This will be the final article in this series and I wanted to tackle a couple of myths, challenges, and benchmarks. Personal finance blogger Zach of Four Pillar Freedom (http://www.fourpillarfreedom.com/) created a simple chart that breaks down at exactly what age you’ll become a millionaire (http://www.fourpillarfreedom.com/the-million-dollar-age-grid/) Keep in mind that the average dentist will need $2,000,000 to $4,000,000 in retirement savings with no debt. I thought you might like to see that with diligent saving habits, it’s possible for anyone to become a millionaire in 30 years if they’re able to save and invest $10,000 a year. Correcting this for Dentists that’s about $833 per month, which would be about a fourth of what you would need to save in order to make your goal of $4,000,000 or about $3,332/month, $833/week, and/or $208.25 a day, or $26.03 an hour. Who couldn’t increase their production $26.03 an hour? This seems doable to me, and the trick is to start early. Compound interest and good habits make all the difference.
Do you ever wonder if you spend too much money on rent, dining out, or anything else? There are no rules set in stone that tell you how much to spend on one activity or another, but you can compare your spending habits to other Americans. This is possible thanks to the Consumer Expenditure Survey, which is conducted each year by the U.S. Census Bureau. It’s the only nationwide household survey to provide information on the complete range of consumers’ expenditure and incomes, as well as the characteristics of those consumers. I thought you might be interested in where your money goes:
- Housing: 41%
- Transportation: 16%
- Food: 14%
- Healthcare: 8%
- Utilities: 7%
- Entertainment: 5%
- Miscellaneous: 4%
- Clothing: 3%
- Education: 2%
All you have to do is plug in your take home and be shocked at the actual dollar amount you spend on each category. Also, take note of the fact that there is not a category for Saving. It might be hidden within the Misc. category, but I doubt it.
So how many years will you need to fund? Important question. Currently most dentists greatest hope of financial security for their families is being hit by a bus at 62 and having your life insurance paying off for your heirs. This question of how long you will need to fund is key to knowing how much you will need. There are three methods to consider.
- Life Expectancy: This is pretty easy to do. For instance, a woman turning age 65 today can expect to live, on average, until age 86.6 and would need to fund 21.6 years. The problem is that life expectancy numbers are just averages; half will die before life expectancy and half will die after. So, it’s possible you will either dramatically underfund (bad) or overfund (OK) your retirement.
- Planning to a date certain: Planning to fund to age 95-100 or 105 represents the lowest spending/highest savings method. Again, I guess you could live beyond this age but this method gives you much greater confidence you will not outlive your money.
- Plan based on probabilities: Insurance companies use this method when pricing life insurance policies. They know that about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. So here is the rub. For people with a healthy lifestyle and no mitigating health factors insurance companies use age 100. If we are looking at an overstressed drinker with financial problems and a shaky relationship at home with one or two or three 20 to 30+ year-old kids still living at home, it will be extremely difficult if not impossible to purchase life insurance, disability insurance or medical insurance.
We have come full circle and arrived back to what you need to do now.
- Gather all of your data and information: Accurate, detailed data insures that you are basing your decisions on sound facts rather than feelings.
- Set Goals and objectives: Once you have the data collected you will know exactly where you are and begin the process of deciding where you want to be in a year, 10 years, and the rest of your career.
- Find tax efficient ways to save: If you are taking home over $250,000 to $350,000 you are probably paying 20%+ too much in taxes because you have not taken the time to hire the right group to mitigate your tax exposure. Contact: Jeffrey Junek, Tax Saving Professionals, [email protected], cell 772-563-3177.
- Manage your risks: Not having the right amount or type of insurance can wreak havoc on your financial plan. You and I need to wear a belt and suspenders when we consider financial strategies. Asset protection is another cornerstone of protection to manage risks. Contact: Eagleston Financial Group, John M. Eagleston, 877-409-1160, [email protected] for your insurance questions and Douglas Lodmell, [email protected] for your asset protection needs.
- Measure and monitor your progress: What gets measured gets done. You can’t measure what you don’t track. Commit to doing this today.
This plan is worth beginning at any age and will pay wonderful dividends. These resources are the very people I use for myself. This is how you Summit.
Michael Abernathy, DDS
- If you know someone, particularly someone younger, whether in Dentistry or not, that would benefit from the information above, please forward this post along to him/her. Everyone needs to save and starting early will make a huge difference.