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A Veterinarian's Guide To Future Financial Planning & Retirement, Part II

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Identifying likely scenarios veterinarians encounter in financial retirement planning, and addressing the best tools and strategies to handle these financial retirement planning scenarios for the......

Identifying likely scenarios veterinarians encounter in financial retirement planning, and addressing the best tools and strategies to handle these financial retirement planning scenarios for the best possible outcome. Looking forward and considering family planning and life expenses to choose best financial plan for the future for veterinarians.

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  • 1. Session # V610
    The Veterinarian’s Retirement Plan II
  • 2. Contact Information
    Mark J. McGaunn, CPA/PFS, CFP®Managing MemberMcGaunn & Schwadron, CPA’s, LLC75 2nd, Avenue, Suite 425
    Needham Heights, MA 02494-2897main(781) 489-6651direct (781) 348-9227
    e-fax (781) 479-5985e-mailmark@mcgaunnschwadron.com
    web: www.mcgaunnschwadron.com.com
  • 3. Session Goals
    New practice owners
    Contemplating buying
    Mid-stream owners
    Owners nearing retirement age
    Fee-only planning
    Cost-effective investing
    Risk management
    Retirement Plans
    Funding Mechanisms
    Practical Applications
  • 4. What is Retirement?
    Different interpretation to any person
    Changed idea from 5 years ago even
    Retirement meant “easy street”
    Not so sure after 2008
    So don’t look back
  • 5. Charles Schwab Real Life Retirement Survey 11/2/2009
    52% getting more involved in retirement planning-increased self-reliance
    48% of Gen Y (48 percent) and 53% Gen X have increased 401(k) contributions.
    Among 40% of Older Boomers and Gen Y, plan to postpone their retirement date.
    47% of workers aged 65 and older are prepared to work during retirement.
    Older Boomers (1945-1954); Younger Boomers (1955-1964)
    Gen X (1965-1974) and Gen Y (post1975).
  • 6. Associates Contemplating Ownership
    Gen Y consider finances more important than:
    taking steps to protect environment,
    improve their physical health and nutrition
    strengthening bonds with family and friends.
  • 7. On Cusp of Gen Y
    Just graduated from veterinary school
    May have student and car loans to pay
    Considering marriage or starting a family.
    Key = manage outflows since inflows fixed.
    Effectively manage your debt while developing some basic savings habits.
  • 8. Scared By Debt
    Recent UC Davis Study-Average veterinary school graduate debt is $110,691 in 2009.
    PhD level researchers w/ > $250,000 debt.
    Veterinarians are not alone.
    Ensure your school loans are consolidated.
    May reduce interest rate with no hassle managing multiple loans.
  • 9. Save Now & Save Often
    Need financial “consulting” over planning-general framework.
    Watch your spending. Use Quicken or Mint.com.
    Investigate 401(k) plans and save an affordable amount each pay period. Or start IRA or ROTH IRA account.
    Watch your lifestyle. You should enjoy life moderately.
    Non-practice owning veterinarians might prioritize their savings goals as: (1) house; (2) children's college education; (3) retirement.
  • 10. Skills to Learn
    Negotiating employment contracts,
    understanding taxes, evaluating benefit packages,
    choosing insurance plans,
    managing debt,
    developing good saving and spending habits,
    investing for the long-term
    elements of
    financial planning for
    a new
  • 11. New Associate Allocation?
    High Risk High Return
    70% Stocks/30% Bonds 10% S&P 50010% Small Cap10% REIT10% Int’l Large Cap 0% Int’l Small Cap10% Emerging Mkts10% Precious Metals30% Short Term Bonds
    Source: William Bernstein
  • 12. New Practice Owners
    Maybe most important point of career.
    Create your own practice, or buy into an existing veterinary hospital,
    Perfect time to get serious about planning.
    Earnings may also be tempered by the debt load of the practice buy-in or acquisition.
