By Dr. Jim Dahle, WCI Founder
My Doximity feed recently referred me to an article by Becker's ASC Review titled “How Much Money Physicians Need to Retire By State.” As an author of many financial articles and being fairly financially literate myself, I thought that would be a very interesting article to write. When I went to the article, I saw that the meat of it, as expected, was a list of states with dollar amounts next to them, like these:
- Kansas: $60,620
- Hawaii: $129,298
- Utah: $71,453
Naturally, I was curious about the source of this data. It came from a CNBC report that, in turn, cited a GoBankingRates “analysis.” The title of that linked article? How Much a Comfortable Retirement Will Cost You in Each State. Notice the lack of the word “physician” in the title. The dollar figures in that chart, however, are exactly the same as the one in the Becker's ASC article.
Apparently, doctors need precisely the same amount as everyone else to retire. That part is kind of true. Doctors aren't special when it comes to retirement. The dollars don't care who owns them. However, in my experience from interacting with literally thousands of doctors on this topic, not very many of them would describe a lifestyle where spending only $60,000 a year is “comfortable.” Most of them earn that in residency these days and feel very poor while doing so.
In fact, the methodology of the original article was to add up the average retiree expenses and then add 20% to make it “comfortable.” The bottom line is that unless your definition of comfortable is 1.2X what the average retiree spends, this list of state-specific comfortable retirement amounts is just bunk.
Cost of Living Matters
One thing that the list displays well is the cost of living in various states. Yup, it's going to cost you more than twice as much to retire in Hawaii as it will in Kansas. I hope that's not a revelation to you. Having been to both places, it was not to me. Take advantage of this fact as needed to build wealth and, if needed, to help your dollar go further during retirement.
More information here:
I’m Retiring in My Mid-40s; Here’s How I’ll Start Drawing Down My Accounts
Some Sobering (and Scary) Statistics on People’s Retirement Preparedness
How Much You Really Need to Retire Comfortably as a Physician
It's not an unreasonable question. I see it all the time on forums and in real life conversations. But it reflects a serious misunderstanding of how retirement savings and financial independence work. While there can be a little quibbling around the edges, the formula is actually pretty simple.
First, you take what you're spending as you approach retirement. Yes, that's the best definition of “comfortable.” Then, you subtract any guaranteed sources of income you have, such as Social Security benefits, pensions, and Single Premium Immediate Annuity (SPIA) payments. You multiply what's left by 25. Why 25? Because you can spend approximately 4% of a portfolio's value, adjusted upward with inflation each year, and expect your money to last 30 years with high probability.
THAT'S how much a physician needs to retire comfortably in each state. Maybe it's more on average in California than it is in Iowa (or maybe it's not since that Iowa doc was probably making more and is wealthier), but who really cares? All you should care about is how much you need to retire comfortably and how you're going to get there. If you're going to retire in a different state, you probably need to adjust a little for the cost of living.
The Truth
The truth is that most physicians spend more than the average American and most physician retirees, if they can, will spend more than the average American retiree. They certainly hope they can. I'm in Utah, and $71,453 isn't even close to what we spend now or what we'll spend when we quit working. We might spend that much just with Delta flights by then.
That's not to say one cannot retire on $71,000. One certainly can, and they won't have to eat any Alpo. And if Social Security will pick up $30,000 of that, your portfolio need not be much larger than a million bucks. But I don't think most physicians, who now average $363,000 in income per year, get very excited about the prospect of living on $71,000 per year. Most of them want $80,000, $120,000, $200,000, or even more to spend each year in retirement.
If docs really only wanted a million dollar portfolio, they could get there in 30 years by simply investing just $15,000 a year at 5% real. That's not even maxing out an employee 401(k) contribution these days. It represents a savings rate of just 4%. I wish it were true that you could save 4% of your income and have a comfortable retirement. It isn't. That figure needs to be more like 20% and probably even higher if you want to retire early.
More information here:
How I Went from a Negative Net Worth in My 30s to Early Retirement
Are Physicians Who Retire Early Abusing the System That Made Them Rich?
