The most important thing to know about retirement savings planning

An excerpt of this article appeared in the September/October 2022 print edition of Focus Magazine.

Whether your career is just starting or if it is winding down, there can be a lot to unpack when charting a course to retirement. AOAExcel checked in with Nathanael Kelley of our endorsed business partner Equitable to discuss pertinent questions that ODs need to know, such as the most important criteria to determine how much you need to retire, what you should be asking about your 401K, and the most important thing you need to know about retirement savings planning.

What criteria should ODs use to determine how much they will need to retire?

Financial planning is very personal and everyone’s goals are different. There are many factors to consider in determining how much each individual needs to retire, so I would recommend speaking with a Certified Financial Professional if you haven’t already and meet with your CFP on a semi-annual basis to make sure you are on track.

What factors go into determining how much to save each month?

The amount needed to save is different for everyone and can be an evolving goal, so it’s important to revisit your plan at least once per year.  But a good rule of thumb to go by is to save as much in your retirement plan as you can afford to save.  

Investing in a 401K is a common way to save for retirement.  What questions should ODs be asking about their 401K? 

First off, if you can afford to do so, you should be maximizing your contributions.  The 2022 401(k) Salary Deferral limit is $20,500, and $27,000 if you are 50 or older due to the catch-up contributions provision.  Contributions reduce your taxable income, which is so important for ODs to reduce their tax liability.  Another thing to ask is, “Am I allocated properly?”  Everyone is different.  Generally speaking, younger folks can afford to be more aggressively invested, but as you get older you may want to reduce your equity exposure.  Again, everyone is different, so there is no “one size fits all” approach to investment allocation.

Are there any tips directed specifically to ODs for retirement strategies?

Piggybacking on the last question, make sure you are maximizing your retirement plan savings.  If you are the practice owner, or an independent contractor, then you have control over your plan’s design.  The real benefit to this is you can add profit-sharing contributions to drastically increase your annual contribution amount.  The team at Equitable prepares calculations for our clients so that they know their options each year and can review them with their CPA to select whichever level of additional contributions makes sense for that tax year.

What are some typical pitfalls that ODs should avoid when planning a retirement strategy? 

Not having one.  There’s an old adage, “It’s not about timing the market, it’s about time in the market.” I talk to so many business owners who have kicked the retirement savings can down the road for 10, 20 or even 30 years, and they come to us in their 50s asking what they can do.  The good news is they can contribute more due to their age, but the bad news is they don’t have the longer time frame to allow for any potential compounding interest in the market.  Still, starting to save in your 50s is much better than never enrolling in a plan at all.  The best time to start saving for retirement is 20 years ago and the second-best time is today.

What happens during a complimentary consultation that Equitable can provide an AOA member? 

Every member is different.  So, we start by getting to know you and your practice, so that we can suggest a retirement plan that makes sense in your specific situation.  What can the AOA member learn?  Hopefully, a lot.  We’ll go through retirement plan options, contribution limits, best practices, tax benefits, etc.

What is the most common question that ODs ask the Equitable team? 

I often hear, “I’m an optometrist.  I don’t know much about retirement savings or investing.  What should I do?” From there we essentially try to explain things in a conversational manner and demystify retirement saving.

For ODs under 40, what is the single most important thing they need to know about retirement savings planning? And what about ODs over 50?

The answer to both questions is essentially the same.  You want to know your options, pros/cons of each plan, cost to fund employees, potential tax savings, etc. And for ODs over 50, they should be aware of their opportunity to contribute additional money to their plans through annual catch-up contributions.

What is the biggest misconception ODs have about retirement savings planning? 

That it has to be complicated. Working with a firm like Equitable takes some of the mystery and intimidation out of the process of planning for retirement.  We encourage AOA members to take advantage of their complimentary retirement consultation as an easy first step to learn about the process.

What advice do you have for ODs who haven’t started saving for retirement yet but know they need to? 

The best time to start saving for retirement is 20 years ago.  The second-best time is today.

Equitable offers a variety of retirement savings plans to suit your needs.  AOA members receive a complimentary review of your current savings plan.  Equitable can help make it easier for you and your employees to save for retirement. For more information, visit here.