Are You Ready $$ For Retirement? Mark J. McGaunn, CPA/PFS, CFP® President MJM Financial Advisors, LLC 114 Turnpike Road, S...
Retirement Agenda <ul><li>History & Studies </li></ul><ul><li>General Strategies </li></ul><ul><li>Don’t Fail </li></ul><u...
Retirement Over Time <ul><li>Agricultural Phase </li></ul><ul><li>Work right through old age (60) supported by earnings, s...
Fidelity Study <ul><li>Feb. 2007 study 500 married pre-retiree married couples ages 43 to 70 (all married >24 yrs, income>...
April 2007 Poll… So, 51% more need to work part-time
More Gallup Data <ul><li>Avg. age at current retirees stopped work is 60 </li></ul><ul><li>Nearly 70% of current retirees ...
Putnam Investments Survey <ul><li>Of working Americans aged 45 and older: </li></ul><ul><li>20% support parents </li></ul>...
McKinsey Retirement Study <ul><li>Of 3,000 retirees and pre-retirees studied, 40% of retirees stated they were  forced  to...
Preparedness <ul><li>Examined our medical clients, (veterinarians, ER and FP physicians, psychologists, anesthesiologists,...
Rules of Thumb <ul><li>I dislike rules of thumb as they change with whomever you speak with. Common ones: </li></ul><ul><l...
Hence, “The Bucket Theory” Veterinary Practice(s) Value 401(k) SEP IRA Trad. IRA ROTH Taxable Savings (Trusts) Practice Fa...
Retirement Success Inclusion <ul><li>Higher-than-average net worth. </li></ul><ul><li>Constantly worked on assuring a comf...
Reasons why DVM’s/MD’s fail: <ul><li>Start retirement programs too late.  </li></ul><ul><li>A majority live beyond their m...
General Success Rule <ul><li>Formulated a vision of what retirement security was  early  in their pre-retirement years.  <...
Why Should Your Plan Be Different? <ul><li>Yale researchers wanted to study people’s motivations and the role that goals p...
Fast Forward to Year 1973 <ul><li>Same researchers assembled Yale Class of ’53  & asked each what their net worth was. </l...
Global Retirement Portfolio <ul><li>Focus of Asset Allocation Plan is based on your long-term objectives.  </li></ul><ul><...
Your ERISA Fiduciary Status <ul><li>Subject to conduct standards because you act on behalf of participants in a retirement...
Mandatory Fiduciary Tool <ul><li>An Investment Policy Statement (IPS) is your basic and best defense against any future ac...
Good IPS Fund Selection Criteria <ul><li>Risk-adjusted Performance over 1, 3, 5, & 10 year Periods  </li></ul><ul><li>Perf...
Monitoring Process <ul><li>Fiduciary law expects you to review investments on a regular basis. </li></ul><ul><li>Generally...
Retirement Plan Future <ul><li>Physicians and dentists have poor history in offering retirement plans due to impact on the...
New or Improved? <ul><li>Traditional Plan </li></ul><ul><li>Employers must contribute same flat % of profits to employees....
401(k) Plan Limitations <ul><li>In 2007 the total of both employee and employer contributions is limited to the  lesser  o...
Type of 401(k) Plans <ul><li>401(k) Profit Sharing Plan </li></ul><ul><li>401(k) Safe Harbor Plan (no anti-discrimination ...
“Safe Harbor” 401(k) Plan <ul><li>Allows a matching amount for owner. </li></ul><ul><li>But,  immediate  vesting for all e...
“Permitted Disparity” 401(k) Plan <ul><li>Allows plan “integration” with Social Security. </li></ul><ul><li>Proportionatel...
401(k) Plan w/ “Permitted Disparity”
“New Comparability” 401(k) Plan <ul><li>IRS regulations permit companies to over-weight benefits to older practice owners ...
“New Comparability” 401(k) Plan <ul><li>Employees are divided into groups. </li></ul><ul><li>Each group contribution is a ...
“New Comparability” 401(k) Plan <ul><li>Ideal for practice owners who:  </li></ul><ul><li>Are  older  and earn more than m...
Two Great, Low-Cost 401(k) Plans
Defined Benefit Plans (DB) <ul><li>401(k), SIMPLE, IRA, SEP are defined contribution plans-monitor what you put in to get ...
Underlying Risks Abound… <ul><li>Inflation can erode purchasing power.  </li></ul><ul><li>Overly aggressive  or  conservat...
Three Scenarios! <ul><li>Not formulating a formal retirement savings plan </li></ul><ul><li>=Bad End Result </li></ul><ul>...
