The sweet taste of retirement

The sweet taste of retirement

Aug 01, 2006

EIGHTY-ONE PERCENT OF DOCTORS surveyed said they're funding or plan to fund their retirement at least partially with Individual Retirement Accounts (IRAs), and 49 percent say they'll use 401(k) plans to help fund retirement, according to the 2006 Veterinary Economics Industry Issues Study. (See Figure 1 for more.) That's all well and good, but a lot more veterinarians should be taking advantage of today's favorable tax laws and retirement plans, says Veterinary Economics Personal Finance Editor Fritz Wood, CPA, CFP.

Wood says that with the ease of setting up retirement plans these days, the affordability, and the tax laws encouraging participation, there's no good reason to ignore your financial future. Here, Wood outlines key problems he sees most often with practitioners' retirement plans—and gives advice for making your financial plan work for you.

Lack of diversification

Figure 1
The Industry Issues Study shows that 42 percent of veterinarians plan to sell their practice for retirement income, and Wood says he sees this more often—and too often—among the practitioners he works with. "It's a problem if all your assets are tied up in the business between the land, building, equipment, and goodwill value of the practice," he says.

Wood prefers to see a healthy mix of liquid and illiquid investments. Liquid assets include stocks, bonds, cash, checking, money market funds, and CDs. Illiquid funds include investments in land, building, home, equipment, and goodwill, for starters.

"I've seen practice owners hold 95 percent of their assets in illiquid investments, as many small business owners do," he says. In this case, if an unavoidable or unpredictable event raises the need for cash, you're out of luck. Another problem with counting on the business for retirement income is that sometimes, as doctors age, they don't work quite as hard and the practice value declines—just as they're wanting to sell, Wood says.

Lack of company retirement plans

How much do you need to retire?
The biggest problem with retirement plans in private practice is the lack of them. Wood figures that fewer than one in four practices offers a retirement plan to employees. "That's atrocious!" he says. "Other medical professions, like human medicine, dentistry, and optometry, wouldn't dream of not offering a retirement plan. Why should veterinarians be different?"

According to the "Economic Report on Veterinarians and Veterinary Practices," released by the AVMA in 2005, 12 percent of private practice associates receive profit-sharing benefits, and 15 percent have a pension plan. (These numbers rise to 22 percent and 25 percent, respectively, for private practice owners.) Compare that with results from an Employee Benefit Research Institute (EBRI) study on employee benefits and retirement plans, published in EBRI Issue Brief No. 289, January 2006: As of 2003, 67 percent of wage and salary workers ages 16 and older work for an employer or union that sponsors a retirement plan, and 51 percent of workers took advantage of those plans.