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Budgeting for retirement: Make a plan and stick to it


Creating a budget for retirement has never been easier, but sticking to one takes real work.

Whether you’re a debt-laden recent resident or a mid-career clinician behind on retirement savings, chances are you struggle with traditional budgeting techniques.

To be sure, there are myriad online tools that make it easier than ever to track spending and saving. But while knowing where your money is going is a huge step, most budgets simply inventory current spending and at best make a projection about what you’ll spend in the future based on that. Taking a more proactive role in budgeting can not only help you stick to a savings plan, it can also help you spend money more intentionally.

Joel Greenwald, MD, CFP, a former internal medicine physician and founder of Greenwald Wealth Management in St. Louis Park, Minnesota, sees varied spending levels among his large client base of physicians.

“People are funny. I have one couple client, both primary care physicians, who make $450,000 a year, combined,” he says. “They tithe, so 10% off the top goes to charity, they’re funding 529 plans for their kids and doing a fantastic job of saving. Then I have other clients making $600,000 to $700,000 and think it’s never going to end. They’re saving less than 10% of salary and it’s like pulling teeth to get them to save.”

How much should I save?

Financial firm Fidelity studied its own records on 5,100 physicians and found they were on track to replace just 56% of their income in retirement, well short of the recommended 71% for workers earning above $120,000 annually. They saved about 15% of salary, including their own and their employers’ contributions.

But that’s not enough, Fidelity concluded, because Social Security will replace a much lower percentage of income for physicians due to their higher-than-average salaries. That said, there is a subset of physicians who are actually oversaving for retirement, some financial planners say.

“I do see that, and it’s based on fear,” says Evan Welch, CFP, chief investment officer for Antaeus Wealth Advisors in Boxborough, Massachusetts and son of a physician. “For a lot of doctors it was a fear of getting sued” as malpractice insurance rates soared that kept them very conservative about spending, he says.

Today, he adds, the motivation seems to be more about the future of medicine and reimbursement rates. “The mindset today is a fear about whether their income is going to continue to fall and expenses continue to rise,” he says. “This is particularly true for younger physicians coming out of medical school with loans. They’re really worried.”

And rightly so, Welch acknowledges, but sometimes the fear is overdone. “One of the biggest values we bring is helping clients run actual numbers so they can balance out those fears. We get to a number where I can say that as long as they are saving ‘X,’ we don’t micromanage the rest of their spending,” he says.

If you’ve been denying yourself vacations because you feel as though you started late and have to reach a savings target by a certain age, for example, many financial planners now suggest going ahead and taking those big-splurge vacations before retirement rather than after. The rationale: it could lift your mood and outlook enough to delay the start date for retirement, which not only means more current income, but also fewer years to finance in retirement. 

When life takes an unexpected turn

If you’ve always lived frugally, just make sure you’re spending on things that matter, advisers say. That way you won’t get to the finish line with regrets.

A few years ago married couple Joshua Plorde, MD, and Desiree Langel, MD, were working in busy practices, raising young children, and striving to save as much as possible for retirement. At Greenwald’s suggestion the couple undertook a “life planning exercise” where they went through a series of questions designed to identify their life’s passions and goals for the nest egg they were building.

Plorde, an interventional radiologist with Avera Medical Group in Sioux Falls, South Dakota, listed both family and personal goals, but also leaned heavily toward career aspirations, while Langel, a dermatopathologist, listed goals that were all about family. They thought about the process a little, then went right back to the daily grind of work and saving aggressively for the future.

“We went through the life planning process kind of as a courtesy to Joel, and then a variety of things happened in our life that caused us to pull out those results and take another look,” Plorde says. As a result, Desiree decided to leave her practice to spend more time with the couple’s own children and with extended family members with health issues who needed some care.

“We finally said, ‘We can do this a different way’ and had made decisions [about budgeting] earlier in life that gave us the freedom” to live on one income, he says. For the family it means being able to save less for retirement, which was a difficult pill to swallow at first for a couple long committed to living on a relatively tight budget and maximizing savings.

With a Midwestern work ethic and appropriate concerns about long-term planning issues like retirement given an uncertain future of health reform, the couple spent some long conversations talking about it before Desiree actually walked away. “We just talked about finding ways for both of us to reconsider our value and what was going to be the most fulfilling way to spend our time. The whole process gave Desiree the freedom and support to say, OK, you can do that,” Plorde says.

Greenwald says the life planning exercises help clients to focus on what’s important, enabling them to prioritize spending and boost savings.

“I don’t do life-planning with all my clients because some just aren’t interested in something like that, but for the ones who are good candidates for it, it definitely makes budgeting easier,” he explains.

Budget busters

Even if clients don’t want to go through the entire life planning exercise, Greenwald says he has detailed conversations with physicians about how much money they are spending money day to day, a practice that is still somewhat rare, particularly among transaction-oriented investment firms.

“In my experience, once you can show people what they’re spending all that money on, they are surprised by it. They didn’t actually realize they are eating out three times a week on average at $50 a pop,” he says.

One client with a penchant for pricey clothes, shoes, and jewelry took a significant income hit when she changed jobs, necessitating a huge realignment in her budget.

