Five Retirement Planning Tips for Physicians

Are you doing all you can to ensure financial stability during retirement? Here are five of my tips:

1. Pay off your debts - yes, all of them.   You should not have even a mortgage in retirement.  Having no debt makes your needed cash flows much cleaner to figure out.  For example, if you have a desire to spend $120,000 a year in taxable income when retired and you are receiving $30,000 a year in social security, you need to make up $90,000 a year from all other sources.  If you are in your mid-60s, just about 2 million dollars should do it to start with.

2. Figure your social security payments as the equivalent of a bond payment (same with safe pensions from other sources).  Receiving $30,000 a year in social security is similar to having a 4 percent inflation adjusted withdrawal rate on a $750,000 bond.  This should figure into your overall asset allocation. For example, I have a family that will receive $30,000 a year from social security and $40,000 a year from a military pension.  That is the equivalent of an almost 2 million dollar bond paying in inflation adjusted 4 percent stream of income for life.  A family like this should probably not own a large percentage of fixed income in their liquid retirement savings.

3. Strongly re-appraise your cash flows.  While working, we all get used to sending money to the kids and/or making promises about paying for children’s and grandchildren’s expenses (school tuition, etc.).  You need to discuss this commitment with your adviser first. You will not be able to make up capital shortfalls so easily when you are 80.  Keep your promises realistic and acknowledge that your children and grandchildren will be more resilient in their ability to pay back debt than you will be in retirement.

4. Don’t make big mistakes with investments.  Sounds silly, but I’m never surprised to hear of a retirees’ plan to start a new business with significant capital and little knowledge or experience.   It’s hard to make up big losses once you enter retirement.

5. Consider a “paycheck” from your retirement savings. I often find that there is a jarring mind shift involved when moving from living off earned income to living off mostly investment savings/earnings.  It’s a good idea to agree on a reasonable rate of distributions and to take most of it as a regular transfer of funds to your bank account.  Most good investment advisers take a “total return” approach to portfolios and should be fine with that.  Let them worry about where the funds are coming from (income verse capital gains, etc).