Planning for Retirement: Live Within Your Means

For those of you who been following The Alemian File you know I give you very specific instructions on what to do to build a retirement.

Today I’m going to talk about what not to do so you can avoid the biggest financial mistakes physicians make.

Let’s start with lifestyle debt. Banks, credit card companies, and finance companies are all too eager and happy to lend you money. Real estate agents, car dealers, and anyone selling big-ticket items push you into buying things that you really can’t afford. I’m not saying don’t have lifestyle. Lifestyle is good, lifestyle makes us happy. Yours truly loves lifestyle, but it needs to be kept within your means.

Too many physicians are spending their entire paycheck on lifestyle. Whatever their take-home pay is, that’s pretty close to the amount they’re spending every month. The problem is it’s not sustainable. They contribute the maximum amount to the 401(k) or 403(b) and they stop there. They hear the word maximum and they figure they’re doing enough. What they don’t understand is they’re actually doing the minimum. The qualified plan was never intended to be the primary retirement savings vehicle. It was originally designed and intended to be a supplemental retirement savings vehicle.

If you’re contributing to a 401(k), or 403(b), or some type of qualified plan, and you’re contributing the maximum — you’re contributing the maximum of pretax dollars. You still need to put after-tax dollars into some other type of retirement savings vehicle. Otherwise, I absolutely guarantee you will run out of money in retirement. You will wake up one day in your 50s and realize there is no possible way you can retire without running out of money, or cutting way back on lifestyle.

Remember, you are physicians. When you work you get paid, when you stop working you stop getting paid, but the bills to support your lifestyle don’t stop. Add inflation to the mix, and in about 20 years or so it will cost double just to maintain your current lifestyle. If all of your money is in a qualified plan, you will need to withdraw almost twice that amount so that you can pay the taxes.

Don’t make the mistake of relying on advice from your CPA, because you a CPA’s job is to save you taxes this year. Your CPA is not concerned about your future taxes. Don’t make the mistake of relying on advice from your financial advisor, because his or her focus is only on money under management. He or she is not concerned about your future taxes or market losses.

Want solutions? Check out Episode 3 and Episode 24 of The Alemian File. If you have questions send me an email to David@theAlemianfile.com. Check out my website PhysiciansRetirementPlan.com. Make sure you come back here next week to Physicians Money Digest for another edition of The Alemian File.