Steer Your Retirement in the Right Way

Physician's Money Digest, April15 2004, Volume 11, Issue 7

There are many financial and psychological issuesfor physicians to consider as they approach retirement.Surprisingly, the cars in your garage canhave an enormous impact on your retirement nest egg.

Having a Game Plan

Suppose that after you retire, you and your spouselease two luxury automobiles for a total of $1000 permonth. If a large chunk of your nest egg is invested inCDs that pay 2% per year, it will take more than$600,000 to generate enough income to make thoselease payments. Worse yet, you need $12,000 aftertaxes for the privilege of driving those cars, and thatdoesn't include the insurance and maintenance costs.

Even if your overall rate of return is better than 2%,you shouldn't use too much of the income from yourretirement nest egg to lease cars. Financial plannersfrequently recommend that you withdraw no morethan 4% of your retirement money each year. Usingthat rule of thumb, $300,000 of your nest egg must beset aside to cover lease payments of $1000 per month.

The Schwab Center for Investment Research offersa guideline that states, for every $1000 of monthlyincome you want, you need to have retirement savingsof $230,000. That guideline presumes you'reinvested in a moderately aggressive portfolio. If youprefer a more conservative portfolio, you need tohave retirement assets of $340,000 for each $1000 ofmonthly withdrawal.

Making the Transition

After retiring, many physicians have trouble changingtheir mindset when it comes to cars. Leasing mighthave made more sense when they owned a business andwere able to write off some of their expenses. Even ifyou're sitting on a portfolio of $1 million or more, youmay be leasing cars you really can't afford to drive.

As you head toward retirement, think about buyinga new car instead of leasing, and drive it for as long aspossible. Consider purchasing a preowned luxury vehicleor the car you lease now. After retiring, some familiesfind they don't need two cars and can rent one ifthe need arises. You might also come out ahead if yourent a car for a long trip, rather than racking up mileson your own vehicle.

Les Abromovitz, JD, an attorney, is the author ofProtecting and Rebuilding Your Retirement(AMACOM; 2003). He is also the author of Long-Term Care Insurance Made Simple (HealthInformation Press; 1999). He welcomes questions orcomments at 561-470-8544 or