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Protect against enemies Tools and an ‘ally’ can help your strategy
H
ow can I protect my invest- ments while I am preparing for retirement? Will I run out of money in retirement? These are
legitimate questions, regardless if you’re just beginning practice and trying to build wealth for retirement or are nearing that milestone. While there are some ever-present, nagging concerns, which we’ll discuss here, you also have tools and an “ally” you can call upon to improve your outlook. Let’s first consider some of the “enemies” of achieving our re- tirement goals and how you can lessen their effects.
Enemy 1: Inflation. It takes place over time and doesn’t seem that ominous, but average 3 percent inflation across 25 years decreases your purchasing power by 50 percent. Pro- tecting your purchasing power is one of the keys to a better outcome in retirement—and thinking about the implications of inflation is an important aspect of this protection. When you consider the last two year’s aver- age inflation rates of 2.07 percent in 2012 and 3.16 percent in 2011, a CD earning 1 percent does little to protect your retirement funds against inflation.
Enemy 2: Taxes. Like inflation, taxes erode our savings and have increased significantly for 2013. Taxes are a concern not only when you retire but as you save for retirement. Most qualified retirement funds are tax deferred when placed in savings and while growing. And, perhaps when you do take them out of the fund, you will be in a lower tax bracket. Roth IRAs and now the popular Roth 401(k) can help protect funds in that taxes are paid up front instead of when with- drawn. Since the creation of the Roth IRA in 1998, the contribution limits have steadily increased and in 2013 are $5,500 for age 49
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and younger and $6,500 for age 50 and older (in the case of a married couple, each spouse may contribute that amount). Phase out lim- its do apply based on income and participa- tion in another plan (see “Key Financial Data for 2013” at
www.MDIS4DDS.com). Because taxes take a major bite out of other savings such as bank CDs and most investments, consider alternatives to these supplemental retirement savings, such as annuities which offer tax-deferred growth and life insurance which offers tax-exempt growth.
Enemy 3: Market Risk. Who could forget 2008 when the stock market corrected and caused most retirement savings to decline by nearly 50 percent? What if there was a way to capture the gains from the market but pro- tect your principal and earnings from market declines? That is exactly what a fixed indexed annuity does, where instead of being invested directly in the stock market, is instead placed with an insurance company that tracks a stock index like the S & P 500. Many fixed indexed annuities offer annual reset, a fea- ture that locks in any gains each year so if the index declines, your annuity is protected and does not have to make up previous market losses in order to earn additional interest. An annuity is the only financial instrument that can guarantee income for life. In addition to premium bonuses, some annuity companies offer optional features such as enhanced death benefit, long-term care protection (not insurance) and guaranteed interest.
Awareness of and education about these “enemies” can help protect your efforts to grow and/or maintain your retirement funds, as can the various “tools” we touched on in terms of different retirement strategies.
For many, in order to have a successful retirement, they will need to consider sev-
eral variables and rely on several sources of income. Hopefully you’re ahead of the game and have a 401(k) or other plan that is well funded. Maybe you have an IRA and perhaps additional regular savings (non-qualified funds) that can be used to supplement a re- tirement income. And, there’s social security, which can eventually contribute as a fund source. But have you considered what it may mean to you if a gap exists between the funds you have available and the funds that will be required to provide the standard of living that you want in retirement?
Does this concern hit home? If so, that’s where you have an “ally.” MDIS offers a complimentary service for our clients that can help determine how long your retire- ment funds will last and what you can do to ensure that you will have enough. It’s called the Retirement Analyzer and consists of sophisticated computer modeling that takes into account your current information versus a realistic, future illustration of your ideal retirement. The information it provides may delight or dishearten you, but isn’t it better to find out now while you still can take cor- rective action instead of being surprised?
At MDIS we have information to safeguard you against retirement enemies and the tools to assist you in planning for a successful retirement. As always, we’re an ally created by dentists, for dentists. You really owe it to yourself to find out what is available and the best way to achieve your retirement goals. Call us today at 800-944-7550. You’ll be glad you did. f
This article is not intended to provide legal or investment advice and should not be interpreted to do so. It is designed to provide information and encourage you to find out more by speaking with a suitable professional.
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