[Editor's Note: This is a pre-retirement financial checklist from one of my monthly columns at HPCLive.com discussing debt management, insurance planning, income planning, estate planning, and even the purchase of large-ticket items.]
As doctors enter their 50s and 60s, many start dreaming about retirement; unfortunately, properly planning for retirement requires as much time and effort as planning a career.
Truthfully, the non-financial aspects of retirement are perhaps the most important. Unless your retirement is a “forced retirement” due to disability or job loss, you want to make sure you’re “retiring to” something rather than just “retiring from” something.
Physicians tend to be type A personalities, and don’t rest on their laurels well. Physician identities are also often closely tied to their careers, which further complicates the complete cessation of work. However, in this article, I’m going to be discussing some financial items you probably ought to check off prior to retiring.
#1 Debt Reduction
There is always a mathematical argument out there that carrying low or even moderate interest rate debt while investing your money can lead to greater wealth in the long run. However, these arguments usually ignore both the risk of this “investing on margin” and the income requirements necessary to service the debt.
While there may be “good debt” for someone in their 20s and 30s, by the time you are getting close to retirement, there is no good debt. Every bit of debt you pay off reduces your overall financial risk and the income your assets need to produce to maintain any given retirement lifestyle.
Are Student Loans Paid Off?
I advocate most doctors pay off their student loans within 2 to 5 years of completion of training by living like a resident until loans are gone. Some might consider that extreme, but there is no doubt that it is a terrible idea to carry student loan debt, whether it is your own or that of your children, into retirement.
Is Consumer Debt Paid Off?
There is no reason to ever carry a balance on a credit card, and very little reason to have any significant debt for automobiles or “toys” such as boats, airplanes, RVs, time-shares, etc. Certainly, if you have any of this “bad debt”, it should be long gone before any serious consideration of retiring takes place.
Is the Mortgage on Your Home Paid Off?
While mortgages are often considered “good debt”—and are available these days at very low rates—having a paid-off home, especially in retirement, frees up a big chunk of income, provides an important inflation hedge, and allows you a palpable feeling of financial security.
Plan to have yours paid off by retirement, whether that means taking out a shorter mortgage, making extra payments, or downsizing prior to retirement.
Are Investment Property Mortgages Paid Off?
Using leverage in real estate generally does boost returns. However, in retirement, you want those investments to provide as much income as possible, and the best way to do that is to pay off the mortgage.
#2 Term Life Insurance
One great measure of truly being financially independent is that if you die, your loved ones don’t have to change their financial plans. Term life insurance should be kept in place until you reach that point. If you (and your loved one) are not comfortable canceling your life insurance, you may not be financially ready to retire.
#3 Disability Insurance
If you’re financially independent, you shouldn’t need it.
#4 Do You Have a Plan for Health Insurance?
If your employer has been covering your health insurance premiums, will you have enough financial resources to do it on your own, at least until you qualify for Medicare at 65? Remember that Medicare does not cover everything.

If you wouldn't start up West Crack (5.9, Tuolumne Meadows, Yosemite National Park) without a plan, why would you launch into retirement without one?
While this is less of a big deal for a self-employed doctor who has been paying their own premiums for years, it prevents many people from retiring as early as they would like.
#5 What Is Your Income Plan?
Although it may seem obvious, I have been surprised at how many people come out of retirement because they were unable to match their retirement income to their spending needs.
A lifetime of budgeting may be the best preparation for this, but we all know how few of us really budget seriously.
Do You Have a Realistic Assessment of How Much You Will Spend in Retirement?
Start with what you are spending now, subtract out everything you won’t have to spend due to not working (such as commuting costs, payroll taxes, and CME expenses), add in expenses you will have when you are not working (perhaps extra traveling or healthcare costs), and add a little extra as a fudge factor.
Add Up Your Non-Portfolio Sources of Income
If you qualify for Social Security or a pension, you can count that. If you have (or will) purchase an immediate annuity, you can count that, too. You may also wish to add in the net operating income of your rental properties (usually about 55% of your gross rents), but keep in mind that large expenses, such as a new roof or windows, will eat into that income significantly.
Understand What the 4% Rule Means
As a general rule, you can withdraw something like 4%, indexed to inflation each year, of a reasonable portfolio and expect it to have a very good chance of lasting 30 years. That means if you need your portfolio to provide $100,000 in income each year, you need a portfolio of $2.5 million.
Do You Have a Plan for Social Security?
Delaying Social Security claiming until age 70 provides an important inflation hedge and longevity insurance. But that obviously reduces your income if you retire well before 70, like many doctors wish, or are forced, to do.
Also, keep in mind there are real advantages to having each member of a couple claim Social Security at a different age.
#6 Go for a Retirement Test Drive
Live on your expected retirement income for 6 months prior to retirement. Is it reasonable or do you feel pinched all the time? Better to find out while you still have a job.
#7 Don't Forget to Plan for Big-Ticket Items in Retirement
In the first few years of retirement (the “go-go years” as opposed to the “slow-go years” and the “no-go years”), you will probably want to spend your money on experiences, many of which may be expensive but can be easily foreseen and budgeted for. You want to avoid spending your now-limited income on expensive, unforeseen large-ticket items.
