In my formative years, I was attending a workshop given by my friend, the late, great Dr. F. Harold Wirth. During the workshop, he posed the question, "How much is enough?" From the back of the room I answered, "Just a little bit more."

Well, he never let me forget my quip and he wove my story into his lectures and workshops for years and years.

There is some truth to my quip, especially among dentists-most of whom come from modest economic backgrounds and have difficulty in becoming comfortable with money. There never is "enough."

For years, I've posited that the average dentist (according to ADA statistics), who nets about $125,000 before taxes, can hardly afford to live a reasonable lifestyle and fund an adequate retirement.

Let me tell you what I mean.

What do you need to retire in reasonable comfort?

In my opinion, $2 million in a qualified plan.

Is this the ABSOLUTE minimum? No, of course not! It depends on your personal circumstances, objectives and temperament.

But, for a reasonably comfortable retirement-at least in the year 2000-I believe this is a realistic number.

How do you get it?

You'll need to invest about $20,000 a year for 30 years at 8 percent interest in a qualified plan (or you can have a rich uncle die or win the lottery). That's not easy on $125,000.

Here's why:

$ 125.000		Gross Salary
- 20,000		qualified plan
$105,000		net before taxes
- 20,000		taxes (approximately)
$ 85,000		net after taxes
- 30,000		$300,000 mortgage @ 9.5 percent, 30 yrs. (NE)
- 10,000		property taxes (NE)
- 12,000		home, auto, life, health and disability insurance
- 10,000		auto leases (2)
$23,000		for everything else!

Adjust the numbers for your personal status-and see where you are.

Now, why $2 million?

Statistically, we know we can draw out 4 percent per year and never deplete the entire amount. That leaves us $80,000 a year-before taxes-in retirement. Not terrible-but not great.

If we draw out 6 percent per year, we're drawing out $120,000-which is about what the average dentist earned at the height of his/her career.

But what about depletion?

There are no guarantees. But, you should have a portfolio of sound equities, and follow this simple rule:

• In year one, spend up to 6 percent of the value of your retirement account.
• In subsequent years:
  • if the principal is higher at the beginning of the next year, take 6 percent;
  • if the principal is lower than the previous year, take only what you took in the previous year (but never more than 12 percent).

Yes, inflation is not factored in.

Yes, if the market goes south by 50 percent you'll face some hardships. But won't we all?

Yes, a depression will create problems-but at least your living costs will be lower.

In a performance table created from S&P500 data supplied by Ibbotson Associates, it was shown that this process, from 1969 to 1999, would have had your original next egg go up six (6) times and still be intact!) after drawing out annually as per the formula. See Note 1.

This paper is not the venue to discuss all the possible ramifications of asset allocation and withdrawal possibilities. It is intended to be food for thought-especially for our younger colleagues who may not have even meager Social Security benefits to look forward to.

Published in NJDA / Volume 71/Number 4.

Reference

Note 1: Bart Boyer, CFP, "Maximize Retirement Spending While Minimizing Client Risk"; NAPFA Advisor, March 2000.