The Retirement Plan for Your Kids

One of the main financial concerns physicians face is saving for retirement. This week, David Alemian looks at how physicians can alleviate that concern for the next generation.

I’d like to thank everyone who has written to the Alemian file over these past few months, and please keep those emails with your questions and comments coming.

The two most popular topics that viewers and readers write to The Alemian File are: Number one, having enough money to retire, and number two, college tuition for their kids. So it’s safe to say that retirement and their kids weigh heavy on the minds of Alemian File viewers and readers. Today, I’m going to combine the topics of retirement and kids and talk about retirement for your kids.

The number one concern for physicians is having enough money to retire. Wouldn’t it be nice if your kids never had to worry about retirement?

Here’s a real life story about a physician who absolutely loved his family. I put together a tax-free retirement plan for him and his wife. The plan consisted of the physician putting money into an indexed universal life insurance policy. The physician was thrilled with the plan so he asked me if I could put together a retirement plan for each of his sons, age four and age six years old. I explained that yes we could start retirement plans for his two young sons and the results would be absolutely amazing. Imagine the power of compound interest over approximately a 60-year period.

The average contribution to a retirement plan nationwide is about $500 per month. For physicians, retirement plan contributions can be $25,000 to $50,000 per year and more. What if you put only $200 per month into an indexed universal life insurance policy for a five year old child? Let’s pay that $200 per month into the plan until the child has grown into adulthood and is able to pay the $200 per month on his or her own.

We are healthier and living longer, so let's have that adult child save for retirement using this plan paying $200 per month until age 70. Beginning at age 70 that child would have a net tax-free retirement income of over half a million dollars a year for life. Wow, thanks Mom and Dad! Or wow, thanks Grandma and Grandpa or whoever set up the plan! I call it “the kids will never have to worry about retirement” plan.

The numbers I’ve just given you are linear. If you put away only $100 a month it would be about half the retirement income, which would be about a quarter million dollars per year tax-free, for life. If you put away twice as much it would be it would be about twice the retirement income, which is somewhere around one million dollars a year tax-free for life.

Rather than only thinking about college for your kids, think about your child’s retirement and what an amazing gift that would be. You can actually combine the two and have both a college savings plan and a retirement plan for your kids or grandkids. Moreover, it’s also a very affordable gift, it just takes a little forethought and action on your part while the child is still young.

If you have questions send me an email to David@TheAlemianFile.com. Check out my website PhysiciansRetirementPlan.com, and make sure you come back here next week to Physicians Money Digest for another edition of The Alemian File.