Retirement Planning for Doctors

Retirement Planning for Doctors – Epidemiology, Net Worth, and Select Issues

Average Net Worth of Physicians at Retirement -and- Assorted Issues in Retirement Planning for Doctors

Some doctors are excellent accumulators of wealth. Once you have your accumulation plan in place, it might be time to think about some cultivated issues in retirement planning for doctors. And what is the average net worth of physicians at Retirement? Doctors are a heterogeneous lot, this much is true. There are, however, some common issues faced in retirement by those who wear the white coat. Let’s review the epidemiology of doctor retirement, net worth, and then go over some common issues in retirement planning for doctors. Once you are done here, make sure to check out The Retirement Checklist for Physicians.

Epidemiology of Doctors Retiring

When do Doctors Retire?

Doctor retirement by age

Figure 1 (Doctor Retirement by Age)

Source  Figure 1 shows doctor retirement by age. Surprisingly, 58% of doctors retire after the age of 65! In the US general population, women in retire at age 60-62 and men 62-64. Do doctors retire later on average because of the late start we get after a decade of training?

Why do Doctors Retire?

What does a metanalysis say as to why doctors retire? According to this study, doctors do indeed retire later than average. Reasons to retire early include: low job satisfaction, medicolegal issues, health concerns and financial troubles. Reasons given to delay retirement include: career satisfaction, institutional flexibility, feeling responsible for patients, financial reasons and a lack of interests outside of medicine. Finances show up on both sides—retire early and delay retirement. What are these financial concerns? Net worth is one of them.

Net Worth of Doctors by Age 

Let’s look at Doctors net worth by age.
Retirement Planning for Doctors

Figure 2 (Doctor Net Worth by Age)

Maybe you’ve the data in Figure 2 before. While you can easily retire with less than $5M, especially when you are traditional retirement age, look at the purple bar (net worth > $5M) increase with age. It goes from 3% up to 22%. So, about 1 in 5 doctors over the age of 70 have a net worth greater than $5M. As I said, moderately depression. Retirement planning for doctors should be easy given the high incomes during their career. The percentage between $1-5M doesn’t really change much with age. Sadly, 25% of doctors older than 65 never have a nest egg larger than $1M. For a more detailed analysis, let’s take a deep dive into the Medscape Physician Net Worth 2020 data.  

Medscape’s Physician Salary Explorer

First stop for you: check out the Salary Explorer to see how you compare to your peers. Do you make the same as others in your area with the same expertise? Interesting, yes? I actually took a pay cut when I started my specialty again after being a hospitalist again, so at least for us internal medicine docs, it is interesting to note who earns less than the hospitalists. There probably is a fellowship for hospitalists by now, but in my days that fellowship was servitude through residency. It looks like endocrine and ID make less than hospitalists. A negative return for fellowship. Let’s move on.  

Medscape’s Young Physician Compensation Report 2020

  The Young Physicians Compensation Report 2020 is always interesting. This is a subset analysis for physician less than 40 vs those of us who are past our prime.   young physicians compensation report   Above, you can see how much young vs “old” physician earn. PCPs on the Left, Specialists on the Right. A funny story, someone asked me the other day how long it took me to make a complicated diagnosis that had challenged the primary team. I said “15 minutes and 15 years.” I’m not sure where you all fall on the experience vs recent education spectrum, but in a small community hospital you can see the difference. I am one of the older folks and I practice medicine by scanning a patient’s aura and knowing what the diagnosis is, then looking for details to support my conclusion. Of course you then look for things that are dangerous and/or common and must not be missed. What do recent autopsy studies say about how often the diagnosis is incorrect by clinician age? I wound if that study has been done by age. Anyway, that is a rare digression from finance into diagnostic acumen via the “aura scanner” that you get with age. It took 15 minutes and 15 years to figure that one out. A very important question: Would you chose medicine again? I thought it surprising that 76% said yes and it didn’t change depending on age.  

Medscape Physician Net Worth Report 2020

And on to the Physician Net Worth Report 2020. Let’s take a look at high net worth physicians. See this report from 2019 and 2020 (if there is a paywall from the link, just google the words and you should be able to see the advertisement-filled slide show). What is interesting is that this was the wealth and debt report in 2019 and the debt and net worth report in 2020. So wealth was demoted and changed to net worth this year in these reports. Debt was promoted. Hmm. Anyway, let’s dig in!  

Who is Worth More than $5M

high net worth physicians   Somewhere between 1 and 19% of your colleagues are worth more than $5M depending on your specialty. I am actually disappointed in these number, but I have been year after year. There are some specialties that are lower than they should be, too, depending on income.  

