More on Retirement Planning

Posted on March 18, 2018 by Dr. David Edward Marcinko MBA MEd CMP™

Shoulda … Coulda …Woulda … Retirement Planning

By Rick Kahler CFP®

My hunch is that most people would agree they “should” invest for the future. My second hunch is that many of them don’t know how to start and are afraid of making serious mistakes.

One of our resident planners, Sterling Gray, summed up that fear eloquently in a post on the KFG blog: “I noticed that my friends and colleagues . . . saw retirement planning as a dark, treacherous terrain that they could never safely travel alone. Unsure of where to turn for help, they often chose to ignore saving for retirement completely . . .”

Here are some pointers to help you take the first steps into the unfamiliar terrain of investing.

1. First and foremost, create a habit of living on less than you make. Spend frugally and invest as much as you possibly can. Ideally, while you are young, start with 20% of your paycheck, but at least start with something. The older you are, the greater the percentage you need to be saving.

2. Choose an investment method that will help reduce the taxes you pay on your contributions and the earnings they produce. This commonly means 401(k) retirement plans and IRAs—Roth IRAs for those in low income tax brackets and traditional IRAs for those in high tax brackets. You typically want to contribute a portion of every paycheck to your retirement plan.

3. Pick an investment. This is the part that scares many people away from investing, so let’s be specific.

3a. The best way for small investors to accumulate wealth is by owning stocks. But you don’t want to fall into the trap of picking individual stocks yourself, or worse yet, trying to buy low and sell high. That is called “playing the stock market,” and according to the research there is a high probability the only thing that will get played is you.

3b. The best way to own stocks is in a mutual fund that owns thousands of stocks of companies from around the globe. My favorite fund for people under age 40 is Vanguard Total World Stock (VT). It owns 7,781 stocks of companies located in 41 countries, including both developed and emerging markets. Over the last 48 years an investment in a globally diversified portfolio of stocks returned 8.9% annually, according to the MSCI World stock index. A $10,000 initial investment turned into about $600,000. If you are over 40, you may want to consider the Vanguard Global Wellington Fund Investor Shares (VGWLX. If you are over 60, the Vanguard Managed Payout Fund (VPGDX) is my favorite.

3c. If your 401(k) doesn’t offer these mutual funds, it probably will offer a number of Target Date Funds. Pick one that is closest to the year you will turn 70. If you are age 30 now, select the 2060 Target Date Fund.

4. This is the most important part of accumulating wealth, and it is absolutely the hardest part. Keep investing out of every paycheck, even when markets are falling or seem sure to fall. Even when the talking heads are sure the world is coming to an end and the financial press is screaming that you need to get out before you lose it all. Never suspend your monthly investment. Never sell out of your stock mutual fund and go to cash. Never sell out even 10% of your stock fund and go to cash. Keep breathing, focus on the long term, and stay the course.

Assessment

Like any trip into new territory, the path to financial independence starts with a single step. Take that first step, and you’re on your way to a successful journey.

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. https://medicalexecutivepost.com/dr-david-marcinkos-bookings/

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What does “Retirement” mean to You?

Posted on August 17, 2015 by Dr. David Edward Marcinko MBA MEd CMP™

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A Mental Exercise … for You!

By Rick Kahler MS CFP® http://www.KahlerFinancial.com

Rick Kahler MS CFPHere’s a brief mental exercise to try: Quickly, without stopping to think, write down what comes to mind when you imagine yourself being retired.

If you’re 40 or younger, your answers might well include terms like “future” and “old age,” which probably don’t seem especially relevant or urgent at this stage in your life.

If you’re older, chances are you’ve had at least passing thoughts about retirement. You might associate it with concepts like these:

  • Freedom from the daily grind
  • Losing my earning power
  • Losing my identity
  • Enjoying financial independence
  • Being useless
  • Dependency and declining health
  • Doing what I’ve always wanted to do
  • I don’t ever plan to retire

Both the positives and negatives in the above list have one thing in common: they don’t tell the whole story. The idea of retirement is surrounded by a host of delusions, assumptions, and fears. Many of our expectations about it do not match the reality.

Examples:

Here are just two examples from “The 2013 Risks and Process of Retirement Survey,” done by the Society of Actuaries.

  • Of the pre-retirees surveyed, 38% expected to work until at least 65. Another 15% expected not to retire at all. Yet 54% of the retirees surveyed had retired before age 60.
  • Many pre-retirees—59%—planned to stop working gradually. Yet only 22% of retirees had done so. While 35% of pre-retirees intended to keep working part-time, only 10% of retirees actually did.

It’s no wonder that many workers plan to stay employed; they’ll need the money. The 2015 Transamerica Retirement Survey of Workers estimates the median amount that workers in their 50s have saved for retirement at only $117,000. For workers in their 60s and older, it is $172,000. Even combined with Social Security, that’s hardly enough to provide an adequate retirement income.

