How Much do Doctors Need to Retire?
While lifestyle factors, family situations, and personality can all come into play for physicians deciding on the right time to retire, the bulk of your decision making will come down to money. Are you financially ready to take care of yourself and your family in your later years? Do you see yourself living smaller, or continuing on with your current lifestyle? Do your savings support your goals? And most importantly: how much do doctors need to retire?
All of these questions can seem overwhelming if you’re just starting to think about retirement, but don’t worry. Like medical careers themselves, the average physician retirement savings amount will vary depending on your lifestyle, your spending habits, and your financial obligations. There’s no one magic number that will define your ability to retire – so relax! There are plenty of flexible ways to reach your goals. Here are a few things to think about:
1. How Much Do You Need to Save?
In a 2018 survey of physicians in Canada, researchers found that more than half of them were ready for retirement, with savings exceeding $1M. Most of these physicians were 55, with an expected retirement age in their mid-60s, which means that the majority of physicians surveyed were financially ready for retirement a decade before they needed to retire. Older physicians and specialists were more likely to report having at least $2M in assets before retirement.
However, there is no specific amount that will prepare you for retirement. While $1-2M is the average doctor retirement savings, what you actually need will vary based on where you live, what you spend, and how much you have left to pay on financial obligations like mortgages, children’s schooling, and other large expenses. To get a clearer picture of your own situation, using a physician retirement calculator will help to plan.
You can also get some idea of the additional funds you have available to you by checking your RRSP amount, the amount of your government pension, and any investments you have that will yield additional income such as dividends or bonds. Add this income to what you have saved, consider the value of any additional assets, like properties or equity in your medical practice, and take into account any additional income you plan to earn through locum work or part time practice.
2. What Do You Spend?
While a physician retirement calculator will give you a good idea of how much you’ll need to retire, it doesn’t help much if you don’t know what you spend. That’s why tracking your annual spending – through credit card receipts, monthly bank statements, and other means of measuring your financial outflow – is so crucial.
In the years leading up to your retirement, it’s important to get a clear idea of what you’re expecting to spend. While many expenses do go down in retirement, it’s unrealistic to think that your current spending will drop drastically. Instead, take your month to month spend and try to see where you can cut costs – can you save on cable? Subscription services? Are there lower premiums available for your life and disability policies now that you’re not working?
Keep in mind, there are some areas where you can expect to save much more – for example, in the clothing you wear to your practice every day, the cost of getting there, and premiums you pay in medical malpractice insurance. However, some costs might also rise to compensate – for example, you could spend more on travel in your retirement, plan on buying a vacation home, and give more to your children as they grow up and start families of their own.
To make sure you’re on top of what you spend, tracking is important- if you’re not the spreadsheet type, even using free software like Mint to see where your outflow goes every month will help you get organized prior to retirement. After all, the last thing you want is any surprises!
3. What Will You Earn?
There are many ways to keep earning in your retirement, as well as many reasons why you might do so. In the same 2018 survey of physicians, the largest concern for doctors planning on retiring was the impact that their decision would have on their community. As a physician, you build your career on connecting with and serving patients, and for many doctors, this role is part of their identity.
Depending on your patient load and specialization, it might make sense for you to retire gradually, working a reduced work week until you find yourself ready for full retirement. In this case, you’ll be making additional income, which can offset some of the need for additional savings.
In other cases, tracking your spending may have alerted you that you will need more to retire than you thought. There are plenty of options for you as well – for example, locum work will allow you to travel while still earning money, which is an option for many doctors nearing retirement. It also helps you keep your skills fresh and lets you serve patients in a new context, which will provide some variety into your professional life!
4. What Are Your Assets?
The assets that you have can play a big role in preparing for retirement. The largest one for many physicians is their stake in their medical practice. Selling this stake can form a big part of your retirement nest egg, but it does require some planning in the years ahead. For example, your equity stake in your practice might be easy to sell if you use an EMR system and have other doctors working in the same company. However, it might be more difficult if you have paper based records or are working alone. In this case, it might be better to simply roll up operations rather than trying to sell, which isn’t bad for your retirement plans in itself – you’ll be saving on monthly operating expenses, and if you own the building or office suites that you’re operating out of then you can rent them out to another physician.
In addition to your professional assets, you can also consider the equity you have in your home – if you’re planning to travel more in your retirement years, you might consider downsizing, which would not only earn you a lump sum from the sale of your property but also save you money in utilities and maintenance.
5. What Are Your Goals?
While financial readiness includes a lot of factors, one of the most important things to consider right from the get go are your goals for retirement. What does life look like for you and your family? Will you be travelling? Spending time in nature? Picking up a new hobby? Retired life has many options for you, and it can differ from person to person. Your spouse might enjoy long relaxing days on the beach, while you find yourself itching to get back to work. Having a frank, honest discussion about your retirement goals with the people involved is a good idea. So is doing a little bit of experimenting – if you’re looking forward to travelling in retirement, book extended stays in the places you’d like the visit before you make the move. The same goes for hobbies – if you’re thinking you’d like to spend your twilight years writing novels but sitting down to write them bores you to tears, it’s worth doing some research into a new hobby!
While excess savings are never a bad thing, you don’t want to find yourself in the position of expecting to enjoy a certain lifestyle and then finding out it’s not sustainable for you. Financial sustainability is one thing – lifestyle enjoyment is another! It’s easy to get lost in the idea that retirement requires a certain dollar amount, a certain amount of travel, or even a certain kind of laid back attitude, but physicians who have spent their entire career serving patients and managing businesses might find that some of these ideas simply don’t fit. Make sure your goals are sustainable for you, and then think about the financial means to get you there.
Your financial readiness for retirement is a highly personal decision. How much do doctors need to retire? Whichever amount allows them to live the life that makes them the happiest! While the average physician retirement savings is $1-2M in Canada, there are so many options for physicians retiring for less or physicians looking to save more. How you spend your retirement years is as personal to you as your practice itself – so plan carefully, and enjoy!