Session # V610

#V610

The Veterinarian’s Retirement Plan II

Contact Information

Mark J. McGaunn, CPA/PFS, CFP®

Managing Member

McGaunn & Schwadron, CPA’s, LLC75 2nd, Avenue, Suite 425Needham Heights, MA 02494-2897

main (781) 489-6651direct (781) 348-9227e-fax (781) 479-5985e-mail mark@mcgaunnschwadron.comweb: www.mcgaunnschwadron.com.com

Session Goals

Scenarios

• New practice owners• Contemplating buying• Mid-stream owners• Owners nearing

retirement age

Tools

• Fee-only planning• Cost-effective investing• Risk management• Retirement Plans• Funding Mechanisms• Practical Applications

What is Retirement?

• Different interpretation to any person• Changed idea from 5 years ago even• Retirement meant “easy street”• Not so sure after 2008• So don’t look back

Charles Schwab Real Life Retirement Survey 11/2/2009

• 52% getting more involved in retirement planning-increased self-reliance

• 48% of Gen Y (48 percent) and 53% Gen X have increased 401(k) contributions.

• Among 40% of Older Boomers and Gen Y, plan to postpone their retirement date.

• 47% of workers aged 65 and older are prepared to work during retirement.

Older Boomers (1945-1954); Younger Boomers (1955-1964) Gen X (1965-1974) and Gen Y (post1975).

Associates Contemplating Ownership

Gen Y consider finances more important than:

1. taking steps to protect environment,

2. improve their physical health and nutrition

3. strengthening bonds with family and friends.

On Cusp of Gen Y

• Just graduated from veterinary school• May have student and car loans to pay• Considering marriage or starting a family.

Key = manage outflows since inflows fixed.

Effectively manage your debt while developing some basic savings habits.

Scared By Debt

• Recent UC Davis Study-Average veterinary school graduate debt is $110,691 in 2009.

• PhD level researchers w/ > $250,000 debt.• Veterinarians are not alone. • Ensure your school loans are consolidated.• May reduce interest rate with no hassle

managing multiple loans.

Save Now & Save Often

1. Need financial “consulting” over planning-general framework.

2. Watch your spending. Use Quicken or Mint.com.

3. Investigate 401(k) plans and save an affordable amount each pay period. Or start IRA or ROTH IRA account.

4. Watch your lifestyle. You should enjoy life moderately.

5. Non-practice owning veterinarians might prioritize their savings goals as: (1) house; (2) children's college education; (3) retirement.

Skills to Learn

• Negotiating employment contracts,

• understanding taxes, evaluating benefit packages,

• choosing insurance plans,• managing debt, • developing good saving and

spending habits,• investing for the long-term

More

elements of

sound

financial planning for

a new

associate

veterinarian!!!

New Associate Allocation?

High Risk High Return

70% Stocks/30% Bonds

10% S&P 50010% Small Cap10% REIT10% Int’l Large Cap 0% Int’l Small Cap10% Emerging Mkts10% Precious Metals30% Short Term Bonds

Source: William Bernstein

New Practice Owners

• Maybe most important point of career.• Create your own practice, or buy into an

existing veterinary hospital,• Perfect time to get serious about planning.• Earnings may also be tempered by the

debt load of the practice buy-in or acquisition.

• Must still manage expenses cautiously.

Focus on Protection

• Periodically review your all insurance plans to ensure you have the most appropriate coverage for your own situation (life, disability, umbrella).

• While maybe provided by practice, analyze your coverage and compare that to your specific needs.

• Have estate planning in order

Education Plans

Private school or college? Or both?

• IRC Section 529 Plans• IRC Section 2503(c) trusts• Coverdell ESA IRA

can be an effective means of secure funding for education.

Investment Philosophy

• Level of risk are you comfortable with? • How aggressive do the investments need

to be to meet your goals? • What tax implications are in play? • What is your time horizon before

retirement?• Are you saving for multiple goals?

Sample New Practice Owners

80% Stock/20% Bonds25% Total US Stocks25% S&P 500 Index 15% For. Dev. Equity5% Emerging Markets5% Real Estate 20% Cash

Source: Ben Stein Model Portfolio

Owners in Mid-stream

Worried Practice Owners!

1. 61% not letting recession change plans for children's college education

2. 47% say college plans are a higher priority than retirement savings @ 41%.

2009 survey by Country Financial and Rasmussen Reports, LLC.

More Data

• Marks 1st time in 3 years majority of parents putting college before retirement.

• 50% of men more likely to put kid’s education ahead of retirement (women 38%)

• Always borrow for college not retirement!!!• 67% kids have no clue true college cost

Tips for College

What to remember:

• Be well-diversified portfolio.

• Short accumulation window

• Shorter distribution years• Invest at proper risk level

for child’s age.• Many college investment

methods offer age-based models.

Utah (529)Educational Savings Plan

50 year-old practice ownerMakes a $16,500 annual 401(k) contribution for 12 years until retirement Still has potentially $342,000 at retirement

B

Same 50 year-old practice ownerContributes max. $16,500 annual 401(k) contribution for 12 years with $5,500 catch-up contribution plus a corporate match of up to $32,500. Potential $1.13 million at retirement.