The Bottom Line
Be careful what you read out there. Question everything; look to the original sources; and, most importantly, become financially literate and do your own calculations for your own written financial plan.
What do you think? How much do you think a physician needs to retire “comfortably” in your state?
[EDITOR'S NOTE: Here at The White Coat Investor, we know our readers love having real-life examples of portfolios and how people accumulate their money and then eventually spend it. That's why we want to hear from those who have already retired and who are living their lives in a post-work world, so those of us who are still working can be inspired and learn how to get where you are right now. Please fill out this form and inspire us with your wisdom. Don't worry, we'll keep your identity a secret. We'll plan to take your answers and create even more content for those who want to learn about how to spend in retirement. Help us help others!]
The year I went into private practice, 1979, my CPA told me, “I used to think that a million dollars in savings was adequate for retirement, but now I believe two million are required.” Inflation rages on!
Depends on what country you want to retire. In the US, we pay taxes to fund wars and the special interests.
We actually spend most of the money on transfer payments to the poor, social security and medical care for the elderly. A huge chunk is interest on the debt! Only 20 percent goes to defense.
The latest special interests were college educated young people who got their loans forgiven in exchange for their vote. It didn’t work.
My spending estimates and budget for retirement have had to be adjusted after tracking actual “peri-retirement” expenses. My original plan had three legs: a small level pension worth $25K a year, our retirement accounts, and social security. I planned for $130K a year. I was not very close. The pandemic happened and the lasting effects of inflation have made $130K “too low to be comfortable” with three kids still in college or graduate school.
Despite our downsizing, we have adjusted this number upward by a jaw dropping fifty percent. Your point that how much you spend in retirement is likely to be close to how much you spend just prior is spot on. We still spend a lot on vacations, basic healthcare, and restaurants.
Helping our kids minimize student loan debt and launch their lives, covering healthcare expenses (insurance, deductibles, and copays) for the family, continued nice vacations, and notable inflation spanked my original “amount of money physicians need to retire”.
We have yet to spend a penny of our retirement funds. I’m still working two days a week, and we still have a 401a with a match, a SEP contribution on the side gig, and a new adjusted plan. I can recommend the “drop to part time” as a way to test the planning. After decades of minimal inflation, I did not really plan well for the recent jumps. I’m sure I’m not alone there.
I expect to more accurate on my renewed projections as the children graduate into their own post-college lives and the path of inflation is more clear. I suppose one could just use 3% long term, but they might be off. The “add twenty percent” buffer in the flawed original article might work.
I’d multiply the state retirement figures by 2.5 or 3, to get to a “comfortable physician retirement”. In Illinois, which is an average cost state, or maybe only a bit above average, I expect to need 190-200K to maintain my current standard of living.
Jim, thank you for the article. One thing I would really like to see discussed is the optimum net worth level and/or retirement holdings to cut back to 3/4 time or half time work.
Many of us don’t necessarily want to retire completely, but would like to cut back without taking a beating in the long run.
I understand that this is a very personal, situation-based problem with specific solutions for each individual, but I just have not found a whole lot out there that really gets into this topic. It would be nice to hear your perspective and that of your intelligent audience.
Best wishes to all on this journey.
You just gotta run the numbers, just like the amount to retire. Search “Coast FIRE” for details on how to do that.
Thanks Jim, that got me exactly the information I needed. I wish you continued speedy recovery.
To add another data point, my goal is 100k per year. Throughout my working career so far, I’ve never spent 100k in a calendar year, though that does not include taxes or health insurance. Not having any kids makes it much easier.
why subtract the guaranteed forms of income before calculating the 4% rule?
To get the amount you need to retire if you use 4% of it. We have 4 pensions between us so if we want to live off $150K/year we don’t need that much from the 4%- only the difference between $150K and the pensions (and consideration of the fact that either of us widowed only gets 2.5 of the pensions)
Thanks! That makes sense. I read it wrong as if the guaranteed amounts were just not being counted. Subtracting those amounts from what you need to be comfortable makes sense. Thank you!