Who is Worth Less than $500k?

Netscape physician net worth report 2020   On the flip side, 20-50% of your colleges have made almost no progress on building a nest egg. This may be because they are young, but check out a few of your favorites and see the difference from the top and the bottom specialties.  

What Expenses Are Being Paid Off?

average physician net worth at retirement   This is interesting as well. More than 60% of physicians have a mortgage. Amazingly, almost 40% have a car loan. Honestly, car loans? But since 25% have credit card debt, we just need to remember that doctors are people too, and financial illiteracy knows no bounds. Only 11% had no expenses or debts.  

Who has the Largest House? Medscape 2020 Physician Net Worth

physician homes and high net worth   So, who has the doctor’s McMansion ? It looks like the glamour specialties have larger homes, and those poorly-paid specialty have smaller homes.  

Who has the Largest Mortgage?

how much money do doctors retire with, and mortgages   Who still owes a large amount on their McMansion? Again, pick your favorite specialties and see the difference in the size of the home and how many still have large mortgages.  

2020 Doximity Physician Compensation Report

Doximity releases a compensation report as well. Of interest here, metro areas with the highest and lowest compensation for physicians. There is only a 15% difference between the highest and lowest metro area, so location may not be a game changer. At least from the income perspective. It would be interesting to see these locations with income over the cost of living for the metro areas… There is also some interesting information on wage growth, and the gender gap.  

Summary—review of Medscape Physician Net Worth 2020 Report

Voyeurism is always fun. It is nice for some of us to look in and see how little we are earning, and how big other people’s home are. But don’t forget, their mortgage is larger than yours. In all, only 10% of physicians have a net worth greater than $5M. While it is clear you don’t really “need” any certain number, the fact of the matter is physicians make a lot of money. If they make a lot of money and haven’t put away all that much, then that is a shame  

Summary of Doctor Retirement Epidemiology

So, on average, doctors retire later than the general population yet with more financial resources. Still, given the high incomes doctors earn, it is depressing so many of our colleagues are not better prepared for retirement. Financial concerns are cited as reasons both to retire early and to retire late. Let’s move on now. I assume anyone reading this is doing well for themselves. What are some issues that impact planning for doctors in their retirement?

Selected Issues in Retirement Planning for Doctors

Retire To Something

Everyone needs to consider what they plan to do in retirement. Many doctors find more than a mere calling in medicine. Letting go the title of “Doctor” is difficult. Finding purpose in retirement, however, is necessary to ensure health and sanity. I recently decided on my retirement date, and purpose is a huge concern. It will be interesting to see trends in doctor retirement in the next decade given the industrialization of medicine and the loss of autonomy many doctors are facing. Encore careers are common for doctors. Remember that Parkinson’s law applies to retirement as well!  When doing retirement planning for doctors, I focus on the financial aspects. But none of that matters without purpose!

Liquidity Events

From poor distribution options on Non-Governmental 457 plans, to liquidating investments in practices, equipment or real estate, many doctors will face liquidity events. A liquidity event happens when you must recognize a bolus of ordinary or capital gain income all in one year. Of course, ideally, you would be able to take a better distribution option on your 457, or spread out your payout for your share of the practice or investment over two or more tax years. If you are forced to “suffer” a liquidity event, some planning is possible. Tax planning is important that year, perhaps to reduce your other sources of income, or find a way to take a major tax deduction in the same year. Other possibilities include Oil and Gas, Opportunity Zone Investments, Real Estate depreciation through cost segregation and bonus depreciation, and more. None of these are great options, by the way. Plan at least a year in advance with your CPA.

Large Pre-Tax Accounts

Many doctors have large 401k or 403b accounts and face huge future tax burdens as Required Minimum Distributions force out this deferred income. These 401k Millionaires have the opportunity to do some tax planning during the Tax Planning Window which may include partial Roth conversions. After you retire and before you start social security and RMDs, you have the chance to control your income. This Tax Planning Window is the most important opportunity to control your future tax liability and should not be squandered.

Other Tax Considerations

White Coat Investor not infrequently calls retirement planning issues “first world problems.” Given his gift for tax efficiency while practicing and running a burgeoning business, I expect he will change his tune when he considers retirement and sees how much he will pay in taxes during his own retirement! In fact, taxes can be a doctors largest expense not only while practicing, but also in retirement. It pays to be tax efficient. After all, every dollar you save is another dollar you can send or give to heirs or charity. Aside from partial Roth conversions, there are other tax-efficient withdrawal strategies. These include:

Charitable Planning

Since the Tax Cut and Jobs Act, most have been using the standard deduction and no longer get tax deductions for our charitable gifts. Not that a tax deduction is the only reason to give, but if you can find a way to give tax-efficiently, you can give more! If you have charitable intent, there are many considerations. These include:

Legacy Planning

Leaving a legacy is important to consider as many doctors will have more money than time. The loss of the Stretch IRA has engendered some new retirement planning strategies. Unfortunately, none are as good as the Stretch IRA. Read about the new 10-year rule and your retirement accounts. Cascading beneficiaries, disclaimer planning, multi-generation spray trusts, Roth conversions, Life Insurance, and Charitable Remainder Trusts are all considerations when planning your legacy.

