Too many physicians are stuck working in medicine because they believe they have to. Some ask themselves can I retire from medicine? And they begin to run the numbers.
I’ve coached a few physicians now who could have retired from medicine if they wanted to. They didn’t know how but the math was there.
I retired at age 38. I don’t have any regrets. Though, much like the people I’ll talk about here, I waited too long to retire because I thought I didn’t have enough.
The Financial Aspect of Retirement
If you are hundreds of thousands of dollars in debt and have only $100k saved up, this is not pertinent to you. But for the physician in their 4th or 5th decade, this is important reading.
The financial industry wants to have you think you don’t have enough for retirement. They want you to work more and save more. The longer you can stay on the hamster wheel the less the gov’t has to figure out how to support those who aren’t able to earn an income.
Retirement is a time when you are spending more time in leisure activities and less time pursuing lucrative activities. For physicians, it’s a time when you either completely quit medicine or do a few hours of patient work a week.
Financially, you need enough to pay for your overhead. But when you are no longer living somewhere where you’re tied to your job, you have endless options.
There are some basic financial rules you can follow. Such as, a nest egg of $1 million can replace $30,000-$60,000 of annual income.
And if you go into retirement with less debt you’re likely better off.
Some creativity is required to navigate retirement.
Getting Rid of Debt
The easiest way to get rid of debt is to get rid of the leveraged liability or turn it into an income-generating asset.
Your $700,000 house on which you owe $300k can be sold off or rented to cover its mortgage.
A student loan can be paid off by cashing out some retirement.
Earning Some Money in Retirement
You won’t be able to call yourself retired if you earn money. The retirement police will come and say that as long as you’re working you are not retired.
If you can turn your home into an income generator or work a couple of shifts a month covering the hospital or the urgent care you’ll have some income to buffer your spending.
You don’t have to figure out the income piece yet. If you have enough assets and creativity, retire first. After a couple of years off you’ll figure out what you want to dedicate time and energy to. That’s where the extra income will come from.
How Much Do You Have Saved up?
To retire from medicine you need to have some retirement assets. This is what will generate income for you and cover your spending.
There are certain financial rules, like what I discussed above. If you are invested conservatively in the broad US market you can expect to earn a return of somewhere around 3-6% a year.
A $500k portfolio would earn you $15k-30k per year.
A $1m portfolio would earn you double the range above.
Some physicians who retire spend their time focusing on their nest egg and their retirement portfolio suddenly becomes a job. They learn how to invest better and they earn far higher returns.
The investment assets you have is just one way to generate income in retirement. For many of us, we might have real estate that can be rented out. The income could barely cover its overhead or it might blow your mind how much your place can generate.
Where Do You Want to Retire?
If you have no option other than living in SF or NY, expect to spend a lot on housing. Even then, you can get creative by finding a good living arrangement.
Could you live out of a beautiful caravan and visit friends and park in their driveway? Of course, you can.
Could you live abroad for a few months at a time while collecting your retirement proceeds? That’s what I did for 5 years after I asked myself whether I can retire from medicine.
Maybe you can downsize your home to a condo. Or move from a high COL area to a much cheaper city. Portland was such a city for me in the PNW.
Long Beach, CA allowed me to stay in Cali but spend far less than I would on rent or buying a home.
Cutting Your Expenses
In my physician coaching, we go over spending a lot. Nobody sets out to talk to me about that but that’s where the conversation goes when physicians as about retiring from medicine.
If you’re reading this and are financially savvy you won’t understand. Many physicians have no idea where their retirement funds are, how to access them, what it’s invested in, and what their net worth is.
Even worse, many don’t know what their household spending is. They couldn’t break it down into the main 4 categories:
Our spending categories are probably somewhere in the 10-12 range. But you are only going to see major benefits by making changes in these top 4 categories.
Whatever you’re spending on housing now, you can cut it by 50%, conservatively.
To save even more you can purchase a property and get roommates. Or you can rent out a room from someone else, who is perhaps doing the same.
As mentioned above, living abroad is a great way to save on housing.
Health insurance isn’t health but for many Americans they are synonymous. And retiring late in life has financial and health consequences.
If you have the bandwidth reconsider your dependence on the US healthcare system. If not, purchase catastrophic coverage and pay for the rest in cash.
Or, you can get your healthcare abroad. That’s what I’ve done in Spain. My health insurance in Spain for full coverage and $0 out of pocket is 55 euros a month.
Eating out is probably the biggest bank breaker.
But many forget supplements and alcohol and coffee. True, you’re not going to save a lot. But remember, the goal is to cut your spending by 50%.
If you can cut your food budget by 50% it will give you a little breathing room. You can always go back to your old food habits once you have the income.
Getting rid of my car was the best thing I did for my transportation spending and health.
A cheap used car with basic coverage that you don’t drive much is likely just as financially savvy.
And, no, just because you write off your car on your taxes it doesn’t mean you’re saving money. You’re still paying that money, it’s just that you get some of it back on tax savings – far too little to justify the expense.
Drawing Down in Retirement
I have a 401k, IRA, Roth IRA, a private brokerage, real estate, and other financial assets. Figuring out how to draw these down in retirement is an art.
A good financial advisor is very helpful, especially for those of you who are retiring rather lean or those with very high net worths.