Unpredictable Income Has Actors Struggling to Plot Their Finances

John DeMita and Julia Fletcher are professional actors, but with mounting expenses and a highly unpredictable income, they’re finding it harder and harder to pretend that there’s nothing wrong in their financial lives.

In fact, in the interest of household harmony, “we don’t talk about money at all,” said DeMita, 41.

“It seems to be a dangerous topic,” concurred Fletcher, 42. “I tend to feel very strongly the weight of John’s disapproval about the way I handle money, so I guess I don’t like to talk about it.”

In the meantime their very predictable expenses roll in like waves every month--$1,074 for the mortgage on their North Hollywood home, $875 for tuition to their son’s private school, and whatever they can pay on their credit card debt, now at $11,500 and mounting.

It’s time for DeMita and Fletcher to start talking about the obvious, said Victoria Collins, an author and financial planner with Keller Group Investment Management Inc. in Irvine. But at the same time, they need to give themselves a breather while they work out a plan for reducing their expenses or increasing their income.

Fletcher is a stage actress turned full-time mom. She and DeMita both embrace her decision to stay home with the children, but five years later, she’s still uncomfortable about not earning her own money.

DeMita, a Yale graduate, supplements his now-and-then acting income with part-time teaching and directing jobs at three community colleges. His grueling schedule sometimes adds up to 14-hour days of commuting and work. And his teaching jobs offer no guarantees, because his contracts depend on how many students enroll each semester.

Last year, DeMita grossed $86,000, about $40,000 from acting and the rest from teaching. This year--a good one so far--he has already earned $45,000 from acting. He’d like to cut back on his teaching so he can spend more time at home, but he’s too worried. Aside from Social Security, the couple’s only retirement money is the $43,000 annual pension DeMita expects to receive from the Screen Actors Guild when he turns 65. After watching his mother-in-law’s money quickly dwindle after she entered a nursing home, he’s sure that the pension won’t be enough for a secure retirement.

Still, with a little discipline, the couple have enough time to build a comfortable retirement fund of $700,000 by the time DeMita turns 65, Collins said. To do that, they must save about $400 a month and earn roughly 9% annually on their money. That should be enough to supplement their Social Security and pension income in retirement, she added.

But they need to concentrate on their budget to make it work.

“You need to focus on what you’ve got to do in the next one or two years to get in a better financial position, regarding debt, expenses and your house,” Collins said.

Money tension is a relatively recent development in the 18 years DeMita and Fletcher have been a couple.

They met in 1982, when they were both actors at the American Conservatory Theater in San Francisco. DeMita, who knew he wanted to be an actor since age 5, had gone looking for more practical acting experience after graduating from Yale and fell in love with San Francisco and the American Conservatory Theater. Fletcher had been working with the theater since she was 16 as a stage manager and actress.

They shared expenses for the 10 years before they got married, both working.

They had moved to Los Angeles in 1984 to try film work, and a year later, when Fletcher’s father died, she inherited about $110,000.

The planners who managed her money lost most of it by investing in bad real estate deals and listless mutual funds. By the time they were ready to buy a house in 1996, there was just $35,000 left--just enough for a down payment on their $180,000 fixer-upper house.

Their house is now a key element in their financial discomfort, Collins said. Its North Hollywood location made it affordable, but it put them in a school district they don’t like. Also, their 5-year-old son, Conner, has a hearing impairment, so they send him to private school.

The tuition is a killer--$875 monthly for one child. If they enroll their 4-year-old daughter, Holly, next year, it will jump to $1,400 for two--a crushing obligation that puts them both on edge. They’re now debating the merits of sending the kids to a less expensive private school, which would cost just $833 a month for both children.

Collins likes the idea of economizing on the tuition. But she thinks it’s wiser to consider a move instead. If they move into a better school district, their mortgage may be higher but the public schools would be good enough to eliminate tuition completely.

DeMita and Fletcher aren’t sold on that advice, though. They like their present home and believe it’s a trade-off between paying a higher mortgage or paying tuition to private school.

True, said Collins, who also acknowledged that there are many reasons people might be reluctant to move.

“But you’ve got to look long term,” she counseled. “The school issue will be with you a lot longer than one or two years.”

In the long run, property values are likely to appreciate faster in communities with good schools, too, she said.

Another priority needs to be tracking--and curbing--their expenses, Collins said. The couple recently started using Quicken software to track their spending, but they can’t account for about $700 a month.

