Are You Ready $$ For Retirement?
Mark J. McGaunn, CPA/PFS, CFP®
President
MJM Financial Advisors, LLC
114 Turnpike Road, S...
Retirement Agenda
• History & Studies
• General Strategies
• Don’t Fail
• Fiduciary Duties
• Types of Plans
• Examples of ...
Retirement Over Time
Agricultural Phase
Work right through old age (60) supported by
earnings, savings, family & charity
I...
Fidelity Study
500 married pre-retiree married couples ages 43 to
70 (all married >24 yrs, income>$75k, with
investments>$...
Trust Gallup…
So, 51% more
need to work
part-time
More Gallup Data
• Avg. age at current retirees stopped work is 60
• Nearly 70% of current retirees retired before 65
• On...
Putnam Investments Survey
Of working Americans aged 45 and older:
• 20% support parents
• 26% of above workers supporting ...
McKinsey Retirement Study
Of 3,000 retirees and pre-retirees studied, 40%
of retirees stated they were forced to stop
work...
Preparedness
• Examined our medical clients (veterinarians,
dentists, ER physicians, psychologists,
anesthesiologists, pod...
Rules of Thumb
I dislike rules of thumb as they change with
whomever you speak with. Common ones:
• Life insurance $ = 5 t...
Hence, “The Bucket Theory”
Veterinary
Practice(s)
Value
401(k)
SEP IRA
Trad. IRA
ROTH
DB
Taxable
Savings
(Trusts)
Practice...
Retirement Success Inclusion
• Higher-than-average net worth.
• Constantly worked on assuring a comfortable
retirement sta...
Reasons why DVM’s/MD’s fail:
1. Start retirement programs too late.
2. A majority live beyond their means.
3. Being debt f...
General Success Rule
Formulated a vision of what retirement security
was early in their pre-retirement years.
According to...
Why Should Your Plan Be Different?
Yale researchers wanted to study people’s
motivations and the role that goals play. Ask...
Fast Forward to Year 1973
Same researchers assembled Yale Class of ’53
& asked each what their net worth was.
• The 3% tha...
Global Retirement Portfolio
Focus of Asset Allocation
Plan is based on your
long-term objectives.
“Long-term” means over
5...
Your ERISA Fiduciary Status
Subject to conduct standards because you act
on behalf of retirement plan participants and
the...
Mandatory Fiduciary Tool
An Investment Policy Statement (IPS) is your
basic and best defense against any future
accusation...
Good IPS Fund Selection Criteria
• Risk-adjusted Performance over 1, 3, 5, & 10 years
• Performance vs. Peer Group over 1,...
Monitoring Process
• Fiduciary law expects you to review investments
on a regular basis.
• Generally means tracking invest...
Retirement Plan Future
• Physicians and dentists have poor history in
offering retirement plans due to impact on their
own...
New or Improved?
Traditional Plan
Employers must contribute same flat % of profits
to employees.
Sophisticated Plan
Practi...
401(k) Plan Limitations
• In 2010 the total of both employee and employer
contributions is limited to the lesser of 100% o...
Type of 401(k) Plans
1. 401(k) Profit Sharing Plan
2. 401(k) Safe Harbor Plan (no anti-discrimination
testing)
3. 401(k) P...
“Safe Harbor” 401(k) Plan
• Allows a matching amount for owner.
• But, immediate vesting for all employees.
• Required emp...
“Permitted Disparity” 401(k) Plan
• Allows plan “integration” with Social Security.
• Proportionately less benefits paid t...
401(k) Plan w/ “Permitted Disparity”
“New Comparability” 401(k) Plan
• IRS regulations permit companies to over-
weight benefits to older practice owners and
o...
“New Comparability” 401(k) Plan
• Employees are divided into groups.
• Each group contribution is a different % of
compens...
“New Comparability” 401(k) Plan
Ideal for practice owners who:
1. Are older and earn more than most of their
employees
2. ...
Three Great, Low-Cost 401(k) Plans
Defined Benefit Plans (DB)
• 401(k), SIMPLE, IRA, SEP are defined
contribution plans-monitor what you put in to get
unknow...
Underlying Risks Abound…
• Inflation can erode purchasing power.
• Overly aggressive or conservative portfolio
allocations...
Three Scenarios!
