By Natalie Hayes Schmook, MBA, CFP, CVA
As a financial advisor for ODs, retirement planning is one of the most important parts of planning that I work on with clients. All clients start with a different level of knowledge and path to retirement, but out of the hundreds of plans I’ve done, there are five common mistakes I run into. Please avoid these errors; your 65-year-old self will thank you!
- Starting too late. There is always an excuse to wait until saving for retirement—student loans, saving for a first home, believing the future will be more financially secure. But every year that an OD waits to start saving only means she will have to save more per year and in aggregate than those who start early. Even in the most minimal capacity, it is far better to start saving early than waiting.
- Believing you’ll spend less at retirement. This is a common myth, but spending typically goes up at retirement, not down, at least for a few years. Retirees have more time to travel, pursue hobbies and see family, none of which typically involves reduced spending. Don’t work hard your entire career to have less of a lifestyle than you did when you were younger.
- Thinking that maximizing retirement plans is enough. Many doctors whom I work with are great about maximizing their Simple IRA/401k contributions, as well as a traditional or Roth IRA, if available to them, but there seems to be a misconception that is enough. What a doctor needs for retirement is a function of her annual spending and goals. The caps on qualified plans (retirement plans) are government-mandated so that the IRS can still collect tax dollars on income. There was no special thought process by Uncle Sam that if an average person defers $13,500/year, it should be enough to retire on.
- Not taking enough risk. This is an especially timely topic right now when inflation is a very real prospect on the horizon. Keeping retirement savings in cash or even bonds can mean doctors need to save more—possibly double—than what a prudent investor in the stock market should have to. Cash is a perfect example: if your bank account is yielding 1 percent, but the consumer price index (CPI)—a measure of inflation—is 3.5 percent, then the value of that account is actually declining in value by 2.5 percent per year. Would you ever invest in a stock that you knew was going to average a negative 2.5 percent growth each year? No! Make sure your investment returns are at least slightly better than inflation and that you are saving enough to match your risk profile.
- Not thinking about retirement at all. This is pretty self-explanatory but sadly the case for most of America, including many optometrists. The ostrich approach can lead an OD to working well past when she might otherwise hang up her white coat and start having some fun. Planning to die early, live on social security or work forever are all poor approaches to retirement. Remember: “Failing to plan is planning to fail”!
Disclaimer: This material is for educational and informational purposes only to the best of the author’s knowledge and is not to be construed as personalized financial or investment advice. Consult a financial professional about your personal situation.
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Natalie Hayes Schmook, MBA, Certified Financial Planner™, Certified Valuation Analyst™, is the founder and owner of Hayes Wealth Advisors, a financial planning and investment management service for practice owners and their families.