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Make Our Garden Grow. A Guide to Union Retirement Benefits.

When I say “retirement”, you say “____”?

My guess is that the answer to that question for a good many of you was “Errr, 401ks, Pensions, and stuff?”

And that’s correct!  401ks, Pensions, and stuff.  The “stuff” we need to talk about today is Compound Interest.  Because without compound interest- 401ks, Pensions, and IRAS, and anything investing/retirement related is exponentially less cool- because compound interest is exponential at the very core.

Compound Interest: My Money’s Makin’ Money

“Compound Interest is interest calculated on the initial principle, which also includes all of the accumulated interest from previous periods on a deposit or a loan.”

*Insert Head Exploding Emoji Here*

This one is best described as an example- so let’s talk money:

If Patti LuPone has $1,000 invested in the S&P 500, and let’s assume the S&P returns an average of 8% per year.

After one year, Patti LuPone would have $1,080.  Then Patti LuPone would get an 8% return on a bigger number to start.  So, after another year, Patti LuPone would have $1,166.40.  She generated $80 after the first year, and then $86.40 after the second year- without investing any additional monies.

In 40 years, assuming the same 8% average rate of return- Patti LuPone’s $1,000 investment would be worth $20,115.

If Patti continued to invest another $1,000 per year in the S&P 500, over the course of the same 40 years, her investment would grow to become $259,056.

And therein lies the power (and the glory) of compound interest.

$1,000/per year over 40 years equals $40,000 and YET, Patti now has just over a quarter million dollars.  That’s because as the investment continues to grow and yield dividends, it compounds upon itself and begins to change exponentially.

This is why it’s important to begin investing as soon as possible.  The longer time is on your side, the more power Patti LuPone’s investment will carry.

Photography: Brinkhoff/Moegenburg

(This is a good time to note that all the number above are fictitious, assumptions, and for demonstration purposes only.  I don’t purport to actually know of any such investment by Patti LuPone.)

It’s A What?  It’s A What?  It’s A Pension, man!

“A pension is a fund into which a sum of money is added during an employee’s employment years and from which payments are drawn to support the person’s retirement from work in the form of periodic payments.”

Simply put, in a pension program an employer adds a certain sum of money into a fund over the course of that employees’ term with the company, and then at a certain retirement age, the former employee collects regular pension payments from the fund to help support their ongoing expenses in retirement.

Pensions used to be a lot more regular and popular than they are now.  A lot of pension programs have since been replaced in recent years with other retirement options and benefits, like the 401k.  The decline of the pension occurred for a many number of reasons, not the least of which being that a pension is for life– and folks are living longer than we ever thought possible.

While pensions are constantly being replaced and subverted in corporate America, the artistic unions have found a way to make pension benefits an essential cornerstone of artistic retirement.

Actors Equity Association, Local 802, Local 829, SDC, ATPAM, and IATSE help provide pension benefits to their members by mandating in union contracts that employers (the shows themselves) pay into a pension fund for the members.  Since shows will often not run for decades and decades or as long as companies in other sectors intend to be in business for- this is program that affords the artist a pension benefit, without having to work with one company their whole life.  A feat of which is assuredly impossible in a career in entertainment.

For many creatives who will enjoy a life in the theater- their pension is going to carry them into retirement gracefully.  The pension payments they receive in retirement will reflect their lifetime earnings- so if you are fortunate enough to work many production contracts in your lifetime, you’ll likely enjoy a very healthy pension in your 60s, 70s, and beyond.  If you spent a career more rooted in regional theater, development, and Off Broadway- it will likely be a smaller number.  Luckily there is more than one way to save for retirement.

2 – FOUR – 6 – OH – ONE (k!)

If you haven’t heard of a pension, chances are you have heard someone say the phrase “401k” before.

In 1978 Congress passed the Revenue Act of 1978 which included a special provision – Section 401k – that allowed employees a way to defer compensation tax free.  This is the same year that Ain’t Misbehavin’ won the 32nd Annual Tony Award for Best Musical.

Throughout the 1980s, the 401k plan rolled out in a huge and major way.  Companies were thrilled at the prospect of a new retirement vehicle that was cheaper to them than a regular pension.  And employees were tickled by the idea that this could actually be a more robust way of saving for retirement than the pension was.  This mode of thinking was informed by very healthy stock market growth through the 80s and 90s.

When the market corrected (read: losses) in the 2000s- folks began to wonder if this plan was really all it was hyped up to be.  

Over the years there have been all kinds of reform that have enhanced this program.  Currently an employee can contribute $19,500 into a 401k through the tax year (after the age of 50 you can make additional “catch up contributions” in the amount of $6,500 for a total of $26,000.  Employers can also match and add additional monies for a maximum employee/employer contribution of a whopping $56,000.

It’s not a perfect benefit- but it certainly has a lot going for it.  The trick with 401ks and really any retirement planning outside of a pension, is that you – the employee – are in the driver’s seat.  It’s up to you to decide how much to save, and later in life it will be up to you to decide how much to spend.  It’s not a limitless well to draw from.  However, in conjunction with a union pension plan, a 401k can provide tons of financial stability later on in life.

Some Final Thoughts: Grow For Me

The pension and 401k both have unique compounding power and tax advantages.  You might be wondering to yourself- how do I get involved in these programs?  How do I make sure I’m taking full advantage?

Always be Piggybankin’.

Here’s a little food for thought to take you on your way this afternoon.

If you are a union member – AEA, 802, SDC, 829, etc. you already have a pension.  Awesome!

We will dive deep in the future as to how those pensions work – Actors Equity Association for example, you need to have performed as a union member in five calendar years in order to “vest” in, or activate, your pension.  The union requires all of your employers to contribute to this pension on pretty much every contract- good on you, AEA.

The AEA 401k however is an optional program.  You can elect to have money withdrawn from each paycheck to grow this plant, with a form I’ll leave right here for you.  We’ll talk more on the AEA 401k program in a future post as well- but I just wanted to point out the fact that it even exists, and folks should most definitely be taking advantage of it.  In a production contract, your employer will even match what you put in!  And that’s free money!

(Pro Tip: we love free money.)

Pretty soon we’re going to get into some other types of accounts that aren’t tied to your union work (IRAs, HSA)- but it’s good to know the seeds that are being planted for you.  Do some research on what those seeds can yield, tend to and water them, and you’ll make your garden grow in no time.

Thanks for reading Make Our Garden Grow.  A Guide To Union Retirement Benefits.  There are six musical show references tucked into the titles and subtitles of this post.  First person to comment below with all six show titles will receive a special Creative Finance with Broadway Joe gift!

Have any additional thoughts on union retirement benefits?  Give me a shout below and let’s chat!  

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