How much do ODs need to retire? The results are in...

Natalie Schmook

August 30, 2021

First a quick note to those who are attending Expo West: I would love to meet in person! I'll have to get back on the exact location at a later date, but am trying to workout an outdoor location close to the Sands Conference Center.

Meet at Expo West

A huge thanks to the 150 or so doctors who took last newsletter's survey on current income versus how much is needed to retire inspired by this article about how the average millennial thinks they need less than $300,000 to retire. The results are in so let's discuss them.

First, a bit on my methodology. I assumed that of income, respondents were saving 10% through retirement plans or investment accounts and that tax brackets looked as follows:

I assumed that whatever was left over after saving (10%) and taxes was spent, and that was the spending number needed at retirement. You can see that from there, the expected amount needed for retirement varied greatly among different current income levels:

If you're wondering why that is, it's because a simple question like this is a flawed approach to retirement planning, mostly because retirement planning isn't a one-size-fits-all equation. Just to name a few variables:

Taxes have a huge impact over time when you compare states like Florida to California or New York
Not all practice owners save 10%- some save more, some save less
Some savings go into accounts that will be taxed as ordinary income like IRAs and 401ks, some into accounts that pay a little bit of tax over time, and others into tax-free Roth IRAs.
Some ODs plan on paying for college tuition for their children
Others want to travel the world at retirement
Some will have a mortgage, some will not
Life usually contains some unanticipated expenses like paying for elderly parents or long term care

In short, there are a LOT of variables that go into retirement planning.

One easy way to get a general idea of what you may need to retire is to take annual spending and divide that number by 4% (.04). This approach assumes a mix of tax deferred (IRA/401k) and taxable investment accounts, normal-ish state tax rates (think 5%) and a mostly equity portfolio. 4% gives a little wiggle room for inflation, flat or negative return years and unexpected expenses.

Using this formula, if your estimation was below the red line and you are not doing some serious savings or bootstrap spending, it might be time to re-think how much it actually takes to retire.

Retirement planning is one of the most important planning topics I address with clients, and if you're not certain you're on the right track, I encourage you to work with a professional who can help make sure your plan works with your goals.

Have a wonderful rest of your weekend and upcoming week, and I hope to see some of you in a few weeks at Expo West!

Natalie

P.S.- Hayes Wealth Advisors works exclusively with Optometric Practice owners to help them build wealth outside their practices through customized, industry-specific planning. We have built planning tools to comprehensively answer the questions that face practice owners in today's environment. Our services are available both on a one-off basis or in the context of a full financial plan. Set up a call if you'd like to learn more about how Hayes Wealth Advisors can help you make the best financial decisions for your practice and family.

Helping ODs Build Wealth Outside Their Practice

Natalie Hayes Schmook, MBA

Certified Financial Planner™

Certified Valuation Analyst™

Certified Exit Planning Advisor

www.hayeswealthadvisors.com

natalie@hayeswealthadvisors.com

(404) 954-1133

Hayes Wealth Advisors provides financial planning through a Comprehensive Personal Wealth Action Plan and long term, customized investment management services. Our goal is to help optometrists to build wealth outside their practice in such a way that they are able to live life to their fullest regardless of market conditions.

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