You’ve probably seen the commercials—the busy city street where masses of people are all walking around with numbers floating over the tops of their heads representing what their “nest eggs” happen to be.
You might be working under the preconceived notion that pinning all of your hopes and dreams on the idea of “What’s your number?” is how retirement planning works. It’s one thing to have a number in mind that you are shooting for. However, life could make that number much more fluid.
Most retirement planning calculators will tell you that you need to aim for a total that is roughly 8 to 12 times your final income by retirement, and you will have to be able to live on that for roughly 25 to 30 years.
As my primary financial planning business focuses on assisting physicians, dentists, and other medical professionals, I am quick to point out that having a number in mind isn’t a bad thing, but it simply cannot be the only strategy you are using. There are too many uncertainties.
For instance, what happens if there is a premature death or a disability? How will your future be impacted if you are unable to work as long as you plan on working? What will happen if you have to face a malpractice lawsuit? Or, what if your teenage son is texting while driving and gets into an accident that is his fault? How do you adjust if something unplanned occurs that impacts your balance sheet? Are your investments protected if “life” happens?
No Such Thing as a Plan on Autopilot
Retirement planning, in essence, cannot be robotic, nor can it be formulated on everything going just right. Everyone has different needs, wants, desires, and goals. And, no 2 people’s lives will ever turn out exactly the same. It is quite impossible to anticipate future expenses, and there is no crystal ball that will allow us to see 20, 30, or 40 years down the road.
Most of my clients are the primary breadwinners in their household. Many of them enter my office looking to discuss hot stock tips or other market-driven ideas that do not necessarily benefit them personally. I encourage my physician and dentist clients to start changing the way they think about retirement planning, because it’s only when this mindset shifts that we can start working as a team toward planning for the future, instead of charging forward toward some arbitrary number.
Therefore, I ask my clients to think about coupling their retirement planning with other strategies, such as having the proper amount of life insurance, disability insurance, and even umbrella policies that protect interests in the face of lawsuits or the “texting while driving” example above.
Market Returns Cannot Be Predicted
This is another cold hard fact. While pundits, gurus, and experts go to incredible lengths to try to either predict the stock market or at least explain fluctuations and changes with a myriad of theories, it is frankly impossible because there is not only logic involved but also emotion behind buying and selling.
With this in mind, I encourage my clients to think about other retirement avenues that will produce guaranteed income such as annuities or a small amount of cash value life insurance. Diversification is the best strategy when it comes to investing. Spreading funds across many different investments may mean that you won’t experience top returns in any single year, but you may more likely experience strong returns in the long haul.
Devising a Distribution Strategy
I recently met with a plastic surgeon client who had saved approximately $15 million for retirement. His wife had about $10 million socked away. When I analyzed their investments I discovered that his wife would be ahead of the game in the scheme of things post-distribution. Why? Because of where the husband had his money. What’s the point of saving such a large number when the IRS is going to gobble up half of certain investments when they are liquidated?
This is something powerful to think about. You can work towards a number, but you must also discuss how that number, when reached, will translate into retirement income. If you could have this number in a different bucket where you only have to pay 25% to the IRS, you won’t have to save as much.
Thinking Creatively
MDs and dentists tend to start their retirement planning later in life due to the amount of schooling and education required to practice and because they also earn entry-level wages when they first start out, even though they usually earn more later in their careers. Therefore, creative thinking is needed.
Traditional retirement vehicles, like 401(k) plans, become incredibly inefficient for these professionals. While they may be beneficial while in lower tax brackets, later on in a career an MD or a dentist is in a higher tax bracket. This is the tax bracket that the government will refer to related to distributions. I constantly help my clients with this reality. Why participate in a plan that gives you a 20% tax break upon investment only to pay 45% in taxes when you need to use the cash? It doesn’t make sense.
Ultimately, the rule of thumb here is that in the medical and dental professions, it is necessary to be creative in retirement planning and live by the mantra of “past performance is no guarantee of future results.” This perspective is valuable when you’re working to think differently about the future and how you save, plan, and invest.
Breaking free from the focus of “what’s your number?” will open up your mind and help you begin to strategize safeguards to address the what ifs and all of the other unpredictability that comes with life.
Victor Holloway is founding partner of the Medicus Group, a financial planning and wealth management firm exclusively servicing physicians and dentists. Based in Charlotte, N.C., the Medicus Group addresses the needs of clients nationwide. He invites you to learn more about his firm by calling (980) 235-7885 or visiting mymedicusgroup.com.
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