.  That’s why we build emergency funds.  That’s why we invest in ETFs and index funds.  

Our strategy is always going to be about achieving comfort and security, so we can actually enjoy that later part of life.

This is the first post in a series I’ll be doing about the AEA pension plan.  There are so many more details to dive into, but I wanted you to have a high level overview before we get started diving in.

What’s your homework?  Go calculate your own AEA pension using the steps above!  It’s actually kind of fun.  And maybe knowing what the future holds is going to give your present self some interesting perspective.

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