Not
formulating
a formal
retirement
savings plan
=Bad End
Result
Saving the max
custom 401(k)
$ provides
...
50 year-old practice owner
Makes a $16,500 annual 401(k) contribution for 12 years until
retirement Still has potentially ...
Same 50 year-old practice owner
Contributes max. $16,500 annual 401(k) contribution
for 12 years with $5,500 catch-up cont...
How to get it out?
J. Guyton in Journal of Financial Planning suggest
higher maximum initial withdrawal rates may be
achie...
Minimum Required Distributions
• Required distribution from retirement plans by
April 15th in the year after reaching 70 ½...
So, Practice Owners Need To:
• Plan, Plan, Plan
• Save, Save, Save
• Focus on how much is saved, not earned.
• Employ best...
Thank You!
谢谢
Merci
Danke Schon
Grazie
ありがとう
당신을 감사하십시오
Obrigado
Gracias
Contact Information
Mark J. McGaunn, CPA/PFS, CFP®
Managing Member
McGaunn & Schwadron, CPA’s, LLC
75 2nd, Avenue, Suite 4...
A Veterinarian's Guide To Financial Planning for Retirement, Part I
A Veterinarian's Guide To Financial Planning for Retirement, Part I
A Veterinarian's Guide To Financial Planning for Retirement, Part I
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A Veterinarian's Guide To Financial Planning for Retirement, Part I

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A presentation by McGaunn & Schwadron CPA to educate veterinarians on how to best plan for their financial retirement by understanding different retirement plans, how they work, which 401K might be best for them, and generally being prepared for the future of your veterinary practice.

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  • Reality is scary. Few of us are really prepared for retirement. Thanks for the excellent information.
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A Veterinarian's Guide To Financial Planning for Retirement, Part I

  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: mark@mjmfa.com web: www.mjmfa.com
  2. 2. Retirement Agenda • History & Studies • General Strategies • Don’t Fail • Fiduciary Duties • Types of Plans • Examples of Financial Success • Spending it
  3. 3. Retirement Over Time Agricultural Phase Work right through old age (60) supported by earnings, savings, family & charity Industrial Phase 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. Knowledge/Service Economy Traditional retirement ages become obsolete Look at Joe Paterno, Warren Buffett, or Julia Child But how do we/employer fund a long, fruitful life?
  4. 4. Fidelity Study 500 married pre-retiree married couples ages 43 to 70 (all married >24 yrs, income>$75k, with investments>$100k, >9 years to retirement) 1. 30% gave completely different retirement age, expected lifestyle, intention to work during retirement 2. 58% failed to agree on advisor on spouse death 3. 33% husbands underestimate spouse retirement age 4. Only 23% worked jointly on finances, cited key to being more prepared for retirement
  5. 5. Trust Gallup… So, 51% more need to work part-time
  6. 6. More Gallup Data • Avg. age at current retirees stopped work is 60 • Nearly 70% of current retirees retired before 65 • Only 27% retired over age 65 • Most pre-retirees expect to retire at 64 • But 57% of non-retirees say 65 or older, possible due to increasing “full benefits” age for Social Security (66 or so and rising)
  7. 7. Putnam Investments Survey Of working Americans aged 45 and older: • 20% support parents • 26% of above workers supporting parents say they must delay their own retirement • 45% support adult children with > $2,500 /yr • 25% provide housing for adult children • 17% received inheritances (avg. only $38k)
  8. 8. McKinsey Retirement Study Of 3,000 retirees and pre-retirees studied, 40% of retirees stated they were forced to stop working: • 47% cited health problems • 44% lost their jobs • 9% cited family care-giving responsibilities
  9. 9. Preparedness • Examined our medical clients (veterinarians, dentists, ER physicians, psychologists, anesthesiologists, podiatrists, surgeons, optometrists, CRNA, and NP). • Commonalities-which healthcare clients group best prepared for retirement? • Traditional notion-reduction in working hours with investment assets providing primary income source rather than salary, LLC or S Corp distributions.
