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Today's Practice | May 2012

Planning for Retirement

Preparing for the psychological and financial challenges that ensue.

From the fear of outliving one’s savings to determining how to fill a newfound surplus of free time, several financial and psychological challenges are associated with retirement. In an unstable economic environment, retiring from medical practice can seem even more daunting. Fortunately, proper planning can help ensure you are prepared to adapt to and enjoy this phase of life.


One of the issues that must be resolved early in the retirement planning process is what will happen to your practice after you retire. It is wise to start thinking about this 10 years before retirement. Although this does not need to be acted on that far in advance, it is important to have a process in mind. How a practice prepares for a physician’s retirement depends largely on whether it is a group or solo practice and whether it is private, government-, or university-based practice. If you are in solo practice or a small practice with just a few physicians, it will be necessary to find a physician to replace you. This cannot be done overnight.

If you have partners, you will likely have to sit down with them and determine how your exit from the practice is going to happen. Large practices often have buy-sell agreements and have spelled out exactly how a partner will retire and what the time frame will be. Recently, however, these previously drafted buy-sell agreements have become increasingly financially cumbersome to complete.

Finding the right person to join the practice is a process that may take years. In a group practice, you must ensure that a prospective employee’s personality and work ethic blend with the other partners. If you are in solo practice, there are more significant challenges, such as introducing a new, younger doctor and making your patients comfortable with the change in command. It is often difficult to determine how a new physician will fit with the existing partners and patients, as every practice has a different culture. Therefore, it is beneficial to start planning well in advance of actual need. It is not unheard of for doctors to hire one or two young associates before finding the proper fit.

When hiring a replacement physician, it is important to also be aware of differences between the younger generation of doctors and those who are nearing retirement, the baby boomers. In general, physicians who belong to the baby boomer generation tend to equate their jobs with their identities. For these doctors, their jobs are not strictly from 9 am to 5 pm; they are involved with their work 24 hours a day, 7 days a week. The current younger generation of doctors is much better at achieving a healthy work-life balance. Younger doctors tend to be less interested in going out on their own or running their own practices; instead, they generally prefer to work for hospitals or big practices with less administrative responsibility and more leisure time. It is a completely different mindset.


Individuals in all professions face psychological challenges upon entering retirement. Doctors, however, may have a particularly difficult time for several reasons. First, many physicians have a large portion of their personal identities tied up with being doctors. Second, once retired, physicians are, for the first time in a long time, required to wake up and plan their own days. Prior to retiring, most doctors arrive at the office and have their days planned for them, as their appointments, surgeries, lunch breaks, for instance, are scheduled by a secretary or scheduler. Suddenly, the rest of their lives is quite literally unscheduled.

Additionally, most doctors tend not to have many hobbies, as medicine is a jealous mistress, so to speak. Doctors work all day, read journals and complete paperwork at night, and travel to conferences, which leaves little time for extracurricular activities. Once retired, many medical professionals find they have an overwhelming amount of free time on their hands. Some individuals will say they enjoy golf or travel; however, neither of these activities can be performed around the clock, and sometimes physical challenges hinder the ability to do either. For these reasons, it is a good idea for physicians to develop hobbies and interests before they retire.


Many physicians in the baby boomer generation may have what might be called traditional marriages, in which the spouse does not work outside the home. In this situation, it is unrealistic for the physician to expect that, just because he or she is retired, his or her spouse is also retired. Typically, the spouse will do the same things he or she did before the physician retired and will therefore have obligations and interests of his or her own. It is necessary to formulate a retirement plan that does not revolve around your spouse. If, on the other hand, your spouse did work outside the home and is retiring as well, there are even more psychological issues to sort out, as the two of you will have to grow accustomed to spending more time together. Because people now routinely live into their 90s,

many individuals are looking at 30 years or more of retirement. Therefore, it is essential to ensure that you have sufficient funds to support you for this period of time. As we are all too well aware, economic turmoil in Europe during the past year has decimated many retirement portfolios. Last year, European markets were down, on average, 12%, so the retirement picture is not as rosy as it once was. Many physicians are therefore postponing retirement and plan on working well into their 70s.

