Top Tier Wealth Management for Successful Physicians

Don’t Short Change Yourself in Retirement: Retirement Planning for Physicians

By: Dave Somerville

One of the most difficult questions ask regarding retirement is: “How much do I need to live on?”. That’s the million dollar question, and there is one of two methods in figuring out how much you’re going to need to live on in retirement.

When your 5+ years away from retirement the quick method is a simple overview of your current income and what you expect to need in retirement. The typical theory is that you will need 70% of your take home current working salary in retirement. This is not by any means a true formula, but rather a basic assumption. This 70% factor is simply a target for your planning. The problem when planning for your retirement income 5, 10 and 15yrs out, is that you don’t really know the future cost. Assumptions made today could change completely when you retire.

For example, if your income is lower than average, (let’s say you earn $30,000 a year) then you may need to retire on 100% or all your current income to sustain your lifestyle and needs. If your income is higher than averages as most physicians’ income are, then you may need less than the 70% formula. So for pre-retirees, maybe the quick method is fine but when you get to retirement then the true method is the budget based method.

The budget based method is advised when you enter into retirement or are a few years away from retirement and expenses can be determined with more certainty. With this method you would sit down with all current and future expenses identified and detail a true projection of income you will need in retirement. Feel free to sit down with your advisor and map it out so that your future income works well with your future expenses.

Don’t forget that in retirement your expenses are much less than while working. For one thing, when you retire you don’t have expenses like retirement contributions, you kids are hopefully done school, and you have eliminated any debt such as your mortgage. These few things alone will save you thousands monthly after tax and that means your financial requirements will be much less than prior to your retirement.

Bottom Line….take the stress away by understanding how much you need or don’t need in retirement. Stress is caused by living in the unknown.