Money Minutes for Doctors #25 - Retirement Basics
Happy Thanksgiving everyone…we are back with the latest installment of Money Minutes for Doctors: Retirement Basics. This month we talk about what to expect upon retirement and the necessary planning that is essential to sailing off into the sunset. Hint: it is not as easy as dropping an anchor into a seemingly safe harbor! We are pleased to welcome back Ms. Katherine Vessenes, JD, CFP®, RFC, Founder and President of MD Financial Advisors.
About Ms. Vessenes:
Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.
Quick Summary: Retirement Basics
Approximately 20% of physicians that come to MD Financial from age 55 and above have enough money to retire. The irony is that almost all of them believed they had enough money to retire.
Planning and preparing for retirement takes times so start planning early in your career.
Physicians need to maintain their medical license, maintain board certification and be active in the practice of medicine as soon as you retire it is very hard to get “back in the game” so you don’t want to run out of money.
Software is used to model (a Montecarlo calculation) the amount of money needed in retirement and work to ensure at least 95% + guarantee that clients will not run out of money
Retirement is the most expense part of life largely due to additional health care needs, home services such as physical therapy etc.
Roughly in retirement your after-tax living expenses are roughly 50% of your gross income pre-retirement. So if you earn $300, 000 before taxes then plan for $150,000 in annual living experiences.
Considerations for retirement planning includes lowering current life expenses or working part time:
Side gigs can be a way to generate additional income which can also bring joy back to your life, add additional income, limit risk exposure, diversify your income and allow you to follow a passion
How does one determine life expectancy? Largely determined by gender, age, relative health.
30% chance that one partner will live to 100 years of age as long as they do not smoke. Can look to your family for an estimate of your longevity
It is not uncommon for physicians to finish training until they are 35, and want to retire at age 65 then just have 30 years to save for at least the next 30 years. A big ask of your savings, paying off student debts and helping to save for your own child’s retirement.
Every dollar has a job and you must set your goals and be working toward them so you are not tempted to spend money frivolously
Inflation rates have historically been higher than they are today. Typically a 3.74 % inflation rate is used in retirement calculations. Inflation rates are currently around 1% lower than the historical average. Inflation impacts the amount you will need to save for retirement to protect your buying power. Housing is largely determinant in inflation (50%), transportation and others. Having your house paid off can help protect against future increases in inflation.
Tax rates are at historical lows. Retirement planning includes predicting future tax rates and accounting for future fluctuations.
The tax control triage helps to maximize your tax liability – brokerage accounts/savings accounts where the money is liquid but have to pay capital gains tax on the profits, tax deferred (i.e. 401k), tax free where taxes are paid up front (i.e. ROTH IRA, ROTH 401K ) ideally you want assets in each portion of the triangle to help manage your tax liability.
You can only control what you can control…
Your options:
how much you save,
how much you save,
how much you invest and
how you are investing .
Think about what in life is important to you, what brings you joy and what financial security brings you.