Psychologically and practically, the emphasis in investing for an accumulation portfolio, which physicians have done all their lives, is dramatically different from a distribution portfolio. This paradigm shift focuses on pulling money out rather than putting money in. Dips in market performance should come back over time; however, in a distribution portfolio, once you withdraw the money, it will never come back. The sequence of returns then becomes most important.

An important step for many doctors is to create a retirement budget. People often ask, “How much money do I need to retire?” The answer to this question involves another question: “How much money are you going to spend?” For example, €5 million may sound like a lot of money; however, if you are spending €500,000 per year, that nest egg will not last long. Therefore, it is necessary to create a realistic retirement budget. If you are married, this should be done with your spouse, as retirement must be a joint effort. Funds needed to cover necessary expenses should be invested conservatively, while funds for more discretionary items can be invested more aggressively. If it all possible, it is recommended to have a year or so of living expenses in cash prior to retiring.


To help ensure that you never run out of money, a safe method is to consider pulling no more than 4% out of your portfolio plus inflation every year. After a couple of years, if your portfolio has done well, you can give yourself a so-called raise. However, if you start pulling out too much (eg, 6% or 7%) and hit a couple of bad years, you may not make it. You do not want to run out of money when you are 85 years old.

The old rule of thumb was that, in retirement, you will need 60% to 70% of the living expenses you incurred when you were working. Sometimes, however, a greater percentage is needed. I think of retirement in three stages: go-go, slow-go, and no-go—the early, middle, and late phases, respectively. The go-go and no-go phases are the most expensive. Go-go is expensive in all locations, as this is the time when individuals travel and do everything that they could not do before retiring. The no-go phase depends upon the country in which the individual lives. For example, some countries tend to be more socialistic, and what those governments provide for their citizens will differ from what other governments provide.

Government retirement programs are unique to each country and are in the midst of dramatic change due to the economic instability that many governments are facing. During retirement planning, you must thoroughly investigate what your benefits will be. Learn what your government provides, and then determine what you will need to cover the difference.

The best move a physician can make is to talk to a financial advisor or retirement specialist in his or her country because it is necessary to find out what benefits he or she is entitled to upon retiring. Do not wait until a year or so before your planned retirement. The best retirement plans are made 5 to 10 years in advance. Determining assets, expenses, and government benefits will help you decide when you can retire and how much you can spend in your golden years. If you cannot achieve your desired lifestyle, you may want to postpone retirement for a few years or reconsider your expenses.


Financially, the biggest mistake people make is spending too much in the early years of retirement. Some individuals may have gotten into the habit of supporting their children or being extra-generous to their grandchildren. Once retired, this behavior must slow or, in many cases, stop. Realize that when you retire, you cannot spend the way you did before retirement.

Additionally, remember that a distribution portfolio must be structured differently than an accumulation portfolio. One cannot rely on capital gains alone for income because, sometimes, depending on the economy, there are no capital gains.

Another common mistake is not having an idea of what you want to do after retiring. It is advisable not to completely stop working immediately. Instead, first transition from working full-time to part-time. Many physicians first give up surgery and then, over time, reduce their number of work days. The longer you can delay retirement, the fewer years your portfolio has to support you and the longer it has to grow.


Overall, the first 3 years of retirement are the most important, as this is the adjustment phase. It can be the most exciting and rewarding time of your life if you plan accordingly. If you can successfully transition during this initial phase, you will have a successful, comfortable retirement.

: Donna W. Howell, JD, LLM in Tax, is the President of Carnegie Wealth Strategies in Atlanta. She may be reached at e-mail: donnawh@cwsltd.com. Securities and Investment Advisory Services offered through Cetera Advisors LLC, member FINRA, SIPC.