By Dr. James M. Dahle, WCI Founder

In chess, there is an opening, a middle game, and the end game. Given our mortality, there is also an end game in investing. Today, we'll address it.

med school scholarship sponsor

Our subject comes from an email:

“There are several people in my peer group who fit the following profile:

  • Physicians
  • 65+ and still working
  • Investment assets of $5 million-$10 million
  • Home value of $2 million-$4 million
  • No debt

These docs like working but recognize the impending need to wind it down. Looking at this, we should (I think) feel lucky and comfortable. We are fortunate but we’re actually terrified that we’re making mistakes we will have to pay for later when we’re most vulnerable. Some of us even have between $1 million-$2 million sitting in cash because they don’t know what to do and don’t want to get ripped off. What should we do?”



The first thing to do is to congratulate these fine folks on a job well done in the accumulation phase. With net worths in the $7 million-$14 million range and a job they still enjoy, these docs have triumphed in a game that few can win. Remember that only 10% of doctors have $5 million or more in assets and a quarter of docs in their 60s aren't even millionaires. That does not mean the docs mentioned in that email don't have any problems, but it does mean they don't have the usual (much more difficult to solve) problems.


You Still Need a Written Investing Plan

The cure for paralysis by analysis, whether you're 30 with a net worth of negative-$200,000 or you're 65 with a net worth of $10 million, is a written investing plan. When I hear that someone is “terrified of making a mistake” and has “$1 million-$2 million sitting in cash because they don't know what to do,” I know they don't have a written investing plan. The solution? Get one. As I've written before, there are three ways to get it:

  1. Write it yourself (this is best for capable, frugal hobbyists)
  2. Take the Fire Your Financial Advisor online course (it has a cost, but you'll receive a framework and a high-yield education to assist the process)
  3. Hire a financial planner to help you draft it up and possibly implement it (this is the most expensive but requires the least expertise)

Whichever option you choose, you need that plan. Our most recent poll of white coat investors indicated that only half of them have a written financial plan. If you “don't know what to do,” get one.

Remember that a 65-year-old still has a long-term investing horizon for a significant chunk of their money: 20 years on average with some as much as 30 or 35 more years. Traditionally, about half of your investing career is before retirement, and half is after. That portfolio will still need to produce some growth and keep up with inflation, so there still needs to be some risky assets (such as stocks and/or real estate) in the portfolio—even if the ratio of risky assets to less risky assets is lower than it was during the early accumulation years. Don't fall into the trap of “income investing.” Assets and income are both fungible and you can convert one to the other at any time (although it may require some costs and/or taxes to be paid.)

A cash holding is not necessarily a bad thing, although 10%-40% of your portfolio is almost surely excessive. However, many retirees are just fine keeping 1-2 years' worth of spending in cash. Like an emergency fund, this money allows them to invest the rest more aggressively knowing their short-term spending needs are taken care of. It's more about the return of the principal than the return on the principal for that money.


A Spend-Down Plan

One thing an investor in the distribution phase needs that one in the accumulation phase does not necessarily need yet is a spend-down or distribution plan. This is a plan that describes how you are going to spend your money in retirement. The plan needs to detail several things:

  1. How much you will spend
  2. How that amount will be adjusted if necessary
  3. The order in which assets will be spent

A book could be written about each of those three topics. The classic guideline for how much to spend is the 4% rule. That rule says you can spend approximately 4% of a portfolio—adjusted upward with inflation each year—and expect with a very high probability that the money will last 30 years. If you're FIREing at 50, perhaps you need to adjust that 4% down a little bit. Conversely, if you work until 70, you can probably adjust that number up a bit.

The more flexible your spending and your withdrawal plan, the more of your assets you can spend. The ultimate flexibility comes when all mandatory spending is covered by guaranteed income (Social Security, pensions, Single Premium Immediate Annuities [SPIA]) and only discretionary spending comes from the portfolio. Then, in the event of a severe market downturn, no money must be spent from the portfolio. A variable withdrawal strategy that “adjusts as it goes” is clearly a better option than any sort of hard-and-fast rule.

However, most of the docs mentioned in that email probably aren't even going to need to spend 4% of their portfolio to maintain their pre-retirement lifestyle. Their worry is almost surely misplaced given that 4% of $5 million-$10 million is $200,000-$400,000 a year. That goes a long way when there are no student loans, no mortgages, no need to save for retirement/college, no kids' expenses, and no disability/life insurance premiums. Plus, they've already worked through most of the “go-go years” of retirement.

