My email box is an endless source of material for the blog and podcast. As always, details are changed to protect the innocent. Assume genders are swapped about half the time, specialties are changed, and identifying details are obscured. Today's Q&A provides a great discussion of some things to think about as you approach retirement. The situation discussed is VERY common among docs and is hardly the only time I've had a similar question. It seems particularly relevant given that I just spent the weekend with a new EMR. Nothing quite like a new EMR to make you feel like an intern all over again.
Q. How Do We Handle Money in Retirement?
A.
This email is a good example of why I feel so passionately about writing this blog, even when I feel bogged down sometimes with the time requirements of administering the WCI Empire. There are a few issues worth unpacking here for all of us.
Take Control of Your Finances Now
First, start early. This couple wants to retire in a few months. Many of the wonderful things that a physician income, even a primary care physician income, can do for your finances go away upon retirement. Procrastination of your financial education has some very real consequences as you can tell by reading between the lines of this email. Chances are good that your career, your practice, your interests, and/or your health will change in ways you do not like before you hit the age where you thought you would retire. In this doc's case, it's the EMR requirement. In the case of others, it's a disability, the death of a spouse, or a lack of interest in practicing medicine. Physician net worth surveys show that about 1 out of 8 doctors in their 60s have a net worth of less than $500K. There really is no excuse for that. You do not want your spouse emailing me when you are in your 60s saying “I am frightened” and ” I wish we had a better grip.” You probably don't want to still be driving an 18-year-old car by the time you need your nest egg to hatch. This couple is starting to take control, and that's good. But there are plenty of physician families out there in all stages of their career who have not yet done so.
Financial Advisors Are Expensive, But Worth It For Many
Long-Term Care Is A Necessary Evil For Some
I've written before about long-term care insurance. I'm not a big fan. Those with a small nest egg (including much of the middle class) should plan on spending down to Medicaid levels in the event of a significant long-term care event. Those who are single should plan on the same. Those who have a very large nest egg can self-insure against this risk. So who needs long-term care insurance? Married people with a moderately sized nest egg. What's a moderate nest egg? Maybe $200K-$1M. No hard and fast rule there, so if you're not inside that range and really want long-term care insurance, feel free to buy it. But I won't be buying it, just like I won't be carrying life and disability insurance my entire career. I suspect this doc and his wife probably do need long-term care insurance.
Take care of that nest egg!
How To Draw Down Assets
I've written a number of posts on spending and investing in retirement, including this five post series.
But here are some general rules to consider when drawing down assets:
Rule # 1 – Be Smart About Guaranteed Income
Some income is more guaranteed than others. Social Security has a very strong guarantee. A rental property has no guarantee. SPIAs and Pensions and CDs are somewhere in between. But the general idea is to subtract guaranteed income from your expenses to get an idea of what you need from your portfolio. The less guaranteed it is, the more likely it should go into the nest egg column instead of the guaranteed income column.
Rule # 2 – You Can Only Take Out About 4% a Year Of Your Nest Egg
If what you need/want from your portfolio each year is less than 3-5% of your portfolio, congratulations! You've probably got enough money to have the retirement of your dreams. If that number is higher than that, you're going to have to make some changes. One change that may help is using more of the portfolio to generate guaranteed income. This generally means buying a SPIA- a Single Premium Immediate Annuity. While you may only be able to take out 4% of your portfolio to spend, if you buy a SPIA, you might be able to spend 6-8% or more depending on your age. In exchange for that, you lose the ability to leave unused assets to heirs, and you probably lose some inflation protection as well.
Rule # 3 Withdraw Money That Has To Be Taxed Anyway First
There are some requirements in the tax code. The taxes must be paid this year on real estate rents and mutual fund dividends and capital gains generated in a taxable account. Since it is taxed anyway, you might as well spend it in preference to selling assets or withdrawing from an IRA. Likewise, once you hit age 70, you have to start taking Required Minimum Distributions (RMDs) out of tax-deferred accounts. Since you have to take the money out of the account and pay taxes on it anyway, you might as well spend it in preference to selling assets or withdrawing from a Roth IRA.
