Small Business

Avoid Common Retirement Pitfalls

Don't come up short in the long run.

Thanks in no small part to the work of health professionals such as yourself, Americans are living longer and healthier lives than ever before, with life expectancy at birth increasing from 70.8 years for men and women in 1970 to an estimated 78.3 years in 2010, according to the Census Bureau.1 While those extra years mean a huge bonus of time to enjoy life, they also present challenges, even for well-compensated doctors, when it comes to financing a retirement that could last decades.

Here are some ways to help make sure you don't run short:

Keep working a few more years

Before you opt for that early retirement, ask yourself whether that's something you truly want. With life into one's 80s and 90s becoming routine, working a few extra years can help delay retirement expenses and keep you active and engaged. Social Security is another important factor to consider. While you may be tempted to start receiving benefits when you first become eligible at 62, there are good reasons to hold off for a few years. Not only will your monthly benefits rise substantially if you wait until 66 or even 70, chances are you'll be much better prepared overall for retirement by waiting. A study by the Center for Retirement Research at Boston College showed that while only 30 percent of households are ready to retire at age 62, by age 70, about 86 percent are ready.2

Shape up your tax picture

Tax-deferred savings plans such as 401(k)s are a great way to build toward retirement, since you get to invest pre-tax earnings and the money can grow tax free until you begin taking withdrawals. Keep in mind, though, that once mandatory withdrawals start in the year you turn 70 1/2, you must pay income tax on distributions.3 With the federal government piling up record debts, many experts believe higher taxes are inevitable in the years to come--potentially taking a bigger bite out of your retirement income than you expected.4

To lessen that sticker shock, consider adding a Roth IRA or Roth 401(k) to your mix. These plans work in the opposite way: You invest money that's already been taxed, but the withdrawals you take later on will be income-tax free.

Keep control of spending

After all the years getting through medical school, paying off loans and establishing your practice, you can hardly be blamed for wanting to enjoy some of the rewards of all that hard labor. Be certain, though, that your current spending, however well-earned, doesn't compromise your ability to meet long-term expenses, including retirement. Experts says professionals in their 40s and 50s often have far less in their savings than they should.4 Be sure to factor in costs such as higher education for kids or grandkids, as well as the effect that an unexpected event such as a change in marital status have on your assets. Sticking within a savings and spending budget may be the best opportunity to live well now and enjoy the greatest luxury--peace of mind about your financial future.

 

1 United States Census Bureau. www.census.gov/compendia/statab/2012/tables/12s0104.pdf
2 The National Retirement Risk Index: How Much Longer Do We Need to Work? June 2012. From the Center for Retirement Research. www.crr.bc.edu/wp-content/uploads/2012/06/IB_12-12-508.pdf
3 Internal Revenue Service. www.irs.gov/retirement/sponsor/article/0,,id=151926,00.html
4 "Five Retirement-planning Mistakes to Avoid" Physicians Practice,September 28, 2010. www.physicianspractice.com/personal-finance/content/article/1462168/1679703

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