Planning ahead: Retiring without breaking the bank

There were two main questions I considered when I started to think about retirement—1. ‘What am I going to do with the rest of my life?’ and 2. ‘How will I have enough money to live?’

Retirement comes quicker than you think, no matter how many years or decades you have until that milestone occurs—and one major way that we need to be prepared is financially. Which leads me to #2 in my ‘5 M’s of retirement’: Money.

However, I have a disclaimer: I’ve never worked in finance—these are my thoughts gleaned from my own experiences. Only you know the specific circumstances of your own life. Take what you like from the advice below, and leave the rest.

Planning for retirement is in large part about money, as many of us worry about how much saved is enough to retire on and where the money we live on will come from. The answer is not the same for every physician.

Take a realistic look into your accounts—and spend accordingly

Start by looking realistically at your expenses. Online calculators can help with retirement projections of how much money you’ll need. What type of lifestyle you’ll be living is also key when contemplating money in retirement.

A piece of advice I’ve heard over the years is to live like a resident in your first years of retirement and you’ll be set. While that may work for some, it’s not for everyone, and it certainly wasn’t for me.

As physicians, we have all worked tremendously hard to be able to have job security and the means to treat ourselves and our families.

My recommendation is to spend some time finding a balance between an excessively frugal and excessively lavish lifestyle. In envisioning your life in retirement, think about how you might live a rich and full life without spending exorbitant amounts of money.

In the few years before retirement, think ahead. Will you need a new laptop? Purchase it while you’re still working. What about a new vehicle? Consider buying it before you retire, in cash if you can, to avoid car payments. If you are able to, plan to pay off your mortgage and any student loans and credit card debt before your employment end date. It’s ideal to start the Back Nine with no debt if at all possible.

I thought I was prepared for retirement, but there was no way to imagine the feelings of seeing a stagnant checking account. While paychecks will stop, there should be dividends and other fixed income coming in. This takes planning, and it can be beneficial to hire a financial advisor to help you make this transition.

Financial preparations before retirement

One thing I started planning for around two to three years before retirement were individual savings accounts for taxes, vacations, healthcare, a “fun” account, an emergency fund, everyday expenses and a family account. This is also a good time to name beneficiaries for everything you can, so you don’t need to worry about finishing this in the future and money doesn’t get held up in your estate.

I like keeping my various funds separate instead of pooling money into just one account—this has worked well for me. If you have a savings system you are satisfied with, stick with it. If not, this is the time to create one. Setting aside these separate funds will help you stay in your new budget without pulling from your day-to-day expenses.

If you retire before you are eligible for Medicare, healthcare will be one of your largest expenses. It’s no joke! Save for it and be prepared. Quarterly taxes were also an area previously taken care of by my employer—I had taken this for granted. Make sure to keep up with your new estimates, as you can be subject to late penalties otherwise.

In the six months before retirement, I also needed to max out IRA contributions as if I was working the full year. That was a bit of a shock. Looking back, it showed me what life without a paycheck would be like. This was one of the best things I did, as it helped me be less surprised upon retirement.

Where to look for retirement guidance

Some physicians get a financial advisor or fiduciary. Some learn from books, social media groups or from online research. Most of my working years, I personally had a financial advisor—I wasn’t interested in finance and didn’t have the time for it. The only thing I did was balance my checkbook (not well either).

At some point, many years after entering medicine, I started looking at the financial statements that came in the mail and wasn’t thrilled about what I saw. Learning the basics about finance and the stock market became interesting as I became more educated on the topic. I picked up the basics by reading and talking with people going through similar financial situations.

An important consideration is when to take Social Security. If you wait until your full retirement age, which is 66 or 67 depending on when you were born, you will receive more money. If you wait until age 70, you will receive the maximum monthly benefit. However, what works best for each physician will depend on their own specific circumstances, including life expectancy and cash flow requirements.

“Don’t save what is left after spending; instead spend what is left after saving”—this quote by Warren Buffett rings true, providing a healthy mindset around saving funds. I wish I had heard that quote decades ago.

My first job out of college was in medical research. I saved 10% of each paycheck for years—but at some point I wanted things, so I spent it. I have nothing to show for the years I saved and nothing to show for the things I bought. Thankfully I started to save again during my 50s. It wasn’t ideal, but it was something. It’s never too late to start saving with what you’re able to.

My 6 final tips

1. Keep track of where you spend your money.
2. Create a savings plan now.
3. Before you make a purchase, ask yourself if this is something you need, want or if it would just be nice to have.
4. Save money and avoid debt when possible.
5. Become financially savvy, or at least learn the basics—this will guide you well in the future.
6. Have fun along the way. Life is too short to deprive yourself; just be aware of what you’re doing. Spend with intention.

Managing the second M of retirement—money—starts now. You (and your family) will be grateful to have a well-thought out strategy. Ask yourself, what do I need to navigate next to create a jubilant Back Nine?

Up next: Milestones of retirement

In my next column, I will be addressing “Milestones,” the third M of retirement. Please join me through the Back Nine.

Related reading:

How physicians can lose their identity in retirement and what to do about it

Prepping for retirement: My top 10 tips