What are the biggest hazards for physicians in retirement planning?
Learn what you can do about longevity, inflation, investment risk and accurately valuing your practice
By James Bassett, CFA, CFP
Senior Financial Advisor
The No. 1 concern for mid- to late-career physicians thinking about retirement? In decades of helping clients like you, we’ve found it to be: How do I get to where I want to be financially after I finish practicing?
Because retirement is complex and completely specific to each person’s situation, it’s understandable that few know the answer to this perplexing question. Let’s break it down and address some of the most common money questions for physicians approaching or on the verge of retirement.
How much money do I need to save for retirement?
This is different for each person. Why is this question so difficult to answer? Mainly because it’s based on a number of unknowns.
None of us knows how long we will live. We also do not know how our investments will perform over time. Then add in the fact that we do not know how inflation will affect our assets in the future.
But we can make reasonable estimates in these three areas, and a professional financial advisor can help you determine approximately how much you need to save to have a high probability of a satisfying retirement.
How long will my retirement last?
Actuarial tables tell us that most people are living longer — many Americans now have about a 10% chance of living into their late 90s. So with that in mind, if you retire at age 65, you could spend 30-plus years in retirement. In planning for a decades-long retirement, people often do not think about inflation, but it can significantly dilute the purchasing power of your assets over time.
Why does investment risk matter?
The risk that your investments will not grow at the level you expect is sobering. But at Altfest we choose asset return assumptions based on long-term historical data and our well-thought-out economic and market projections to help make your retirement secure.
Put simply, because your retirement could be 30 years or longer, our managed portfolios can help you achieve your return assumptions.
Ways physicians can manage retirement risks
While answers can be elusive, there are some ways to answer the tough questions that retirement poses.
First, work toward funding a retirement that has you living into your late 90s. Then account for inflation’s effects in your plan.
Choose an investment portfolio that contains a good amount of equities, even during retirement, so it will produce the growth you need for a long retirement while surmounting the effects of inflation.
When it comes to your practice, the truth is, many physicians do not have a good idea of what it’s worth. It could be less valuable than you think, possibly because your knowledge of comparable practice sales prices is off-base. Also, medical-practice value standards have changed since you first got started years ago. If you do not know what your practice is really worth, you can’t do quality retirement planning.
Get an independent, objective valuation of your practice so that you know where you stand if you eventually sell it or hand it over to a practice partner or child. Calculating your practice’s cash flow with the assistance of a physician-focused wealth management firm and obtaining a valuation now gives you the opportunity to increase the worth of your practice before it’s time to sell.
If continuing to do what you are doing now will not financially support a comfortable retirement, consider one or more of these strategies:
- Delaying your retirement (either by working a little longer, part-time or full-time)
- Reducing your annual living expenses or increasing your yearly savings rate
- Selling your home to unlock your home’s equity, then renting. Some people also consider moving to a lower-cost state in retirement.
Use a workplace retirement plan to your advantage
Two other ideas can improve your chances for a successful retirement as a physician with a practice. Set up or reassess an existing qualified workplace retirement plan (such as a 401(k)) to gain better tax treatment as an owner and turbo-charge your personal retirement savings and consider various Roth account strategies for your own retirement savings. Again, a comprehensive wealth management firm like Altfest can help you find a retirement plan that suits you, your practice employees and your family best.
Regardless of whether you feel you are close to answering the most critical questions about financing your retirement, or you are at a loss, meeting with a financial planner can make all the difference in reaching your objectives if the end of your career is in sight. At Altfest, we strive to understand each client’s situation, capture all the pieces of their financial lives, set accurate expectations for investments and account for the unknown.
Speak with a financial professional
For many physicians, planning for your ideal retirement while still busy practicing can seem overwhelming. Look to Altfest for help in realizing your financial goals if retirement is in sight or after your career ends. Schedule a complimentary consultation with Altfest.