Making Sure Your Retirement Savings Last: 5 Strategies for Physicians

Deciding when to retire is always a personal choice, one that has to deal with a number of unknowns. Chief among these is “How long will my retirement actually be?” Although no one can look into a crystal ball and predict this, fortunately, there are several proven strategies that can help retirement savings last longer to better ensure a comfortable retirement. Let’s take a look at five of these strategies below.

Are you a physician with concerns about your retirement savings? Our advisors at Earned can assist you in assessing your finances and devising a saving and investment strategy that aligns with your needs. Contact us today.

Strategy #1: Goal-based investing

People tend to save or accumulate wealth in order to fund future life goals, such as generating a livable income throughout retirement. However, traditional asset allocation methodologies ignore risks associated with future goals, like inflation, and focus solely on the risks of the underlying assets. In contrast, goal-based investing considers the risk attributes of an investor’s goals when constructing a portfolio. This approach aims to hedge the risks faced by retirees, potentially increasing the probability of sustaining inflation-adjusted retirement income for life.

Goal-based investing also considers an investor’s total wealth, which is a combination of human capital (a physician’s future potential savings), income sources (Social Security and pension benefits), and financial assets. The total wealth framework helps determine a physician's risk capacity, which is the physician’s financial ability to assume risk. Traditional client risk measurements are generally subjective and focus primarily on a client’s willingness to take on risk, not their capacity to assume risk. By considering both risk willingness and capacity, goal-based investing matches a physician’s total wealth to future funding needs, resulting in strategies designed to help improve financial outcomes.

Strategy #2: Smart asset location

Different types of retirement accounts are treated differently by the Internal Revenue Service (IRS). For instance, some accounts are taxable and others, like 401(k)s and traditional IRAs, are tax-deferred — meaning the retiree will pay an income tax only when they begin to withdraw funds from the account.

By the same token, different assets are taxed differently depending on a number of different factors. Some bonds are tax-free, while others aren’t. Additionally, equities with long-term capital gains are taxed significantly less than equities with short-term capital gains. 

Optimal asset location involves matching tax-efficient assets with taxable accounts and assets with greater tax drag to accounts that are tax-deferred. Intentionally matching these assets to favorable account types can help physicians in managing their tax liability and support the longevity of their retirement savings.

Strategy #3: Better tax-loss harvesting

To piggyback on strategy #2, smart asset location can also be combined with tax-loss harvesting strategies within taxable accounts to reduce tax burden over time. Tax-loss harvesting involves selling certain securities at a loss to offset taxes on capital gains elsewhere in the saver’s portfolio.

Traditionally, financial advisors do this at year end for their clients, but technology has made it possible that this process can be ongoing and automated. That means a closer eye can be placed on daily market movements to capitalize on tax-loss harvesting opportunities year round — helping to maximize after-tax returns.

If you’re a physician with various taxable accounts and want to make your savings last throughout your retirement, speak with our team of advisors at Earned today.

Strategy #4: Optimized Withdrawals

When exactly retirees withdraw their money from their accounts (and how they sequence those withdrawals from multiple accounts) can also impact how long retirement savings might last. Again, avoiding unnecessary tax implications is the goal here. 

Optimal income sourcing requires making intelligent choices about the sequence of withdrawals from taxable, tax-deferred, and tax-free accounts. Traditionally, best practices in generating retirement income suggest withdrawing assets in the following order: required minimum distributions (RMDs) from tax-advantaged accounts (if any), then from taxable accounts, next from tax-deferred accounts, and finally from tax-free accounts. But deviating from this exact ordering to balance reducing the current tax liability with minimizing taxes over the entire retirement period may help extend portfolio longevity.

For example, prior best practices normally waited to liquidate tax-deferred account assets until taxable assets were drained. For some investors, this approach could push them into higher tax brackets in later years, as tax-deferred account distributions are taxed at higher ordinary income rates. However, if income was more evenly sourced between taxable and tax-deferred accounts, a physician’s overall tax liability may be reduced. Another reason to deviate from the traditional withdrawal ordering is to minimize estate taxes. For certain investors, limiting distributions from taxable accounts allows them to take advantage of the favorable step-up in basis treatment of bequests.

Strategy #5: Maximum Social Security benefits

Every American has access to Social Security retirement benefits at the age of 62 and can delay receiving those benefits until they are 70. The timing of when you opt in to your Social Security benefits should be intentional and based on your overall financial situation — this true of physicians and just about everyone else.

Recommended actions here vary depending on the health of the retiree. If the retiree, for example, has pre-existing health issues with a shorter life expectancy, it’s usually recommended that they start receiving Social Security benefits as soon as they’re able. Retirees in good health, on the other hand, may want to hold off on receiving their benefits for as long as they’re able, resulting in a larger monthly check later in life. 

Marital status is also an important factor here and it’s common for couples to coordinate how and when they begin receiving Social Security benefits in order to maximize their income. Every household is different, but when the longevity of retirement savings is the concern, it may be smart to consider having: 

• The lower-earning spouse start taking benefits immediately (at age 62).

• The higher-earning spouse delay their benefits as long as possible  (until age 70).

Will your savings last?

Not every retirement savings strategy summarized here is right for everyone and physicians who are looking to ensure that their savings last should speak to an advisor familiar with wealth management for doctors. Additionally, these strategies can be complex and are usually left to financial professionals to handle on behalf of their clients. 

At Earned, our advisors have focus on physician wealth management. If you’re interested in using any of the retirement saving strategies summarized above or have other concerns about your financial outlook as you near retirement, our team is ready to help. 

‍Reach out to Earned today to get started.