The questions of where you stand financially and how you will manage your finances in retirement are important enough to warrant a proper review of your current life situation.
Consider the following reasons why physicians should plan for their future:
- Protect your loved ones.
It is important to ensure that your family is financially secure and protected in case of an untimely death or disability.
This could mean providing for your children’s education, ensuring that your spouse has sufficient income and savings to maintain their lifestyle, or protecting them from taxes on an inherited estate.
As a physician, you have access to unique investment opportunities that most individuals do not have; use these opportunities wisely and plan for the future of those who are closest to you.
- Ensure you will have an income for life.
As you prepare for the future, consider purchasing a variable annuity and a fixed annuity. You can use the income from these retirement accounts to pay bills or buy goods and services that will keep you comfortable.
An annuity is not a bad investment: it can be used to cover your long-term expenses, such as medical care costs, when they become too high for you to pay out of pocket.
An important consideration is whether your employer offers benefits such as pension plans or 401Ks that might help provide some extra income in retirement until Social Security kicks in at age 67 (or later).
If this is not available through work, consider opening up another account with a guaranteed return option so that whatever money comes into it won’t fluctuate wildly with market fluctuations.
- Get clarity on where you stand financially.
To plan for the future, it is important first to get clarity on where you stand financially.
You should know:
- Your net worth—the difference between what you own and what you owe.
- Your debt—the amount of money you owe, including student loans and mortgages.
- The value of your medical practice—what would happen if you sold it? Would there be any tax consequences for selling?
You also need to understand what income you are receiving now, such as salary or other wages, dividends, interest payments on investments, rental income, etc.
Do not forget expenses like taxes paid by businesses/partnerships (estimate based on percentage). Then ask yourself whether this trend will continue into the future or whether there will be changes such as an increase in taxes due to higher income levels or decreased earnings because of retirement plans (e.g., 401Ks) which reduce contributions made through the year but provide returns later when they are withdrawn at retirement age).
- Plan for potential and unexpected costs.
You should also plan for potential and unexpected costs, such as those resulting from lost income or the sudden onset of a serious illness.
These include medical expenses related to treating an illness that pre-existed retirement, long-term care expenses, and caring for a spouse or partner who requires assistance with daily activities.
It is advisable to consider the amount you would need to pay for such contingencies before making a decision about when to retire.
Better yet, invest in a policy from Principal disability insurance to protect you financially if you become disabled.
Smart moves like this can be a lifesaver when tragedy strikes.
- Ensure that retirement funds are protected from taxes.
This is a topic that can be complex and confusing, but it’s important that you understand the basics.
When you contribute to your retirement fund (whether part of your 401(k) or IRA), the money is tax-deferred — meaning you don’t have to pay taxes on it until you withdraw it.
You will then owe federal and state income tax on the amount withdrawn. The IRS allows individuals to contribute a certain amount annually, which changes almost yearly.
These limits may be reduced if other contributions — such as employer matching — are being made into an account.
Successful physicians have a lot to look forward to as they approach retirement.
Sometimes it can be overwhelming to figure out how to make the most of your money, especially if you’re facing health issues or other pressing concerns at the same time.
Many physicians are too busy taking care of their patients and paying bills to consider their financial future, but if they don’t plan for it, they may find themselves in dire straits later on down the line.
Financial planning isn’t just about saving enough money so your kids can go to college or buying the boat you always wanted.
It’s mostly about being proactive with our finances and making smart decisions now so we don’t have regrets later in life.
Hopefully, these tips will help you develop a plan for your future—and make sure it’s one where you get what you want when it comes time for that big day!