Your Retirement Lifestyle? It’s What You Create for Yourself!

At some point in your life a well-meaning relative, mentor, or friend will say to you, "Whatever you do, pay off all of your debt before you do anything else." When you hear this politely nod your head and then, when the person isn't looking, TURN AND RUN AWAY AS FAST AS YOU CAN!

But wait, isn't all debt evil and shouldn't I try to get out of debt ASAP? No. Let's say you've just graduated from dental school with $400K in student loan debt. Or you just graduated from a 4-year state school with $50K in student loan debt. Once you start earning a paycheck, you have the chance to leverage what is considered the eighth wonder of the world – the power of compounding interest (the power of time and money).

Compounding Interest

Let's say the starting salary in your first job is $30,000 per year. And let's say you decide to put 10% of your salary into your company's 401(k) plan. You decide to put your 401(k) contributions into a low-fee stock index fund thereby minimizing your expenses. Assuming you never get a raise the rest of your life (and not even considering a company match) your $3K annual contribution, starting at the age of 22, will grow to about $850,000 at age 65. For those scoring at home, that's using a 7% rate of return, after inflation and including dividends, which is the ballpark historic return of the S&P 500 (the average return is actually closer to 10% over the last 40 years).

Now let's say you are busy paying off all of your student loans and other debts in the first 10 years of your career. So, you don't start contributing that $3000 per year into your 401(k) till the age of 32. Guess how much you'll have in the account at the age of 65? Ready? Less than half – about $410,000.

Remember – my first example above (the $850K amount) is super conservative, as it assumes you never get a raise and doesn't include a company match. If you factor those things into the equation, you'll be able to buy your own island when you retire!

The Power of Time

Why the incredible difference between starting your retirement savings at age 22 versus 32? The power of time. Which you can never, ever get back.

I often have people say to me that they are not 22 anymore so what's the point of trying. My response? The best day to start saving for retirement is the day you get your first check. The next best day? Today! You can't change the past, but what you do today will impact your future.

Final example: let's say you start saving $5K per year at the age of 35 versus age 45 (using the same investment parameters as above). Starting at age 35 will get you to about $543K. Starting at age 45? Only $239K.

Steps to Financial Independence:

1. Do Your Retirement “Math” – Sit down with your dental specific CPA/Financial Advisor (and your spouse or partner if applicable), set retirement goals, and determine if you are on track to meet those goals
2. Adjust Your Retirement Plan – If you are not on track to meet your goals, assess your options (e.g., an increase in monthly investment amounts, altering your investment mix to impact potential returns, altering your retirement timeline)
3. Regular Review and Revision – Review your retirement plan (at least yearly) to determine if you are on track to meet your goals or if revisions are needed
4. Sit Back and Relax – Don’t track your retirement balances and returns too closely. Assuming you have some investments that will fluctuate in value, such as equities/stocks, you need to take the long view. Tracking your balances on a daily basis can lead to making short-term, fear-based decisions that can have long-term negative effect on your overall returns and balances.

You basically have 2 choices in life. Either plan and prepare for your retirement years. Or depend on someone/something else to do it for you.

It's your future - the choice is yours.