Rule # 4 Taxable Assets First
As a general rule, you want to spend taxable assets before tax-protected ones because maximizing your tax-protected space leads to more money overall. But when spending those taxable assets, consider a couple of things first. First, spend assets you don't really want. You know, those legacy assets that you wish you hadn't bought in the first place. Maybe some individual stocks or high expense ratio mutual funds or whatever. Might as well take this opportunity to flush those out of your portfolio. Then, sell the high basis investments (the ones you paid the most for) because it will cost you much less in taxes. Ideally, you can leave those really low basis investments for your heirs to enjoy the step-up in basis at your death.
Rule # 5 There Are Many Roads to Dublin
There is plenty more to learn about how to spend your nest egg. You can do Roth conversions before Social Security kicks in and there are lots of little tricks to reduce your tax bill by judiciously utilizing a combination of selling low basis shares in taxable, HSA withdrawals, tax-free withdrawals, tax-deferred withdrawals, and borrowing against assets like cash value life insurance and your house. That's all beyond the scope of this post, but well worth either learning this stuff yourself or hiring someone who is familiar with the nuances.
What do you think? What advice would you give to a doc approaching retirement and just getting started learning about finances? Comment below!
The EMR complaint from older physicians is fascinating to me. As a young physician, I love having an EMR and realize how much safer it makes patient care. If the passion to serve is still there, every hospital I’ve worked at has a great EMR IT team that is happy to help physicians get their work done in a more efficient manner. Also, if money is tight for this couple and retirement would be financially difficult, wouldn’t it be better to hire a scribe and still have a great income (minus the scribe’s salary) with less EMR stress? Is someone ever too old to take a typing class?
Agreed! I think I speak for most millennial physicians when I say that EMRs are a welcomed tool. I’ve done my share of paper charting, and find EMRs to be better on many levels. But it’s actually pretty frequent that I hear about older physicians quitting or thinking about quitting medicine for reasons related to EMR implementation. Scribes and typing classes are good ideas. There are ways to gain comfort with a new system, and people to help. Doctors shouldn’t feel forced into retirement because of a computer program!
Having used both paper and electronic medical records, I get it both ways. I was able to see 6 patients and hour while I was in the military doing paper charting but now feel busy seeing two. Part of it is somewhat higher acuity, but a big part of it really is the fact that I have to put in orders and document my work in the EMR.
Mmm…the days when most of my chart (without paying for a scribe) and my initial orders were done before I walked out of the room.
I couldn’t imagine going back to a paper system of records, but I do reminisce over the days when ancillary tasks were done by ancillary staff. Now, might as well just have me answer the phones too and that way we can just fire the ward clerk.
Yes, I hate being so short-staffed that I’m answering the phones (which I do on a daily basis at least a few times), but that’s what happens when the doc works for one business, the nurses/techs/clerks work for another, and an efficient use of the physician’s time is only a priority for one of the businesses.
This comment may be a little outside the scope of this blog/topic. Part of my job involves working with MDs IT around the EHR. I think EHRs make a convenient whipping boy for physician anger. The real villain here is CMS, TJC (insert your acronym of choice) and inane documentation requirements. If EHRs were designed around physicians and patients rather than billing, coding, compliance, and quality reporting they would be much more usable.
I am a younger physician- I like the EMR, however EMR transitions are almost always terrible. There is not enough of the right training, and it sucks when NOBODY knows what they’re doing (as opposed to when you’re at a new job and everyone except you knows what they’re doing). Thankfully I was on maternity leave when my hospital switched EMRs, I heard it was a real mess. Much less painful for me when I came back to work and everyone else was up to speed
Pretty comprehensive response. It is sad that it takes 30 years for some to start getting their finances in order. I have always been a do-it-yourselfer but clearly, that isn’t the best choice for a couple like this.
