Go mine the next tier ore, titanium or adamantite, make the armor of them.
Then, well, you're set with that cutlass of yours, you should consider getting a ranged weapon though, like some others suggested before me, Megashark is the way to go, you just need some souls of might from The Destroyer, few shark fins from the sharks in the sea and a Minishark with illegal gun parts from the Arms Dealer.
If you need an arena, just do it the casual way, several layers of platforms, put some campfires or heart lanterns, with a few heart statues (star statues and star in a bottle is recommended if you want to go mage).
Personally, I don't enjoy arenas, not as much freedom as using the wings to fly like a bird to evade Skeletron Prime's attacks.