Sample Mid-Life Approach

70% Stock 30%Bond

30% Domestic Equity15% For. Dev. Equity 5% Emerging Markets20% Real Estate15% U.S. T-Bonds 15% TIPS

Source: David Swensen, Yale Endowment Manager

Owners Nearing Retirement

1. Picture your retirement

2. Evaluate your expenses

3. Identify your sources of income

4. Know employer plan options

5. Other potential income sources

6. Prepare your portfolio

7. Countdown to retirement checklists

Major Issue-Health Care

• Employee Benefit Research Institute study notes that a 65 year old man who retires in 2009 will need between $68,000 and $173,000 (females $98,000 and $242,000) in current savings to have a 50% probability of covering out of pocket health premiums and non-covered medical expenses, or between $134,000 and $378,000 ((females $164,000 and $450,000) in current savings to have a 90% probability of covering those same expenses.

• The range variability is due to whether former employers subsidize healthcare insurance and if the retiree maintains Medigap and part D Medicare coverage. Male to female disparities generally arise from females having longer life expectancies.

Income & Spending Plan

• Financial services industry prefers investors strive for an 80% replacement rate of pre-retirement income is required

• Is that realistic?• Start thinking about how much you’re

going to spend from your investments each year.

Withdrawal Rate Variables

1. rate of return,

2. initial withdrawal amount,

3. inflation rate.

Life Expectancy

Source: Bureau of Labor and Statistics 2009

Journal of Occupational Health Psychology 9/09

• Older people who hold temporary or part-time jobs after retirement enjoy better physical and mental health than those who stop working entirely(31% better, 17% fewer major diseases)

• Those continuing to work in original field have better mental health than those who change fields, according to the study

Postponing Retirement

• 36% due to poor economy• 28% due to stock market losses• 24% making sure have enough money• 9% due to cost of living more than planned• 3% still want to keep working

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1994–2009 Retirement Confidence Surveys.

• A National Association of Personal Financial Advisors presentation in July 2009 updated older research to now state that a 5.2% to 5.5% rate of withdrawal from retirement savings could be sustained for 40 years of retirement if certain equity allocations and other rules were followed.

Anticipate Shortfall?

• Trim your spending. Rein in your budget by looking at your day-to-day spending. Buy a less expensive car, dine out less often, and take fewer, less $$ vacations.

• Redefine the term “retired”. 7 in 10 Americans ages 45-74 say they plan to work in retirement or never retire, according to AARP. By working a few more years, you can save more, collect medical and insurance benefits through your employer, and help improve your finances just by working part-time.

• Downsize your home-less expensive one, rent an apartment, or move to a more affordable community.

• Buy an income annuity. Add-on features may be expensive though.

• Investments• Review your investment strategy. In these

years before you retire, it’s important to determine whether your portfolio will be large enough to support your needs throughout retirement. Your asset allocation depends on several factors, including your investment objective, time horizon, risk tolerance, and personal situation.

• If you already have a balanced mix of stocks, bonds, and cash investments, and your financial advisor has been helping you adjust this mix through the years, you may not need to change your portfolio when you retire. Many retirees feel they have to switch their portfolios to a very conservative asset mix, emphasizing bonds and money market securities, to help to generate current income and protect their assets from decline. But such a strategy also limits the potential for the assets to grow and keep pace with inflation. Because you could live for 30 or more years in retirement, your advisor will probably suggest that you keep at least a portion of your investment portfolio in stocks for long-term growth.

A Better Retirement

Worker Responses to Prepare?• 81% reducing expenses• 43% changing investment model• 38% working more• 25% saving more• 25% sought help from financial professional

Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1994–2009 Retirement Confidence Surveys.

Simplify Your Portfolio

• Consolidating assets with 1 institution• Easier to manage portfolio• Reduces overall documents you receive.• Eases transition if you die or become

incapacitated, especially for executors and trustees who need to administer assets.

Owners Nearing Retirement

Asset Allocation For 60% Stocks/40% Bonds 6% S&P 500 6% US Large Value 6% US Small 6% US Small Value 6% REIT

12% Int’l Dev. (Pac /Eur)

12% Int’l Value 6% Emerging Markets

20% Inter. Term Bonds

12% Short Term Bonds 8% (TIPS)

Source: Paul Merriman at FundAdvice)

Gold Watch in 5 Years?

• Discuss retirement plans with spouse. • Prepare a realistic retirement budget. • Review current employer pension & benefits. • Determine add’l health care & LTC needs. • Compare projected income with expenses.

More Last Minute Maneuvers

• Assess the portfolio adequacy• Increase retirement plan contributions and

taxable account savings, if necessary. • Pay off employer retirement plan loans. • Review your preparations at least annually

and adjust as necessary. • Make catch-up contributions to your

employer-sponsored plan or IRA.

Thank You!

谢谢 Merci

Danke Schon

Grazie

ありがとう 당신을 감사하십시오

Obrigado

Gracias

Contact Information

Mark J. McGaunn, CPA/PFS, CFP®

Managing Member

McGaunn & Schwadron, CPA’s, LLC75 2nd, Avenue, Suite 425Needham Heights, MA 02494-2897

main (781) 489-6651direct (781) 348-9227e-fax (781) 479-5985e-mail mark@mcgaunnschwadron.comweb: www.mcgaunnschwadron.com.com