Man, this is a rough spot to be in. I feel for these people.
My neighbors dad (not in medicine) “retired” and thought it was impressive to have $10,000 to his name. Some people just don’t get it, and it’s a reality that many people get it too late. One of the best docs I know who is a mentor to me continues to work in his 60s because he can’t retire. He hasn’t met his number yet as he rebuilds second houses and has a wife with a penchant to spend.
I think that the order of your draw down plan makes perfect sense. And for this couple living longer may be a bigger problem for them and give them a real shot to run out of money.
Another strategy, though sad, would be for them to downsize however much they can so that the number they need is much smaller. Sounds like they already do that to some extent with the car they drive. Hopefully, if their nest egg is small, they have done that with their mortgage (hope it’s paid off!) and other fixed expenses.
Good post, and good inspiration to take care of your financial education now!
One exception id may want to withdraw from 457 before taxable account except for dividends earlier since it is at risk. Otherwise seems reasonable. What rate environment do you think a SPIA is worth it? Was thinking over 6-8%? I have a friend whose dad locked on in the 1980’s for 17%, still collecting in his old age.
It varies. Could be worth it even at 4-5%, but generally it is bought in your 60s or early 70s in the 8% range.
I’d like a clarification on what the phrase “I try to be frugal” means. You either are or you are not. Frugal people tend to not have questionable finances when they’re in their mid-60’s, especially when one of the couple has been a practicing physician the entire time, even in one of the lower paying specialties. For someone that age, student loans probably weren’t an issue like they are for more recent graduates. Something’s missing from this story.
It’s a good illustration of the fact that we all think we’re frugal, but often times we have poor insight into our financial habits or condition.
And that is where a site such as this is very useful. People think I am very cheap, and of course in many ways I am. But for important things you pay what you can or must, charity is one for me but with limits. We don’t have two houses, nor expensive travel either.
You can be frugal but not super knowledgeable of investing / personal finance and end up in a similar situation. I work with an older attorney who seems to be in this position. He will make it but with a little less comfort than one would hope after practicing 30 plus years. He has a financial planner now but they basically seem to pay the AUM fees.
Good and timely post. I might be violating a rule here but I am in the process of launching yet another physician blog targeting Docs nearing or in retirement. I will announce it on the forum when I get it up and running. It is somewhat scary to face retirement with no pension and no subsidized healthcare. Really the planning to do this is years in the making.
Welcome to the blogosphere and good luck!
Hatton1,
You will do fine.
You have more than enough money.
I can’t wait to read your blog. I’m glad you will be doing that.
Agreed! Let us know when it is up and running. Really look forward to reading your posts!
Thanks! I am figuring out wordpress now.
I’m looking forward to your blog Hatton1! We need more blogs for people in our age range who are nearing retirement and navigating health insurance and nest egg drawdowns.
As a new retiree, excited to read your blog!
I am a retired physician. I took CFP training a few years ago mostly for myself. Later I discovered perhaps the best book on financial planning and retirement that mirrored the CFP curriculum. It is very readable and has helped many whom I’ve recommended it to. Control Your Retirement Destiny by Dana Anspach. You can find it on Amazon.
Thanks for the tip, Daniel. I will check it out. Finally, someone found a book I haven’t read!
Agree on the Control your Retirement Destiny recommendation. Excellent book.
want to applaud you for discussing this email. I think primary care docs are the unsung heroes of med school. The good ones, and there are many, deserve more and a better financial outlook, which I think is the core value of this site.
I think EMR is not a reason to retire if he can afford to work longer. Some EMRs are terrible and none are truly great. I’d advise the doc to invest a few hours with a younger doc who is handy with it and get one on one tutoring. The truth is that most pt visits are similar and often center on 15-20 diagnoses; with templates and focusing on this doctor’s type of practice and patients he could turbocharge his charting. I’ve found the genercic training sessions are valueless and I bet the younger docs here would agree; they all figured out on their own how to tune the EMR to their needs, which takes some knowledge. A few hours of EMR tutoring would be worth more than quitting work and losing years of income.