  10. 10. Rules of Thumb I dislike rules of thumb as they change with whomever you speak with. Common ones: • Life insurance $ = 5 to 9 times your annual salary • Retirement spending = 70% of pre-retirement $ • Safe portfolio withdrawal rate = 4% (1998 Trinity study) has 100% success prob. (1926-1995) • Only need LTC Ins. if net worth < $3-5 million • 100 (now 110) – Age = % stock allocation • 60/40 or 40/60 ? (my dad’s ROT)
  11. 11. Hence, “The Bucket Theory” Veterinary Practice(s) Value 401(k) SEP IRA Trad. IRA ROTH DB Taxable Savings (Trusts) Practice Facility & Other Real Estate Annuity & Insurance Plans
  12. 12. Retirement Success Inclusion • Higher-than-average net worth. • Constantly worked on assuring a comfortable retirement standard of living. • Significantly more conscious of increasing net worth. • Diversified wealth into each “Bucket”. • Disciplined savers and investors. • Managed risk to protect their wealth. • Had a formal, written financial plan.
  13. 13. Reasons why DVM’s/MD’s fail: 1. Start retirement programs too late. 2. A majority live beyond their means. 3. Being debt free admirable mantra- not best use of money. 4. Practice outgrown original pension plan. 5. Fall prey to product sale vs. fiduciary advice. 6. Believed no real need to save outside practice. 7. Didn’t understand why to fund all “buckets”.
  14. 14. General Success Rule Formulated a vision of what retirement security was early in their pre-retirement years. 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.
  15. 15. Why Should Your Plan Be Different? Yale researchers wanted to study people’s motivations and the role that goals play. Asked Yale Class of ‘53 before graduation 4 questions: 1. Are goals important? 100% said yes 2. Do you have goals? 100% said yes 3. Are your goals written down? _____?______ 4. Do you have a plan to accomplish those goals? _____?______ Only 3% answered yes to #3 and #4 !!
  16. 16. Fast Forward to Year 1973 Same researchers assembled Yale Class of ’53 & asked each what their net worth was. • The 3% that had (a) written plans and (b) had implemented those plans had a combined net worth greater than the remaining 97% combined!! • Those who had written goals had accomplished 50% more of those goals than those that did not.
  17. 17. Global Retirement Portfolio Focus of Asset Allocation Plan is based on your long-term objectives. “Long-term” means over 5 years or more. Reasonable amount of investment risk in expectation of higher returns. Includes CD’s, taxable brokerage accounts, mutual funds, ETFs, IRAs, ROTHs, 401(k) accounts, real estate.
  18. 18. Your ERISA Fiduciary Status Subject to conduct standards because you act on behalf of retirement plan participants and their beneficiaries. Behaviors include: • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them • Carrying out their duties prudently • Following the plan documents • Diversifying plan investments, and • Paying only reasonable plan expenses.
  19. 19. Mandatory Fiduciary Tool An Investment Policy Statement (IPS) is your basic and best defense against any future accusations of poor decision making. A good IPS: 1. clarifies the purpose of the plan, 2. how decisions are made, 3. who makes those decisions, and 4. it sets forth the criteria to be used in the investment selection and monitoring process
  20. 20. Good IPS Fund Selection Criteria • Risk-adjusted Performance over 1, 3, 5, & 10 years • Performance vs. Peer Group over 1, 3, 5, and 10 years • Expense Ratios • Turnover Ratios • Manager Tenure • Fund Size • Top 25 Holdings and Portfolio Composition • Style Consistency
  21. 21. Monitoring Process • Fiduciary law expects you to review investments on a regular basis. • Generally means tracking investment performance against well-defined monitoring criteria at least annually. • By meeting periodically to discuss investments and keeping detailed notes, you demonstrate sufficient commitment to a procedural due diligence process.
  22. 22. Retirement Plan Future • Physicians and dentists have poor history in offering retirement plans due to impact on their own levels of mandatory contribution to employee accounts. • SEP and SIMPLE (Savings Incentive Match Plan for Employees of Small Employers Plans) IRA Plans have seen limited utilization in multi- employee practices. • 401(k) plans now have much more reasonable fees, on-line control, and greater flexibility
  23. 23. New or Improved? Traditional Plan Employers must contribute same flat % of profits to employees. Sophisticated Plan Practice owners and/or key employees can contribute greater %’s to own 401(k) profit sharing accounts.
