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Making Your $1 Million Last in Retirement

I realize that many doctors are going to want to retire with far more than $1 million. But because of this website and my interest in personal finance, I have gotten to know a lot of doctors who will enter retirement with no more than $250,000.

Many of us will also enter retirement with debt or with expensive health problems. I’ll discuss how the physician retiree can ensure that their $1 million stretches for as long as possible in retirement.

1. Managing Debt

Many of us will have debt going into retirement. Maybe it wasn’t planned, but it happens.

If there is a mortgage, auto debt, business debt, or credit card debt, and maybe even healthcare debt, it’s easy to hemorrhage away your retirement. Debt payments can eat up your investment income quickly.

Another retiree might decide to cash out a portion of their retirement account to pay off that debt. Not only will that hinder the growth of that portfolio but it will also decrease the passive income from it going forward.

2. Budgeting

Of course, this is huge. If you can budget then you know where your money is likely going to go and you know how much money is coming in. You can even predict when you might have a budgeting shortfall.

Budgeting in retirement is very different from budgeting in your working years. It’s easy to fix and budget discrepancies by working a little more or getting a loan. Neither of those are options in retirement; no income = no loans.

I am not fan of traditional budgeting where spending is tracked – it doesn’t help me and doesn’t add value to personal finances. I prefer forward looking budgets such as the YNAB method.

3. Earned Income

Besides passive income in retirement, another option is to have some earned income; or at least the potential for it. Being a part-time faculty at the local medical school or teaching math at the community college would bring in some income.

My preferred method is earning an income from healthcare consulting. It’s something I enjoy doing and it keeps me engaged. The income is time-flexible and location-independent.

Earned income doesn’t have to feel like a job. Earning $200/hour doing telemedicine a couple of hours of telemedicine a week is incredibly easy.

4. Taxes

Tax strategizing is huge when you’re working and even more critical when you’re retired. Why pay more than your fair share of taxes? I have colleagues who are S-corps and working part-time when they could be saving on taxes by being an independent contractor as sole proprietors.

Where you hold your investments in retirement and which accounts you access first can impact the longevity of your nest egg. Some investments are a tax drag when held in certain retirement accounts (bonds in a private brokerage) and others are tax-optimal (REITs in a Roth IRA).

For some retirees it might make sense to have a SPIA if you anticipate a financial disaster and want to make your $1m last.

5. Risk Control

If your investment portfolio is too risky then consider adjusting it so that you can still have decent gains without having to suffer through a 50% decline in asset values.

Volatility is a good thing because it allows for higher market returns. But not everyone can tolerate volatility the same way.

Some investments such as your private medical office or a rental complex might have excess risk. It might make sense to sell out of that when the market is ripe for it, in anticipation of retirement.

6. Investing Skills

I’ve been investing since the late 90’s and despite 2 decades of investing, I know very little about it. I’m getting better but will always need the advice of a financial advisor or other investment professional.

Keep practicing because you’re not just honing your investing skill but also tightening your risk tolerance belt and understanding your particular investment behavior.

7. Healthcare

A good part of health is all about prevention. Just like a good part of wealth is saving. But many of us will need some sort of healthcare intervention at some point in our lives.

Medicare might be a good option for a retiree but you’ll have to figure out a way to maintain your health without paying ever-increasing healthcare premiums. It seems that a Direct Primary Care model can pair up the right patient and doctor to achieve this.

Medical tourism and short-term health insurance are realistic options as well.

8. Downsizing

Whether you decide to downsize your house or move to a cheaper neighborhood, there are ways to downsize your lifestyle without suffering any mortal consequences.

The more complex your lifestyle and the more things you own, the more you’ll need to spend to keep that lifestyle afloat. It’s better to downsize going into retirement and inflate your spending if you have the money to do so.

9. Prevent Recurrent Costs

You could buy the very last car you’ll ever own or get rid of your car completely. Maybe combine a few strategies and move to a city where public transportation and on-demand transportation is mature.

If you’re keeping your current home then any remodeling and upgrades and repairs should be made before you retire. You can have the last roof you’ll ever need over your head replaced to prevent an unexpected and possibly inflated expense in retirement.

10. Plan Long-Term

You might retire at age 70 and live another 35 years. And if you retire at age 45, you might need to plan for 60 years. It sounds daunting but the math is the same; the markets don’t give a shit if you die the day you retire or live another 150 years.

Invest for the long-term if you’re likely to live a long life. Having several passive income streams can allow you to take advantage of the better equity returns while riding out its volatility.

11. Fight Inflation

In 2019 the costs of goods and services are going up but we are told by the financial media that inflation is at an all-time low. Maybe I’m wrong and prices aren’t changing but I can still fight inflation by choosing which products and services I want to have.

If you know that you’ll want or need a certain product or service then try to pay for it now, don’t wait until you’re living off of a fixed dollar amount.

12. Flexibility

The most powerful tool you can have in your retirement toolbelt is flexibility. Inflation skyrocketing in the US? Go live in Portugal for a couple of years. Investment returns tanking? Consider cancelling the gym membership.

There is a lot of waste in the average US household. On top of the waste there is very little flexibility. Whatever risk you can alleviate by making a temporary change in your lifestyle, the less money you’ll have to spend on insurance products or expert help to to lower that risk for you.

13. Anticipate a Shortfall

If you’re implementing a forward-looking budgeting strategy and have run a few investment simulations then you should be able to anticipate and address a retirement shortfall.

Even if you started with $1m, it’s possible to see your investment portfolio dwindle quickly during an economic downturn or a personal financial catastrophe.

Anticipating a shortfall means that you can see it coming before you hit a critical value. You can then take some steps to address it such as lowering your spending or bringing in more income or maybe just shifting your tax strategy a bit.

14. Start Slow

Retirement spending goes down the longer you remain in retirement. The first 2 years are often the most expensive. By the 5th year spending goes down quite a bit.

Start your retirement off slow. If you have a lot of vacations and destinations lined up, spread them out and take advantage of being able to travel off-peak.

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