Is Inflation Really That High? 

I've read and heard countless pundits over the last two years  point out that inflation is higher than the government

tells us. The view is that there is manipulation of numbers to keep the official rate low.

Yes, groceries and gas are higher than a year ago, yet do other things we buy have low inflation or deflation?  I decided to take a closer look.  Charlie Farrell, a trusted academic source, provides clarity in a MarketWatch article that can be found by clicking here. 

May's CPI showed a yearly inflation rate of 3.2%, historically low to moderate.

So what pulls inflation down if gas and food is higher?  Natural gas is cheaper this year, electricity is up 0.6%, and clothing is up only 0.1%.

Farrell says to get another read on inflation, look to the bond market; two-year treasuries are at 0.35% and ten-year bonds are at 2.9%---very low historically. He further indicates that bond traders are super-sensitive to any erosion of the income they will see from their bonds.  For instance, if you have a bond that pays 5% a year and inflation is 5%, you end up with zero rate of return.  Thus, the market expects inflation to be no more than 2.9% per year over the next ten years.

Farrell: "Regardless of what the government says the CPI is, bond investors make their own decisions about how much interest they must be paid to compensate them for current inflation and for future inflation risk.  And all of these investors, from all over the world, who can do their own independent research of low much inflation is out there, are saying that there isn't much current inflation or risk of it in the near future."

Bottom line:  Don't listen to CNBC pundits squawk about groceries and gas.  Look to bond rates for true information about inflation.

Is a Target-date Fund Right for You?  

Target-date funds are the easiest way to invest with a diverse allocation with automatic rebalancing.  You can basically sleep your way to retirement!

Fees are a bit higher than doing your own allocation, yet to invest your nest egg in one of these entails less risk with higher long-term return than almost any actively managed portfolio.

Click on the image to view a 4-minute Vanguard video. 

A New Dental Management Company Trained with the Best! 

I'm constantly perusing the dental literature, on-ilne forums, web sites, and social networking to find the best  dentistry has to offer.   

Recently I found a new company that writes regularly for the AGD Impact magazine. The pedigrees of the Gopals are quite impressive. Both Peter and Hema have worked in large corporations; they both bring  that wisdom and intelligence to  dental practice management.

Here is their history: 

Peter Gopal, PhD -- Founder/President   

• 10 years corporate experience at a Fortune 500 firm Rohm & Haas company (now Dow Chemicals) in various leadership roles.

• 1993 Graduate of the Wharton Management Program at the University of Pennsylvania.

• Peter emigrated to the USA from India in 1982 on a Fellowship from Cornell University, where he obtained a doctorate in engineering in 1987.

Hema Gopal, MBA, DMD - Cofounder/Vice President

• Owner doctor at a general practice in New Jersey since 1999.

For those looking for full dental practice management services, it may make sense to try a company that has worked with the big corporate guns, yet chooses to now work exclusively  with dental practices.

Please click on their logo above or click here to access the web site.    

Retirement Calculators That Work! 

There are many online financial calculators that vary from free to over $150 per year.  I'll be discussing several in this article. 

First, though, dentists need to know what ones retirement budget and income will be.

How does one get that number?  Almost all online software calculators or your financial planner use a percentage of your highest net income for your retirement income.  The percentage ranges from 70% to 110%.

How does one know if a given percentage is accurate?  It normally isn't!  The percentage technique only works for those on salary and is not designed for the small business owner. 

For example, a teacher may have an end salary of $80,000.  All retirement payments and taxes are taken from that $80,000.  Teachers do not have practice loans, high tax rates, or high retirement savings that dentists face.

For a typical teacher in pre-retirement, total taxes may be 20% and retirement funding may be 8%. Thus, the teacher's real budget would be $57,600 in pre-retirement.  In actual retirement, a teacher would need close to 92% (no retirement payment any more) of pre-retirement income to continue the same life style.  Often, the teacher's home is paid off and the needed income may be as low as 70-80%.

For a typical dentist with net income of $250,000, taxes (including state, federal, and self employment) average about 36% or $90,000, savings is about $35,000, and mortgage is about $30,000.  Our dentist's budget, not including mortgage, is about $95,000.

If we add back taxes, the dentist's retirement income would come to about $130,000 assuming the  home mortgage is paid off.  That's approximately half of his/her practice income! 

In reality, using the retirement budget form from my retirement classes, we often find that dentist's budgets are actually higher in retirement!  The normal budget without mortgage is usually around $9,000 per month or $108,000.  Adding in taxes brings the actual needed income in retirement to an average of around $150,000.  This comes to 60% income replacement for many dentists.

Please don't be fooled by the percentage-of-income game! 

To utilize my 2011 Retirement Budget Sheet for the next section, click on this sentence.  

I evaluated Morningstar's Asset Allocator, Vanguard's Retirement Income Calculator, Choose to Save's Ballpark E$timate, Fidelity's Retirement Quick Check, ESPlannerBasic, Financial Engines, and Flexible Retirement Planner.  

Free: Morningstar, Vanguard, Choose to Save, and Fidelity have too few variables to give an accurate retirement assesment.  ESPlannerBasic is comprehensive and gives fairly accurate results.  Flexible Retirement Planner is used in my retirement courses and provides easy-to-understand instructions.  But you must read them! Flexible Retirement Planner actually lets you put in an after tax retirement budget!  I love that part.   

Fee:  Financial Engines is the most powerful on-line calculator.  It costs $40 for three months or $150 per year. Many brokerages provide it for free. I use it exclusively for my personal finances.  It also follows your investments in real-time by hooking up with financial institutions.  It takes a couple hours to set up, but is well worth it.  

All-in-all, I like Financial Engines best, as it is fairly strait forward to set up and provides great, easy to use graphics.

Flexible Retirement Planner and ESPlannerBasic are also accurate programs.  

The Morningstar, Vanguard, Choose to Save, and Fidelity calculators made it difficult to impossible to figure a retirement income.  Also, the entered income figures don't indicate whether the income is including taxes or not.  No wonder other evaluators have come up with widely disparate figures for retirement savings needed!   

The key is to have an accurate retirement budget.  A sample budget is provided again here  by clicking on this sentence.  

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