(Want to meet me in person and attend my live lectures? Please join me at the White Coat Investor’s Financial Literacy and Wellness Conference, February 5-8, 2024, in Orlando, Florida. I will be giving two lectures at this amazing conference where I have spoken multiple times in the past. One lecture on Regaining the Joy of Being a Physician and the other on Living a Wealthy Life. If you have some of my books, bring them with you and get them autographed at my book signing event or catch me in the hall. There will also be books available to purchase on site. A few of you can even have dinner with me! Hope to see you there.)
In 2013 when I was contemplating retiring from my medical practice after 20 great years, I was a bit apprehensive as to how I would fair financially. Talking with other retired doctors since then, we all share the same worries about having enough money to make it through our retirement years while keeping the lifestyle we have grown accustomed to.
When I was updating my net worth numbers a few weeks ago, a task I have completed quarterly since I left residency, I noticed the tab marked “Retirement Estimate” and took a quick look. I had not ventured onto that tab for several years. I was amazed at what I saw.
This is a spreadsheet that I set up back in 2000 that predicts my income if I retired on any given year in the future. The sheet shows a running projection of my passive income and my retirement plan balance, as well as our kids’ schooling status. It follows each child as if we were covering their school costs all the way through medical school. The chart projects my retirement income through 2036, when I would reach age 74.
Each time I added some new source of passive income, as in buying a new apartment complex, I would add it to the spreadsheet and project its cash flow into the future.
The following is a comparison between what my projected retirement income looked like and what I have experienced since giving up my full-time medical practice ten years ago. I also compared my actual living expenses in 2014, my first year retired from my private practice, with my actual living expenses in 2023.
Retirement Criteria
One of the things many people worry about is how to pick the correct size nest egg that will be needed for a comfortable retirement. I have seen many ridiculous answers to this question over the years. One person says you must have a minimum of $5M in the bank to retire. Another silly answer was enough to replace 80% of your pre-retirement income. Another one was to accumulate 25 times your annual income in savings.
If anyone presents you with an actual number, such as $5M, but hasn’t evaluated your spending habits, they are leading you astray. You also can’t rely on your pre-retirement income or your pre-retirement spending to make projections. You must calculate an estimated retirement budget and work from there.
We spend differently during retirement than we do during our working years. I stopped putting money into retirement accounts, stopped buying work clothes, and cancelled my life and disability insurance policies. Those all decreased my spending in retirement.
On the increase side of my retirement budget, I have traveled a lot more after retirement and had to pay my own health insurance premiums.
Before I retired, I established a post-retirement budget. I set my retirement date based on having a passive income that exceeded my retirement spending, and a balance of at least $1M in my retirement plans. The passive income would sustain us and keep up with inflation. The retirement plan money was just gravy and could be used for one-time special purchases. A belt and suspenders approach.
I met both retirement criteria in 2013, so announced my retirement date to be December 31st, 2013. On this date I gave up my full-time practice, but I was not yet ready to give up operating so I did some locums work at critical access hospitals with only one surgeon so he/she could get some relief and stay healthy. I was a locums doctor two weeks a month for three years before retiring completely. That option created a nice slow down ramp to ease out of surgery. In those small hospitals I averaged only one new patient a day.
Even though my financial retirement criteria were met, I still felt uneasy about not earning an income anymore. We did, however, have additional income for the first few years with the practice buy-out and my part-time locums work.
Spending in Retirement
I have kept track of my spending since medical school when I had to be careful to live on only my student loans and my savings. So, it is an easy exercise to look back on my expenses for the first year retired and compare it to 2023, my 10th year since leaving my practice.
I removed a few things from the calculations because everyone’s circumstances are very different. So, for this comparison my living expenses do not include tithing, other giving, or income taxes. I eliminated these because people who retire with Roth retirement accounts, and a large amount of money outside of tax deferred accounts should have zero income tax to pay. Some people do not tithe (10% of their income given to their church). And when you finally realize you have way more than you need, you can become very generous with additional giving.
