physician retirement checklist

Physician Retirement Checklist – Check the Boxes!

Retirement Checklist for Physicians

Physicians love to make lists and check off stuff. ABG, check. CXR, check. Notes and wash masks… later.

What about retirement? What list of things do you need to consider in your physician retirement checklist?

Retirement planning can start as soon as you have some interest in what investments you fund in the different accounts. Physicians often have access to non-governmental 457’s with questionable distribution options and need to do backdoor Roth IRAs (or rarely, Mega Backdoor Roth) to get some tax diversification.

What other issues do you need to consider as you get closer to retirement?

Let’s talk about a Retirement Checklist for Physicians.

Retirement Checklist for Physicians

What considerations are there for physicians when thinking about retirement?

Physician retirement is different. We are high earners but start earning late often after paying off a large amount of debt. In addition, personal finance is not discussed openly, and retirement planning is almost never discussed.

Let’s talk who, what, where, when and why of the physician retirement checklist.

Who

In this instance, I am thinking about folks who have $2M-10M with which to retire. Many, but certainly not all, physicians fall into that income category. I have a beef with giving general financial advice when you don’t know the net worth of folks who need to make the plan. If you have less than about $2M, there are different planning considerations, just like if you have more than about $10M.

The following checklist is not specifically just for physicians, but it is for those with a nice sized nest egg. These are the retirement “problems” I like to think about and the advice is difficult to actually get without paying an arm and a leg.

What

A retirement checklist for physicians is a list of consideration you need to address before retirement. Some issues will be more important than others for individuals, but you must have at least considered every issue. Check the box.

Where

Where are you going to be when you retire; are you going to move? For instance, if you are in a state with no income taxes but plan to move to the coasts for retirement, you may think about doing Roth conversions now rather than waiting and paying higher state income taxes on the conversions.

When

You should start the process as early as possible. If you can look at tax diversification and consider buffer assets. You might have a plan in place early to lower your taxes and avoid sequence of return risk.

The Tax Planning Window is an important time you might have available to save on overall life-long taxes. After you stop making income, and before Social Security (at 70) and Required Minimum Distributions (at 72) kick in, you really need to have a retirement plan in place.

Why

Why do physicians need a retirement checklist? Well, let’s stick to money here. You need to have some for the rest of your life. And you might have other goals as well, such as legacy to family or to charities.

Have a plan and know it will not go like you plan it to. But be able to pivot when things change rather than react.

How

Either DIY or hire help. Please note, however, that most financial advisors are good at accumulation and not so good at distribution or de-accumulation. The salesguy will want to sell you products, the AUM guy will want to keep your money to manage, and may underplay the role of good annuities.

Note that there is a lot to learn about retirement for physicians and the advice out there is conflicted depending on the model.

Physician Retirement Checklist- GOALS

Goals are the most important part of retirement planning. What do you want to do with your time and money?

You’d better figure out what you are going to do with your time.

With the money, what is the goal? Do you want to spend it all? Do you want to leave a legacy for your children or for charities?

If you have enough, you can decide who is going to pay the taxes. This is important, as most retirees have plenty of pre-tax money and the government will get more or less of it depending on your plan. Are you going to pay? How about your spouse when you die? Or your kids? Who is going to pay the taxes? 

Once you understand what your goals are, you can move on to the actual physician retirement checklist!

The Retirement Checklist for Physicians

Checklist for Physician Retirement

Check the following boxes when you have a plan in place. Of course, have a purpose by understanding the Shockingly Simple Math of Retirement.

□ Home

Where are you going to live? Is your mortgage paid off?

Generally, there is no reason to carry a mortgage into retirement. Just pay it off. But actually, a Reverse Mortgage is for the Wealthy, too. Don’t throw up in your mouth a little with the mention of reverse mortgage, but understand how accessing the equity in your home can be an important part of the plan. If a reverse mortgage can save you from a large tax payment on money you need early in retirement, it can be a massive win.

□ Debt

Leverage is for the young. Debt acts like negative bonds and increases your asset allocation. Pay off your debt before retiring.

□ Risk Level

Understand your risk tolerance and capacity to take risk. Consider Going Conservative for Retirement with a Bond Tent, or Decrease your Asset Allocation to prevent Sequence of Return Risk.

I can’t say this enough, it is important to De-Risk prior to retirement!

Many people will want to reach for yield given the low interest rates we have currently. Don’t do that! Take your risk in your risk assets. Or consider bond alternatives.