    Must still manage expenses cautiously.
  • 13. Focus on Protection
    Periodically review your all insurance plans to ensure you have the most appropriate coverage for your own situation (life, disability, umbrella).
    While maybe provided by practice, analyze your coverage and compare that to your specific needs.
    Have estate planning in order
  • 14. Education Plans
    Private school or college? Or both?
    IRC Section 529 Plans
    IRC Section 2503(c) trusts
    Coverdell ESA IRAcan be an effective means of secure funding for education.
  • 15. Investment Philosophy
    Level of risk are you comfortable with?
    How aggressive do the investments need to be to meet your goals?
    What tax implications are in play?
    What is your time horizon before retirement?
    Are you saving for multiple goals?
  • 16. Sample New Practice Owners
    80% Stock/20% Bonds25% Total US Stocks25% S&P 500 Index 15% For. Dev. Equity5% Emerging Markets5% Real Estate 20% Cash
    Source: Ben Stein Model Portfolio
  • 17. Owners in Mid-stream
    Worried Practice Owners!
    61% not letting recession change plans for children's college education
    47% say college plans are a higher priority than retirement savings @ 41%.
    2009 survey by Country Financial and Rasmussen Reports, LLC.
  • 18. More Data
    Marks 1st time in 3 years majority of parents putting college before retirement.
    50% of men more likely to put kid’s education ahead of retirement (women 38%)
    Always borrow for college not retirement!!!
    67% kids have no clue true college cost
  • 19. Tips for College
    What to remember:
    Be well-diversified portfolio.
    Short accumulation window
    Shorter distribution years
    Invest at proper risk level for child’s age.
    Many college investment methods offer age-based models.
  • 20. Utah (529)Educational Savings Plan
  • 21. B
    50 year-old practice owner
    Makes a $16,500 annual 401(k) contribution for 12 years until retirement Still has potentially $342,000 at retirement
  • 22. Same 50 year-old practice owner
    Contributes max. $16,500 annual 401(k) contribution for 12 years with $5,500 catch-up contribution plus a corporate match of up to $32,500. Potential $1.13 million
    at retirement.
  • 23. Sample Mid-Life Approach
    70% Stock 30%Bond30% Domestic Equity15% For. Dev. Equity 5% Emerging Markets20% Real Estate15% U.S. T-Bonds 15% TIPS
    Source: David Swensen, Yale Endowment Manager
  • 24. Owners Nearing Retirement
    Picture your retirement
    Evaluate your expenses
    Identify your sources of income
    Know employer plan options
    Other potential income sources
    Prepare your portfolio
    Countdown to retirement checklists
  • 25. Major Issue-Health Care
    Employee Benefit Research Institute study notes that a 65 year old man who retires in 2009 will need between $68,000 and $173,000 (females $98,000 and $242,000) in current savings to have a 50% probability of covering out of pocket health premiums and non-covered medical expenses, or between $134,000 and $378,000 ((females $164,000 and $450,000) in current savings to have a 90% probability of covering those same expenses.
  • 26. The range variability is due to whether former employers subsidize healthcare insurance and if the retiree maintains Medigap and part D Medicare coverage. Male to female disparities generally arise from females having longer life expectancies.
  • 27. Income & Spending Plan
    Financial services industry prefers investors strive for an 80% replacement rate of pre-retirement income is required
    Is that realistic?
    Start thinking about how much you’re going to spend from your investments each year.
  • 28. Withdrawal Rate Variables
    rate of return,
    initial withdrawal amount,
    inflation rate.
  • 29. Life Expectancy
    Source: Bureau of Labor and Statistics 2009
  • 30. Journal of Occupational Health Psychology 9/09
    Older people who hold temporary or part-time jobs after retirement enjoy better physical and mental health than those who stop working entirely(31% better, 17% fewer major diseases)
    Those continuing to work in original field have better mental health than those who change fields, according to the study
  • 31. Postponing Retirement
    36% due to poor economy
    28% due to stock market losses
    24% making sure have enough money
    9% due to cost of living more than planned
    3% still want to keep working
    Source: Employee Benefit Research Institute and Mathew Greenwald
    & Associates, Inc., 1994–2009 Retirement Confidence Surveys.
