Whether you’re still in residency or well into your career, the best time to start physician retirement planning is today. The White Coat Investor blog has lots of useful information on financial planning in general, but few investments take as much planning as retirement does. Here are the top things physicians should know when planning for retirement.

1. Budgeting for retirement

While some people say you should have about 70 percent of your income per year after retirement, the White Coat Investor disagrees. When you retire, your cost of living will be much lower. Your taxes will dramatically decrease, your kids won’t need as much financial support, you won’t need to put any savings aside for retirement, and you’ll likely have paid off your mortgage. All of this adds up quickly — White Coat Investor found that doctors earning $200,000 a year might need as little as $56,000 per year during retirement. This may differ by person, but it’s important to consider how your cost of living will change after retirement. Read more about budgeting for retirement here.

2. Adjusting asset allocation

Allocating your investments between stocks and bonds is a game that gets trickier the more you try to play it. A general rule of thumb is to put the majority of your assets into stocks when you’re young, then decrease the ratio of stocks to bonds as you age. That way, you get the long-term benefit of high returns from stocks, while you have time to weather any storms when stocks aren’t performing as well. As you get nearer to retirement, move your assets into bonds, so you don’t risk losing what you’ve saved. Use non-taxable accounts — like 401Ks and IRAs — to reallocate your funds so you don’t lose money to taxes. Read more about allocating your assets here.

3. The benefits of working one more year (or part-time)

Lots of physicians love their jobs and don’t have an interest in retiring right at 65. That’s a good thing! If you decide to work an extra year or more, your finances will thank you. If you work an extra year and save effectively, you could end up with an extra $5,600 to $12,000 every year of your retirement. This could mean an extra trip each year of retirement, for just one extra year of work. Another alternative for working beyond retirement is working part-time or locum tenens jobs to supplement your retirement income. Plus, there are retirement accounts that work particularly well for independent contractors. Read more about the benefits of working one extra year here.

4. Maxing out retirement accounts

Doctors planning on retiring early might not see the benefit of investing as much as possible in retirement accounts and look to other investment opportunities. However, retirement accounts are a great way to save money for later even after you have been retired a few years. That way, you can use your more readily available assets in the first part of retirement, and let your retirement accounts continue to grow until you need them. Another common myth is that you’ll be penalized for taking money from your retirement accounts early, but this isn’t true. As long as you withdraw at a set rate (generally around four percent) each year, you can generally get money from your retirement fund before you’re 60 years old, but it’s important to consult with your tax adviser before doing so. Plus, as long as you’re not tied to an employer, you can get money from your 401K whenever you choose to retire. Read more about maxing out retirement accounts here.

5. Withdrawing from your retirement effectively

There are lots of resources that promise all sorts of magic tools to figure out what your ideal retirement withdrawal rate is. The problem is, how you’ll spend money during retirement is a personal choice that algorithms can’t always get right. According to the White Coat Investor, a general rule of thumb is to stick to a withdrawal rate of about four percent of your retirement funds each year. That way, you’ll have enough in your retirement to continue making money on your investments. Of course, the most important thing to know about withdrawal rates is to understand that there isn’t one number to stick with. You should start with one number, and then increase or decrease your spending based on your comfort with that number. Read more about withdrawing from your retirement here.

6. When to take social security

Like all forms of investment, when to start taking social security is a bit of a gamble. Some people think you should start taking social security as early as possible. The pros here are that you’ll have more time to spend and/or invest your social security benefits. On the other hand, each year you wait before taking social security will increase your payments by eight percent. This means you get a guaranteed return for waiting to get the benefits. However, if the worst case happens, and you pass away early, you and your family won’t get any of these benefits. Read more about the pros and cons of when to take social security here. What tips have helped you in your physician retirement planning? Share your ideas in the comments below. For more info about working locum tenens to supplement your retirement income, give us a call at 800.453.3030.