50 year-old practice owner Makes a $15,500 annual 401(k) contribution for 12 years until retirement Still has potentially ...
Same 50 year-old practice owner Contributes max. $15,500 annual 401(k) contribution  for 12 years with $5,000 catch-up con...
How to get it out? <ul><li>2006 studies by J. Guyton in Journal of Financial Planning suggest higher maximum initial withd...
Minimum Required Distributions <ul><li>Required distribution from retirement plans by April 15 th  in the year after reach...
So, Practice Owners Need To: <ul><li>Plan, Plan, Plan </li></ul><ul><li>Save, Save, Save </li></ul><ul><li>Focus on how mu...
<ul><li>Thank You! </li></ul><ul><li>谢谢   </li></ul><ul><li>Merci </li></ul><ul><li>Danke Schon </li></ul><ul><li>Grazie <...
Contact Information <ul><li>Mark J. M c Gaunn, CPA/PFS, CFP ® President </li></ul><ul><li>MJM Financial Advisors, LLC 114 ...
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Are Veterinarians Ready $$ For Retirement

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  • Seagulls in “Finding Nemo”-we think we are all unique in our own industry, but change the name (doctor, layer, CPA, and we have the same exact problems
  • Are Veterinarians Ready $$ For Retirement

    1. 1. Are You Ready $$ For Retirement? Mark J. McGaunn, CPA/PFS, CFP® President MJM Financial Advisors, LLC 114 Turnpike Road, Suite 107 Westborough, MA 01581-2861 phone: (978) 405-3133 e-fax: (978) 776-2609 e-mail: [email_address] web: www.mjmfa.com
    2. 2. Retirement Agenda <ul><li>History & Studies </li></ul><ul><li>General Strategies </li></ul><ul><li>Don’t Fail </li></ul><ul><li>Fiduciary Duties </li></ul><ul><li>Types of Plans </li></ul><ul><li>Examples of Financial Success </li></ul><ul><li>Spending it </li></ul>
    3. 3. Retirement Over Time <ul><li>Agricultural Phase </li></ul><ul><li>Work right through old age (60) supported by earnings, savings, family & charity </li></ul><ul><li>Industrial Phase </li></ul><ul><li>Retirement encouraged at old age (65) by Social Sec. as mind had lost all “mental elasticity”, gov’t. & private pensions dominate so ability to travel and play golf. </li></ul><ul><li>Knowledge/Service Economy </li></ul><ul><li>Traditional retirement ages become obsolete </li></ul><ul><li>Look at Joe Paterno, Warren Buffett, or Julia Child </li></ul><ul><li>But how do we/employer fund a long, fruitful life? </li></ul>
    4. 4. Fidelity Study <ul><li>Feb. 2007 study 500 married pre-retiree married couples ages 43 to 70 (all married >24 yrs, income>$75k, with investments>$100k, >9 years to retirement) </li></ul><ul><li>30% gave completely different retirement age, expected lifestyle, intention to work during retirement </li></ul><ul><li>58% failed to agree on financial advisor on spouse death </li></ul><ul><li>33% of husbands underestimate spouse retirement age </li></ul><ul><li>Only 23% worked jointly on finances, cited key to being more prepared for retirement </li></ul>
    5. 5. April 2007 Poll… So, 51% more need to work part-time
    6. 6. More Gallup Data <ul><li>Avg. age at current retirees stopped work is 60 </li></ul><ul><li>Nearly 70% of current retirees retired before 65 </li></ul><ul><li>Only 27% retired over age 65 </li></ul><ul><li>Most pre-retirees expect to retire at 64 </li></ul><ul><li>But 57% of non-retirees say 65 or older, possible due to increasing “full benefits” age for Social Security (66 or so and rising) </li></ul>
    7. 7. Putnam Investments Survey <ul><li>Of working Americans aged 45 and older: </li></ul><ul><li>20% support parents </li></ul><ul><li>26% of above workers supporting parents say they must delay their own retirement </li></ul><ul><li>45% support adult children with > $2,500 /yr </li></ul><ul><li>25% provide housing for adult children </li></ul><ul><li>17% received inheritances (avg. only $38k) </li></ul>
    8. 8. McKinsey Retirement Study <ul><li>Of 3,000 retirees and pre-retirees studied, 40% of retirees stated they were forced to stop working: </li></ul><ul><li>47% cited health problems </li></ul><ul><li>44% lost their jobs </li></ul><ul><li>9% cited family care-giving responsibilities </li></ul>
