Simply put, the most important factor when it comes to building wealth is your ability to save as much money as you can. Even a very high rate of return can’t build significant wealth if the initial investment is too low.
If your goal is to retire very comfortably (and for us, that means planning so our clients replace their current income 100% in retirement), then you need to make savings a priority. Here’s how and why.
The trouble with relying too heavily on 401Ks and Social Security
One of the most common savings vehicles is the 401K retirement account. That, along with Social Security income and proceeds from selling their practice, is what most dentists rely on when it comes time to retire.
However, the problem with 401Ks and Social Security is that the income is not guaranteed. As we saw just 10 years ago with the Great Recession, a recession could unexpectedly wipe out a substantial portion of the savings you were counting on to see you through your golden years. And unless Congress overhauls Social Security soon, the program will run out of excess funds by 2035, meaning there won’t be enough to pay beneficiaries the full amount of the benefits they’re expecting.
While we do believe that 401Ks have a place in retirement planning, we also believe it shouldn’t be the centerpiece.
Savings to combat wealth erosion
When we create a Financial Treatment Plan for one of our clients, one of the first pieces of the puzzle is to establish three foundational elements. One of those three is a disciplined savings rate of no less than 15% of one year’s gross household income. For example, if your gross income is $300,000, we’d like to see you putting aside $45,000 to invest in your Financial Treatment Plan.
Why 15%? Because this is the minimum reliable rate to combat wealth-eroding factors such as taxes and inflation. Wealth-eroding factors eat into your wealth twenty-four hours a day, every day of the year, and will turn your dollars into pennies if you’re not proactive with your retirement planning.
Making the most of your 15%
Now that you’ve saved 15% of your gross annual income, you need to make it work for you. It certainly won’t fight wealth-eroding factors sitting under your mattress.
Instead, we help our clients build wealth by keeping their money in motion. We show them how to get more than one use out of every dollar and how to collect smaller rates of return with lower levels of risk multiple times to build the wealth they want over time.
Plan now to retire well later
Are you ready to reassess your retirement account planning and try something new? Our goal is to help dentists replace 100% of their pre-retirement income so they don’t have to sacrifice during their golden years.