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Don’t Let These Risks Threaten Your Savings

You’ve worked long and hard to accumulate your nest egg, and it has grown to a size that would be difficult, if not impossible, to replace. From market drops to lawsuits, there are many risks that can threaten your savings. What steps can you take today to reduce your risk and protect your wealth in the future? Following are four common financial risks faced by dentists and strategies for helping you overcome them.

Threat #1 – Running out of money in retirement

Solution – Establish a financial plan and stick to it.

One of the best ways to avoid running out of money early is to have an accurate estimate of how much you will need in retirement and a financial plan to get you there. If you own your own practice, you’ll need to incorporate a succession plan to help you prepare for transitioning to retirement. Your plan and transition strategy should account for multiple retirement scenarios and various factors that have the potential to impact your future. This process can give you an idea about how much you should be saving prior to retirement in order to achieve your goals. Specific considerations include, but are not limited to:

  • How much you plan to spend each month
  • Fluctuations in the market
  • Impact of inflation on spending power over time
  • Required minimum distribution (RMD) requirements
  • When to begin taking Social Security
  • Whether or not to pay off your home
  • Whether or not to purchase a vacation home
  • How much you may receive from selling your practice

If you are about to retire, or have already retired, a solid plan can help you live with the confidence of knowing you have accounted for the major factors that may impact your retirement, and that you have built in buffers to account for unexpected events. The ultimate value in having a plan is being able to sleep well at night, knowing that you (and your family) are financially prepared.

Threat #2 – A sudden market drop

Solution – Develop a diversified investment portfolio with appropriate strategies.

The dot-com bubble of the early 2000s crushed many investors’ portfolios. It took approximately 10 years for investments in large U.S. companies to recover and 15 years for technology companies to recover. This time period is sometimes referred to as the “Lost Decade.”

However, not all areas of the U.S. markets were down. During the same time period, medium-sized U.S. companies grew by 6.36%, small-sized companies grew by 6.35%, emerging markets grew by 9.78% and bonds grew 6.3%. Investors with diversified portfolios had the potential to experience significant growth during the Lost Decade.

What about more recently? Haven’t U.S. investments outpaced international investments for a long time? Not exactly. In 2017, following the presidential election, the United States experienced an excellent market gain of 21.83%. However, emerging international markets were up 36.83%