I list our total spending below as well as a few selected categories that tend to concern people in retirement. The total living expenses include several additional categories that were not singled out. We have no debt to service in our household.
I didn’t realize until I wrote this article that we now spend less on running our household than we spent in 2014. The biggest changes were paying for two kids in college in 2014 and none in 2023, we had three cars in 2014 and two in 2023, we had health insurance in 2014 and Christian HealthCare Ministries in 2023 (A health sharing program as opposed to insurance). Accounting for these differences, there is about a 10% increase in our other expenses over the decade. Our motorhome and timeshare expense are included in the travel expense category.
So much for my worry about inflation wiping out my retirement with super high expenses. The fact that we retired with two kids in college did a lot to counteract the effects of inflation. We were also helped by a good portion of this decade being a low inflation era.
Without debt, one can live a very nice lifestyle on a little over $8,000 a month, as we have. The cost of living in our location runs 2.5% above the national average and housing runs 28% above the national average. If you don’t move when you retire, it will not matter if you live in a high cost of living area or a low cost of living area, since you will base your calculations on your current expenses. If you plan on moving when you retire, your expenses will be harder to calculate.
Retirement Income
My retirement income was estimated with the expectation that my retirement plan would earn 10% per year in growth and interest. This is because it is all invested in stock mutual funds, and they tend to grow at 10% a year over the long haul.
My passive income sources were projected to climb 2% per year. I did not know what to expect from this source, so I chose to be conservative.
My total projected retirement income calculation included all my passive income plus 4% of my retirement accounts taken every year.
When I compared my projected retirement income for 2023 to my actual figures, I found my passive income was 45% higher than I had projected and my retirement plan balance was only a few percentage points above projected. When I combined my passive income with taking 4% out of my retirement accounts each year, my total annual retirement income came to 32% higher than I had projected.
My projections began in 2000 when I was still making house payments and had not yet purchased my first apartment complex. It encompassed the lost decade of 2000-2010 when the stock market was essentially flat, and the big crash of 2008.
Since my total expenses were lower than projected and my passive income and retirement plans did better than projected, I am better off financially ten years after leaving my practice. But, if I had practiced longer, I would have put a lot more money into my retirement plans and would not have spent the passive income during the extra years I worked.
I quit medicine a bit apprehensive of our financial outcome, even though my accountant wife was assuring me we had plenty of money to last the rest of our lives. It turned out she was right. My income has been growing faster than my expenses.
It has only been during the last year that I have finally felt at ease knowing that we will have enough money to last the rest of our lives, even though it always looked good. I can’t believe it took a decade for me to believe I truly had enough money to last the rest of our lives. We have been able to increase the amount we give to others every year and that has felt good. I would never have guessed we would be giving away so much.
For those who want to know how my online and coaching business has affected our finances, which was not in the picture when I made my calculations, I have never sought to monetize that work. I started this business so I could still be productive and useful in my retirement. My goal was for it to pay for itself. The small amount of profit generated by this business has not been a significant contributor to my retirement and has essentially been given away as unneeded excess income.
Bottom Line
I calculated what I expected to spend in retirement and conservatively estimated what I would earn from my retirement portfolio. When earnings exceeded expenses, I felt I could retire safely. Because we have continued to live the same lifestyle, except for the increased travel expenses, and not increased spending simply because our income has continued to increase, we are better off today than we were when we retired.
There is still another financial change to come when we start taking our social security and qualify for Medicare. When I made my 2000 projections, I didn’t have faith that social security would still be around, so I completely left it out of the picture. Looks like we will be collecting social security and Medicare in our future which will provide us even more income, making our retirement even more secure.
Before you retire, make a realistic retirement budget and take a hard look at what income you will have after you stop working. Then when you pull the trigger, you can do so with confidence. You might also like to read my award-winning book, The Doctors Guide to Smart Career Alternatives and Retirement before you make the final move.
You probably will collect Social Security, 85% of which is taxable for Federal Income Tax. I live in Maine, where Social Security benefits are not taxed, but this varies by state.
