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

  1. 1. Session # V610 #V610 The Veterinarian’s Retirement Plan II
  2. 2. Contact Information Mark J. McGaunn, CPA/PFS, CFP® Managing Member McGaunn & Schwadron, CPA’s, LLC 75 2nd, Avenue, Suite 425 Needham Heights, MA 02494-2897 main (781) 489-6651 direct (781) 348-9227 e-fax (781) 479-5985 e-mail mark@mcgaunnschwadron.com web: www.mcgaunnschwadron.com.com
  3. 3. Session Goals Scenarios • New practice owners • Contemplating buying • Mid-stream owners • Owners nearing retirement age Tools • Fee-only planning • Cost-effective investing • Risk management • Retirement Plans • Funding Mechanisms • Practical Applications
  4. 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. 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. 6. Associates Contemplating Ownership Gen Y consider finances more important than: 1. taking steps to protect environment, 2. improve their physical health and nutrition 3. strengthening bonds with family and friends.
  7. 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. 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. 9. Save Now & Save Often 1. Need financial “consulting” over planning-general framework. 2. Watch your spending. Use Quicken or Mint.com. 3. Investigate 401(k) plans and save an affordable amount each pay period. Or start IRA or ROTH IRA account. 4. Watch your lifestyle. You should enjoy life moderately. 5. Non-practice owning veterinarians might prioritize their savings goals as: (1) house; (2) children's college education; (3) retirement.
  10. 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 More elements of sound financial planning for a new associate veterinarian!!!
  11. 11. New Associate Allocation? High Risk High Return 70% Stocks/30% Bonds 10% S&P 500 10% Small Cap 10% REIT 10% Int’l Large Cap 0% Int’l Small Cap 10% Emerging Mkts 10% Precious Metals 30% Short Term Bonds Source: William Bernstein
  12. 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. 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. 14. Education Plans Private school or college? Or both? • IRC Section 529 Plans • IRC Section 2503(c) trusts • Coverdell ESA IRA can be an effective means of secure funding for education.
  15. 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. 16. Sample New Practice Owners 80% Stock/20% Bonds 25% Total US Stocks 25% S&P 500 Index 15% For. Dev. Equity 5% Emerging Markets 5% Real Estate 20% Cash Source: Ben Stein Model Portfolio
  17. 17. Owners in Mid-stream Worried Practice Owners! 1. 61% not letting recession change plans for children's college education 2. 47% say college plans are a higher priority than retirement savings @ 41%. 2009 survey by Country Financial and Rasmussen Reports, LLC.
  18. 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. 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. 20. Utah (529)Educational Savings Plan
  21. 21. 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 B
  22. 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. 23. Sample Mid-Life Approach 70% Stock 30%Bond 30% Domestic Equity 15% For. Dev. Equity 5% Emerging Markets 20% Real Estate 15% U.S. T-Bonds 15% TIPS Source: David Swensen, Yale Endowment Manager
  24. 24. Owners Nearing Retirement 1. Picture your retirement 2. Evaluate your expenses 3. Identify your sources of income 4. Know employer plan options 5. Other potential income sources 6. Prepare your portfolio 7. Countdown to retirement checklists
  25. 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. 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. 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. 28. Withdrawal Rate Variables 1. rate of return, 2. initial withdrawal amount, 3. inflation rate.
  29. 29. Life Expectancy Source: Bureau of Labor and Statistics 2009
  30. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 41. Thank You! 谢谢 Merci Danke Schon Grazie ありがとう 당신을 감사하십시오 Obrigado Gracias
  42. 42. Contact Information Mark J. McGaunn, CPA/PFS, CFP® Managing Member McGaunn & Schwadron, CPA’s, LLC 75 2nd, Avenue, Suite 425 Needham Heights, MA 02494-2897 main (781) 489-6651 direct (781) 348-9227 e-fax (781) 479-5985 e-mail mark@mcgaunnschwadron.com web: www.mcgaunnschwadron.com.com