To be -- or not to be -- rich
You want to be the next Russell Crowe. But what about your nest egg?
NEW YORK (CNNfn) - You look in the mirror every morning and you see the face of a famous actor. Somewhere deep in your soul there is a tortured Hamlet, a lovesick Heathcliff, a fearless gladiator who will save Rome. You. Have. It.|
The trouble is the rest of the universe hasn't picked up on your genius yet. And while you spend your days doing summer stock and waiting tables, your big dreams aren't doing anything for your long-term financial health.
"Actors don't do a good job worrying about their finances," said Conard Fowkes, secretary of Actors' Equity Association, a New York-based union. "It's difficult because you do not work consistently week after week. You may be very well paid for a job that lasts 10 weeks. Then you're unemployed and you haven't put any money aside."
Act I, Scene I: Dreams don't pay the rent
Walter Gowens, a certified financial planner in New York whose clients include show business people, said he has a hard time convincing actors that even if they do make it big, they may only have a few great earning years.
"We help them set realistic budgets to set money aside if they don't make the big time," Gowens said. "Or, if they are earning a lot, we tell them that it most often doesn't last and to maximize it and put aside the most amount."
The Screen Actors Guild said more than 85 percent of its 90,000 members earned less than $5,000 in 1996. Actors can make anywhere from $75 a week in summer stock to $1,000 a week for a bit part on a television show, Gowens said.
A hit series can make an actor rich, but he could lose the job in a heartbeat. A movie doesn't stay at the box office forever.
"It's feast or famine," said Morrie Reiss, a certified financial planner from Encino, Calif., who advises actors. "You don't really know."
One of Reiss' clients, Don Most, who was "Ralph Malph" on "Happy Days," knows how the clock can tick.
Back in the late 1970s and early 1980s when "Happy Days" was a hit show, Most didn't think much about money. His father, an accountant, handled his finances.
"When you're on a series, especially one that was on as long as that one, I wasn't thinking about the future that much," Most said.
But Most, who studied business at Lehigh University, was lucky. His father pushed him to save a portion of every paycheck. He never went through a period of crazy spending. So when the series ended, he had a cushion.
Most continued to work on and off, and started educating himself about financial matters. He worked with brokers, then started an online trading account two years ago.
He recently produced his first independent film, "The Last Best Sunday," and is working on the script for a new movie. He also has an upcoming two-episode role on the sci-fi series "Star Trek Voyager," among other parts.
Pensions and job hopping
Fowkes, of Actors' Equity, said the three major acting unions – Actors' Equity, the Screen Actors' Guild and the American Federation of Television and Radio Artists -- all have pension programs.
But unlike 9-to-5ers, actors may have dozens, probably hundreds, of jobs in their careers. Some of those jobs won't be for art – waiting tables, word processing, temp work.
The size of your pension will depend on how much you work. Often, actors will have pensions from all three unions, and with Social Security, it can be enough to live on, Fowkes said.
Actors' Equity also recently launched a new 401(k) program for some actors who work on Broadway, in touring companies and for other groups, Fowkes said. While the details aren't finalized, the producer of a show will contribute 3 percent of an actor's salary.
Many actors are opening Roth IRAs, where people in certain income guidelines can save $2,000 a year in a tax-deferred account. (A Roth IRA allows you to borrow for a first-time home, and you don't have to make withdrawals at age 70-1/2).
"Actors are becoming smarter about retirement than they were five years ago," Fowkes said.
Still, Fowkes said he's seen too many cases where actors have to dip into IRAs to pay the bills and then get zapped with steep penalties. Fowkes is coordinator of a special program that provides tax help for union members.
"They're cashing in their IRAs because they need money and they're out of work," Fowkes said. "Actors in the beginning are usually unaware that they're not immortal and will never get old. But by the time they're in their 30s, they begin to understand that the future is going to require they pay some attention."
A script for financial success
Gowens, the CFP from New York, said sticking to a budget is an important first step to long-term financial health.
Reiff, adviser to Don Most, said actors should keep two years of living expenses in cash. If they own a home, he recommends an equity line of credit so they have access to money during tough times.
"The major priority for an actor or actress is cash flow," Reiff said.
Once an actor has taken those steps, Reiff advises him to invest in equity mutual funds.
Because so much of an actor's working life is short term, Reiff warns his clients to be careful about how much they put in tax-deferred accounts like IRAs.
Reiff likes the diversification of mutual funds, and often suggests a portfolio that includes growth, growth & income, international, and sector funds. He stays clear of bonds.
Actors should save at least 20 percent of their salaries, Reiff said.
"That's a big number, and some people can't understand how they can possibly do it," Reiff said. "Some can't possibly do it because they've bought big toys."
The way Reiff looks at it, if you have $1 million saved, that's $60,000 in cash flow a year at 6 percent. So if you're generating $60,000 a year, that $1 million will last a lifetime.
Hey big spender...
Sean Cherry, a certified financial planner in Palm Beach Gardens, Fla., said a big challenge is encouraging restraint in spending once an actor has made it big.
After years of struggling, they may feel like they deserve that Versace gown or a Porsche.
Another problem is big-name actors get exposed to "great ideas" all the time. It could be a tip on a stock or an investing opportunity.
"Many times they've risked it all and won, and they want to do it with their investments as well," Cherry said. "They know a lot of successful people and they tend to act on these tips. I've really been amazed that none of these great ideas have panned out."
Robert DeNiro Inc.
Of course, if you make it really big, financial pros will advise you to set up a production company to allow you to set aside more for retirement.
By forming a company, you can have a nonqualified compensation plan and invest it in stocks, funds or bonds, Gowens said. Pro athletes often have a similar type of plan, he said.
Many well-known actors have other ventures, like restaurants (Robert DeNiro); clothing lines (Jaclyn Smith); exercise videos (Jane Fonda), or perfume labels (Elizabeth Taylor). They may play in a rock band (Russell Crowe); or publish books (Jamie Lee Curtis).
Fowkes, of Actors' Equity, said his career included 250 commercials and roles on eight soap operas. He had cameo roles on "Serpico," "Prince of the City" and "Network," among other parts.
Fowkes considers himself lucky. His work allowed him to raise three kids in the city. With his pensions, he lives comfortably.
For others, it's a harder road.
"Making it big – there are happy stories about that," Fowkes said. "And there are sad stories."