“Her income dropped in half, but she just came to grips with it, gave away about two thirds of her clothes and now she shops in her own closet from among the items she kept, most of which had never been worn,” he says. “Today she says she doesn’t even know why she ever bought all that stuff to begin with.”

Welch typically shies away from detailed budget item conversations, particularly with clients who are already finding ways to save a large percentage of their income. “In my experience, those who save 25% of their income have a lot of options by the time their in their 50s,” he says.

For those who may struggle a bit more to get there, he counsels clients to aim for getting the big-ticket items under control. For example, he urges clients to keep direct housing costs to 20% of income, if not less. And on occasion, he’s talked them into giving up country clubs and second homes.

A bucket approach

Some financial advisers try to get clients to adopt a so-called “bucket” approach to budgeting, fitting every dollar of income into either three or four buckets, depending on how much income the client is earning at that point.

Physicians with combined household incomes below about $300,000 would be in the four-bucket category, with roughly equal spending amounts for housing, taxes, savings and everything else. Those with higher incomes, and thus higher net effective taxes, would try for three equal buckets for taxes, savings, and everything else.

With salary caps quite common for physicians, the ability to save a third of income during peak earning years can do wonders for financial flexibility down the road, says Charles Margolis, managing director-investments with Wells Fargo Advisors in Highland Park, Illinois.

“We do sometimes urge clients to do ‘a third/a third/a third’ into taxes, savings, and living expenses. Many physicians get to a certain income point fairly quickly, and then their ability to earn any more is limited. They just get to a certain point and they’re done, that’s what they’re going to make, so to be able to save a high percentage for as long as possible is really important,” he says.

Developing a knack for saving

For Terry Clarbour, MD, an internist and geriatric specialist in suburban Chicago, learning to budget and save started early. While she was in high school, her parents expected her to get a job, and to save 50% of her take-home pay. She said saving came rather easily to her.

“I was actually happiest when I was able to save 75%,” she says. “Then in med school I accumulated about $100,000 in debt and began paying it down in residency and fellowship. Back then, whenever I made a purchase, I asked myself if it was worth going into more debt for, and almost always the answer was no.”

The exceptions were a couple of trips abroad, including month-long trips to Nigeria and New Zealand, which were combined with work experience, she says. That frugal mentality has carried over to her life as an attending physician and as she has grown increasingly intrigued with the sustainable living movement. After a couple of decades living in about 800 square feet of space, she’s considering downsizing to a so-called “tiny house,” which typically features small mobile units that occupy less than 400 square feet.

Reducing her carbon footprint also means more financial stability as she contemplates the ongoing practice-model changes in healthcare. Her view, she says, is that the less she spends, the more career freedom she has. That, to her, is priceless.

“I didn’t get into medicine to be just another factory worker,” she says. “I want to think of my job as a calling, like in the days when primary care doctors never got time off but they didn’t really care because it’s the role they signed on for to be in the community. I was an employed physician for three years and now have a small primary care practice of my own and am a contract hospice physician. Choosing that career path means giving up some income, she says.

To be sure, physicians as a group still command some of the highest salaries in the American workforce. And as Welch says, some physicians live well below their means.

“There’s this sense of ‘The jig is finally going to be up, and we’ll be making less,’” he says.

What to do if that fear drives you to forego using your wealth to get the most out of life? Start budgeting in some fun.

“One of the biggest things we do is to helping clients balance these fears. We say, ‘Sure, you need to save, but there’s also a point where you have to live a little, too,” Welch says. “You could have a heart attack tomorrow, just like your patients. So figure out what you need to be saving, and then make the most of what is left.”

The money quiz

Greenwald’s life planning exercise is based on The Kinder Institute of Life Planning, and asks participants three basic questions:

  • First: How would you live your life if you were financially secure, had enough money to take care of yourself and your needs now and in the future? Would you change anything?
  • Second: Now imagine a doctor tells you that your lifespan is now five to 10 years. You won’t feel sick, but you’ll have no warning of death. Will you change your life, and how? What will you do with the time?
  • Third: Imagine the doctor saying you have only 24 hours to live. What do you feel confronting your mortality? What did you not get to do? Who did you not get to be? What did you miss?

As designed, the Kinder questions are meant to conjure increasingly urgent demands for prioritizing a life. The first question is broad and usually receives a lot of meandering responses. By the third question, practitioners say, clients are narrowing in on the things in their life that give them the most joy, which in turn helps them reduce wasteful spending.

Through the process, clients begin to make choices about which spending is truly essential and which could be let go in the interest of a family’s or an individual’s goals. Clearly, plenty of physicians could benefit from a little help on prioritizing their budgets, and most of them have heard a steady drumbeat about how they are saving too little for retirement.

Savings to spend

Here’s a tip geared to recently-graduated residents setting up their first budgets:

Financial adviser Kristina Bolhouse, CPA/PFS, with the Arkansas Financial Group in Little Rock, Arkansas, has clients create a “Savings to Spend” money market account with an automatic draft from a checking account each month. The money is used for short-term financial needs that come up irregularly, such as holiday gifts or big annual insurance payments.

“The money goes in without any thought and when needs arise you go there for the cash,” she says. “People become enamored with it and like to watch it grow. So they’ll start to think about paying cash for that next car, for example. Saved money is spent more carefully than borrowed money, so it helps them create good habits.”

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