Goals for Retiring Well

December 2021 |

Retiring well is simpler than you might think.

Becoming financially independent—i.e., not having to rely on any outside sources, including your own paycheck, for income—is easier than you might think, says financial planner Fritz Wood.

Financial independence looks different for everyone, because everyone has unique goals, Wood explains. “But it’s completely within your grasp and within your control,” he says, adding that fundamental financial behaviors will put you on the path to financial independence in preparation for retirement:

1. Spend less than you earn. Financial independence is not a function of income, says Wood. Rather, it comes down to finding a design for living that does not consume all your pay. Put simply: Live on less than you make. “Veterinarians earn plenty to be able to achieve financial independence, but if you live on your entire paycheck, work is never going to become optional,” he says.

Try software such as Quicken (or Mint, which is free) to help with personal budgeting and investment tracking, Wood suggests. “Using this type of software really helps bring order to the chaos by giving you a better understanding of money coming in and money going out, and it helps you take inventory of your savings, investments and debt,” he says.

2. Save systematically. “Most people are paid systematically, such as weekly, and that’s how we need to invest,” Wood advises. When mapping out a plan that allows you to enjoy life while also working toward financial independence, ask yourself these questions:

  • Live: How much money do you need for your lifestyle?
  • Give: How much do you wish to give others?
  • Owe: What do you owe in debt, including taxes?
  • Grow: How much can you set aside for achieving your goals, such as retirement, children’s college and travel?

“I like to see people set aside 15% of their gross income over their entire working lifetime, and that 15% would be the money you live on in the last 20 or 30 years of your life,” says Wood. Bottom line? Find a way to live or create a lifestyle that only consumes 85% of your pay.

3. Use debt wisely. Debt is a reality for today’s veterinarians, most of whom couldn’t go to school or purchase a veterinary hospital without incurring debt. Both of these are examples of “good debt,” which is debt that has a low interest rate, is tax-deductible, and ultimately will increase your income.

For veterinarians, the three largest expenses are usually housing, transportation and student loan debt. With income-based student loan repayments, the monthly expense is about 10% of gross pay. Housing and transportation are areas that can get people into trouble. “I’m not begrudging anyone a nice place to live or a new car, but if you can avoid multi-hundred-thousand-dollar mistakes with houses and cars over the course of your career, financial independence will happen much earlier,” says Wood.

4. Set goals. Setting both long-term and short-term goals is vital to achieving financial independence, Wood says. Short-term financial goals might include paying off a high-interest credit card in the next six months or buying a house within three years. A longer-term goal may be achieving financial independence by a specific age.

Financial goals will be different for everyone, but the important thing is that you strive to reach those goals, regularly monitor your progress, and adapt the goals as your needs change. “Your wants and needs are going to change over time, and your underlying conditions are constantly in flux,” says Wood. “Write down your goals and revisit them on a regular basis.”

Retirement: How much is enough?

“The whole idea of financial planning is to bring the future into the present while there’s still time to do something about it,” says Wood. He offers two related rules of thumb for estimating how much money you’ll need to save before you retire:

1. The 4% rule: A retiree should withdraw no more than 4% from their retirement account in the first year, then increase annual withdrawals each year to keep pace with inflation. Following this rule provides a steady income stream while also maintaining an account balance that keeps income flowing throughout retirement.

2. Rule of 25 times: To determine how much money you’ll need for retirement, multiply your hoped-for annual income by 25. Don’t forget to account for your Social Security benefits and other sources of known income.

For customized numbers, Wood encourages the use of online calculators. Start with Social Security to check that their record of your earnings history matches your record, Wood advises, because ultimately your benefit will be a function of your earnings history.