Are you guys planning to take that 50% pension payable to a surviving spouse at the price of a reduced monthly payment, or just stick to a single-life annuity?
I know actuarially it supposed to be a wash, but still…
As Jenn said, you may not need your portfolio to provide all your income, so you adjust for that.
I retired at 61 from dentistry. I was determined to be debt free by 60 in order to make that happen.
My three buckets at retirement added up to just over 5M with a NW of ~6.5M. The practice sale and practice RE filled up most of my taxable brokerage bucket and Roth/non-Roth, the rest.
There were mistakes along the way.
1. I should have set up a monthly auto debit from early on to do taxable brokerage deposits. I would not have missed the money and it would have further bumped up that bucket over 30+ yrs.
2. Never hire anyone to manage your money that you are uncomfortable firing. That means keep your friendships and your money at a distant arms length.
3. You only get one chance to set up a partnership and/or sell your practice. Take your time to find the right person and details matter. When you are in a hurry to retire, mistakes are made, and it is hard to get them out of your head. If that means paying a practice broker 10%, then the peace of mind will have been worth it.
Is this satire? Net worth of 6.5M?!?!
Are you saying that’s a lot or not a lot? Bear in mind that something like 20% of docs retire with $5M+, so $6.5M is hardly some ridiculously high amount. And $6.5M will provide a retirement income of something like $250K, which seems like plenty of money for most. But frankly, most docs who take retirement savings seriously should be able to get to that sort of a number without doing anything heroic.
10M IRA
1.2M after tax equities
1.5M rental properties (after 450k mortgage)
.4M gift trust minor
$26k HSA
Mid 50’s
Self insure – health insurance.
Self-manage finances
Including investments and tax returns
The best diversification is continuing to work and contribute. Hopefully have 11 years left in me. Key is working just the number of shifts I want. And knowing it’s 100% by choice!
Self insure health or long term care? Pretty unusual to self insure health in retirement, especially with Medicare around. At any rate, you’re obviously in great shape. If you work another 11 years, you’d better start working on a plan for estate taxes.
Self insure healthcare. We can absorb a $2M blow if needed. About 10 years to get to Medicare coverage age.
We go overseas annually and make our own executive physicals. Mra head neck. Abd US, labs. My wife and I work out religiously. Can at least minimize risk.
Wife will probably get a job after child leaves in a few years for college to 1. Get us health insurance 2. Build her social security 3. Self satisfaction. She likes working and has missed it.
Just not going to worry about estate planning (EP). Single kid who’ll be set no matter what. Frequently reading about it but will work out the mechanics of EP in our 60’s. People have a disproportionate fear of taxes.
It’s not just about being able to afford to pay for it, with insurance you also get a better price. I suspect that discount is worth the price of the insurance. Plus the behavioral aspect for preventive care. I’m much more likely to actually go get my teeth cleaned when I already paid for it via dental insurance premiums. I totally get going bare on lots of types of insurance, but I’m not sure it’s wise with health insurance.
You have to know yourself.
I would absolutely never skimp
On dental care as dental inflammation leads to premature atherosclerosis. And you probably noticed my 26k HSA account which means it’s free.
I would never pay 36,000 a year to get discounted medical care. I’ll take that 36K and 10x it. And do the same next year.
You can always negotiate medical bills when paying cash. And you can do so very aggressively. Entire books are written on the subject.
Depending on the situation and timing you can also get excellent medical care in other countries like Spain, France, and Japan – which I’m very. comfortable doing if needed.
My wife got her colonoscopy at a private hospital in Madrid. Was as smooth an experience as possible. We had our carotids MRA’d in Japan for a few hundred dollars (due to family risk factors).
Yes- your feeling of discomfort and uncertainty going without health insurance is very common. That’s why the insurance companies have you!
hard to negotiate in an emergency. Hard to leave the country in an emergency too. I think my insurance will have paid a quarter million dollars for my little fall last Summer. The chargemaster prices were about twice that. By the time I could make any kind of logical decision the money was all spent. And that helicopter wasn’t about to take me to Japan. Now you can afford a quarter million, but imagine it was a $2-3 million. Now that insurance is starting to look like a much better deal.
