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What's My Number? Do I Really Need $10 Million to Retire From My Medical Practice?

Joel S. Greenwald, MD

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June 25, 2021

"What's my number?" When I hear this from my financial planning clients, I know they mean, "What investment net worth do I need to be financially independent and make practicing medicine optional?" In my 20-year career, this "magic number" is by far the most common thing physicians want to know.

If you look online, articles may recommend having a portfolio valued at $2 million, $5 million, and not uncommonly $10 million or more to retire. Really? $10 million? You might be thinking that surely not everyone needs that amount. Luckily, that's true.

There's no magic number your portfolio should be — just your number.

It's human nature to want a simple, clear target to shoot for. But unfortunately, there's no generic answer when it comes to saving for retirement. Even after a comprehensive hour-long review of a client's financial plan — including insurance, investments, estate planning, and other items — the most honest answer I can give is, "It depends." Not satisfying, I know. But there are still too many holes to fill.

By far the most important factor in getting beyond "It depends" is having an accurate estimate of annual retirement expenses. I have clients who live comfortably on $50,000 a year in retirement and others who need $250,000 or more. Knowing how much you need — your personal number — depends on the individual's unique dream for retirement and calculating what that dream will cost.

Form a Guesstimate Based on Savings and Anticipated Expenses

The total portfolio value needed to sustain an annual expense of $50,000 a year in retirement spending, vs the portfolio size needed for $250,000 or more, blows apart the fiction of a universal "magic number." It's just not that simple. While it's hard to gauge exactly what you will need, the right information can lead to a logical guesstimate about what size portfolio will provide you with financial independence.

In the end, it's up to you to determine your desired retirement lifestyle. Then, the only way to get there is to (1) calculate how much it will cost and (2) save up for it by following a well-informed financial plan. This plan will be based on strategy that shifts from the middle to the later stages of your medical career and into retirement.

Let's see how it works.

Early to Mid-Career: Focus on Building Up Retirement Savings

We ultimately want to save enough to meet our retirement expenses. But figuring out how much to save when you're in your 40s and 50s is difficult. A mid-career physician likely has significant family- and child-related expenses. When we become empty-nesters, those expenses will decline. In retirement they may disappear entirely, but new expenses may arise.

With large variations in expenses at different life stages, it's hard to calculate exactly how much you will need to save. Early on, the most sensible thing is putting aside a "reasonable" percentage of gross income for retirement savings.

What is a "reasonable" savings goal for retirement?

As is often the case with high-income earners, many of our clients don't have a budget or a clear picture of their current expenses and spending habits. That's alright as long as they are building up a reasonable nest egg for the future — which begs the question of what is reasonable.

For mid-career docs, a reasonable goal to aim for is putting aside 20% of gross income for retirement. What you spend the rest of your money on is less important than how much you're saving.

This is quite different from how you'll handle expenses during retirement, when you no longer have a steady stream of income; rather, you have a pot of money that needs to last you another 20, 30, or even 40 years. At that point, thinking about specific expenses becomes more important (more on this topic later). That said, if you're a mid-career doctor who is not meeting this 20% savings goal, it's time to make a plan that will free up cash for retirement savings and investments.

Later-Career Docs: Calculate Your Spending Level in Retirement

Financial success means having a portfolio that can support your retirement dreams — with the confidence that your money will last and you won't need to watch every dollar you spend. As you near retirement, your focus will shift away from accumulating savings to calculating the annual expenses you will have to meet in retirement.

A good place to start is figuring out which expenses will be necessary and which will be more flexible. To do this, separate your anticipated spending into these two categories:

  • Fixed expenses: You can confidently forecast your "must-have" fixed expenses — such as property taxes, property/casualty insurance, healthcare costs, utilities, and groceries — because they remain steady from month to month.

  • Discretionary expenses: These "like-to-have" expenses vary from month to month. This makes them harder to predict but easier to control. They might include dining out, travel, and charitable contributions.

As a retiree, understanding your fixed and discretionary expenses can help you prepare for a bear market, when the stock market can decline by 20% or more. Your portfolio won't consist entirely of stocks, so it shouldn't drop to that degree. Still, it will decline significantly. You may need to cut back on spending for a year or two to allow your portfolio to recover, particularly if the portfolio declines early in retirement.

Are You Ready for Retirement?

During the long bull market preceding the great recession of 2007 and 2009, many physicians retired — only to return to their practices when their portfolio values plummeted. In the exuberance of the moment, many failed to heed the warnings of many economists and got caught flat-footed.

Right now it's a bull market, but we're seeing concerning signs, such as an out-of-control housing market and rumblings about inflation and rising consumer costs. Sound familiar? If you hope to retire soon, take the time to objectively look around the corner so you can plan appropriately — whether your goal is to retire completely, stay in practice part-time, or even take on a new opportunity.

In an "it depends" world, don't be lured by a fictitious magic number, no matter what comes up when you Google "When can I retire?" Instead, save early, imagine your dream retirement, and calculate expenses later to see what's possible.

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About Dr Joel Greenwald
Joel S. Greenwald, MD, is a graduate of the Albert Einstein College of Medicine in Bronx, New York, Joel completed his internal medicine residency at the University of Minnesota.

He practiced internal medicine in the Twin Cities for 11 years before making the transition to financial planning for physicians, beginning in 1998.

Joel's wife is a radiation oncologist, so medicine remains a frequent topic of dinner table conversation.

Knowing firsthand the challenges of practicing medicine, Joel's passion is making the lives of physicians easier by helping relieve them of financial worries.

Connect with him on LinkedIn or on his website.

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