Begin with the end

So, just how much do you need to retire? The chart below gives you the quick answer, but it requires some explanation.

Th 94968

By Rick Willeford, MBA, CPA, CFP

Th 94968
Click here to enlarge image

So, just how much do you need to retire? The chart gives you the quick answer, but it requires some explanation.

Keep two things in mind: (1) You probably need more than you think - possibly a lot more; and (2) There is no exact answer. (Remember the doctor in the Monte Carlo article in April 2002 Dental Economics who thought he could withdraw $70,000 per year for 30 years, but ran out of money in 12?)

The "how much" question depends on when you will retire - now, or years from now. This is due to inflation. Let's assume you want $100,000 of retirement income. With historical 3 percent inflation, the same purchasing power will require $134,400 in 10 years, $180,600 in 20 years, and $242,700 in 30 years. Of course, to offset the fact that you will need more dollars further in the future, you also have more time to accumulate those dollars. And, don't forget: You may be retired for another 20-30 years, and inflation keeps increasing! So dentists must factor in a "raise" during retirement to keep up with inflation.

Then, there is the expected investment rate of return during retirement. At some point, you will "pull in your horns" and get more conservative. As you get older, you have less time to recover from stock market downturns. This is why most financial advisers suggest a gradual shift out of stocks into the more dependable returns of bonds as you get older. This shift typically reduces return in exchange for stability. Dentists must consider the average return on all investments (CDs, money market funds, bonds,and stocks). The chart shows how large your nest egg needs to be based on whether you think you can earn a 6, 8, or 10 percent average return during retirement.

How long do you want your money to last? If you intend to dip into principal, then perfect planning would mean that your account balance hits zero the same time your blood pressure does. The graph below assumes you want your money to last 25 years. After that, you'd better hope you were nice to your kids.

Note: It could require as much as twice the amount shown in the chart if you want to preserve the principal. Such an amount is unrealistic for many doctors, so we presume you will spend the principal.

That sounds fine when you are younger, but as you get older, that prospect becomes scary. With aging comes the fear that we will outlive our money. (Local police recently broke into an elderly widow's apartment and found that she had been dead for a few days. They later discovered she had been eating cat food for fear of running out of money - yet she had $2,000,000 in the bank. Don't underestimate the power of fear!)

Next time, we'll discuss how to get there from here - and where you should be already!

Raymond "Rick" Willeford MBA, CPA, CFP, is president of Willeford & Associates, CPA, PC, a fee-only firm specializing in financial, tax, and practice-transition strategies for dentists since 1975. Mr. Willeford is president of the Academy of Dental CPAs, a member of the national Practice Valuation Study Group, and numerous dental study clubs. Contact him by phone at (770) 552-8500 or by email at

More in Money