At any rate, it’s your call. But I don’t think most WCIers should try to self-insure health care.
Jim,
That’s not how it works. You negotiate after the fact. And people are incredibly successful all the time when they know what they are doing.
If you have insurance, you *cannot* negotiate. I know your knowledge is very extensive but it sounds like this is a topic you are not familiar with at all based on your response.
I’m not advocating for most to go without health insurance.
But if you can self cover for disability, for life insurance, you can also do so for health insurance – *IF* you have the resources.
You cannot evaluate this topic until you fully understand it!
I agree it’s possible to self-insure. It just takes more money than most are willing/able to save up. And most people don’t enjoy negotiating with health care providers while they don’t feel well, which is exactly when they need their services.
Not sure relying on EMTALA for ALL medical care is a good deal either. Imagine it’s not trauma, but a really expensive cancer to treat. You’re not going to Thailand to do it because you feel crappy. And they’re not going to give it to you until you pay. Self-pay prices for you.
Jim, I’m not sure the number of docs retiring with $5M is that high unless you have new data.
According to Medscape a few years ago (when they were actually still sharing this particular data), the number of docs with $5M+
Ages:
50-54 6%
55-59 11%
60-64 15%
65-69 17%
70+ 22%
So, considering that docs retire at a mix of ages, it’s probably 15% or so.
I’d buy 15%. The surveys I’ve seen of ALL docs, show 10%. It’s going to be higher of just retirees.
My husband is an engineer who tested retirement very briefly, then went back to work. We have enough that he can stop working if he wants to. During this brief retirement, I learned one thing I had failed to plan for is extra leisure expenses. This time around, I’m expanding our retirement budget to include leisure activities that he never did during his career.
Regarding leisure, the biggest shock to the plan were the booming costs of retirement golf community RE and initiation fees, along with the extended waiting lists since 2021.
I had given up on my dream of snowbirding to a Florida golf community when RE doubled, initiation fees jumped from 30k to 300k and waiting lists went out several years.
Yet, if you look hard enough, and stay away from either coastline, there are still some reasonable places out there. I’ve exchanged a snow shovel for golf clubs and couldn’t be happier.
While figures below $100k/yr are low if one has a paid off home, and no debt it is doable. If your home is large with high property taxes then trade down. No Euro cars, buy a Toyota or Honda and keep it 15 years.
I’m not a doctor, but I enjoy this site.
I retired this year at 65 from a career as a Software Engineer.
I’ve built a net worth of close to $6M over the years.
My recommendation: start investing early and be consistent.
One mistake I’m dealing with now is that I put too much money into a tax-deferred 401K/IRA. Even though it will cost you taxes now, I would recommend foregoing the tax-deferred 401K/IRA and putting all your savings into ROTH accounts. The 401K/IRA presents tax issues during retirement. Sure, you might be in a lower tax bracket, but Medicare IRMAA surcharges become an issue. Social security plus 401K/IRA distributions are both taxable and make it really easy to end up having to pay the Medicare IRMAA surcharges. Over the years my regular IRA gained a lot and now it’s difficult to reduce my taxes and surcharges. Time to rip off the bandage – do a massive IRA to ROTH conversion and take the hit with IRMAA surcharges for one year and get it over with.
I still have a mortgage of $185,000 at 3% and don’t plan on paying it off.
My philosophy is that I can make more by investing it rather than paying off the mortgage.
All expenses for my wife and I come to a little under $100,000 of which $65,000 will come from Social Security when we start collecting in Dec 2025. A 3% withdrawal rate will give us almost $200,000 a year (including SS).
I can see the issue with RMDs pushing you into higher-cost Medicare. Jim has reference this issue for supersavers before – if you’ll be in the highest tax bracket in retirement, Roth all the way. Fortunately (?), that’s not an issue for many of us.