The order of spending assets is also an important part of the distribution plan. The general rule here is to first spend that money that is going to be taxed anyway before moving on to other income. This includes earned income, Social Security, pension payments, SPIA payments, required minimum distributions, rental income, interest, dividends, and capital gain distributions. If you need to spend additional money, it should usually be taken from high basis assets in the taxable account. Only after that point should additional retirement account withdrawals, low basis taxable investments, and borrowing against assets (portfolio, cash value life insurance, house) be considered.

As you design a spending plan beyond that income you must pay tax on, keep the estate planning implications of that plan in mind. Some assets are best left for heirs and others to charity if you are inclined to leave money to either.


Heirs vs Charity, Accounts at Death


If you need assistance with a distribution plan (whether just drafting it or drafting/implementing/maintaining it), book an appointment with a competent, fairly-priced financial advisor.


Estate Planning

Everyone should have an estate plan, but the wealthier you get and the closer you get to your likely time of death, the more important it becomes. Writing a will ensures your assets go where you want them to when you die. A revocable trust helps you to avoid probate. If you anticipate an estate tax problem (i.e. an estate larger than the estate tax exemption of $12.06 million for a single person and $24.12 million for a married couple in 2022), some additional planning can help minimize the bite of estate, inheritance, and even income taxes for you and your heirs. If a large portion of your estate involves illiquid assets such as farms, businesses, or properties, liquidity planning can also be important.

The truth is that many of these wealthy but somewhat anxious docs are highly likely to have an estate tax problem. Using a 4% withdrawal rate, you will, on average, die with 2.7X the amount you retired with. While the estate tax exemption is indexed to inflation, it is scheduled under current law to be cut in half starting in 2026. That means it will be approximately $6 million single/$12 million married, climbing slowly with inflation. If these docs do not want Uncle Sam to be among their primary heirs, they should seriously consider giving money away to heirs and charities now and/or at death.


Asset Protection

Mo' money, mo' problems. The more you have, the more you can lose. Asset protection concerns become more and more important as assets grow. However, most retirees actually have less asset protection risk than younger people, especially as malpractice concerns recede and dangerous habits are eliminated. Insurance is still the first line of defense, including a seven-figure umbrella policy. You are still far more likely to lose money to your spouse than anyone else, just like earlier in your career. Date night is the best asset protection technique. Well-developed spend-down plans and estate plans tend to maximize asset protection naturally.


As you accumulate wealth, you need a way to protect your assets. WCI’s newest book is The White Coat Investor's Guide to Asset Protection, and it provides the techniques you can use to safeguard your money AND the most comprehensive list of state-specific asset protection laws ever published. Pick up the book today and protect your wealth!


Planning for Senility

This group of docs has serious fear that they're “making mistakes we will have to pay for later when we’re most vulnerable . . . and don’t want to get ripped off.” winning the end gameI addressed some of this fear above when I talked about an investing plan and a spend-down plan. Some of this fear is addressed by learning enough about the financial services industry to recognize when you are getting good advice/service at a fair price. However, there is some additional fear due to our own decreasing capacity as we age.

There are lots of people that can rip you off, ranging from investment managers and financial advisors to scam artists to your own family. A certain amount of fear of that is probably healthy. While these risks cannot be eliminated completely, they can be minimized. If you are a do-it-yourself investor, then have a backup plan, especially if your spouse is not comfortable. The backup is often an advisor whose role goes from occasional check-ins to full management over time. Make sure your plan includes triggers of when that will occur. Perhaps your plan involves a trusted family member or friend with a financial power of attorney. Redundancy is key. It is best to have multiple people involved who can all watch each other. The elderly are particularly vulnerable to scams. If something seems even a little off, run it by somebody knowledgeable before acting. Also, be sure to treat your kids well since they'll be choosing your nursing home!


Even successful, experienced, wealthy doctors have money worries, and they might be concerned that they're going to get check-mated off the chessboard while they're still playing the game. Financial planning should address most of these concerns. If that isn't sufficient, you can always add a coach or even a therapist to your advisory team.

What do you think? What advice would you give to these anxious, late-career, multimillionaire docs? Comment below!