Getting Started in a Financially Secure Retirement
Getting Started in a Financially Secure Retirement
The obstacles blocking a surgeon's path to retirement seem endless: debt, taxes, diminished compensation, etc. Now more than ever, planning ahead and fine-tuning a sharp savings strategy are crucial in reaching the finish line of retirement. Unfortunately, advice on these matters is often marred by sales pitches and gimmicks. Cutting through the din of financial babble, Henry Hebeler, the retired former president of Boeing Aerospace, offers advice in (Wiley; May 2007). Hebeler encourages readers to think seriously about what they want out of retirement and develop their retirement plan accordingly. He points out that demographics and governmental trends will influence retirement lifestyles, and savers should keep these trends in mind when making their plan. covers everything from planning with realistic economic inputs to often neglected subjects such as replacement budgeting, reverse-dollar cost averaging, and the need for resiliency when encountering surprise events. Hebeler takes time to show readers how much they need to save for retirement and how to spend those savings wisely once they get there. also includes helpful appendices and calculators to help readers determine their retirement goals and how to reach them, and how to preserve their capital upon making it to that happy finish line.
0.0021%—Percentage of late payments made by borrowers who have a credit score higher than 720. (, 2006)
2.32%—Percentage of late payments made by borrowers who have a credit score lower than 660. (, 2006)
175—Number of touchdown balls Emmitt Smith collected during his 15-year career with the Dallas Cowboys. (, 2007)
67%—Percentage of people who can differentiate between a secure Website and an unsecured Website. (, 2006)
2%—Percentage of students who apply to more than 12 colleges. (, 2006)
150—Number of the nation's 3,500 colleges that will turn down more than half of all applicants. (, 2006)
67%—Percentage of workers who said they joined office pools in 2006, 57% of whom bet on March Madness. (, 2007)
$10 billion—Estimated amount banks in the United States collected in overdraft fees in 2005. (Center for Responsible Lending, 2007)
70 billion—Number of spam messages sent daily around the world. (, 2007)
$42,500—Amount a 13-year-old collected for spelling "serrefine" correctly in the 2007 Scripps National Spelling Bee. (MSNBC.com, 2007)
$61 billion—Amount that workers' chronic pain costs US employers in lost productivity every year. (, 2007)
Eco-friendly surgeons who are also frugal may have a way to wed these two concerns. A recent issue of magazine offers several household tips that can save water and cash. Installing a low-flow, high-efficiency showerhead with a faucet aerator conserves between 1,000 to 8,000 gallons of water annually without sacrificing water pressure. Shutting off the tap while you brush your teeth saves about 3 gallons of water per minute. Washing only full loads of clothes, using cold water, will save you 3,400 gallons of water in a year. These small steps will provide big ecological and fiscal results over time, and you can preserve your bank account balance even as you preserve natural resources.
Wall Street Journal
Financial experts advise you to start teaching your children about the value of managing money as soon as possible, but according to a article, only half of all children are paid a regular allowance. David McCurrach, president of a small Tennessee credit union, advocates starting your child?s allowance at around age 3?the general age at which a child understands that money buys things.
Once you decide to initiate an allowance, the next tough decision is how much to pay your child. The recommends $1 a week for every year of age (eg, 7-year-old would receive $7 per week). By age 9, most children are ready to receive an additional clothing allowance. Keep in mind that many financial advisors frown on paying allowances in return for chores or doing homework—these are obligatory responsibilities and don't warrant an award. For parents who want to teach a lesson about contracts, the recommends buying a prefabricated allowance contract from www.kidscontracts.com, designed to identify the permissible uses of the money, when raises will be given, and whether loans are available.
It's a Habit, Sammy Rabbit!
Because immediate satisfaction is often far more tempting than the promise of a future reward, you may have difficulty convincing your younger children to save their money. Teaching them the value of learning to save and invest seems nearly impossible. An article in describes a man who may be able to help you. Meet Sam Renick, who wrote the book, , in which Sammy learns to build up a stash of carrots and saves the day for his family after a storm washes away the storage shed. Renick has spent many months on the road, taking his message to schools—a rather unusual approach to financial education in the classroom.