    9. 9. Preparedness <ul><li>Examined our medical clients, (veterinarians, ER and FP physicians, psychologists, anesthesiologists, podiatrists, surgeons, optometrists, CRNA, and NP). </li></ul><ul><li>Commonalities-which healthcare clients group best prepared for retirement? </li></ul><ul><li>Traditional notion-reduction in working hours with investment assets providing primary income source rather than salary, LLC or S Corp distributions. </li></ul>
    10. 10. Rules of Thumb <ul><li>I dislike rules of thumb as they change with whomever you speak with. Common ones: </li></ul><ul><li>Life insurance $ = 5 to 9 times your annual salary </li></ul><ul><li>Retirement spending = 70% of pre-retirement $ </li></ul><ul><li>Safe portfolio withdrawal rate = 4% (1998 Trinity study) has 100% success prob. (1926-1995) </li></ul><ul><li>Only need LTC Ins. if net worth < $3-5 million </li></ul><ul><li>100 – Age = % allocation to stocks </li></ul><ul><li>60/40 or 40/60 (my dad’s ROT) </li></ul>
    11. 11. Hence, “The Bucket Theory” Veterinary Practice(s) Value 401(k) SEP IRA Trad. IRA ROTH Taxable Savings (Trusts) Practice Facility & Other Real Estate
    12. 12. Retirement Success Inclusion <ul><li>Higher-than-average net worth. </li></ul><ul><li>Constantly worked on assuring a comfortable retirement standard of living. </li></ul><ul><li>Significantly more conscious of increasing net worth. </li></ul><ul><li>Diversified wealth into each “Bucket”. </li></ul><ul><li>Disciplined savers and investors. </li></ul><ul><li>Managed risk to protect their wealth. </li></ul><ul><li>Had a formal, written financial plan. </li></ul>
    13. 13. Reasons why DVM’s/MD’s fail: <ul><li>Start retirement programs too late. </li></ul><ul><li>A majority live beyond their means. </li></ul><ul><li>Being debt free admirable mantra- not best use of money. </li></ul><ul><li>Practice outgrown original pension plan. </li></ul><ul><li>Fall prey to product sale vs. fiduciary advice. </li></ul><ul><li>Believed no real need to save outside practice. </li></ul><ul><li>Didn’t understand why to fund all “buckets”. </li></ul>
    14. 14. General Success Rule <ul><li>Formulated a vision of what retirement security was early in their pre-retirement years. </li></ul><ul><li>According to medical owner economic studies, doctors who have planned for retirement since they began their careers have accumulated 5 times more than what a non-planner has saved. </li></ul>
    15. 15. Why Should Your Plan Be Different? <ul><li>Yale researchers wanted to study people’s motivations and the role that goals play. Asked Yale Class of ‘53 before graduation following four questions: </li></ul><ul><li>Are goals important? 100% said yes </li></ul><ul><li>Do you have goals? 100% said yes </li></ul><ul><li>Are your goals written down? _____?______ </li></ul><ul><li>Do you have a plan to accomplish those goals? _____?______ </li></ul><ul><li>Only 3% answered yes to questions 3 and 4 !! </li></ul>
    16. 16. Fast Forward to Year 1973 <ul><li>Same researchers assembled Yale Class of ’53 & asked each what their net worth was. </li></ul><ul><li>The 3% that had (a) written plans and (b) had implemented those plans had a combined net worth greater than the remaining 97% combined!! </li></ul><ul><li>Those who had written goals had accomplished 50% more of those goals than those that did not. </li></ul>
    17. 17. Global Retirement Portfolio <ul><li>Focus of Asset Allocation Plan is based on your long-term objectives. </li></ul><ul><li>“ Long-term” means over 5 years or more. Reasonable amount of investment risk in expectation of higher returns. </li></ul><ul><li>Includes CD’s, taxable brokerage accounts, mutual funds, ETFs, IRAs, ROTHs, 401(k) accounts, real estate. </li></ul>
    18. 18. Your ERISA Fiduciary Status <ul><li>Subject to conduct standards because you act on behalf of participants in a retirement plan and their beneficiaries. These include: </li></ul><ul><li>Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them </li></ul><ul><li>Carrying out their duties prudently </li></ul><ul><li>Following the plan documents </li></ul><ul><li>Diversifying plan investments, and </li></ul><ul><li>Paying only reasonable plan expenses. </li></ul>