Are Your Cars Relatively New?
You don’t want to have to purchase one, much less two, new cars in the first few years of retirement. In fact, if you don’t drive much, you may find that a car purchased just before retirement is still in your driveway when your daughter finally takes your keys away.
Do You Need Toys for Your Retirement?
If your retirement plan includes living on a sailboat in the Caribbean or a luxury motor home, purchase it (with cash) before you retire.
Does Your Home Have Deferred Maintenance?
Don’t go into retirement living in a home in which you know you’ll have to replace the windows, the roof, the carpet, or even the washing machine any time soon. Do that while you still have a working income.
Are the Kids Already Married and Through School?
If not, do you have money put away that you plan to use to help them with wedding or schooling costs?
#8 Estate Plan
Estate planning is always important, but even more so the closer you get to your own life expectancy.
Are Your Will and Trust Updated?
You probably should have a will and a revocable trust before getting to retirement, but at this point you can make a much more educated decision about any serious estate planning you may need to do.
It is also a lot easier at age 60 than it was at age 40 to decide where the money you don’t spend in retirement should go upon your death.
Do You Need to Start Giving Money Away Early to Avoid Estate Taxes?
By retirement, you should have a good idea if you’re going to have an estate tax problem. Remember, your state exemption limit may be much lower than the 2014 federal exemption of $5.34 million ($10.68 million for couples).
Conclusion
Just like a pilot runs through a pre-flight checklist, be sure you run through a pre-retirement financial checklist like this one either on your own or with a good financial planner before embarking on this new adventure.
Point 15 on deferred maintenance is excellent and something not very many people think of.
Very thorough. Interesting point about cars. Will have to consider that more thoughtfully next time my husband bugs me about my 9 year old van.
MyMoneyBlog just posted a bit about this:
http://www.mymoneyblog.com/rule-of-thumb-how-much-car-can-i-afford.html
Thanks. We can afford to pay cash for a new car at this point, but I just don’t see the value for me personally. I do not care about being in a new car. The stains, crumbs, mud, dings, and dents look just the same in my 2006 Odyssey as in a new car. And, my car has never required anything but routine maintenance. But, as we near retirement the car may reach an age where resetting to a newer car is worth it for reliability and continued low maintenance (or just to get my husband to leave me alone about it).
Excellent overview Jim. On the topic of automobiles, assuming a typical retirement age, one should consider our reduced vision, hearing, reaction times, flexibility and risk of injury, when deciding what to drive. A reasonable argument can be made that driving a newer automobile, with the attendant crash protection, backup camera and safety features, is a worthwhile investment that may pay significant dividends. Of course affordability comes into the picture, but many/most of these capabilities can be acquired in a two-year-old, low-mileage vehicle, for a reasonable expenditure. If this is not financially manageable in early retirement, there may be bigger fish to fry, before leaving a profession.
I think it’s the wrong question to ask though. Rather than asking how much you can afford, you should ask yourself how much you need. I’ve seen Dave Ramsey throw out a rule of thumb that your cars shouldn’t cost more than half your annual salary. Well, that’s a pretty darn nice car for me. Maybe not a new Lamborghini but certainly a used one. Meanwhile, I’m driving a Durango I paid $4K for 4 years ago that gets me everywhere I need to go and hauls everything I need to haul.
When many of the readers reading this post retire, most cars will be self-driving. This will be a boon to retirees and will extend their mobility for a few years. So that’s the auto upgrade they need and one I’m looking forward to. 😉
We were also supposed to have flying cars by now, so we’ll see. 🙂
I think in the next 30 years there will for sure be driverless cars. Try driving around Phoenix without seeing them. But don’t worry WCI, your flying cars are coming too. 😉
https://www.digitaltrends.com/cars/all-the-flying-cars-and-taxis-currently-in-development/
Good post…I will need this information in about 20 years if all goes well. But still good information to know what I am working towards and how to plan for the future (it’s nice to get a look at the finish line before the race starts)
Incidentally, do you have any idea what the statistics are on readers to your blog? 50-60 year olds should be reading this stuff, but I have a feeling your followers tend to be a younger demographic on average.
Jim
Once again, another one out of the park
My take is that I have 4 challenges with the checklist.
1. My mortgage is not ANYWHERE paid off!!
2. I need to update our wills as we are now 60 and a lot has changed
3. My one rental property in Rexburg, ID is also not paid off but is only 50% mine and co-owned by two of my boys father in law
4. Need to make a decision on my one year old Whole Insurance policy. Costing $5400/year. Already convinced that I need to cancell my wife’s WLI policy costing $2400/year and Doug agrees.
Bob
Can you explain your rationale for purchasing a whole life policy at age 59? (one year old policy) The only possible explanation I can come up with for this is either assett protection if you live in a protected state or tax/estate planning purposes. Maybe you or Jim can correct me about why someone would do this but it otherwise seems like a horrible idea.