I think the criticism of “you are frugal or not” is not totally unnecessary. We’ve all seen some older folks who are hardworking and dedicated and esp in medicine somehow assumed that retirement would spontaneously appear like Perhaps that was true years ago but not anymore. Life happens and people get divorced, have an illness, got hurt by a bad investment . There are many docs like this one and I’m glad you are taking the time to help him. With all the disruption/change in medicine the PCP is getting more beat up, not less
I bet these programs like many have little to no proper documentation or procedures for their use. The vast number of alternatives should be very limited as this posts indicates. I bet the coding portion is the worst as well. Too many options makes life very stressful.
Very nice post! And Thank You Daniel Walker for that recommendation – I’ll check that book out.
I agree with ED that while the couple needs to get their Financial House in order, the Physician family should look at what created the current crisis. Otherwise they may again do things in haste.
Learning EMR can be done as others have suggested. Learning from a younger MD, or hiring a Scribe both will work. I agree with OhioDoc that hiring a scribe can take away the overwhelm while still bring in good money.
This is a great post, personally I have a different plan. First before being retired arrange your actual expenses to be as low as practical. No debt at all. Then consider that dividend income for moderate amounts is not taxed at all at the federal level. Third if you can live on less than your actual income, so you take nothing out of your investments until the mandatory draw down. This works for me, but I was lucky in investing at a low point and having saved my entire career. Good luck and remember a plan with a budget is mandatory.
Given the almost decade long Bull I’d be nervous as we are ripe for a correction here. The safe withdrawal rate projections I looked at have the bear market coming early in retirement as the highest percentage of failure. If the best egg is only close, I’d try to delay. If the best egg is “more than enough” and a very conservative withdrawal in the beginning can make it through than go for it. Hard to know without more budget detail. Some more pessimistic personalities fear that their 5mil nest egg is not enough. Others are confident 2mil and frugality is safe enough.
Hah. Autocorrecting Siri replacing nest with best. Ugh
The market climbs a wall of worry. About the time we stopped worrying about “a second dip” back in 2009-2010 we started worrying that we were ripe for a correction. But acting on that worry, at least so far, would have been the wrong thing to do. 8-9 years running now.
Great point WCI.
Didn’t mean to advocate for market timing with decision making,
You just feel bad if someone takes the retirement plunge with a portfolio that cant sustain an early hit.
Great post and discussion thread once again.
Another book she might want to check out is “How to Make Your Money Last” by Jane Bryant Quinn.
https://www.amazon.com/Make-Your-Money-Last-Indispensable/dp/1476743762/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=&sr=&dpID=51E1dhSU38L&preST=_SY344_BO1,204,203,200_QL70_&dpSrc=detail
“Chances are good that your career, your practice, your interests, and/or your health will change in ways you do not like before you hit the age where you thought you would retire.” True enough. But let’s not lose sight of the fact that we are trying to live lives, as well as reaching for the brass ring of retirement. Yeah, you got to save money during your career and you got to plan for someday retiring. And you got to be sensible with spending and have some current life vs. retirement balance. But I see too many people going overboard towards being laser focused on retirement someday and avoiding living for today. I’ve known frugal people in my life, and I don’t consider that to be a virtue for any of them. Yeah, your career changes and the hospital admin gets suckier and suckier as time goes on, and the EMR sucks and all that. So what? They pay you, a lot by the way, to put up with all of that. Finish the work day, go home, and live your life. A ton of adults die between 45 and 65 and never make it to retirement. Sorry, but some of you HAVE to be in that group, right? So much focus on frugality and $4,000 cars and living like residents and all of that. I am not saying you should go out and spend when you have debts and no savings, but there has to be a balance and I am not seeing that in any of this. I did not say that you should wait until the year you are going to retire to start thinking about finances, like is implied by the questioner at the start of this post. But yes, you can get new carpeting if the carpets are frayed. Yes, you can go on vacation when you work 80+ hours a week. Yes, you can enjoy life when you are 50 and make more than most of the rest of the country’s citizens, by far. All this focus on frugality and retirement while the best years of your life are going by the wayside.
