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Protecting Your Retirement No Matter Who's President
- Thread starter Stroganoff
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I actually believe that we will eventually eliminate an income tax and move to a sales tax or value added tax (VAT). If we do develop such a system, I am sure there will be special provisions to tax dispursements from IRA's.
This is why I have funded a Roth IRA during residency (when I am eligible to fund one) in addition to my 403(b). I will fund a SEP-IRA or Individual 401(k) while working as an independent contractor next year, but I also plan to keep a significant number of investments -- mainly stock, which have lower tax rates -- in regular investment accounts. This will also allow me to have income when I retire early (hopefully at 50) since IRA's can only be accessed at 59 1/2 years of age unless you want to pay a high penalty.
When I move on to a fellowship in 2 years, I will probably fund the Roth IRA again. I would love to be able to rollover my 403(b) to my Roth, but my income this year will be over the limit.
This is why I have funded a Roth IRA during residency (when I am eligible to fund one) in addition to my 403(b). I will fund a SEP-IRA or Individual 401(k) while working as an independent contractor next year, but I also plan to keep a significant number of investments -- mainly stock, which have lower tax rates -- in regular investment accounts. This will also allow me to have income when I retire early (hopefully at 50) since IRA's can only be accessed at 59 1/2 years of age unless you want to pay a high penalty.
When I move on to a fellowship in 2 years, I will probably fund the Roth IRA again. I would love to be able to rollover my 403(b) to my Roth, but my income this year will be over the limit.
What have you targeted as your net worth at retirement? I too want to be out of medicine (as a job, not a hobby) by the time I'm 50-55 and think 5mil in net worth is an appropriate amount of FU money. I forget the exact calculation, but it basically boils down to 60-70k annual contribution at 12%ish.
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$2.5 mil in retirement accounts considering all debts are paid (house, student loan, etc.).
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It all depends on the lifestyle you have before retirement. Some people do well on $60k, others need $200k+. A general rule of thumb is 25-30x what your yearly needs are. This assumes a 4% withdrawal rate per year. This does not include any additional family expenses (kids college, etc), nor does it cover paying for your health care if you retire early.
The most important thing for new physicians is to defer gratification for a few more years post residency, and save, save, save.
Most that I have seen, however, buy a much larger house, new car, new furniture, etc -
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Why not just do $20K and use 26% ish? It's just as realistic! I'm just kidding but if your retirement plan depends on averaging 12% returns you may be a little disappointed. Even 100% stocks historically hasn't done that well, not counting taxes or investment expenses.
Personally, I'm counting on 5-6% real returns, probably 8-9% nominal. That'll get me to $1.8 Million in today's dollars in 20 years (if I save $50K/year in today's dollars). That'll provide a yearly income of $92K/year (today's dollars.) I think I can live comfortably off that with a paid off house.
My understanding was that if you are in indexed funds they average at a minimum of 10% over the long term. I thought 12% was conservative. Is this wrong?
Some states like Florida: they can't touch your house in a suit and thus many MD's (especially the ones that have gone bare) buy the biggest most expensive house they can afford to protect their assets.
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The long term return of the Vanguard S&P 500 Index Fund (100% stocks) from 1975 to present is 11.60%. Bear in mind that 1982-2000 was the greatest bull market ever in the history of US stocks, so to expect future returns to be that good is folly. For example, over the last ten years, the fund has returned 3.99%. Meanwhile, a good bond fund (Vanguard Total Bond Market) has returned 5.78%. Historically, according to Jeremy Siegel, Stocks have returned 10.2% from 1802-2001, but this return is pre-expenses and pre-taxes. Most physicians unfortunately pay way too much in fees and are required to pay significant taxes, especially if they make investing mistakes. Here is a poll of some very smart people discussing what they think the future returns of their portfolio (generally stocks and bonds) will be:
http://www.diehards.org/forum/viewtopic.php?t=4895&highlight=poll+return
Most of them are in the 6-9% range. So no, 12% is NOT conservative. Possible, yes, but not conservative. If you can keep taxes and expenses very low, and you hold a very risky portfolio (lots of small value stocks, microcap stocks, emerging market stocks, few if any bonds), I think 12% is doable. But keep in mind that sometimes risk shows up (like the last 10 years.) Stocks generally return more because sometimes they return less.
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