The sweet taste of retirement
Maintaining some semblance of your current lifestyle in retirement doesn't have to be a "pie in the sky" idea-if you plan ahead. (Hey, 30-somethings: We're talking to you!)
EIGHTY-ONE PERCENT OF DOCTORS surveyed said they're funding or plan to fund their retirement at least partially with Individual Retirement Accounts (IRAs), and 49 percent say they'll use 401(k) plans to help fund retirement, according to the 2006 Veterinary Economics Industry Issues Study. (See Figure 1 for more.) That's all well and good, but a lot more veterinarians should be taking advantage of today's favorable tax laws and retirement plans, says Veterinary Economics Personal Finance Editor Fritz Wood, CPA, CFP.
Wood says that with the ease of setting up retirement plans these days, the affordability, and the tax laws encouraging participation, there's no good reason to ignore your financial future. Here, Wood outlines key problems he sees most often with practitioners' retirement plans—and gives advice for making your financial plan work for you.
Lack of diversification
The Industry Issues Study shows that 42 percent of veterinarians plan to sell their practice for retirement income, and Wood says he sees this more often—and too often—among the practitioners he works with. "It's a problem if all your assets are tied up in the business between the land, building, equipment, and goodwill value of the practice," he says.
Wood prefers to see a healthy mix of liquid and illiquid investments. Liquid assets include stocks, bonds, cash, checking, money market funds, and CDs. Illiquid funds include investments in land, building, home, equipment, and goodwill, for starters.
"I've seen practice owners hold 95 percent of their assets in illiquid investments, as many small business owners do," he says. In this case, if an unavoidable or unpredictable event raises the need for cash, you're out of luck. Another problem with counting on the business for retirement income is that sometimes, as doctors age, they don't work quite as hard and the practice value declines—just as they're wanting to sell, Wood says.
Lack of company retirement plans
The biggest problem with retirement plans in private practice is the lack of them. Wood figures that fewer than one in four practices offers a retirement plan to employees. "That's atrocious!" he says. "Other medical professions, like human medicine, dentistry, and optometry, wouldn't dream of not offering a retirement plan. Why should veterinarians be different?"
How much do you need to retire?
According to the "Economic Report on Veterinarians and Veterinary Practices," released by the AVMA in 2005, 12 percent of private practice associates receive profit-sharing benefits, and 15 percent have a pension plan. (These numbers rise to 22 percent and 25 percent, respectively, for private practice owners.) Compare that with results from an Employee Benefit Research Institute (EBRI) study on employee benefits and retirement plans, published in EBRI Issue Brief No. 289, January 2006: As of 2003, 67 percent of wage and salary workers ages 16 and older work for an employer or union that sponsors a retirement plan, and 51 percent of workers took advantage of those plans.
For another comparison, Wood says, consider that almost 70 percent of veterinarians in public or corporate positions have a pension plan. Why the lack of participation in private veterinary practice?
"I think it's just not on veterinarians' radar to think about these things," says Wood. "Practitioners often contact an accountant to help file taxes, and that's it, so they're not getting the advice they need on these other issues."
If you're an associate or staff member interested in participating in a retirement plan—which every employee should be—Wood recommends that you talk to your boss or practice manager about it. "I'm convinced that if a practice owner looks at the benefits, he or she will be more willing to participate," he says.
"These plans help attract and retain employees, they don't cost a lot of money, and they can save you lots of tax dollars just by participating. It's a win-win situation, and it can't hurt to ask the practice owner to get a plan started." Wood also says that the EBRI and Mathew Greenwald & Associates Inc. rank employee-sponsored retirement plans as the No. 2 most valuable employee benefit.
On your own, you can open an IRA, Roth or regular, he says. The current limit for contribution is $4,000 per person, or $5,000 if you're 50 years old or older. In 2008, those limits will increase to $5,000 and $6,000, respectively.
"Saving and investing are a lot like dieting and exercising," says Wood. "They're easier to do tomorrow, but they'll give you greater benefits if you start today."