  • 32. A National Association of Personal Financial Advisors presentation in July 2009 updated older research to now state that a 5.2% to 5.5% rate of withdrawal from retirement savings could be sustained for 40 years of retirement if certain equity allocations and other rules were followed.
  • 33. Anticipate Shortfall?
    Trim your spending. Rein in your budget by looking at your day-to-day spending. Buy a less expensive car, dine out less often, and take fewer, less $$ vacations.
    Redefine the term “retired”. 7 in 10 Americans ages 45-74 say they plan to work in retirement or never retire, according to AARP. By working a few more years, you can save more, collect medical and insurance benefits through your employer, and help improve your finances just by working part-time.
    Downsize your home-less expensive one, rent an apartment, or move to a more affordable community.
    Buy an income annuity. Add-on features may be expensive though.
  • 34. Investments
    Review your investment strategy. In these years before you retire, it’s important to determine whether your portfolio will be large enough to support your needs throughout retirement. Your asset allocation depends on several factors, including your investment objective, time horizon, risk tolerance, and personal situation.
  • 35. If you already have a balanced mix of stocks, bonds, and cash investments, and your financial advisor has been helping you adjust this mix through the years, you may not need to change your portfolio when you retire. Many retirees feel they have to switch their portfolios to a very conservative asset mix, emphasizing bonds and money market securities, to help to generate current income and protect their assets from decline. But such a strategy also limits the potential for the assets to grow and keep pace with inflation. Because you could live for 30 or more years in retirement, your advisor will probably suggest that you keep at least a portion of your investment portfolio in stocks for long-term growth.
  • 36. A Better Retirement
    Worker Responses to Prepare?
    81% reducing expenses
    43% changing investment model
    38% working more
    25% saving more
    25% sought help from financial professional
    Source: Employee Benefit Research Institute and Mathew Greenwald
    & Associates, Inc., 1994–2009 Retirement Confidence Surveys.
  • 37. Simplify Your Portfolio
    Consolidating assets with 1 institution
    Easier to manage portfolio
    Reduces overall documents you receive.
    Eases transition if you die or become incapacitated, especially for executors and trustees who need to administer assets.
  • 38. Owners Nearing Retirement
    Asset Allocation For 60% Stocks/40% Bonds 6% S&P 500 6% US Large Value 6% US Small 6% US Small Value 6% REIT
    12% Int’l Dev. (Pac /Eur)
    12% Int’l Value 6% Emerging Markets
    20% Inter. Term Bonds
    12% Short Term Bonds 8% (TIPS)
    Source: Paul Merriman at FundAdvice)
  • 39. Gold Watch in 5 Years?
    Discuss retirement plans with spouse.
    Prepare a realistic retirement budget.
    Review current employer pension & benefits.
    Determine add’l health care & LTC needs.
    Compare projected income with expenses.
  • 40. More Last Minute Maneuvers
    Assess the portfolio adequacy
    Increase retirement plan contributions and taxable account savings, if necessary.
    Pay off employer retirement plan loans.
    Review your preparations at least annually and adjust as necessary.
    Make catch-up contributions to your employer-sponsored plan or IRA.
  • 41. Thank You!
    Danke Schon
  • 42. Contact Information
    Mark J. McGaunn, CPA/PFS, CFP®Managing MemberMcGaunn & Schwadron, CPA’s, LLC75 2nd, Avenue, Suite 425
    Needham Heights, MA 02494-2897main(781) 489-6651direct (781) 348-9227
    e-fax (781) 479-5985e-mailmark@mcgaunnschwadron.com
    web: www.mcgaunnschwadron.com.com