While it’s impossible to forecast every expense you’ll encounter during retirement — or how long retirement itself will last — it’s critical to start calculating what your living expenses are. There are many schools of thought on how much physicians should save (or have saved) before they retire, but the truth is that every doctor’s situation is different. What’s most important is that you’re honest about your current and anticipated expenses and that you plan accordingly.
Many larger and/or recurring expenses are obvious, like mortgages and student loan payments, for instance. There are other expenses that you’ll want to account for, as well:
Travel and leisure
Charitable giving (and other discretionary spending)
Certain expenses (like taxes and healthcare costs) can change over time and a general rule of thumb is that, once you retire, cost of living often decreases (fewer taxes, fewer costs as a parent, etc.). Again, there is no magic number to save before you retire, but determining a roadmap of future spending based on what you already spend and what you can predict is key to ensuring a comfortable retirement.
There are many different retirement saving vehicles out there and it’s not uncommon for doctors to accumulate several different ones over the course of their career. It’s also common to be undersaving in these accounts, as well.
In most cases, however, there is still time to leverage these kinds of accounts. Whether you have an employer-sponsored retirement account — like a 401(k) or 403(b) — or an individual retirement account (an IRA like a SEP IRA or traditional IRA), it is time to consider making significant, regular deposits to these accounts.
If you can “max out” your contributions to these accounts (deposit the maximum amount allowed by law), it is often recommended that savers nearing retirement do so. Many of these accounts allow for higher “catch-up” contributions for older savers, as well.
There are also retirement saving strategies that can be beneficial for physicians. One popular one is called the Backdoor Roth. Roth IRAs are popular after-tax savings accounts that mature quickly — but most high earning doctors are barred from making direct contributions to them. Instead, they can make contributions to traditional IRA and convert that money into a Roth IRA.
A “Mega Backdoor Roth” works somewhat similarly for doctors who can contribute after-tax dollars to their 401(k). In 2023, the limit on these after-tax contributions is $43,500. Once contributed, this money can be rolled into a Roth IRA, as well.
Engaging in retirement saving strategies can be complicated and, with missteps, savers can be hit with unexpected tax bills. If you’re a physician interested in using the Backdoor Roth or Mega Backdoor Roth, contact our team of financial advisors at Earned today.
If you’re a physician who owns their own practice, there are a multitude of considerations to handle before retiring. First and foremost: Will you close your practice or sell it? Recently, there has been a lot of interest from big brands and private equity firms in buying practices or, in some cases, practices can be sold to other doctors.
Regardless, selling your practice can significantly change your financial outlook when it comes to retirement planning. It’s recommended that you work with a financial advisor to navigate the sale and ensure that you benefit as much as possible from the purchase.
If you’re simply closing your practice, it’s important to plan on taking the necessary steps so that health records and other documentation are stored and/or transferred according to state law and HIPAA rules. There are a number of resources and third-party services available to help you complete closing your practice.
If you still have financial concerns as you get closer to retirement age or you simply still have a passion for working with patients, you may want to consider either part-time work as a doctor or a locum tenens position. This is a popular option for a lot of doctors who got a late start on retirement saving and still want to bring in some income.
There are, of course, tax implications to transitioning from full-time work to part-time. Speak with a financial advisor on how to best utilize any part-time/locum tenens income you’re planning to earn after the age of 65.
Another potential source of income during retirement can come from investing. It’s common for high-earning doctors to invest some of their hard earned money into a portfolio of stocks and bonds — or in other valuable assets like real estate. In many cases, it makes sense to continue this investing in retirement and, when needed, source retirement income from your taxable accounts and retirement accounts in an optimal way. A tax-smart withdrawal strategy can extend your portfolio longevity and may increase your sustainable withdrawal rate.
With investing, however, comes risk. The market can be volatile and inflation and downturns can take their toll. Before you retire, speak with a trusted financial advisor about your current assets and retirement goals. A professional can help you make the proper investments that will serve you throughout this next chapter of your life.
At Earned, we specialize in wealth management for today’s physicians. Our advisors are well-versed in the specific challenges physicians face when it comes to their finances, including those that doctors confront when considering retirement.
Contact us today to learn more about what our team can do for you.
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