Thanks,
Value of Roth accounts should be analyzed.
This is really good information. People need to talk about retirement more.
I read a book about 5 years before my physician husband retired (at 62) and it recommended having dinner with 7 couples you knew that were already retired or planning to retire soon. We learned more from those 7 couples than we dreamed possible.
I’m happy to say as I read through your blog, we had done everything you recommended.
I didn’t see anything about travel in there. We have found travel (even during the pandemic) has become one of our larger expenses. Even if you don’t travel the world, as a retiree, traveling to see your kids, friends, or just for fun happens more frequently. I would recommend budgeting extra money for travel.
Great tip!
Via email:
Under section 5, 4% rule you should clarify that this is income BEFORE taxes and that income AFTER Taxes will vary among individuals depending on the relative amounts of qualified vs non qualified savings as each has a different tax rate.
It might also be helpful to explain the IRMMA rules for Medicare which can significantly increase costs for those doctors in higher income levels.
Two excellent points.
Tax planning. For many physicians, their largest retirement accounts will be pre-tax, by a landslide.
Are there going to be low(er) income years, maybe where you are working part-time or per diem, where it makes sense to do Roth conversions?
In addition, as you get closer to retirement, you’ll have a more accurate understanding of the current tax laws and how that will impact your specific situation.
I agree one should PLAN for expenses like autos and home maintenance in retirement. But that is not an argument for doing the work or replacing cars while working. Money spent replacing something that is still serviceable is just wasted. If it is good now but will need replacing later, then factor that into a retirement budget. Don’t feel some need to spend the money now.
Speaking of wasting money – paying off a low rate mortgage is a terrible idea. Someone who took out a mortgage recently has historically low rates. If interest rates go back up to 5% on the 10 year T bond, anyone with a 2% mortgage has an asset that pays them 3% per year, guaranteed. More if rates go higher. Who in the world would want to pay that off?? They would be throwing money away.
They could set aside enough to pay off the mortgage, invest it in CDs or a Treasury ladder, make the payments as they come due and turn a profit on the rest.
I would. Amazing how despite how throwing all that money away I seem to be doing just fine. There’s more to life than maximally leveraging it.
I did what you recommend for a year or two, then dropped it. Documentation here:
https://www.whitecoatinvestor.com/a-scheme-to-pay-off-my-mortgage-early/
https://www.whitecoatinvestor.com/were-debt-free/
I look at it differently. With a mortgage rate below the interest rate on bonds you have a valuable asset. If you DON’T pay it off and instead put the money in Treasurys, CDs, or munis, you have a low risk bond that pays you a return equal to the difference in after tax returns between the investment and the loan.
If you DO pay it off, then you throw that asset away. That is a bad idea.
Even if someone cannot control themselves and would waste the net return on that asset, they are better off with the bond than without it.
Deciding to pay it off is exactly like tearing up a bond.
You view a debt as an asset rather than a liability. Interesting. Would you like to borrow some money from me so you can have more of this fantastic asset?
Seriously though, your assumption is that interest rates go up so eventually you’re paying less on the debt than you’re making after tax on the guaranteed investment. Anyone who has done that in the last decade plus has been surprised to see rates not only not go up, but many times go down. There is no guarantee that interest rates will go up while you have that debt.
If after tax interest rates on an investment are below the after tax cost of the mortgage, then pay it off. If you are collecting more interest than you are paying on the mortgage, then hold on until the mortgage is paid off on schedule.
That is the best strategy whether working or retired.
Yes, I am saying that it can be profitable to borrow at a low rate and invest at a higher rate. This can be risky if the rate on the loan is variable and the investment return is volatile. For a fixed rate mortgage and low risk fixed rate investments it can be a safe and simple winner. It works for babies and those decades into retirement. Working or not. People who find themselves in this position should not throw away that asset.
Comsider- years ago someone took out a mortgage which they later refinanced to a low rate. At some point in the past, they also bought a long term CD at an interest rate much higher than current. Now they are turning a profit, as long as they hold on. They could cash in their 5% CD and pay off their 2% mortgage. But why should they give that up?
If retired they are still making a profit. They should keep doing so for as long as they can.
Yes, but the point is you really can’t (for the most part) get a mortgage at a rate lower than what fixed, guaranteed investments are paying at the same time. You can get a 2-3% mortgage, and you can get a 1-2% bond or CD. It doesn’t pencil out. The only way it pencils out is if you get the mortgage and then rates go up and then you get the investment. Taking out a loan just for that purpose is a gamble because rates may not go up.
I mean, obviously the math works if you owe at 2% and are earning at 5%, but look around you…there are no 5% CDs right now.
Every pre-retiree(within 5yrs or so) should understand Sequence of Risk and Marginal Utility of Wealth
Do you have any suggestions for books about retirement planning for those of us about to jump off the treadmill?!
Thanks,
Mark
I’ll try to think of some specific to that topic.
Any mitigations to take into account for those of us who retire with a pension? My pension covers about 90% of my expenses.
It should lower the amount you need from your nest egg by 90% then.