Let’s Talk Retirement
In this edition of our admin journal club, we delve into the critical topic of retirement planning. We recently explored an insightful article by the White Coat Investor titled "How Much Money to Retire," which offered valuable lessons and considerations for physicians. While I am not a financial planner or advisor, I'd like to share my own analysis and thoughts on retirement investing, considering the unique circumstances physicians face.
Doctors and Saving Habits: "Doctor car, doctor house, and Doctor Botox."
Let's challenge the stereotype of doctors and their spending habits. Avoid succumbing to the pressure of buying the "doctor car, doctor house, and doctor botox." In retirement, we can enjoy certain cost savings, including lower payroll taxes, reduced life insurance and disability expenses, decreased child-related costs, and potentially owning a mortgage-free home. Adjusting your retirement spending to approximately 25%-50% of your pre-retirement earnings can help maintain your standard of living.
Retirement Spending and the 4% Rule:
A commonly used guideline is the 4% rule, which suggests withdrawing 4% of your retirement savings annually to sustain a reliable income stream. However, it's essential to consider your unique situation and consult the article's chart to determine your preferred level of risk for withdrawals.
Withdraw less than 4% if:
o Don't plan to spend less
o Retire longer than 30 years
o Hold more than 50% in bonds
o No or little passive incom
Retirement Saving Strategies:
To calculate your retirement savings target, determine your current spending while excluding expenses that won't apply in retirement. Many applications can help you track your daily spending (Mint, Fidelity Full View, your Excel sheet). Multiply this amount by 25, and you'll have an approximate figure to aim for. In terms of saving priorities, it's generally recommended to maximize contributions to tax-free and tax-deferred retirement accounts:
1. Begin with a 401(k) account, contributing up to your employer's matching contribution, if available.
2. Consider a Roth IRA if you meet the criteria.
3. Maximize your 401(k) contributions.
4. Finally, consider taxable accounts, adjusting your investment aggressiveness based on your tolerance for risk as you approach retirement.
Considering Inflation and Passive Income:
Factor in the impact of inflation on future expenses to ensure your retirement savings maintain their purchasing power over time. While passive income streams, such as real estate, Airbnb rentals, and high dividend stocks, sound appealing, they come with risks. The unpredictability of income, potential vacancies, and the responsibilities of being a landlord can present challenges. Be cautious with high-yield investments, as they may not always offer the desired security. Stay informed and consider your options carefully.
One of the best examples in our generation has been cryptocurrency and NFTS. I'm not one to tell people not to invest in them, but I can't say I didn't learn anything about them.
Balancing Saving and Enjoyment:
Remember, life is meant to be enjoyed, and you should strive for a balanced approach to retirement planning. Avoid over-saving to the point where your lifestyle becomes unfulfilling.
Go on that 2-week vacation to Japan you always wanted. While it's essential to save diligently, you want to experience the experiences and pleasures of retirement.
As the saying goes, "Live like a resident and earn like an attending," but also find joy in the simple things. Your health and well-being should remain a priority as you navigate retirement.
References: https://www.whitecoatinvestor.com/how-much-money-to-retire/
https://www.forbes.com/sites/moneybuilder/2012/11/15/how-to-optimize-your-retirement-investing-priorities/?sh=3f8a5e4c1467 https://www.whitecoatinvestor.com/how-to-spend-in-retirement/
https://mint.intuit.com/