Few states offer these courses, but no worries: Renick feels that parents are their children's best teachers when it comes to lessons in managing real cash. For more information and training resources for your children, visit www.itsahabit.com.
Dodging tax scams can be frustrating, especially for surgeons who own their practice and can benefit from legitimate tax strategies. According to a recent article in , the IRS has a new obstacle in its quest to uncover abusive tax shelters: the US Patent and Trademark Office.
Over the past few years, the Patent Office has granted patents to people who have developed innovative "business methods" for avoiding taxes. So far, 48 patents for tax-reduction strategies have been granted, with at least 61 applications pending. The danger in this new development is that many people assume that something patented is legal and will fall for deceptive marketing of these "patented" tax strategies. Be aware: Patents confer no guarantee that the IRS finds the process acceptable. Securing a patent for a tax strategy is a red flag in and of itself, many experts say. The Patent Office does not have the ability to evaluate the credibility of patent applications for tax shelters because they have few examiners with in-depth knowledge of tax laws.
Wall Street Journal
Now that federal tax breaks for 529 plans have been made permanent, the plans have regained their popularity. States and plan managers are offering or increasing investment incentives for 529s, according to the . Surgeons should consider the following key points to reduce plan costs and increase tax benefits:
To compare the variety of 529 plans available, visit www.savingforcollege.com.
We all dream of dipping into a big pot of gold toward the end of life's rainbow. Many surgeons, however, are discovering that the pot is half empty. As you near retirement, the reality of ever-increasing costs of living coupled with market downturns leaves many wondering whether they will have enough to retire. Just how much should you save to maintain the standard of living you desire? What factors should you consider when making those calculations?
Aspire to be financially independent in retirement. You likely will have to rely heavily on your asset base for income, particularly your financial portfolio. Your asset base also may include your house, rental property, and business ownership. Achieving a sufficient financial asset base from which to fund retirement involves the following basic steps:
Step 1, calculating how much you will spend in retirement, can be a challenge. Most retirement specialists suggest that you will need at least 75% to 80% of your current income to retire with the same lifestyle you have today. Because the accuracy of your calculation will have a direct reflection on the quality of your life in retirement, it's a good idea to use realistic figures. This means taking other important considerations into account, like where you plan to live in retirement, what you expect to do, which expenses are likely to go away, and which new financial obligations might come along. Don't forget to think about the impact of increases in the average lifespan, taxes, and inflation.
—Robert J. Lee II AWMA, AAMS
Income and capital gains taxes could eat up 25% or more of your retirement income if you are not care-ful. For starters, you will have to pay income taxes on any withdrawals you make from traditional IRAs and 401(k) savings plans. You likely will have to take out additional funds to cover state taxes and income tax on the social security payments you receive. When it comes to capital gains, you will owe 15% on your long-term gains from a taxable account. While it is impossible to avoid taxes altogether, there are several things you can do to reduce the impact they have on your hard-earned savings.
Maximize contributions to your Roth IRA—Withdrawals of your contribu-tions and earnings will be tax-free after age 59-1/2, provided you have held the Roth for at least 5 years. Be sure to take full advantage of these accounts. You can contribute $4,000 a year to a Roth for 2007, and make an additional $1,000 "catch-up" contribution if you are age 50 or older. Because you pay taxes on the contributions to your Roth when you put them into the account, you avoid paying them upon withdrawal.
Consider a traditional IRA—If your adjusted gross income is too high for you to make a Roth contribution (exceeding $166,000 for couples filing jointly), you may want to put as much as you can into a traditional IRA. While this kind of IRA may not be tax deductible if you are in a high income bracket, it is still an important investment to consider. Starting in 2010, a change in the tax law will let you convert your regular IRA to a Roth. But, it is important to note that any amount attributable to deductible contributions or growth is going to be taxed as ordinary income upon conversion to a Roth.