You do not “collect” Medicare, you become “Medicare eligible,” and you pay for it. Monthly premium for Medicare B in 2024 is $174.70/mo, if your Adjusted Gross Income is below $103,000 for an individual, or $206,000 for a married couple. From That AGI up, IRMAA comes into play (https://www.medicareinteractive.org/get-answers/medicare-health-coverage-options/original-medicare-costs/part-b-costs-for-those-with-higher-incomes). If, like my wife and myself, your combined income (including social security) is over $386,000, the IRMMA penalty for standard Medicare B raises the cost to $559/mo for each individual. And there is also an IRMMA penalty for Medicare D (drug coverage) that is currently $74.20/mo per individual. So we as a married couple pay $15,197/year for Medicare coverage alone. And this increases each year, at an average of about 6%/year for the last 3 years.
We both retired as physicians over 10 years ago, and our mistake was maintaining our peak salaries right up to retirement. This caused us to land in the next to highest IRMMA penalty bracket (bracket is based on income 2 years prior), and it is difficult to lower this, as we both have tax-deferred IRAs, and it means you have add (in our case) 35% to all withdrawals you make, for State and Federal taxes, meaning we have to withdraw over $20,000/yr just for Medicare.
Advice: decrease income for the last 2 years before retiring, so you don’t get caught with these penalties. Because when you start out with a high IRMMA penalty, you will probably stay there.
Also, consider Roth IRA contributions for a portion of your retirement planning Our tax rates have not decreased significantly since we retired, given that our “income” is the amount we withdraw from our tax-deferred accounts.
And be aware that RMDs (Required Minimum Distributions) from your retirement funds begin at age 73, potentially increasing your withdrawals more than you anticipated.
You can appeal the IRMMA penalty when you retire. There are several valid appeals which will reduce your Part B premium so that it won’t be based on your income from 2 years prior, including retirement, death of a spouse and others.
I’m wondering if you are paid to endorse Christian Ministries as a health care plan. That is not insurance, has no obligation to pay for anything and is widely considered a scam. When you check into a hospital ER for example, you are seated in the “no Insurance, indigent” section of the waiting room and the staff behind the window smirks when you flash your 1-800-BIBLE “insurance card”. Your monthly expense for this non-coverage “promise to help with your bill” is money thrown away and you have no insurance for medical bills at all.
Bill, I have no connection with CHM and get nothing for saying I use them. Have not heard of anyone feeling they got scammed.
I’ve been using them for 10 yrs and had no issues.
I’ve used Christian Health Ministries for retirement at age 58. I have had two spine surgeries and they have paid without any issues after my deductible. It is a $10,500 yearly deductible, but only $400 per month. Think of it as catastrophic insurance. Works great if you’re reasonably healthy to start.
I’ve got a couple of patients with similar “insurance”. We’ve never had any trouble getting paid, though I think it may take a bit longer than traditional commercial insurance.
My practice doesn’t consider it a “scam”
Nice article. I am 62 and currently full time employed. I am a doctor for 34 years. I am taking 3 months sabbatical leave starting this year, to enjoy travelling and Locum for 1 to 2 weeks or more at the same time. My home and cars are paid off. Thanks God I have enough to retire soon in few years. My 3 kids are grown up. With masters and one MD degrees. I feel blessed. Thanks
Putting money in stocks a defined benefit plan gives about $6500 per month. IRA / SEP-IRA / Profit share is about the same. I preferred real estate and luckily it has paid off and gives me and my heirs real income. I can now do something to really help others
Cory,
I’ve done pretty much what you’ve done. I was interested finding that you selected Christian Health Care Ministries as I just made the switch for my wife’s health care coverage in January. The savings are substantial, and the philosophy matches my own. Our criteria were keeping our doctors, no geographic restrictions, and no insurance company medical decision making. So far, we are pleased with the cost savings and the support we have received through the program. It is reassuring to read that others have made the same decision.
Investing 100% of retirement funds in the stock market is very risky and I doubt very many certified financial planners would agree with that path.
