As a woman in the dental profession, you’re probably like most working women who juggle many different roles at once. Finding extra time, especially for yourself, can be extremely difficult, as time becomes a very limited commodity.
You may have learned that working in a dental office offers few benefits above and beyond your salary and annual raise or occasional bonus. With few retirement plans in place by employers, saving for retirement is one of the biggest financial challenges you’ll face. As a woman, you must realize that your future is in your own hands - not your employer’s or spouse’s. As Clare Boothe Luce said, “A woman’s best protection is a little money of her own.”
You can start taking control of your financial situation immediately by assuming one more role - Chief Financial Officer (CFO) of You, Incorporated. The most significant financial strategy you can implement is self-disciplined management of your monthly cash flow. Keep a 30- to 60-day diary and write down every check written and dollar spent to track where it goes. Find out where the spending holes are because every budget has them. Some of the most common holes are low deductibles on home and auto insurance and over withholding federal income taxes, to name a couple.
Unfortunately, as women, we often equate basic household budgeting, saving, and investing with math and either shy away from the task or readily abrogate it to the male in the family. Statistics indicate, however, that 80 percent to 90 percent of all women will be solely responsible for their financial situation sometime in their lives.
Without the cash flow knowledge and discipline that follows, any kind of savings plan you try to implement will not be successful, because it does not matter how much money you make, but how you spend it. Research of state lottery winners shows just how important this financial strategy is. The average state lottery winner of millions of dollars is completely broke and bankrupt within 18 to 24 months after receiving the money!
Next, implement a savings plan to build up a cash reserve that is equal to three to six months of your core monthly expenses. Core expenses are those items that are necessary to keep a roof over your head, food on the table, utilities on, and transportation and insurance covered. It is not buying new clothes, dining out, or going to the movies. You can start this plan by arranging to have some money from each pay period automatically deposited into a savings or money market account. This strategy is called “paying yourself first,” that is, learning to treat yourself like any other creditor and paying on a regular monthly basis.
Once you have a handle on your monthly cash flow and have established a strategy to build up a cash reserve, you can concentrate on one of the biggest savings bugaboos that plague women - retirement. Realistically, the biggest pot of money women will control is their retirement assets, the fruits of their financially productive years.
So, where do women stand? Because women outlive men by about seven years, many will probably have to provide for themselves financially for more years of retirement than will men. For many of those years, they will likely be on their own. Yet, women tend to earn less than men, as well as enter, exit and re-enter the workforce more often to take on caretaker responsibilities for young children and aging parents, therefore losing income, job seniority and participation in employer-sponsored retirement plans. These circumstances slow down the buildup of women’s retirement assets. It’s no wonder that women have less confidence in their ability to retire comfortably, and have done less than men to prepare for retirement.
To maintain your current standard of living in retirement, you will need to generate 75 percent to 85 percent of your present pre-retirement income. For every $1,000 of monthly retirement income you want to generate from your savings, you will need about $230,000 in assets. So, if you want $3,000 monthly or $36,000 annually, you will need a retirement savings of $690,000. This assumes a 5.2 percent earnings on your investments, and that you can live on your earnings and not spend down the principal. Also, your retirement income will probably be supplemented by some Social Security benefits.
So, where do you begin? Your employer does not offer any retirement plan. Remember this mantra: Start early, save regularly, save aggressively. Start small, and think big. And if you haven’t started yet, no matter what your age, start now. It’s never too late.
If your employer has a retirement plan, such as a 401k, Simple IRA or profit-sharing plan, become a member as soon as you are eligible. If your dental office does not offer any type of retirement plan, as is typical of many small businesses, you can invest your savings in a tax-deferred and/or tax-free investment vehicle such as an IRA or Roth IRA through a local financial institution. The maximum you can save into either a regular IRA or Roth IRA is $4,000 in 2006, and $5,000 in 2008, and those over age 50 will be allowed to save an additional $1,000.
If you are in your 20s or 30s, try to save at least 5 percent of your income for retirement, while women in their 40s should try to save at least 10 percent. If you invest $1,000 per year starting at age 25 in a tax-deferred account, such as an IRA, and average 8 percent annual earnings, you will have over $280,000 by age 65. If you save at the same rate with the same return starting at age 40, you’ll have $80,000 by age 65. If you invest $1,000 annually starting at age 50, you’ll have over $30,000 at age 65 - not as much as the 25 year old, but certainly a substantial amount of savings.
Now is the time to act on your own talents and resources to become a financially responsible adult woman sooner rather than later, by choice rather than by circumstance, and prepared rather than off-guard. By starting today, over time, you will surely become a most competent CFO of You, Incorporated!