Use taxable assets first—When you begin dipping into your nest egg, it may be a good idea to use assets stored in taxable accounts first. That way your tax-deferred assets have the opportunity to grow for as long as possible and you avoid an income tax rate as high as 35% on distributions from these accounts. When you withdraw your taxable assets, you will be taxed the 15% capital gains rate; however, as of January 1, 2011, the capital gains rate will rise to 20%.
Gift some of your assets—Gifting some of your assets to family members or other individuals can result in income and estate tax savings. As you reduce your assets, you also remove earnings those assets generate from your taxable income. Additionally, with those assets removed from your estate ahead of time, your heirs will still receive the benefit of those gifts while possibly avoiding costly estate taxes. Keep in mind, you can gift up to $12,000 annually to any one of your heirs without incurring a tax penalty.
?Joseph F. Lagowski
While there is no clear-cut formula to calculate how much money an individual needs for a comfortable retirement, breaks down the basics. First, you can expect two major changes to your finances after retirement: less income and increased health care costs. There are other considerations, such as a lower income tax bracket (due to a lower income), no more Social Security and Medicare taxes, no need to dedicate 5% to 15% of your income for retirement savings, lower housing costs, and less money spent on clothes and commuting.
Other factors to weigh when establishing a savings goal include whether you'll retire fully or work part-time; whether you want to spend it all yourself or leave an inheritance; how much of your home will be paid off and where it is located; and what lifestyle you plan to choose, such as traveling or living it up. Once you have estimated the annual income you predict will be necessary for each year of retirement, suggests calculating a lump-sum savings target. Subtract Social Security and any expected pension income from that annual calculation and then multiply by 25. This final number is your estimated retirement savings goal. This formula assumes that you will follow standard investing advice and spend only 4% of your investment portfolio the first year and increase the dollar amount each successive year just enough to keep pace with inflation.
According to MarketWatch.com, nearly 1 in 5 workers age 45 and older provides financial support to a parent—and a fair portion of those baby boomers also support adult children. If you're a surgeon who can relate to this situation, you are experiencing the stress of the sandwich generation. Instead of sacrificing retirement savings to come up with the extra funds, MarketWatch.com suggests that you consider all possible options.
When it comes to your adult children, if they are working but can't make ends meet, sit down with them and discuss their budget and living situation. It may be time for your child to meet with a financial planner. A similar planning session with your parents should also happen, and the sooner the better. Research the prospect of buying long-term care insurance for your parents to offset future nursing home costs. You may want to consider seeking help from other relatives, borrowing against a whole-life insurance policy before dipping into your retirement savings, or looking into whether your parents can take out a reverse mortgage on their home.
The average lifespan continues to increase, and you need to make sure you have the financial assets to address the possibility of longevity. "When you get to [age] 65, you should expect to live another 30 years," says Philip Edwards, managing director at Standard & Poor's. To prepare for this possibility, individuals should make sure that they will have diversified income streams. Surgeons also should ensure that when they leave their place of employment, they take a lump-sum distribution of any stock options and pay ordinary income tax on the shares' cost basis. If they do not take the lump sum, the unrealized appreciation would face the long-term capital gains rate when the shares are sold. Surgeons also should be prepared for emotional hurdles, such as reluctance to begin drawing from their retirement assets for fear of running out of money.
Winnie the Pooh
The Big Book
Surgeons who want to earn extra cash during retirement might consider selling their treasures on Ebay. A recent article in rates the value of items on Ebay, such as books, electronics, art, and animal collectibles. In the book category, classic first editions of children's books fetch high prices. A first edition by A.A. Milne sold for $500. Other big sellers include early editions of Alcoholics Anonymous's and oversized books with large prints of flowers or birds. Don't expect to get much, however, for your old mass-market bestsellers or paperbacks. As for electronics, functional used iPods often sell for 50% of their original price, while iPods still in their packaging are receiving 80% to 90% of their retail value. Folk art from unknown artists, particularly works prior to 1900, can fetch thousands of dollars. Works from today's unknown artists are not hot and typically sell for $30 or less. Dolphin-related animal collectibles are top sellers, followed by dogs, elephants, cats, and birds. Interestingly, frog-related items are the least valuable, averaging less than 50% of the value of dolphin items.