In summary, if our whole careers are spent hating what we do so much that we can’t wait to be old people so we can retire, then there is a real mindset problem with many physicians.
Agreed. Moderation in all things.
https://www.whitecoatinvestor.com/moderation-in-all-things/
Dr. Dahle, Loved your book. Need help. I’m about to graduate from training (first residency, then fellowship) in June. I have $15K in my 403B. I will take a job at the VA hospital, starting August. What should I do with the $15K? Put it into a roth IRA? Ideas anyone? The VA has a 401K type of plan as well.
Thanks for any help. I’m so lost.
It really depends on what the money is invested in now and does your current employer charge you a fee to maintain it there when you leave. If there is a fee of the 403b options are poor you can do a rollover to the VA retirement plan once you are I that job. I would NOT take the money out and have it sent to your bank account as this may force you to pay taxes on it.
Also there are a lot of good “classic” articles on this site as well as the book or course…will be helpful in helping to feel less confused. But the basics are far simpler than med school and I’m certain you can learn them.
You have enough other stuff to deal with. I would just roll it into an IRA.
Call Fidelity or Vanguard or someone like that and tell them what you need to do. They will walk you through it.
You saved some money. Be proud of that. No need to stress.
Yes, converting it to a Roth IRA before year end and paying the taxes is a great option for that money. You can also leave it in the 403b or roll it into the VA 401(k) (probably the TSP).
If you are not familiar with marginal utility of wealth and sequence of returns, prudent to study these terms
it can affect your retirement immensely
From a patient perspective emr give me a lot more info and history in an easy to access way.
I can track my progress over years for things like BP cholesterol etc.
Some EMRs offer that sort of a feature. Many don’t.
Long time reader and first time poster. I’m a DIY finance guy and always learn a lot here. WCI is one of the blogs I recommend to my colleagues who ask. Thank you for making this excellent resource available.
As a receiver of care and a non-medical professional I have found the insights into working as a doc fascinating. I am a software designer by profession and we older infotech workers also experience a lot of burnout and stress, but for different reasons entirely. With my own health suffering a bit over the last year, I’ve found myself visiting docs and new specialists more frequently than in years gone by.
For my .02 cents; as a patient I LOVE the EMR!
I don’t have to fill out the same stupid paperwork for every visit, other specialist docs in my network get an accurate picture of past treatments and medications, AND I don’t have to schlep prescriptions to the pharmacy and wait around while they call the office for clarification on dosing and finally handing out the meds. Without EMR, things would be impossible for my wife who underwent brain surgery for Chiari 6 years ago and is now on a battery of meds (for chronic pain and others) that impact her memory. She has regular visits with her primary, pain, and neurological docs.
As a software designer (and one who has mostly worked on enterprise / business apps), I can empathize with you EMR “users”. Not being personally familiar with using or designing the EMR interface, I wonder just how much care and attention has gone into understanding docs workflows, bottlenecks and issues in use; and subsequently addressing these in the code.
I would hope that your EMR vendors keep designers and usability experts staffed on their software teams, and actively engaged in creating the best EMR experience possible. Y’all should ask them about this, or start digging into it with your IT teams. Sometimes there can be “issues” with the way that IT has configured and deployed a system.
Excellent example of the importance of starting to care about your finances early on in your career. You can make a lot of mistakes along the way but most docs should still be all right in the end as long as they start paying attention early on. Great responses to all the docs issues.