PHYSICIAN RETIREMENT PLANNING
Proper physician retirement planning can help you keep living as you do now. Does your current cash flow strategy support your long-term financial health?
Your cash flow habits today, or how you spend your paycheck and other income derived from working as a physician, may negatively affect your retirement years. The lack of a proper budget and misunderstanding of the timing, variability, and taxation effects of your cash flow could mean the comfortable lifestyle you enjoy today is at risk as your ramp down your work hours in or near retirement. Considering the large annual compensation common to a physician or private medical practice owner mid-career, it’s easy to assume the money will more than cover lifestyle habits for many years, but it’s not a guarantee.
How does cash enter your pocket?
Inflows of cash can be sourced from many different places, including regular paychecks (W-2 and 1099 income), year-end bonuses, dividend income on investments, and possibly the future sale of your medical practice.
These multiple income streams, along with the irregular schedules and compensation common to physicians, do not ease the challenge of staying within a budget. An additional challenge is maintaining the continuity of cash flow from your working years into your retirement years. It is critical to have a strategy that ‘replicates’ your paycheck in retirement.
Check out the free guide “Three ways to know you’re ready to retire from medicine”
How does cash leave your pocket and where does it go?
Likely, your cash is spent in several areas: maintaining your current lifestyle (home, vehicles, vacation, living expenses), investing in your business, and funding future goals (education, retirement, health care, or legacy planning). However, finding the balance between these expenses is a delicate process, as they are not likely to remain constant throughout your life.
Oftentimes, as income increases, expenses increase, too. Creating a strategy to allocate specific income toward specific goals can eliminate the confusion and uncover opportunities that yield optimal cash flow. For example, you might allocate a fixed amount of your bi-weekly paycheck to maximize annual retirement account contributions while using any bonus compensation to make lump-sum payments on interest-accruing debt, as opposed to postponing saving for retirement in favor of eliminating debts first.
Mistakes and Problems
Overspending can lead to shortfalls in dedicated savings for your desired goals. This bad habit has a potential to leave you feeling financially stretched during expensive times: during tax season, perhaps, or when home improvements or a new car are needed, college and private school tuitions are due, or unexpected medical issues arise.
The future need for retirement funds should be thought of as a current expense, not solely as a goal, and therefore should hold similar weight to current lifestyle expenditures. Over-funding of your children’s education accounts (and consequently underfunding your retirement accounts) because the time horizon for college is nearer-term is a mistake made far too frequently.
The long term result that stems from such a mistake is having to delay or decrease retirement. That may require you to make a choice between spending less during retirement years due to insufficient funds OR retiring at a later age to make up for inadequate retirement funds. A lack of planning creates stress and anxiety during these periods leading up to retirement years.
Check out the free guide “Three ways to know you’re ready to retire from medicine”