Long-Term Care Insurance

Since we have all seen the ravages of age, Long-Term Care Insurance is a quandary in the back of our mind. While many retired doctors can self-fund long term care needs, there is a dearth of insurance options if you want to transfer the risk of a large Long-Term Care event. Traditional Long-Term Care Insurance suffers from issues of premium increases and future solvency. So-called hybrid LTC/Life Insurance policies are becoming more popular but have copious downsides. One issue I cannot get the insurance industry to understand about these policies is that you are often better off NOT TO USE one once you have it. This is because medical expenses are a tax deduction above an AGI floor. You can withdraw pre-tax money tax-free if you have a large enough deductible Long-Term Care event. So, if your goal is leaving money behind for your heirs, you are better off withdrawing pre-tax money tax-free to pay for healthcare costs, and letting the tax-free death benefit of the policy go to your heirs. Or, not having a hybrid policy in the first place! Long Term Care considerations are the most intractable problem in retirement planning today. This is because they can have truly devastating costs, but insurance is priced to cover non-devastating events. Imagine how expensive home insurance would be if we all had small or moderate fires in our house at least at some point in our lives! Insurance is best saved for risk pooling of catastrophic events, which is not how Long-Term Care insurance operates currently.

Social Security

Social Security maximization should be something that all doctors are familiar with. If you have done well and have a reasonable life span, consider delaying social security to take advantage of delayed retirement credits. Social security is, perhaps, the best longevity insurance out there, with inflation adjustment and a government-backed guarantee. Most doctors should just assume that 85% of their social security will be included with their taxable income, as the brackets for taxation of social security are absurdly low and haven’t been inflation adjusted since Regan.

Unwinding from a Bad Financial Advice

This is, perhaps, the most interesting retirement planning conundrum. Many doctors have been suckered in to bad investments or products by “financial advisors.” Unwinding these takes care, consideration, and patience. If you have an insurance salesman masquerading as a financial advisor, you might own expensive annuities or unnecessary permanent life insurance products. Unwinding these might just involve liquidation and some “stupid tax.” There are other important considerations, though. With annuities, if you need income in retirement, you may consider annuitizing the policy, or actually using the Income Rider that you have been paying for all these years. Or, you could 1035 into an Investment Only Variable Annuity depending on the goal of the funds. I’ve found most folks who have been sold an annuity don’t really understand “why” they own the annuity and what purpose it is supposed to serve in the future. With Permanent Life Insurance, you may consider a 1035 into a hybrid LTC policy if you want Long Term Care Insurance. Understanding the indication for owning a Permanent Life Insurance policy is key. If your financial advisor is a stock picker, then you might have individual stocks or crazy expensive mutual funds with a low basis. Unloading these will involve paying capital gains taxes. Many doctors will remain in the 18.8% capital gain tax bracket on future projections, so a decision must be made regarding the purpose of the money. If you plan to unwind it at some point due to the tax-inefficiencies of the funds, earlier is better as it allows you to reset your basis and chose funds more in line with your goals and chosen asset allocation. If you have a donor advised fund, or bunch deductions, these low basis bad investments are perfect to give away.

Summary- Retirement Planning for Doctors

Retirement Planning seems backwards after being in the accumulation mindset. Instead of growing your wealth, you need to consider spending some of it down! There are additional pitfalls, retirement risks and traps in retirement that take some planning. Many of these issues uniquely affect doctors and other high-income professionals. A forward facing 20-30-year tax plan is often useful to see what your tax bracket “number” will be. For instance, if you know that RMDs will expose much of your retirement income to the 25% federal tax bracket in the future, use all your tax bracket below the 24% bracket now! A percent or two doesn’t seem like it would make all the much difference, but if you can rescue money from a pre-tax account and convert it into a Roth, all future growth is also tax free. The goal, of course, it not to perfectly predict how much you will be paying in taxes even five or ten years from now. Everything can and will change and many assumptions will be wrong! The goal, instead, is to optimize the next 1-3 years so you set yourself up in the best possible position to roll with the punches as they come, all while efficiently funding retirement.
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