Have you looked into QCDs? If you’re charitably inclined, it may help with your RMD problem.
We’re trying to figure this ratio of before-tax/after-tax out right now.
We are in our mid 50’s with probably another 5 or so more years of work left. We are in the highest tax bracket now and have been maxing out 401k’s/cash balance plan, Backdoor Roth’s; 529’s/Roth’s for our three teen kids, etc…
Thank you to the White Coat Investor and Community for all the Amazing guidance…
Wondering now if in retirement we might still be in one of the highest tax brackets and might need to start focusing more on after-tax pathways…
Right now we have approximately $4,000,000 in before-tax accounts (401k/CashBalance) and $3,500,000 in Vanguard after-tax brokerage/and some smaller Roth accounts.
This year we’ve just started to super fund my wife’s 401k plan into a Roth 401k ($77,000 per year) with after-tax savings and I’ve been reading about Roth Conversions (Possibly for our current Before-Tax 401k which we would need to close and covert into and IRA or possibly chance our plan to allow some type of Roth 401k).
Several of my retired friends have suggested that it would be more ideal to have more after-tax money saved up for flexibility in retirement (and also have the Roth Money growing tax free and possibly Medicare Premiums), but hate to lose the tax savings now.
How do we answer this question of saving after-tax money in highest tax bracket (Wife’s work Roth 401k and possibly Roth Conversions) vs saving more into before-tax plans like our cash balance plan (Before tax savings)/non-roth 401k accounts ?
Been looking at Q3 financial advisors (Fee Only) who say they are Rothology experts and have a spreadsheet that is supposed to help answer this question (for a fee of Approx $7000). Is this worth looking into ?
What do you think ?
Thank you all for the help !
It’s not about “getting the right ratio” so much as making the right decision with each contribution (and conversion opportunity) and letting the chips fall where they may with the overall ratio. These posts may help:
https://www.whitecoatinvestor.com/should-you-make-roth-or-traditional-401k-contributions/
https://www.whitecoatinvestor.com/supersavers-and-the-roth-vs-tax-deferred-401k-dilemma/
https://www.whitecoatinvestor.com/roth-versus-tax-deferred-the-critical-concept-of-filling-the-brackets/
Thank you Jim & Crew !
Thanks for the quick reply…we appreciate the help ! I read the articles and worked up a quick spreadsheet. It looks like we have a lot of room to fill up the tax brackets with our before-tax savings before the SS years (just depends on the retirement age and how much we spend). So it looks like before-tax is most beneficial at this point. We’ll probably do a combination of before and after tax contributions heavily favoring before-tax with some funding of my wife’s Roth 401k so it can grow tax free and give us some flexibility with estate planning, etc.
Have a great weekend !
Loved the Snorkeling and Surfing photos too !
Any Uber-fests from Atlanta lately ?
I expect to go diving soon, but I haven’t been in Atlanta for a while other than the airport. Ran through there on the way to South Africa last month. Hopefully never need to pull that Uber stunt again after the last leg of a flight fell through.
Spending is the most important number. Remember, the day after you retire mostly the same bills will show up in your mailbox as the day before.
Spending to maintain your lifestyle is how much you spent before you retired less those bills that will not continue into retirement: Education loans, Kids educations, commuting costs, Wardrobe cost, retirement savings, FICA, professional costs, mortgage, etc. There may also be a lot of additional savings in retirement from lower taxes, traveling midweek, hobbies like gardening, home maintenance/repair, or even cooking.
What you actually spend can in fact be considerably less than your income.
See https://shawnpheneghan.wordpress.com/2018/02/23/retirement-planning/
Does it matter if I plan to live 100 year old versus my friend who plans to die at age of 60?
What does “plans to die” at 60 mean? Like Euthanasia? Or just some vague idea that they think they’ll die then like your “live to 100” plan?
The truth is that most retirees ought to plan for something like 30 years and a 30 year plan is little different from a forever plan. So no, the first step of a retirement spending plan is NOT to guess how long you will live.