  24. 24. 401(k) Plan Limitations • In 2010 the total of both employee and employer contributions is limited to the lesser of 100% of your compensation or $49,000 ($54.5k over 50) • 2010 Employee Contribution Limit is $16,500 • 2010 Catch-Up Contribution Limit if over age 50 is $5,500 • Employer could contribute match $32,500
  25. 25. Type of 401(k) Plans 1. 401(k) Profit Sharing Plan 2. 401(k) Safe Harbor Plan (no anti-discrimination testing) 3. 401(k) Profit-Sharing with Permitted Disparity 4. 401(k) profit-sharing with New Comparability
  26. 26. “Safe Harbor” 401(k) Plan • Allows a matching amount for owner. • But, immediate vesting for all employees. • Required employer contribution to all employees is either: – matching contribution of 100% of deferral up to 3% of pay + 50% of deferrals next 2% of pay, or – non-matching contribution of 3% of pay for all eligible ‘ees regardless of deferrals.
  27. 27. “Permitted Disparity” 401(k) Plan • Allows plan “integration” with Social Security. • Proportionately less benefits paid to employees earning under FICA cap ($106,800 in 2010). • Generally, this type of allocation formula tends to favor higher paid employees or practice owners.
  28. 28. 401(k) Plan w/ “Permitted Disparity”
  29. 29. “New Comparability” 401(k) Plan • IRS regulations permit companies to over- weight benefits to older practice owners and other highly compensated employees. • Uses “cross-testing” to satisfy the discrimination rules. • Cross-testing converts contributions made today into equivalent benefit accrual rates and allow owners increased flexibility in their contributions.
  30. 30. “New Comparability” 401(k) Plan • Employees are divided into groups. • Each group contribution is a different % of compensation. • Simplest structure-(1) owner group and (2) other employee group. • Some practices have several groups (owners over/under age 40, practice managers, tech staff, receptionists, etc.)
  31. 31. “New Comparability” 401(k) Plan Ideal for practice owners who: 1. Are older and earn more than most of their employees 2. Want largest possible share of plan contributions allocated to own accounts, and 3. Desire contribution flexibility of profit sharing plan.
  32. 32. Three Great, Low-Cost 401(k) Plans
  33. 33. Defined Benefit Plans (DB) • 401(k), SIMPLE, IRA, SEP are defined contribution plans-monitor what you put in to get unknown future benefit • Defined benefit programs find the actuarial investment required to end the plan with enough assets to fund a pre-defined annual benefit. • Expensive to maintain • Great for high earning owners who are much older than rest of staff. • Annual contribution as high $150,000
  34. 34. Underlying Risks Abound… • Inflation can erode purchasing power. • Overly aggressive or conservative portfolio allocations should be modified to a family’s global risk tolerance. • Making up for lost time can lead to disaster. • Rising health care premiums may significantly erode retirement savings. • Longevity risk (living >= 20 to 30 years) means retirement funds may be depleted earlier.
  35. 35. Three Scenarios! Not formulating a formal retirement savings plan =Bad End Result Saving the max custom 401(k) $ provides excellent complement to practice value =Demonstrably better 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 $16,500 annual 401(k) contribution for 12 years until retirement Still has potentially $463,000 at age 62 (moderate portfolio allocation). B
  37. 37. 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 (moderate portfolio allocation). C
  38. 38. How to get it out? J. Guyton in Journal of Financial Planning suggest higher maximum initial withdrawal rates may be achieved: 1. withdrawal rate 5.2-5.6% at high C.I. if 65% equities 2. withdrawal rate <5.2% at high C.I. if 80% equities (greater purchasing power at lower success) 3. withdrawal rate 4.6% at high C.I. if 50% equities Complex rules must be followed to achieve- related to following year rebalancing processes.
  39. 39. Minimum Required Distributions • Required distribution from retirement plans by April 15th in the year after reaching 70 ½ • First Year Divisor is 26.4 • ROTH IRA’s not subject to MRD rule (they can potentially last many generations) • Has to figure into your retirement tax planning • $1 million 401(k) plan balance so $37,879 MRD • After tax, that’s not much…
  40. 40. So, Practice Owners Need To: • Plan, Plan, Plan • Save, Save, Save • Focus on how much is saved, not earned. • Employ best pension plan for vet practice. • Fund pension plans at maximum level for age. • Maintain some version of a 401(k) profit-sharing plan that best fits vet practice and staff census. • Defined benefit plans are available, but…
  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

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