□ Sequence of Return Risk

Speaking of Sequence of Return Risk, have you considered the top 10 risks to address in retirement?

Some people will want to look at their Product Allocation to Address Retirement Risks. Risk pooling and mortality credits are important to understand and can help provide safety or income in retirement.

Consider Buffer Assets or just have enough bonds to live on for 10 years.

□ Tax-Efficient Withdrawal Strategy

Taxes are going to be your largest known expense in retirement. Make sure you have a Tax-Efficient Withdrawal Strategy in place to address taxes.

Withdrawal Strategy in Retirement is a complicated process that begins by understanding all of your assets and what role they play in your retirement income plan. This is the meat and potatoes of efficient retirement planning so don’t skimp on the plan.

Also, understand that if one spouse dies before the other, taxes will increase! This is called the Widow/Widower Tax Penalty and can have significant tax implications. Someone will pay the taxes.

□ Partial Roth Conversion

Partial Roth Conversions are so important to folks in this income range, that it needs its own checkbox for consideration. Paying taxes now can be scary, but there are a ton of reasons to do so. You can save in taxes over your lifetime by pre-paying taxes, and leave more behind for the kids.

As an aside, your average CPA will tell you that you don’t need to do Roth conversions but they are wrong. If you are retiring with a large amount in your pre-tax accounts, you need a plan to do partial Roth conversions. As a Physician, at least consider de-bulking your IRA via Roth Conversions.

□ Expenses in Retirement

Expenses are like a smile. They start higher and go down over time as you do less. Then, near the end, they increase due to healthcare expenses. Make sure you understand the Spending Smile and Lumpy Expenses.

Consider Stress Testing Your Portfolio Prior to Retirement. Most folks in the income range I’m talking about will have plenty, but have a plan.

□ Long-Term Care Insurance

If taxes are the largest known expense, long-term care might be the largest unknown or lumpy expense. That said, traditional Long-Term Care insurance is expensive and may not be there when you need it, and hybrid LTCI policies are not understood well by the folks who sell them.

Decide now if you want long-term care insurance or if you can self-fund your long-term care needs.

Long-Term Care insurance is complicated and likely not necessary if you can self-fund.

□ Health Care

This is a financial blog, but it is amazing how little we physicians know about Medicare, Medigap, Part B and D and the list goes on.

When it is time to sign up for Medicare, it pays to take some time to read about it and understand your options.

You will discover that IRMAA is a concern for retired physicians. IRMAA is a cliff penalty, which means if you go a dollar over your modified adjusted gross income for IRMAA, then you owe surcharges (a tax on the rich) for a whole year for both you and your spouse.

□ Pensions

If you have a pension, you will need to do some math to figure out if you want the lump sum or if you want to take the monthly income. Generally, if you have plenty of other money to spend, having a constant stream of income you can’t outlive is golden.

□ Cash Buffer

I like to have 2-3 years of cash on the side and refill it once a year when you re-balance and take RMDs. If the market is up, refill cash from equities. If the market is down, refill your cash buffer from bonds. This is how you rebalance anyway, and may help you have a Rising Equity Glidepath.

□ Safety-First

There are really good reasons to floor your known, ongoing retirement expenses. That is, you should consider to have some continuous, ongoing, guaranteed income coming in above and beyond social security. This is the Safety-First Model of retirement.

Annuities are a four-letter word, but SPIAs and longevity annuities have their rightful place in retirement planning for physicians. It is a complicated topic but start here: SPIAs and QLACs in Retirement.

Actually having an annuity instead of bonds will let you leave more behind if you live past an average life expectancy. Think about it.

□ Simplify, the Physician Retirement Checklist

If you have multiple 401k/403b/457/IRAs, it might be time to roll everything into one account. Not only is this simpler on you when you have to take RMDs, but it will be easier on your spouse as well should you pass. Remember, these accounts pass on via beneficiary forms, so keeping them accurate is super important to your estate plan. Also remember that Non-Governmental 457’s must be addressed separately as they cannot be rolled into an IRA and have district distribution options.

Each individual 401k will send you an RMD, where as you are responsible for your own RMD from IRAs. The IRS views all of your IRAs as a big pile of money, so you can take RMDs from any account for all of your IRAs. But it may just be simpler to have a single account and a single RMD.

□ Estate Plans

If you have enough money, you might want to list your spouse first and your children as contingent beneficiaries. This allows you to “cascade” the money out upon the death of the first spouse.

