Planning for Your Chiropractic Retirement

By Katie Brown 

No matter what stage of life you are currently in, planning for your future is most likely on your mind. Whether you’re starting your own practice or considering a new business venture, everyone is ultimately working toward one thing—retirement. While those just beginning their chiropractic careers may feel as if this time is far off into the future, many chiropractors are delaying their retirement in order to continue working after suffering some unforeseen setbacks from the economic downturn. 

Getting an early start on creating a retirement plan is ultimately the best option, but for those who may be retiring later than planned, these next few working years can still have a large impact on your future. According to the article “Own A Small Business?” from the financial advising firm Edward Jones, “if you’re in this group, you’ll want to take full advantage of those extra working years by contributing as much as you can to a retirement plan that can help you build resources, defer taxes and, ultimately, maximize income.”

So if you’re a chiropractor and own your own practice, but may be unsure of how to go about creating a retirement plan, there are a few attractive options. But remember, there’s more to creating financial stability for your retirement years than simply starting a 401(k).
Enjoyment of these “leisure years” is dependent on a few important contributing factors.

What Retirement Plan Should I Use?

As the owner of your own chiropractic practice, or any small business for that matter, Edward Jones suggests two retirement plans: an “owner-only” 401(k) and a defined benefit plan. 

Similar to a traditional 401(k), an “owner-only” 401(k), which has a two-part contribution system made up of profit sharing and salary deferral, also offers different investment options, tax-deductible contributions and the possibility of tax-deferred earnings growth. However, to be eligible for this type of retirement plan, your practice may not employ anyone other than yourself, your spouse or your partner. 

What makes the “owner-only” 401(k) attractive is its flexibility. According to Edward Jones, “both the salary deferral and the profit-sharing contributions are discretionary, so you can change them at any time based on your business’s profitability.”

As for the defined benefit plan, this retirement option would be suggested for chiropractors who are highly compensated (usually more than $200,000 a year) with no other employees. According to Edward Jones, “by establishing a defined benefit plan, you’ll be providing yourself with a monthly payment (or ‘benefit’ for life), beginning at the retirement age specified by your plan.”

The amount you can contribute to the defined benefit plan depends on several factors, such as your retirement age, current age and compensation level. As of 2011, the yearly benefit limit was $195,000. “A defined benefit plan is the only retirement account that allows contributions in excess of the limits placed on the 401(k)s and other defined contribution plans,” states Edward Jones. “Generally speaking, the closer you get to retirement, the larger your maximum yearly contributions will be. And since your defined benefit contributions are tax-deductible, you are, in effect, getting a big boost from the government to fund a generous retirement plan.”

Any Other Ways I Can Plan
for my Retirement?

While setting up a solid retirement plan is the first step to seeking your post-retirement financial stability, there are a few other things that can make this transition easier. 

First, understanding how much money you will need is vital to determining a retirement plan. While there will always be unforeseen expenses, aim to find an accurate estimate of the savings that will be needed during retirement. A few years before retirement, begin looking at your fixed and variable costs, such as living and travel expenses. Remember, after retirement there may be more traveling or leisure expenses. However, your contributions to retirement plans and work-related items will no longer be necessary. 

Also, make sure to think about the future. If a spouse or family is involved, are there any major plans for the future, like relocating to a warmer climate or building a new house? If so, these types of things need to be accounted for. And make sure to discuss your plans with your spouse, who may have his or her own ideas for retirement. While some may not be financially possible, it will be easier to set a goal for retirement savings with a clearer idea of your retirement future.

Part of planning for this time also involves its length. Depending on the age at which you retire, the money that is saved can change over time. For example, someone who retires at age 50 needs to consider the effects of inflation far more than someone who is 75 years old. While it may be minimal, it is something that should be considered.

Next, look into setting up a Roth IRA. Because this type of retirement plan is not usually taxed, direct contributions can be withdrawn tax-free at any time. Also, even if you already have a retirement plan, like a 401(k), contributions may still be made to a Roth IRA. 

Finally, get rid of all debt. Whether it’s mortgage payments for the chiropractic practice or debts related to housing expenses, eliminate all outstanding debts before retirement. While it may be difficult and financially straining, it’s best to get rid of debt while you are still working and capable of producing revenue instead of dealing with the burden of paying off your debts with your retirement savings.

Consult an Advisor

While these retirement plans and tips can have great benefits and rewards, it’s best to speak with tax and financial advisors to ensure that these are the right choices for you and your chiropractic practice. Setting up a retirement plan needs to be a well-researched and thought-out strategy to ensure the most security for your retirement.

By getting an early start on creating a retirement plan, you will have more time to properly plan for your future and that of your practice. However, it’s never too late to get started. Just make sure to seek the advice of a professional advisor to help get your retirement plan on track. “After all,” says Edward Jones, “you work hard to provide a comfortable retirement tomorrow—so you’ll want a retirement plan working hard for you today.” 

This information was taken from the article titled “Own a Small Business? Consider These Retirement Plans” by Edward Jones. It was written on May 9, 2011.