The key to financial success in retirement is to invest the maximum at the earliest possible point when one starts practicing and hiring a trusted professional to manage your funds.
I applaud your commitment to tithing. For the first time we hired a financial planner who convinced us we have enough to retire on, so now I am working just to give away the surplus. And wow, is that fun!
Agree 100%.
Excuse my math, but “I retired after 40 years of practice Rheumatology, at the age of 63” implies you started @ age 23 ???
I retired at age 68 after 37 years as an orthopedic surgeon. I had no debt. Years ago I cashed in my life insurance policies. I managed my own retirement funds, built my own office building then leased it for 10 years before selling it to my hospital. I have not touched my retirement funds except for the required mandatory disbursements and still take in over $100K yearly from investments. My advice is cash in your life insurance, don’t listen to financial advisors and manage your own retirement funds.
Disagree. In the long run you will have a more solid approach having your assets managed by an experienced and reputable financial advisor.
I had financial advisors put me in a horrible product in the 1990s – good for them, bad for me. Very recently I had my mother’s financial advisor try to rope me in using the assets he managed for her (poorly, based on their returns). I moved them under my management as soon as I could. Those guys seem to be very good at taking care of themselves, not me. I have much more peace of mind, and that is a huge return on the investment. And my actual returns are far superior over the past 5 and 10 years to what that joker who pretended to manage my mother’s funds were.
Absolutely wrong answer for most people. Sure, if you absolutely have no emotional discipline to stay the course when equities fall and maybe if you have no basic aptitude for math (is that possible as a physician?) then maybe get an advisor. Get on the Boglehead forum and read, read, then read some more. You will be shocked at how simple it is to manage your own investments and seriously add years to your retirement by not donating to the “local investing experts”
travel and lifestyle fund.
If you know/care nothing about personal finance, sure
But even a modest amount of self education can have similar results and no fees. Since financial advisors can’t predict the market any better than I can, I’ll save the fees, tyvm
I retired recently at the age of 54 after a 23 years in OB/GYN. I would still be working and insecure about my financial situation if I had continued to rely on my financial advisor. I’m not completely disagreeing with those that say you should have a financial advisor, I am saying that you should be very actively involved in understanding what is being done and aware of what is best. You are the one that is going to make it happen. My advisor was a fee only financial fiduciary. They still are looking out for themselves, friends, and not necessarily your best interest.
One way to save when over 65 is avoid buying a Medicare supplement. Most people will disagree but if one researches this topic thoroughly you will see that Original Medicare is a great program on its own.
I agree that many Medicare recipients are over insured. Rather than having no supplemental plan, however, I suggest the high deductible G* plan, if available in your area. The premium is only $72/month in NY, an expensive state for insurance, and covers catastrophic problems should the worst occur. It also covers foreign travel, although I always purchase more comprehensive insurance for that.
Yes but it only covers 80% of your medical expenses. As you know, medical bills are through the roof and 20% can be a significant amount. I have Medicare parts A and B and the AMA sponsored supplement which, this year, is $154/month. Well worth it!
But even so you will need a Medigap policy.
I retired after 40 years of practice Rheumatology, at the age of 63. 11 years after retirement : I travel world wide, live as upper class American, have no debts and income varies between 10,000.00 to 12000.00/year. Have no regrets: became a farmer for 8 years, have written 6 books and has never been happier! Dr Edrick Lopez
Edrick,
I’m glad you found your happy place in retirement, as have I.
How can you live on only $10,000-&12,000/ year?
Is that a typo? Are you really living on only 10-12 K a year? Or did you mean 10-12 K a month??
If you ARE living on 10-12K a year, please enlighten us on how you are managing to travel and live an upper class American life on that little income.
Edrick
You started as a rheumatologist at age 23. I believe you meant 30 years of practice retiring at 63.
Hari Bezwada
Interesting and reassuring article. Just beware however that Medicare Part B is very expensive if you have a significant income. I pay about 3 times more for myself on Medicare than I did for my entire family on my pre-65 group plan.
Depends on where you went to Medical School. In the UK for example, it is normal to finish med school at the age of 23