fix this practice

Making up for Lost Time

The best strategy for retirement is an early strategy.

RICHARD S. KATTOUF, O.D., D.O.S.

Q I have been in practice for almost 30 years. Getting my four children through college and living a nice life style has left me with less than $100,000 in retirement funds. At 60 years of age, how can I make up for lost time?

Dr. L.R. Bond
via e-mail

A: First, recent graduates can avoid this problem by investing at least $200 monthly in a retirement fund. Consider working with an optometric consultant to show you how to build practice finances. Inform your financial advisor regarding your practice growth and expenses. As earnings increase, gradually increase your monthly draw. This disciplined course will assure you a few million dollars in your retirement portfolio.

Keep this fact in mind: With $1 million in investments, you can draw $80,000 annually and still retain $1 million (assuming an annual return of 8%). If you draw more than $80,000, you obviously reduce the $1 million. Ask yourself, can you live your present lifestyle on a $80,000 annual draw?

Savvy planning

Both of my children were born when I was in optometry school. After opening my practice, I separated my optical company and formed a Sub-Chapter S corporation. My two children owned all of the stock equally. As the consultant to the corporation, I controlled all monies in the clinic and optical. Whenever it was financially possible, I would transfer money from the optical (Sub-Chapter S) to the children. The advantages were:

► 18 years of investing in the children's portfolio.
► lower tax rates. Had the money stayed in my account, I would have been taxed at the highest rate.
► Both of my children became optometrists. With my daughter, Valerie, doing a residency, they attended college a total of 17 years. The beautiful thing was that their portfolios covered the entire cost of education.
► My own retirement plan accelerated because the years they attended college, with tuition covered by the portfolios, were my best in terms of producing income.

The key term in any of these money savings is plan ahead.

One doctor's dilemma

Dr. J.S. Lilley had a similar situation to Dr. Bond's. Dr. Lilley paid for his children's college education and expenses. He had a beautiful home with a hefty mortgage of $700,000 and two luxury cars on an extended payment plan. He set aside $43,000 for retirement. J.S. was 65 years of age with no possibility of an exit strategy. After assessing his financials, I asked Dr. Lilley to agree to live on the level of income he had grown accustomed. We would place additional revenue from consulting into his retirement monies.

Because J.S. and his staff were great implementers and introduced new specialties to the practice, he was able to put $100,000 per year into his portfolio. If his health and attitude stay positive, he will earn more than $2 million in his retirement fund by the age of 75. Even though most O.D.s do not choose to work into their mid-70s, J.S. has no recourse.

With the proper approach, your retirement can be amazing and early. Keep in mind:

► Bear Markets, or downturns, have a history of lasting an average of 14 months.
► Bull Markets (upturns) last an average of 51 months.

When you invest wisely over time, you earn at least 8%.

Note: The Bear and Bull numbers came from American Express Financial Services. OM