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Your real retirement number: How much money is enough?


The idea that there is a specific number of financial assets that a physician must accumulate is a powerful and attractive one.

One of the most frequently asked questions by new physician clients is “How much money do I need to retire?” The idea that there is a specific number of financial assets that a physician must accumulate is a powerful and attractive one. This idea of a “retirement number” is reinforced in the media by advertising and by retirement planning books, but it’s too simplistic.

When asked this question in conversations with physicians, I respond by asking if the person is familiar with the 4% rule-a rough, back-of-the-envelope way to see if someone is close to having enough money to retire.

First popularized in the 1990s, this rule assumes that one can take an initial distribution of 4% of their retirement portfolio, annually increase this withdrawal by an amount based on the prior year’s inflation rate, and can continue this process for 30 years of retirement while being unlikely to run out of money.  For example, a 60 year old physician with $3 million saved for retirement can withdraw $120,000 from the portfolio in the first year of retirement, index that withdrawal to inflation so they continue to have the same purchasing power, and will be unlikely to run out of money before age 90. Like any rule of thumb, it’s convenient, but not sufficiently accurate, especially when one intends to use this rule to make a decision on whether to continue to work or not.

A key point is to consult a financial planner. Why? There are simply too many factors to weigh, and the consequences of making a wrong decision are significant enough that using a financial advisor makes sense. We work with many physician clients who wonder if they have enough saved. The process starts with questions and helping clients make decisions about life in retirement, then uses state-of-the-art software to model different retirement scenarios. What inputs from your life matter?

  • How much do you want to spend annually to live the life you’ve dreamed of?

  • How long will you be retired?

  • What should we assume for a portfolio rate of return and for inflation? For physicians with moderate risk tolerance, we use a return assumption on a diversified portfolio of 5.75% with an inflation assumption of 2.5%. Return assumptions should be modified periodically.

  • How much of the client’s portfolio is pre-tax money in 401(k) plans and IRAs, which will be taxed when withdrawn?

  • Should we assume the physician will get full Social Security due to them under current projections or will there be changes that result in their payout being reduced or taxed at a higher rate over the next 30 years?

A plan at age 65 should still be monitored closely every year or two as things change. The physician may decide to buy a second home and withdraw a large amount from the retirement portfolio, or they may choose to start gifting to children and grandchildren. What effect will those decisions have on their retirement plan?

The key is that with some planning and sound advice, you can find out where you stand and how to reach your retirement goals.

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