The vast majority of our clients are in the medical profession. As a result, we are very familiar with retirement planning for chiropractors.
Many chiropractors are in a unique situation. They have the ability to service a large quantity of patients and receive Medicare and insurance reimbursements for the services they provide. This often results in a very stable income that can grow over time.
Of course, chiropractors have the same common issues as other medical professionals. They also have typically higher staffing levels similar to dentists. With the high volume of patients they see, there is a need for much more administrative staff.
This article will examine the unique retirement situation that chiropractors are in. We will also discuss a few strategies that we’d like to implement for our chiropractors.
Let’s dive in:
Retirement Goals
A chiropractor is a healthcare professional who specializes in diagnosing and treating conditions related to the musculoskeletal system, particularly the spine. Chiropractors use non-invasive techniques and therapies to provide relief from pain, improve mobility, and enhance overall physical well-being. They focus on the principle that proper alignment of the spine and musculoskeletal structure promotes the body’s natural healing process.
During a typical visit, a chiropractor will conduct a thorough evaluation of the patient’s medical history, perform physical examinations, and may order diagnostic tests such as X-rays or MRI scans. Based on their findings, chiropractors develop personalized treatment plans that may involve spinal adjustments, manual manipulations, therapeutic exercises, stretching, and other modalities.
Chiropractors also provide guidance on lifestyle modifications, including posture correction, ergonomics, and exercise routines, to support long-term wellness. By addressing the root causes of pain and dysfunction, chiropractors aim to restore optimal functioning and help patients achieve a higher quality of life.
- 401(k) Plan
- Simplified Employee Pension (SEP) IRA
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
- Cash Balance Plan
- Defined Benefit Plan
- Profit-Sharing Plan
- Roth IRA
- Mega Backdoor Roth
- Deferred Compensation Plan
- Individual Retirement Account (IRA)
- Money Purchase Plan
Retirement Planning for Chiropractors
One significant advantage of retirement plans, such as 401(k)s and IRAs, is the ability to grow investments on a tax-deferred basis. Contributions made to these plans are typically made with pre-tax dollars, meaning they are deducted from the individual’s taxable income in the year of contribution.
As a result, the contributions and any investment gains within the plan are not subject to taxes until they are withdrawn during retirement. This tax-deferred growth allows investments to compound over time, potentially leading to substantial growth and maximizing the accumulation of retirement savings.
Many retirement plans offer tax deductions for contributions made to the plan. Traditional 401(k)s and traditional IRAs, for example, allow individuals to deduct their contributions from their taxable income, effectively reducing their overall tax liability for the year of contribution.
This deduction lowers the individual’s taxable income, which can lead to immediate tax savings. The tax savings can then be reinvested into the retirement account, further enhancing the growth potential of the investments. It’s important to note that there are annual contribution limits and specific rules governing the deductibility of contributions, so individuals should consult with a tax advisor or review IRS guidelines for their specific situation.
Planning for Practice Transition
As chiropractors approach retirement, they should consider the future of their practice. Developing a specific succession plan is crucial to ensure a smooth transition and potential financial benefits. Whether selling the practice outright, transferring ownership to a partner, or hiring a successor, careful planning is essential to maximize the practice’s value and secure retirement income.
To safeguard retirement savings, chiropractors should prioritize asset protection and maintain appropriate insurance coverage. Malpractice insurance is a critical aspect of protecting chiropractors’ assets, as a lawsuit can significantly impact retirement plans. Umbrella insurance, disability insurance, and long-term care insurance should also be considered to protect against unforeseen events and healthcare expenses.
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Retirement planning is not a one-time task but a continuous process. Chiropractors should regularly review and adjust their retirement plans based on changes in personal circumstances, market conditions, and healthcare regulations. Seeking professional advice periodically can provide valuable insights and ensure that retirement goals remain on track.
The #1 Strategy? Cash Balance Plans
A cash balance plan is a specific type of defined benefit structure that combines elements of both traditional defined benefit plans and defined contribution plans. In a cash balance plan, the company will contribute a predetermined percentage of an employee’s wage each year, along with an interest credit based on a rate specified in the plan document. These contributions accumulate in a pooled account for employees.
Unlike traditional defined benefit plans, where the retirement plan benefit is based on a complex formula linked to the employee’s final average salary and service years, a cash balance plan provides a hypothetical account balance that grows over time. The employee account balance is not directly tied to the performance of the plan’s investments but is instead credited with a fixed or variable rate of return. The employee’s final retirement benefit is determined based on the accumulated balance in their account upon retirement.
One of the advantages of cash balance plans is that they provide a clearer understanding of retirement benefits for employees, as the benefits are expressed in the form of an account balance. Additionally, cash balance plans offer portability, allowing employees to take their accumulated balance with them if they change employers before retirement.
| 401(k) Plan | Defined Benefit Plan |
|---|---|
| Low Admin Fees | Higher Admin & Actuary Costs |
| Optional Plan Contributions | Large Contributions ($300k+) |
| Profit-Sharing Option | Mandatory Plan Contributions |
| Employee Deferrals Available | Permanent Design Structure |
However, it’s important to note that the investment risk in cash balance plans is borne by the employer, not the employee, which distinguishes them from defined contribution plans where employees assume the investment risk.
Bottom Line
Retirement planning is a vital aspect of a chiropractor’s financial journey. By starting early, assessing retirement needs, maximizing savings, planning for practice transition, protecting assets, and continually evaluating the plan, chiropractors can build a secure future for their retirement.
Seeking professional guidance and staying proactive in managing financial matters will contribute to a stress-free retirement, allowing chiropractors to enjoy the fruits of their labor while maintaining a comfortable lifestyle.