This cascading estate plan is especially important after the death of the stretch IRA. When the first spouse dies, the remaining spouse can keep what he or she needs from the IRA and disclaim the rest. This means the kids can stretch out the disclaimed amount over the next 10 years. If the remaining spouse lives for 10 more years, that means the rest will come out over the next 10 years.

While you likely don’t need a fancy estate plan if you have less than the Estate Exclusion amount ($11M per individual currently), just having a will is not enough.

□ Social Security

Social security is mostly an afterthought. That said, I have a long-detailed blog about the details of social security and why you should delay taking it until you are 70. Especially if you are married and the high-income earner.

If you have a short life span or plenty of money, it doesn’t really matter when you take it. After 85% of it is dragged into taxable income, it may just pay for your IRMAA surcharges…

physician retirement checklist

Physician Parents know Breathing is the only important thing to make sure your kids are still doing… at least when they are young and crazy.

Physician Retirement Checklist: The Endgame

That is a long list of things to consider before retirement. If you’ve had young, wild kids, you know the first thing to check on is that they are breathing. Very often, that is the only thing you need to know…

Retirement is different. There will be times of difficulty. You don’t need to be perfect, but having a plan to deal with most of the known knowns and known unknowns is important.

You made good money and have done well for yourself. Understand the financial goals of your retirement, and make sure you address the top 10 retirement risks.

Once you know your goals, use the physician retirement checklist to check off topics to contemplate prior to retirement.

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17 Comments

  1. I would add that if you have multiple 401ks and you leave the 401k at the provider you cannot look at them as one. You must take the RMD from each individual. IRAs can be looked at as one.

  2. Great resource with links to know further about each topic.
    I am a DIY investor nearing retirement and was looking for a “second eyes” FA who will help me with exactly this kind of information. Most were interested in accumulation phase and asset allocation. I discussed with David and in about 2 hours had a lot more clarity.

  3. Most physicians earn too much to qualify for Roth IRAs: 2019 less than $122,000 if single (less than $193,000 if married filing jointly).

    • You can always do a Backdoor Roth IRA regardless of your income as long as you watch out for the pro-rata rule!

    • Yes, I should. I’m trying to find a balance between readability and advanced concepts. I’ll do better in the future!

  4. Very interesting stuff. I look forward to seeing more of your posts. I find physicians are in desperate need of financial advise

  5. Been having some of these discussions with an MD colleague who is retiring and then…voila…. your post comes along and is a perfect timely checklist. Thanks so much!

  6. Good advice to have a check list, just to identify known and unknown risks, so one can plan accordingly. Love your emphasis on debt free before retirement and mortgage is not a good debt for most high net worth individuals. How to build a steady income stream is a great challenge during these low interest rate and bond rate environment. Diversification of assets and investments, along with partial preservation of assets is also a key consideration pre-retirement and preservation of capital during retirement.

  7. The physician who has himself or herself as a patient has a fool for a Dr. or something like that. I would say similarly one should work with a competent
    financial planner from the earliest point possible in one’s career.
    Once your financial planning is in place the real challenge begins; maintain your
    mental and physical health and find ways to continue to contribute to society and help your fellow man. Also finding the right mix between relaxation, ” fun “, and
    family as well as meaningful endeavors.

  8. Do not fear retirement. I feel many physicians delay retirement year to year and then never have the opportunity to enjoy this time. If you work for a hospital their motto may be “We’re not happy until you are unhappy.” Move to your dream location, buy your dream home and drive your dream car. Spend time with your spouse and family. Enjoy your hobbies. Use your computer for happy pursuits. Meet new friends and neighbors. Enjoy sunsets and sunrises. Let no other people demand your time.

  9. Two things nobody mentions.
    1) So what if your net worth is more at age 86 after waiting till 70. You probably won’t care! Meanwhile you lost, for maximum payers, $144,000 in pre-(yeah okay)tax income in those 4 years. Still you could use that money on the table to pay off investment loans and other debt or fund your SEP IRA if you can eke out a schedule C from age 66 to 70.
    2) It won’t be inflation, govt limiting or ending SS checks or outliving your standard retirement age amount that gets you. The part B medicare taken out each month will eventually eat up your entire Social Security benefit! That goes up every year. Take it at 66!

  10. Fantastic playbook for physician retirement. Organized and well thought out, with excellent resources. Thanks for doing the research and sharing the knowledge.

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