Yet even if you intend to keep working and earning until you’re 80, you may find your plans derailed. If companies downsize, older workers may be among the first to be laid off. Health problems (your own or those of family members you may need to care for) can force you to retire earlier than you expected to.

And, these are only two of the unfortunate realities that can jolt any of us out of our rosy expectations of enjoying a carefree retirement of good health, comfort, and independence.

Just because we can’t count on carrying out our retirement plans, though, doesn’t mean we should give up on retirement planning altogether.

Some Suggestions

Here are a few suggestions to deal with the realities of retirement:

  1. Save as much as you can. Make funding retirement your priority, especially if it’s too late to start early. Cut your spending, downsize, and pay off debt. Having more money in retirement gives you more options when bad things do happen.
  1. Improve your health: lose weight, exercise more, and eat a healthy diet. Improve your odds for staying well by changing what is within your power to change.
  1. Look at the whole retirement picture. Become willing to consider both the negative and positive possibilities in order to plan appropriately. Unreasonable pessimism and fear are no more realistic than unreasonable optimism.

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7 ways retirement income

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Assessment

Finally, the most realistic viewpoint may be accepting that retirement is no more or less predictable than any other stage of life. We can’t know if we’ll develop serious health problems in our 70s or still be able to go dancing when we’re 102. While we can and should prepare for the future, we also serve ourselves well when we remember to enjoy the present.

More:

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Are Doctors NOW Members of the Middle Class?

Posted on May 28, 2013 by Dr. David Edward Marcinko MBA MEd CMP™

In OR Out?

By Dr. David Edward Marcinko MBA CMP®

By Rick Kahler MS CFP® ChFC CCIM

Rick Kahler CFPThe middle class Marketers target it. Politicians champion it. Economists talk about it. Most of us consider ourselves part of it. FAs want to serve it.

Yet, when I’ve asked for a clear definition, I have not found anybody yet that really can tell me what “middle class” is.

Definition

I recently posted on Twitter that $90,000 was a middle-class household income and that it would take a nest egg of $3 million to generate that income in retirement.

A couple of my colleagues responded that my figures were way too high and accused me of being out of touch. As a lifelong South Dakotan, I’m used to being seen as “out of touch,” but the idea that $90,000 was beyond a middle-class income intrigued me.

I figured a few minutes with Google would point me to a definition of “middle class.” It wasn’t that simple. I soon discovered that neither politicians, nor economists, sociologists, nor financial advisors can agree on what makes someone middle class. It is a little easier to define a middle class income.

USA Today

I did find an excellent article in USA Today by Dan Horn of the Cincinnati Inquirer. He cited three surveys that attempted to define the middle class by income. The Pew Charitable Trust describes it as the middle 20%, an income range from $32,900 to $64,000. The U.S. Census Bureau disagrees.

They say a middle class income is the middle 60%, an income range of $20,600 to $102,000. The U.S. Department of Commerce begs to differ with both and says an income between $50,800 and $122,000 puts you in the middle class. Combining the income range of the three studies ($20,600 to $122,000) puts two-thirds of all income earners in the middle class.

My Personal POV

For me, defining middle class with such a broad income range just raises more questions than it answers.

First of all, the same income that will provide a comfortable middle-class lifestyle in a place like the Black Hills of South Dakota won’t necessarily do the same in San Francisco or Boston.

Second, if you want to assure yourself of a middle-class income throughout your lifetime, you apparently have to get rich.

Concept of expensive education - dollars and diploma

Case Model

Let’s assume a young couple, both allied healthcare professionals, earn $45,000 each for a household income of $90,000. Let’s assume they want to save enough to provide a similar income in retirement without counting on Social Security. To generate that income, with a 99% certainty they will never run out of money, how much will they need to save?

While financial advisors’ responses will vary, most will agree this couple would need between $2 million and $4 million in today’s dollars. Let’s settle on $3 million. If they each saved $1,000 monthly to 401k’s (about 25% of their salaries), our young couple could save $6,600,000 million ($3 million in today’s dollars adjusted for inflation) by the time they reached age 65.

However, while a couple needs $3 million to produce a middle-class income, someone with a net worth of $3 million is in the financial top 2% of Americans. That’s hardly middle class.

And to complicate things further, Gallup polls have shown that most Americans think anyone with a net worth of $1 million is rich. Yet having $1 million when you retire will generate a secure lifetime income of $30,000. So the net worth that we define as wealthy provides an income that we define as barely middle class.

More:

Assessment

Confused yet? I certainly am. There’s just one thing I’m still sure of. If you want a middle-class lifestyle after you retire, what you’d better do now is live a modest middle-class lifestyle so you can save enough to qualify as rich.

Conclusion

And so, are doctors members of the middle class – in potential retirement income under this model? Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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