    19. 19. Mandatory Fiduciary Tool <ul><li>An Investment Policy Statement (IPS) is your basic and best defense against any future accusations of poor decision making. </li></ul><ul><li>A good IPS: </li></ul><ul><li>clarifies the purpose of the plan, </li></ul><ul><li>how decisions are made, </li></ul><ul><li>who makes those decisions, and </li></ul><ul><li>it sets forth the criteria to be used in the investment selection and monitoring process </li></ul>
    20. 20. Good IPS Fund Selection Criteria <ul><li>Risk-adjusted Performance over 1, 3, 5, & 10 year Periods </li></ul><ul><li>Performance vs. Peer Group over 1, 3, 5, and 10-year Periods </li></ul><ul><li>Expenses </li></ul><ul><li>Turnover Ratio </li></ul><ul><li>Manager Tenure </li></ul><ul><li>Fund Size </li></ul><ul><li>Top 10 Holdings and Portfolio Composition </li></ul><ul><li>Style Consistency </li></ul>
    21. 21. Monitoring Process <ul><li>Fiduciary law expects you to review investments on a regular basis. </li></ul><ul><li>Generally means tracking investment performance against well-defined monitoring criteria at least annually. </li></ul><ul><li>By meeting periodically to discuss investments and keeping detailed notes, you demonstrate sufficient commitment to a procedural due diligence process. </li></ul>
    22. 22. Retirement Plan Future <ul><li>Physicians and dentists have poor history in offering retirement plans due to impact on their own levels of mandatory contribution to employee accounts. </li></ul><ul><li>SEP and SIMPLE (Savings Incentive Match Plan for Employees of Small Employers Plans) IRA Plans have seen limited utilization in multi-employee practices. </li></ul><ul><li>401(k) plans now have much more reasonable fees, on-line control, and greater flexibility </li></ul>
    23. 23. New or Improved? <ul><li>Traditional Plan </li></ul><ul><li>Employers must contribute same flat % of profits to employees. </li></ul><ul><li>Sophisticated Plan </li></ul><ul><li>Practice owners and/or key employees can contribute greater %’s to own 401(k) profit sharing accounts. </li></ul>
    24. 24. 401(k) Plan Limitations <ul><li>In 2007 the total of both employee and employer contributions is limited to the lesser of 100% of your compensation or $45,000 ($50k over 50) </li></ul><ul><li>2007 Employee Contribution Limit is $15,500 </li></ul><ul><li>2007 Catch-Up Contribution Limit if over age 50 is $5,000 </li></ul><ul><li>Employer could contribute match $29,500 </li></ul>
    25. 25. Type of 401(k) Plans <ul><li>401(k) Profit Sharing Plan </li></ul><ul><li>401(k) Safe Harbor Plan (no anti-discrimination testing) </li></ul><ul><li>401(k) Profit-Sharing with Permitted Disparity </li></ul><ul><li>401(k) profit-sharing with New Comparability </li></ul>
    26. 26. “Safe Harbor” 401(k) Plan <ul><li>Allows a matching amount for owner. </li></ul><ul><li>But, immediate vesting for all employees. </li></ul><ul><li>Required employer contribution to all employees is either: </li></ul><ul><ul><li>matching contribution of 100% of deferral up to 3% of pay + 50% of deferrals next 2% of pay, or </li></ul></ul><ul><ul><li>non-matching contribution of 3% of pay for all eligible ‘ees regardless of deferrals. </li></ul></ul>
    27. 27. “Permitted Disparity” 401(k) Plan <ul><li>Allows plan “integration” with Social Security. </li></ul><ul><li>Proportionately less benefits paid to employees earning under FICA cap ($97,500 in ‘07). </li></ul><ul><li>Generally, this type of allocation formula tends to favor higher paid employees or practice owners. </li></ul>
    28. 28. 401(k) Plan w/ “Permitted Disparity”
    29. 29. “New Comparability” 401(k) Plan <ul><li>IRS regulations permit companies to over-weight benefits to older practice owners and other highly compensated employees. </li></ul><ul><li>Uses “cross-testing” to satisfy the discrimination rules. </li></ul><ul><li>Cross-testing converts contributions made today into equivalent benefit accrual rates and allow owners increased flexibility in their contributions. </li></ul>
    30. 30. “New Comparability” 401(k) Plan <ul><li>Employees are divided into groups. </li></ul><ul><li>Each group contribution is a different % of compensation. </li></ul><ul><li>Simplest structure-(1) owner group and (2) other employee group. </li></ul><ul><li>Some practices have several groups (owners over/under age 40, practice managers, tech staff, receptionists, etc.) </li></ul>
