Planning for a Secure Financial Future: It’s Never Too Early to Start

by Corporate Relations and Business Strategy Staff

Whether you are on the verge of retirement, sailing along mid-career or just starting a practice, it is important to think ahead and plan for your future. For many reasons, including lengthy training, high student loan payments and the time commitment required to build and manage a practice, psychologists often get a late start on retirement planning.

Yet, a little preparation goes a long way. The following information will help you begin to plan for a financially secure future.

Envision the Lifestyle You Want When You Retire 

A good place to start is to determine if you would like to:

• Gradually wind down your practice
• Cut back to seeing clients part-time
• Only maintain the consultation or supervision part of your practice
• Start a second career or explore new business ventures
• Close your practice entirely
• Continue to work as long as you are able

You should also consider other plans such as travel, whether you will downsize your home and if you will relocate geographically.

Review Your Present Financial Situation

An evaluation of your current finances will help you plan for what you will need in the future.

• Calculate your net worth (your assets minus your liabilities)
• Organize your expenses in order to understand your spending patterns
• Examine your retirement and other investments

Although calculations can be done manually, the use of personal financial software such as Quicken or Money may facilitate the process.

Determine Your Retirement Needs 

Based on your vision for retirement, work with a professional financial planner to decide how much money you will need to set aside and which investment vehicles are best for you. Consider factors such as:

• the percentage of your annual preretirement income you will need in retirement
• when you plan to retire
• the rate of return on your investments
• inflation
• taxes

Create a customized plan that you are comfortable with and that will help you maintain a lifestyle consistent with your retirement plans. Put concrete steps in place to reach your goals and stick with your plan over time.

Review Your Plan Periodically 

It is not unusual for ideas about the future to change over time. Additionally, unanticipated life circumstances may require you to change your course. Review your retirement plan with your financial advisor every year or two and revise it as necessary to help you reach your goals.

Learn about Saving for Retirement

Read a book or two about retirement planning and explore a few financial websites such as CNN Money and MSN Money. You don’t have to be an expert (that’s what your financial advisor is for), but you should have a basic understanding of retirement planning and your various options. Having a general knowledge base will facilitate productive discussions with your financial advisor and increase your comfort level with the process.

Pick a Retirement Savings Vehicle That Is Right for You

There are a variety of choices, such as a 401(k), Keogh plan, IRA or SIMPLE plan. Each type of investment vehicle has different advantages and disadvantages with regard to eligibility, financial risk, return, access to funds and taxes. Some are better suited to certain legal models of practice. Consult with your financial advisor to determine which option is best for you.

Consider Other Sources of Income

When you retire, you may have other sources of income in addition to your retirement savings. Be sure to consider Social Security benefits, revenue from part-time practice and income from other investments when you create your retirement plan. You can request a Social Security Statement that estimates your future Social Security benefits.

Plan for Unanticipated Expenses

Life has a way of throwing us an occasional wrench and this remains the case during retirement. Build yourself a financial buffer that is quickly and easily accessible, so you are more readily able to meet needs such as unexpected home repairs or medical expenses if they arise.

Other Financial Issues

When it comes to your future, investing for retirement is not the only financial matter you should consider. Talk to your financial advisor about protecting your assets and those of your loved ones by preparing appropriate wills and trusts and purchasing health, disability and life insurance. You may also want to consider private long-term care insurance if you anticipate expenses that will not be adequately covered by government sources such as Medicare or any supplementary health insurance you carry.

Since malpractice charges can be filed even after treatment ends, it is also essential to make sure you will be covered in terms of professional liability. Before you retire, check your policy and consult with your liability insurance provider about appropriate and sufficient coverage.

Thinking about the financial aspects of retirement can be overwhelming, so many people put it off. David Ballard, PsyD, MBA, the APA Practice Directorate’s assistant executive director for corporate relations and business strategy suggests the following five tips to get started:

1. Get focused on the need to plan ahead.
2. Start saving now.
3. Consult with a financial advisor.
4. Create a retirement plan.

5. Protect yourself and your family with appropriate insurance.