Focus on Time, Not Money, in Retirement Planning

As a nation, Americans tend to be very good at procrastinating. Doctors are no different. And one area of procrastinating that we seem to excel at is saving, particularly where retirement is concerned.

Consider the results of PNC Wealth Management’s fifth annual Wealth and Values Survey. The survey of 1,263 wealthy Americans found that one-third are either behind, uncertain or have no retirement goal. And among those who say they are prepared, only 50 percent are confident they will reach their retirement goals.

“The reality is that people simply aren’t saving enough,” says Paul Gaudio, senior wealth planner with PNC Wealth Management. “If you look back prior to the market collapse in October 2008, our savings rate was virtually zero. That’s the bottom line.”

Focus on time

Gaudio says that the economic events of the last 18 months have made everyone re-evaluate their goals, no matter how much money they earn. But despite the re-evaluation, he believes the focus is a bit skewed. The focus in retirement planning, emphasizes Gaudio, should be on time rather than assets.

“I think the problem is that many people spend all their time and energy attempting to calculate a number, a capital base, and that number has an infinite number of variables, most of which are simply outside our control,” Gaudio explains. “The reality is, we disregard the big picture, which is, what do we want to do in retirement?” Gaudio points to the survey responses as evidence. When survey participants were asked what retirement means to them, many responded with generic answers, such as not working, flexibility with time, no commitment. “There really was no clear direction what these people wanted to do in retirement.”

Gaudio explains that while working, free time is limited. During retirement, however, all a person has is free time. Social interactions and social networks grow out of the people with whom we interact at work. Then suddently, work is terminated, and many people find themselves lost. “People have a hard time separating; we like consistency,” says Gaudio. “Within the medical industry, if you look at physicians who change locations to work for a different hospital, it’s an emotional thing. And when we don’t have consistency, it generally has negative implications.”

Don’t create illusions

Physicians, like everyone else, are human, and as such, do not like to admit defeat or mistakes—particularly when earning an annual income of $150,000 or more. As a result, they create financial illusions to rationalize their retirement plans—a tactic Gaudio says can be dangerous.

He recalls a conversation with a 65-year-old professional who was still working, and had approximately $900,000 in financial assets. No pension, no other fixed sources of income, and a lifestyle that cost $250,000 a year. Gaudio told the man that things had to change. Either his financial base had to grow exponentially, which would be difficult at the man’s age, or the expense side of the ledger had to be reduced significantly. After a moment of thought, the man explained that he would flip real estate in Florida or do some consulting work to make up the shortfall.

“That’s not reality,” Gaudio says. “Nobody likes to go backwards. If you’re talking about downsizing to real estate that is the size of your current family room, most people are going to have a hard time with that.” And for physicians the adjustment can be even more dramatic. That’s because, more than the average small business owner, physicians want to project a certain image, so they own large homes, and second homes. Maintaining that lifestyle requires realistic financial planning, something Gaudio says physicians don’t do.

“When tax laws were changed in the mid 1980s, a lot of physicians got away from things like 401(k) and defined benefit plans because they had to share with employees,” Gaudio explains. “All of a sudden there’s no forced or mandatory kind of funding for retirement. Now you’re on your own to develop a capital base outside the traditional vehicles, and a lot of physicians don’t do it.”

Wise advice

When affluent retirees were asked if they had any advice for those who are still preparing for retirement, a whopping 89 percent suggested living a healthier life, and 87 percent said to start planning earlier.

Other important advice includes: Spend more time finding and enjoying common interests with your spouse (80 percent); spend less and save more (76 percent); spend more time developing interests outside of work (75 percent); and be more aggressive with investment decisions and asset allocation (59 percent).

Ed Rabinowitz is a veteran healthcare writer and reporter. He welcomes comments at edwardr@frontiernet.net.