    31. 31. “New Comparability” 401(k) Plan <ul><li>Ideal for practice owners who: </li></ul><ul><li>Are older and earn more than most of their employees </li></ul><ul><li>Want largest possible share of plan contributions allocated to own accounts, and </li></ul><ul><li>Desire contribution flexibility of profit sharing plan. </li></ul>
    32. 32. Two Great, Low-Cost 401(k) Plans
    33. 33. Defined Benefit Plans (DB) <ul><li>401(k), SIMPLE, IRA, SEP are defined contribution plans-monitor what you put in to get unknown future benefit </li></ul><ul><li>Defined benefit programs find the actuarial investment required to end the plan with enough assets to fund a pre-defined annual benefit. </li></ul><ul><li>Expensive to maintain </li></ul><ul><li>Great for high earning owners who are much older than rest of staff. </li></ul><ul><li>Annual contribution as high $150,000 </li></ul>
    34. 34. Underlying Risks Abound… <ul><li>Inflation can erode purchasing power. </li></ul><ul><li>Overly aggressive or conservative portfolio allocations should be modified to a family’s global risk tolerance. </li></ul><ul><li>Making up for lost time can lead to disaster. </li></ul><ul><li>Rising health care premiums may significantly erode retirement savings. </li></ul><ul><li>Longevity risk (living >= 20 to 30 years) means retirement funds may be depleted earlier. </li></ul>
    35. 35. Three Scenarios! <ul><li>Not formulating a formal retirement savings plan </li></ul><ul><li>=Bad End Result </li></ul><ul><li>Saving the maximum custom 401(k) amount provides excellent complement to practice value </li></ul><ul><li>=Demonstrably better </li></ul>Saving the ‘ee regular 401(k) limit provides good complement to practice value =OK, could be better A . B. C.
    36. 36. 50 year-old practice owner Makes a $15,500 annual 401(k) contribution for 12 years until retirement Still has potentially $475,000 at age 70 (moderate portfolio allocation). B
    37. 37. Same 50 year-old practice owner Contributes max. $15,500 annual 401(k) contribution for 12 years with $5,000 catch-up contribution plus a corporate match of up to $29,000. Potential $1.4 million (moderate portfolio allocation). C
    38. 38. How to get it out? <ul><li>2006 studies by J. Guyton in Journal of Financial Planning suggest higher maximum initial withdrawal rates may be achieved: </li></ul><ul><li>withdrawal rate 5.2-5.6% at high C.I. if 65% equities </li></ul><ul><li>withdrawal rate <5.2% at high C.I. if 80% equities (greater purchasing power at lower success) </li></ul><ul><li>withdrawal rate 4.6% at high C.I. if 50% equities </li></ul><ul><li>Complex rules must be followed to achieve- </li></ul><ul><li>related to following year rebalancing processes. </li></ul>
    39. 39. Minimum Required Distributions <ul><li>Required distribution from retirement plans by April 15 th in the year after reaching 70 ½ </li></ul><ul><li>First Year Divisor is 26.4 </li></ul><ul><li>ROTH IRA’s not subject to MRD rule (they can potentially last many generations) </li></ul><ul><li>Has to figure into your retirement tax planning </li></ul><ul><li>$1 million 401(k) plan balance so $37,879 MRD </li></ul><ul><li>After tax, that’s not much… </li></ul>
    40. 40. So, Practice Owners Need To: <ul><li>Plan, Plan, Plan </li></ul><ul><li>Save, Save, Save </li></ul><ul><li>Focus on how much is saved , not earned. </li></ul><ul><li>Employ best pension plan for vet practice. </li></ul><ul><li>Fund pension plans at maximum level for age. </li></ul><ul><li>Maintain some version of a 401(k) profit-sharing plan that best fits vet practice and staff census. </li></ul><ul><li>Defined benefit plans are available, but… </li></ul>
    41. 41. <ul><li>Thank You! </li></ul><ul><li>谢谢 </li></ul><ul><li>Merci </li></ul><ul><li>Danke Schon </li></ul><ul><li>Grazie </li></ul><ul><li>ありがとう </li></ul><ul><li>당신을 감사하십시오 </li></ul><ul><li>Obrigado </li></ul><ul><li>Gracias </li></ul>
    42. 42. Contact Information <ul><li>Mark J. M c Gaunn, CPA/PFS, CFP ® President </li></ul><ul><li>MJM Financial Advisors, LLC 114 Turnpike Road, Suite 107 Westborough, MA 01581-2861 phone: (978) 405-3133 e-fax: (978) 776-2609 e-mail: [email_address] </li></ul><ul><li>web: www.mjmfa.com </li></ul>

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