“We have this mystery spending,” Collins said. “And in the last six months your [credit card] debts have gone up. It’s a scary trend and we need to reverse that somehow.”

Once both their children are in school, Fletcher might consider going back to work, at least part time. That might help them pay off their credit cards and relieve some of their financial stress. If they do start paying down the debts, they should pay off those with the higher interest rates, Collins said.

In any event, DeMita and Fletcher should commit to cutting their spending by $400 a month--or at least $4,000 a year--and start putting that money into retirement savings. DeMita already has a small Roth IRA, but Collins recommends that he stop contributing to the Roth and start making contributions to a deductible retirement plan instead. Because he has considerable self-employment income, he can contribute to a SEP-IRA or a Keogh account and deduct the contributions. Those tax deductions can make the savings a little less burdensome.

If they manage to put away more money, DeMita and Fletcher could start a college fund for their children, but retirement savings should be their priority.

The couple also have some blue-chip stocks worth about $40,000 that were gifts from Fletcher’s aunt and DeMita’s father. Collins suggested that they keep those stocks, but make the rest of their investments in four no-load mutual funds--two large-cap funds, a mid-cap fund and an international fund--because they’ll be investing a relatively small amount every month. The fees would be too costly if they tried to buy individual stocks every month, she said. By making regular monthly investments in no-load funds, their portfolio would be more diversified, and they’d be using dollar-cost averaging, which will balance the ups and downs of the market.

“We’re talking about a disciplined savings plan, but time is on their side,” Collins said. “There are a lot of years between 41 and 65, so I want to commend them for acting on this now. Most of the clients I see are 55, and then the same situation is very dire. They may be unhappy they haven’t saved more, but John and Julia are still young. This is a good time to start.”

Jeanette Marantos is a regular contributor to The Times. To be considered for a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012 or to money@latimes.com. You can save a step and print or download the questionnaire at https://www.latimes.com/makeoverform. Information on choosing a financial planner is available at The Times’ Web site at https://www.latimes.com/finplan.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

This Week’s Make-Over

* Investors: John DeMita, 41, and Julia Fletcher, 42

* Profession: DeMita is an actor and part-time college teacher. Fletcher is a stage actress turned full-time mom.

* Gross annual income: $86,000 in 1999

* Goals: Reduce financial stress and build a retirement/college savings plan around a very unpredictable income.

Assets

* About $87,000 in equity in their North Hollywood home

* Roth IRA worth about $7,773, invested in Oppenheimer Income A

* About $5,300 in a Charles Schwab One money market fund for emergencies

* $4,000 in a Franklin Money Fund for short-term savings for property taxes, insurance, etc.

* About $40,000 worth of stocks in Lucent (269 shares), NCR (67 shares), AT&T; (338 shares), Coca-Cola (125 shares) and Microsoft (100 shares), which they received as gifts from relatives

* DeMita’s Screen Actors Guild pension, worth roughly $43,000 a year when he turns 65.

Recommendations

* Track spending and reduce it by at least $4,000 a year.

* Begin investing $400 a month--or at least $4,000 a year--into four no-load mutual funds for retirement, including two large-cap funds, Selected American (ticker symbol: SLASX) and Fidelity Growth Company (FDGRX) as well as the mid-cap fund MainStay MAP-Equity 1 (MUBFX) and an international fund, Artisan International (ARTIX).

* Consider selling their house to move to a better school district. The move would probably increase their housing costs but should eliminate a private school tuition bill and add tax savings with the increased mortgage.

* Pay down their $11,500 credit card debt, starting with the highest-interest (8.9%) card.

* Have Fletcher go back to work, at least part time, once their youngest starts school in the fall of 2001.

* Buy term life insurance policy of $750,000 for DeMita. Consider a $250,000 term life policy for Fletcher, to cover child-care costs if she were to die. Estimated cost for both: Less than $1,500 a year, or about $120 a month.

* Move DeMita’s Roth IRA into Oppenheimer Capital Appreciation A (OPTFX), which has averaged nearly 20% a year in the last 10 years. By staying in the same fund family, DeMita can avoid paying the 5.75% front-end fee, because he already paid it when he purchased the income fund.

Meet the Planner

Victoria Collins is a certified financial planner and principal of Keller Group Investment Management Inc., a registered investment advisory firm in Irvine. She is also the author of five books on financial planning, including the newly released “InvestBeyond.Com” (Dearborn Publishing, 2000).