Retirement Assessment Of A 40-Year-Old Physician With $400,000 Invested

A buddy emailed me the other day to help him nerd out over his retirement. He recently got divorced and has part-time custody of his young kids. His wife was a physician as well, together they were able to pay off their student loans and save a lot of money. He got half, she got half and so he ended up with around $300k in cash. He has another $100k in his work sponsored retirement accounts.

He is 40 years old and considering going part-time in the next few months. He will be able to continue to max out his 401k at work and is planning on setting a little aside every month. His biggest financial responsibility now is alimony and childcare.

His Career Plan

He is an amazing clinician and actually enjoys what he does. Would he do it if he had all the money in the world? Probably not. He enjoys his quiet time, especially reading.

He is hoping to work long enough to build up a healthy pension benefit with his current employer. If he works another 10 years then he will have around 25% of his full-time wages paid to him starting age 65 – somewhere around $60k/year – or $5k/month (gross).

He doesn’t want to work full-time anymore and is willing to try going down to as low as 50% to see if that will offer him enough income to live a comfortable life and cover his overhead.

His Retirement Plan

He is okay working until age 65 but he wants the option of being able to pull the plug sooner. He could see himself going off and traveling the world slowly once his kids are old enough to go to college.

He is 40 years old now and knows that for sure he can do another 5 years. After that he would want to be able to work per diem or do some locum tenens work. He isn’t burnt out but he feels the stress to perform at work as his medical group puts more and more responsibilities on the shoulder of the doctors.

He isn’t interested in buying a house. If his opinion changes, he thinks that he could wait until the market crashes or until he has enough cash to buy something in full. He hates debt which is why him and his wife were able to save so much and pay off their student loans.

Since he would rent and since he doesn’t have expensive hobbies, he thinks that he needs around $3,000/month to live comfortably. $2k for rent, $1k for food, healthcare, clothes, transportation and internet/phone.

His Overhead

He spends time with his kids on weekends and he goes for walks and reads all sorts of interesting books. He has a few dogs which keep him on his toes and he’s a big Netflix watcher.

He enjoys his time with his kids but doesn’t believe he owes them money for college. He would rather have to work less and spend more time with them now when they are younger and again more time with them when they have their own kids.

He is healthy enough that he thinks he’ll make it to 90 – so he’ll need his money to last.

In a given month, he has the following expenses:

• Rent $2,000
• Groceries $500
• Alimony $1,500
• Childcare $1,500
• Miscellaneous $500

His Investments

He’s been diligent when it comes to investing his money. He has most of it in his Charles Schwab account. His work retirement plan is through CS as well so he decided to keep it simple and has all his own money invested there.

His return has been on par with historic overall market returns. He isn’t too far off of the S&P 500 which isn’t a bad way to compare your own investments. We aren’t machines, so even if our accounts perform slightly worse than the S&P 500, that’s still a win.

His Future Financial Outlook

He is not sure how much he can contribute to his savings accounts if he goes down to 50% – that remains to be seen. Ideally, he would like to add around $15,000-20,000 every year to his savings/investments for the next 10 years. This would be on top of his pension and 401k contributions.

If he can manage to do that then he would have the following in the next 10 years:

• $400k in 401k
• $650k in his own savings accounts
• Vested in pension and social security

If he stopped doing any contributions whatsoever after he turns 50 and just worked enough to cover his rent, food, etc., then he would have the following by age 65 when his pension kicks in:

• $850,000 in his 401k
• $1,200,000 in his savings/private investments
• $60,000 in pensions every year
• $36,000 in social security income every year

Clearly overshot his goals!

I know this man, he wouldn’t know what to do with over $2,000,000 in his retirement accounts. He would probably spend less than that $60k and $36k from his pension and social security, combined.

What could he do? Well, he could go down to his 50%, contribute less than his max 401k or contribute nothing to his 401k whatsoever. He could definitely stop putting any money in his private savings/investments and just live it up.

The concept, of course, is that his investments will keep growing. He is a wise investor, he doesn’t mess around with what’s working so his $400k will grow to over $1.2 million by the time he is age 65.

What he decided to do

Here is his game plan over the next few years:

1. Go down to 50%
2. Contribute only enough to retirement to cover overhead
3. Work another 6-10 years to get 20-30% pension
4. Be done with childcare/alimony
5. Go down to per diem
6. Assess savings status
7. Retire overseas

It was nice reviewing his retirement situation with him because he doesn’t live a traditional physician lifestyle. He was never into living in a lavish home or driving fancy cars.

I think he would benefit from having a good financial adviser who will keep him on track, warn him of pitfalls and make sure that any money left behind will transfer easily to his children.