If you're a physician who wantsto have a fulfilling retirementsomeday, you need to formulatea plan. In fact, you need a PlanB and several fallback plans in caseyour financial situation isn't whatyou hoped it would be.
You'll definitely need a Plan B ifyou spend more in retirement thanyou anticipated. The rule of thumbthat you'll spend 70% to 80% of yourpreretirement income probably isn'taccurate for many doctors. With timeon their hands, many retirees spendeven more than they did while working.Many of them, especially whenthey first retire, are on the go constantly,shopping and spending considerableamounts on travel, eatingout, and other recreational activities.
In the years before retiring, youshould be estimating your retirementexpenses and formulating a budget.Many physicians have never made abudget, assuming there will be moremoney coming in than going out.
Start practicing whether you canlive on less and cut your spendingnow. Rehearse what your financial situationwill be like with less income,and you will be able to put moremoney away for down the road. Ifyou're older, take full advantage ofthe increased contribution limits onIRAs and retirement savings plans forpeople who are over age 50.
You should be prepared to adjustyour retirement plans as circumstanceschange. Let's say you planto own 2 homes in retirement, livingup north during the summer anddown south in the winter. If yourincome isn't as high as you projected,you can shift gears and go withPlan B, which might mean rentingeach house while you're gone.Another fallback plan is to sell bothhomes and settle on 1 year-roundresidence. If you're married and sellyour primary residence, you canmake a profit of up to $500,000without paying federal taxes.
By having fallback plans, you'reprepared to cut your outgo if you arespending too much or your investmentsaren't doing well. Before thebear market, stock investments overthe years produced an average annualreturn of 11%. As you plan forretirement, however, you shouldn'tassume that your return will bemore than 8% per year. Unfortunately,even that assumptionmight be too high, and you mayneed to adjust your spending plansor seek investments that might producea higher rate of return.
If your investments aren't doingwell as the years go by, you may needto postpone your retirement plans.Delaying retirement will help yournest egg grow and cut down thenumber of years it must last. Even ifyou delay leaving the workforce, youshould prepare for a longer retirementand plan that your nest eggmight need to last years longer thanthe average life span.
The downside with living longeris that your health may deterioratewith age. You should plan for higherhealth care costs and the possibilitythat long-term care might somedaybe necessary. To protect yourself, youshould consider buying a long-termcare insurance policy. As a fallbackplan, put assets aside to self-insureagainst the risk that you'll need long-termcare at some point.
You need specific plans for howyou'll spend your days in retirement,and they can't all revolvearound spending money. Start lookingnow for ways to cut the cost ofyour ideal retirement lifestyle.
Plan for the possibility that you'llprobably want to work in retirement,whether to stay active or to bring inextra money. You may want to beginplanning now for a second career.Make a list of the jobs that intrigueyou and whether opportunities existin the area where you'll be retiring.Your Plan B should include a numberof possibilities in case some otherretiree beats you to your dream job.
One physician found his dreamjob on the high seas. The reported thatafter Dr. Jack Levin retired, he andhis wife moved from Wisconsin toPompano Beach. After 9 months ofretirement, Dr. Levin became restlessand found a job as a physician on acruise ship. He and his wife spent 6months at sea each year for 5 1/2 years.
You shouldn't be formulatingyour plans for retirement by yourself.Your spouse or life partnershould be an integral part of theplanning process. Make sure yourretirement plans mesh.
Retirement planning doesn't stopafter you retire. You'll need to adjustyour plans in response to changes inthe tax laws, the economy, and yourpersonal situation. Obviously, youneed to revise your retirement plan ifyour portfolio has diminished significantly in value and it's unlikely thatsome of your investments will recover.Nevertheless, you'll feel a greatdeal more confident if you have contingencyplans in place to cope withfinancial setbacks.
No plan will work if you don'tfollow through on your strategy. Forexample, the asset allocation strategyrequires you to rebalance your portfolioperiodically. Rebalancing keepsyour assets diversified and allowsyou to profit as the stock marketrecovers. If you don't rebalance yourportfolio on an ongoing basis, all ofyour plans are likely to fail.
Whether you're decades fromretirement or only a few years away,you need to begin planning now. Aslong as you have a Plan B and otherfallback plans, you'll be ready forwhatever surprises retirement has instore for you.
Les Abromovitz, an attorney, is
the author of a new book,
Protecting and Rebuilding Your
Retirement (AMACOM; 2003).
He is also the author of Long-
Term Care Insurance Made
Simple (Health Information Press; 1999). He
welcomes questions or comments at 561-470-8544 or firstname.lastname@example.org.