I think the larger message here is “noise”. We make our living by caring for patients in some fashion. The people who write these types of articles “How much money physicians need to retire..” make at least a portion of their income by writing. My understanding is, that at least on social media, the number of times an author’s article is clicked on, the more money they make. It follows directly then, that the more enticing or intriguing the title is, the more reader’s are likely to click on the title to read, hence the term “clickbait”. Particularly when seeking investing advice, reputable authors refer to this as “noise”. Realize when you click on these types of articles, they are for entertainment, and not information. Focus on time proven investment/financial planning strategies, and do not let clickbait get you sidetracked. Vetting the references for this article was a nice gesture on the part of Dr Dahle, but about as useful an exercise as researching sources for RFK Jr position on vaccines.
ETee Hee …. You aren’t wrong …. But the comments and the thoughtful , educated responses from the author have been the most fruitful part and well worth the full read .
I don’t have a financial advisor. Do you always recommend to have one?
No. DIY is a perfectly acceptable option and one I have chosen. Just make sure you do it right.
I totally agree. One of my greatest fears used to be that I’d get to age 60 and figure out I had been doing the whole savings thing entirely wrong. My wife and I have always maxed retirement savings and HSA contributions, relied heavily on 529 savings to educate our 4 children, minimized debt, and saved what we could on the side.
To be sure we weren’t missing the boat we spent about $10k talking to 3 different financial advisors years ago and didn’t learn one thing new. One even tried to take me down the offshore investing route. Thankfully there are resources like WCI to help guide us DIYers. But the one place I feel my money has been well spent is on my Cracker Jack CPA.
A CFP consult is money well spent. For a one time consultation ($200-500) they can give you a cost efficient road map. They are fiduciaries, meaning they are not stock brokers who sell you the product with the highest commission. Generally, they will guide you to index funds. There is a neurologist Dr William Bernstein who has a website efficient frontier.com he advocates for four pillars of investing, an S&P500, small cap, international and short term treasury ETFs. Don’t buy individual stocks, there is strength in numbers.
Nobody is doing effective “CFP one time consultations” for $200-500 and staying in business very long. Sorry. That’s just not the going rate. I mean, if you can get someone to do good work for that, enjoy it for as long as it lasts, but don’t expect that. A validator looking for an advisor to do hourly or one time work like that should expect to pay $1-5K every year or two for that type of service. That’s still a discount from a “full service” advisor (that does ongoing financial planning and investment management) which costs $5-15K a year.
Bill Bernstein has a $5 million minimum last I looked. I doubt he’s even taking new clients to be honest. And I think he charges a 1% AUM fee. That means his fee starts at $50K a year. I think his books (and the man himself) are great, but I wouldn’t hire his firm because I know of so many others that will do similar work for a much lower price. Let me double check that:
https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=869517
Nope, I was wrong. I think the minimum is true, but the AUM is fairly reasonable. Still $10-30K though.
A little confusing. Maybe it’s a $32K minimum. At any rate, great guy, great books, but I think that’s basically a “make me move” price he charges.
What happened to the general estimate of 10-12 times current income as to what you need to retire on.
That’s not too far off since most docs only need to replace 25-50% of their income. But the only time I’ve heard those numbers are as a rule of thumb for term life insurance amount.
What about the impact of income tax? That can vary wildly from state to state, with places like Florida, Texas and Tennessee having zero state income tax to California’s whopping 14.4%. And of course there is the ubiquitous federal income tax. Does the “25X rule” take this into account? What I am spending (cash flow) is very different than total income needed to afford my lifestyle and pay income taxes. Do income taxes need to be added into current spending before multiplying by 25?
If you’re paying 14.4% in CA you probably don’t have to worry too much about your retirement income. I think their top bracket is 12.3% anyway, and that doesn’t start until $1,442,000 MFJ.
Thanks for the quick reply. Are income taxes part of the “current spending” that gets multiplied by 25, or is it just after tax cash flow?
No, both taxes and any advisory fees must be included in your spending.