Retirement Planning

Retirement savings: What doctors need to know

AOA members can get a complimentary consultation with a retirement expert at aoa.org/aoaexcel/consultation-form.

Don't let retirement planning take a back seat, especially when AOA membership gives doctors of optometry the keys to reaching that checkered flag.

Nathanael Kelley, senior retirement program specialist for AXA Equitable, an AOAExcel® Endorsed Business Partner, shares the answers to some frequently asked questions doctors have when it comes to retirement planning.

Why is it so important to start planning for retirement now?

Assume that your investments earn 8% annually. If you invest $2,000 a year from age 25 to 35 ($20,000 in all) and then stop completely, you could accumulate $315,000 by age 65. But if you wait until age 35 and invest $2,000 a year for 30 years ($60,000 in all), you'd accumulate just $245,000 by age 65.

It's also important to increase your savings rate over time. While you may not be able to contribute the maximum just starting your career, if you start at a lower rate and then look to increase 1% a year, the impact can be dramatic over time.

What steps can a doctor of optometry take to start saving for retirement?

If you are self-employed in the early years of your career, there are several lower-cost options, such as SIMPLE and Safe Harbor 401(k), to get a retirement plan started at a lower contribution level until you get your practice going with a steady cash flow and have more resources available to dedicate to retirement savings. You can get started with whatever contribution level meets your budget, and, with the options mentioned above, keep your costs down if you have eligible employees.

If you are working as an employee in a practice and your employer offers a retirement plan, you can get started at a contribution level that fits within your financial constraints with an eye toward increasing your rate as your circumstances and goals change.

If you are working as an employee in a practice that does not offer a retirement plan, you should consider contributing to an Individual Retirement Account (IRA).

How can I save for retirement when I am still paying down debt such as student loans?

Starting to save early for retirement, even at a lower contribution rate, will positively impact your ability to meet your retirement goals. If you participate in a plan that offers a matching contribution, that is another consideration when it comes to how to allocate your financial resources.

If I own my own practice, should I consider offering a retirement plan to my employees?

Offering a retirement plan allows all participants to save for retirement on a tax-deferred basis while also allowing the practice owner a tax deduction to help lower his or her tax bill. Offering a retirement plan to employees also can be an excellent way to attract and retain good employees.

What are the costs/fees associated with creating a retirement plan?

Generally, there are plan startup costs, ongoing recordkeeping and administration charges; investment management fees; fees for particular transactions such as loans, distributions or manual contributions; and fees for other third-party services (e.g., investment fiduciary services). These retirement plan costs can be charged in different ways. For example, they all can be built into one asset charge levied against all participants in the plan or a per-person charge deducted from participant accounts or paid completely by the plan sponsor. No matter how they are charged, every plan vendor is required to present a plan fee disclosure document to prospective plan sponsors detailing all the costs associated with the retirement plan and the services provided for those costs. This allows prospective plan sponsors to more accurately compare vendor options.

If my practice doesn't offer retirement benefits, or if I'm an independent contractor, what should I do?

If you are an independent contractor you can consider starting an Owner's Only plan, which allows you to defer part of your earnings into a 401(k) plan while also offering you the opportunity to make additional matching and/or profit-sharing contributions if you choose. If you decide to start your own practice, you can easily amend this plan to allow for employees to participate and change plan provisions that better fit your current business needs.

If you work as an employee for a practice that does not offer a retirement plan, IRAs are available to help you start saving for retirement. While the limits are lower, it is tax-deferred and getting started early gives the IRA more time to accrue earnings. You can choose a traditional IRA or a Roth IRA. Which you choose depends on several factors, including age and expected tax rate at retirement. If you choose a traditional IRA, how it's deductible depends on your compensation.

October 21, 2019

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