Healthcare professionals have a unique set of challenges when it comes to retirement planning. We asked William Kriesel, CPA/PFS, CFP®, AEP® of Bowers and Company CPAs for his expert advice on saving for retirement to help you get a head start on your future while balancing your healthcare career and personal goals.
When is the best time to start saving for retirement?
Now. Today. Yesterday. The earlier the better. You need to realize that at every stage, you have the ability to save something. The key is to get started right away. And if your employer matches your 401k contribution, take advantage of it—it’s free money!
What are the best strategies to quickly ramp up retirement savings for those who didn’t start planning until later in life?
It really depends on the person. Someone with higher income, who had kids when they were young, for example, would likely be in a position to contribute more money to their retirement fund.
But if you’re catching up on retirement, life insurance can be considered to help fund retirement for a surviving spouse. It can also be used as a tax-deferred or possibly tax-free accumulation product if you want to save more than is allowed into company retirement accounts.
It might also make sense to look at annuity products (with some protections against market decline). As you approach retirement, negative impacts of a market downturn are magnified, as you don’t have the time to let the market recover.
If you’re still in a position where you’re not able to save a lot of money, it really comes down to how long you’re willing to work. If you’re 55 and haven’t saved anything, you work longer. If you work longer, that’s one more year you have to save more for your retirement, and one less year you have to fund.
What are the best strategies for someone just beginning their career?
Make sure you match 401k contributions—don’t just max out on your 401k plans. As an alternative, establish non-qualified investment accounts, such as mutual funds or a brokerage account, to accumulate assets. You’ll be able to access the funds for different things that come up—buying a home, making repairs, having children—which can prove very convenient as opposed to having all of your money locked up in a 401k.
How should a retirement strategy evolve as someone ages or advances in their career?
Hopefully you can continually contribute more, keep monitoring, and aim to hit that retirement goal. The most important part—for most people—is to envision what you want your retirement to look like. But nobody knows that until they’re closer to it. If you plan to live on your social security and you want to live in your house and spend time with your family and your friends, your goals become a lot easier.
If you’re the type of person who wants a house in Florida or the Bahamas and you want to go on a cruise twice a year and visit your kids, your retirement goals will be more challenging to reach. It’s really all about coming up with exactly what you want and what you’ll need to spend to achieve that vision.
Talk to your spouse about what you want your retirement lifestyle to be. It still surprises me that people don’t communicate and agree on their vision. I ask people to tell me what their retirement is going to look like and one spouse will explain how they want a couple of houses and to travel and go on vacation, and the other looks shocked.
So that’s the biggest mistake people make. Not defining their retirement goals. Not knowing what they want. If you get this in place early, you can modify as you go.
What’s the most common misconception about retirement planning?
So many people underestimate how long they’re going to live. If you’re coming into my office at 65, we’re going to come up with a plan for the next 25 years or more. People look at me like I’m nuts—they just don’t think they need to plan that far out. And the reality is, they do.
How should someone be figuring future healthcare costs into their retirement plans?
Long-term care insurance is critical to think about. Too many people don’t factor the risk of long term care costs into their planning.The truth is, long-term care could be upwards of $10k a month. It absolutely needs to be considered and planned for.
Are there any trends people should be keeping an eye out for in retirement planning?
The past generation retired mainly with defined benefit plans that paid a set amount per month for life. When combined with Social Security, this often led to an income stream that met the retiree’s needs. But gone are the days of typical employer-defined benefit plans. Today’s approach is hands on. Retirees must now learn to develop their own income stream from their IRA, 401(k) or other retirement plan assets.
Prior to 2008, many advisors were saying you could withdraw 5% a year on your retirement assets and they would last through your life. But, since the 2008 market decline, most advisors are now saying a safe withdrawal rate is 3% or 4%. Of course each case must be looked at differently, and I still generally use a 5% rate, with the caveat that in a significant market decline, you need the ability to reduce that draw.
Another consideration is to create an income stream guaranteed by an insurance company, using an annuity. This isn’t the right answer for everyone, but it is something that should be considered. There are several types of annuities, some of which will guarantee a higher payout than 5%.
BHG and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
William T. Kriesel, CPA/PFS, CFP®, AEP® is partner in charge of the financial planning subsidiary of Bowers & Company, CPAs PLLC, B&C Planning Services, LLC, a New York State Registered Investment Advisor. Bill is also a partner in the tax department of Bowers & Company, CPAs, PLLC. Bowers has twenty partners and a total staff of ninety. Bill is also managing partner of Diversified Capital Management, LLC. Originally from Syracuse, New York, Bill graduated LeMoyne College, B.S. (Accounting) in 1986, and has been a CPA since 1989.