This year, Baby Boomers will delay retirement because of poor investment and lifestyle decisions. In other words, your decisions today determine your retirement choices later.
Insured Retirement Institute reports in Boomer Expectations for Retirement 2017 that only 54 percent of Boomers have any retirement savings, and only four in 10 have tried to calculate how much they need to save to retire. Fifty-six million Baby Boomers will not receive income from a pension and need significant savings to cover the gap. The No. 1 mistake most people make in planning for retirement is thinking they have plenty of time to save or they have too little to start saving. Both decisions will bring you to the same place on the road to retirement.
According to Employee Benefit Research Institute (EBRI), the average IRA balance for people ages 45- to 49-years-old was just over $72,000. For those in their 40s with 401(k) accounts, who’ve been employed more than 20 years, their average balance was just at $159,000. Like the average people in EBRI’s survey, you may have a small balance and a short amount of time. You can reach your dream IF you plan for retirement and follow your plan, consistently.
Key 1: The most important key to planning for your retirement dream is to start. You need a plan, you need to follow the plan and you need to stay consistent. Thanks to the power of compound interest, time is your greatest ally. MoneyUnder30.com describes three individuals, each who save $1,000 per month for 10 years and then stop until retirement. Their starting age for saving was 25, 35 and 45 years old. All three retire at age 65. With 7 percent return on their savings, each had substantially different retirement account balances yet they all saved $120,000 over the 10-year period. The first saver had $1,444,969. The second had $734,549. The last had $373,407. Compound interest and time was the difference.
Key 2 for your dream retirement is to spend less than you make. This is simple but not easy to do. There are many pressures to spend more than you make when credit is easy and debt is accepted as normal. Dave Ramsey says simply, “Don’t be normal!” A majority of doctors live with debt that could be avoided. White Coat Investor (WCI) blog writer, Dr. Jim Dahle, dispels conventional wisdom of good debt and bad debt. WCI recommends ways to minimize the debt that entangles the majority of physicians for most of their careers. His article, “Don’t Buy Stuff You Cannot Afford,” gives practical and straightforward ideas to get out of debt.
Key 3 in the countdown to your dream retirement is from PhysicianonFire.com (POF). This is a physician blog writer whose stated goal is financial independence and to retire early. Related to Key 2, this will make you financially independent. POF challenges his readers to “Live on Half.” Living on half of your take-home pay, or saving and investing as much as you spend, will lead to financial independence in 15 to 20 years. Work becomes optional. Imagine waking up and deciding today is the day I retire and sail into the sunset. Or waking up and deciding, I could
close the doors, but I want to work because I love what I do.
Key 4 is one you might think should be the No. 1 Key. However, if you don’t get good habits started early, No. 4 will not guarantee a dream retirement or life. Key 4 is a no brainer but without it, you don’t get off home base: earning as much as you can for as long as you can. Work smart, manage your practice like a business, and maximize the income from your practice. In my 36 years of consulting with physicians in their practices, managing the business side of medicine can be the biggest challenge.
Key 5 is to choose your investment advisor wisely. A lot of physicians with whom I work have a friend, a brother, or neighbor who does their investing. This decision locks the doctor in an advisory arrangement that cannot be changed for fear of losing the relationship. Resist those kind offers and instead find an advisor who will be accountable for the results of their recommendations. Tommy West at Jackson Thornton Asset Management offers this: “A good advisor will provide a well thought out plan to succeed – to act rather than react.” The best relationship occurs when your financial advisor is both accountable and trusted.
Article contributed by By Patti G. Perdue, CPA.CITP, Jackson Thornton CPAs and Consultants. Jackson Thornton is a Bronze Partner with the Medical Association.