A recent survey conducted by AMA Insurance Agency Inc. found that nearly one-third of physicians retire between the ages of 60 and 65 — and 12% retire even earlier than that. Studies often cite career burnout as a driving factor for doctors retiring early, but the reasons vary from doctor to doctor and the decision to walk away from full-time work is always a personal one.
That said, the same AMA survey found that dissatisfaction among early-retiring physicians is significant. Of those retired physicians who are under age 60, 8 percent of them reported being dissatisfied. That percentage gets halved among retired physicians 60-to-65 years of age.
So, what questions should doctors be asking themselves when approaching the possibility of early retirement? Below, we’ll take a look at five key factors these older physicians should consider before closing the book on their careers.
More than any logistical or financial consideration, this one is of paramount importance: Are you still happy practicing medicine? There can be many layers to answering this question, but it is at the heart of timing a satisfying retirement.
As mentioned before, burnout is a common consideration for physicians — and the covid-19 pandemic exacerbated many long-standing industry issues that contribute to burnout. The World Health Organization (WHO) considers burnout an “occupational disease” with three defining symptoms:
Physical and/or mental exhaustion
Increased cynicism and frustration at work
Reduced efficacy at work
Various other factors that can impact career satisfaction for physicians. The growing trend of big, consumer brands and private equity companies purchasing practices and physician groups, for example, is another reported source of dissatisfaction for physicians.
Maybe these trends are negatively impacting your career, maybe they’re not. The bottom line is this: If you are still satisfied with serving patients and practicing medicine, then chances are it is not time to retire. As the AMA Insurance Agency Inc. survey results note, retiring too early historically is a leading source of dissatisfaction among retired physicians.
Everyone’s imagined what their life post-retirement might look like in passing, but if you’re a doctor seriously considering early retirement, it’s time to make more concrete determinations. What will your major recurring expenses be? What kind of discretionary costs and leisure expenses will you want to prioritize? Will there be new tax considerations?
Ultimately, you want to determine an estimated cost for every year of retirement. Of course, it’s impossible to predict an exact number, but you want to understand how much you’ll need (and want) to spend during a calendar year and how long your current savings and investments can accommodate those costs. Early retirement theoretically means more years of your life without significant income — and you don’t want to deplete your nest egg in the middle of your golden years.
One particularly important expense to consider when retiring early? Your healthcare coverage. Retirees aren’t eligible for Medicare coverage until the age of 65. If you plan to retire before then, you will need to consider paying for coverage out-of-pocket or, if possible, getting coverage under a spouse’s employer-provided healthcare plan.
Speaking of savings, your savings accounts will be key to determining the timing of your retirement. If you’re younger than 65, it’s time to take a closer look at your retirement accounts (like 401(k)s, IRAs, and so on) and, in necessary, revise your saving strategies so an earlier retirement becomes more feasible.
Here are some key considerations when evaluating your retirement account savings:
Are you hitting your annual contribution limit (“maxing out”)?
Are you eligible to start making larger “catchup” contributions?
At what age will you be able to start making withdrawals?
Will your withdrawals be taxed as income?
When will you have to start making required minimum distributions?
It’s also worth considering popular saving strategies such as the “Backdoor Roth.” As a high earner, you’re likely ineligible to contribute to an after-tax Roth IRA — but you are allowed to put savings into a traditional IRA, then roll those assets over into a quickly maturing Roth IRA.
In some cases, something called the “Mega Backdoor Roth” is also possible and involves a similar asset conversion, just a lump sum from a 401(k) instead of the traditional IRA. Executing these Backdoor Roth strategies can be complicated and, if not timed correctly, can result in an avoidable tax bill.
If you are interested in managing a Backdoor Roth or Mega Backdoor Roth, speak with our team of experienced financial advisors at Earned today.
Part of ensuring your financial well-being during retirement is determining what you’ll want to leave behind for loved ones. It’s worthwhile for high-earning physicians to establish an estate plan that meets their needs and offers peace of mind. There are also financial considerations that could affect your financial habits now. Establishing trusts or consolidating your retirement savings in Roth IRA, for example, can provide tax advantages for beneficiaries. Any measures to avoid future probate issues are almost always recommended.
Part of estate management is updating your plan when needed, as well. If there are changes in circumstances or any major acquisitions during retirement, your estate plan needs to reflect those. Keep an open line of communication with your legal representative and financial advisor during retirement so these changes to your estate plan can be made in a timely manner.
Many retired physicians bolster their retirement savings with income streams like part-time (or locum tenens) work and investing. If you’re looking to scale back your responsibilities as a full-time physician but still have a passion for working with patients, then part-time work in a locum tenens position might make the most sense for you — and will supplement your savings with additional earnings.
Managing investments through your retirement can also provide a significant source of income. Everyone’s portfolio is different (as are their financial goals) so it’s advised that you speak to a financial advisor to assess your investments and help you make new ones before setting a hard retirement date. An experienced professional can help you chart a path towards growing your portfolio, time liquidations, and manage tax considerations so that you maximize the value of your investments through this next stage of your career.
If you’re a physician considering early retirement but unsure if you’re financially ready, Earned can help. Our experienced financial advisors have decades of combined experience helping doctors manage their wealth and can conduct a scenario analysis to help determine if early retirement is right for you.
Contact our team today to get started.
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