How to Save for Retirement (and What NOT to Do)

For veterinary professionals, keeping a business afloat can be challenging in and of itself. Putting aside extra money for retirement is rarely on the radar, never mind on the list of priorities. Between treating patients and meeting with clients, performing surgeries, keeping up with continuing education and managing all the day to day activities of business operations, saving for the future often takes a back seat.

But even if you don’t have a lot of extra time on your hands, it’s still important that you understand the basic concepts behind saving for retirement. Otherwise, you could find yourself unable to enjoy the later years of your life. To follow are a few of the most popular retirement savings options along with a few tips for what not to do when investing for your future.

Traditional Individual Retirement Account (IRA)

An IRA is a retirement savings vehicle into which money can be deposited on a pre-tax basis. There are typically investments within the IRA through which any monies deposited may result in gains (or losses). Any gains are not taxed while the account matures, which allows the funds to continue to grow over time. Funds are taxed upon withdrawal with the goal being that the account owner will be in a lower tax bracket at the point of retirement. IRAs have certain contribution limits and other requirements that should be discussed with an investment specialist.

Roth IRA

If you’re looking to put money away during your lower earning years, a Roth IRA may be your best option. The difference between this type of IRA and its traditional counterpart is that the money put in is not pre-tax. In other words, tax is assessed and paid before it is deposited into the account. The funds then grow tax-free, but can be taken out without paying taxes on the back end, provided certain guidelines are met. Again, speaking with an investment professional to understand the way Roth IRAs work is strongly advised.

401(k)

A 401(k) is an employer-sponsored retirement savings vehicle. Money is taken out of the employee’s paycheck and placed into the 401(k) account. That money is then invested into different asset classes of the employee’s choosing. Similar to a traditional IRA, the funds invested in a 401(k) are pre-tax and are allowed to grow tax-free as the account matures. Money is only taxed when it is withdrawn from the account. This is a nice option, however, many smaller vet clinics do not offer this type of plan.

What NOT to Do

Of course, knowing what your options are and actually saving for retirement successfully are two entirely different things. Unfortunately, there are plenty of mistakes to be made along the way – missteps that could end up costing you dearly in the long run. If you’re in the process of planning your retirement savings strategy, here are a few things to avoid:

1. Waiting too long. (The best time to start saving is NOW.)

2. Not taking full advantage of the available tax breaks (i.e. not investing the maximum allowed).

3. Underestimating your longevity. (You don’t want to outlive your retirement savings.)

4. Tapping into retirement funds before it’s allowed. (You’ll pay a hefty penalty, not to mention higher taxes while you deplete your savings.)

5. Failing to consider additional costs, such as health care, which may be higher during your retirement years.

To prepare properly for retirement and prevent any of the above mistakes from happening to you, your best course of action should be sitting down with a retirement specialist. He or she can help you determine how much you need to save and map out the best course of action for achieving your long-term goals with minimal issues along the way.