Early retirement tips every doctor should know

By Naveed Saleh, MD, MS
Published May 13, 2021

Key Takeaways

During the past three decades, the mean retirement age has increased by three years, to 64.6 years in men and 62.3 years in women, according to the Center for Retirement Research at Boston College.

“The gains in the average retirement age since the 1990s have been driven almost solely by those with more education,” the Center wrote. “Today, male college graduates retire three years later than high school graduates. While the story is more complicated for women because of the dramatic change in their labor force participation over the latter half of the 20th century, the overall message is similar: Like men, the gap in average retirement ages by education has grown substantially.”

Physicians are among the most educated members of society. Due to the length of their education and training, doctors often work late into their careers to fulfill their financial potential. Nevertheless, early—or, at least, earlier—retirement is attractive to many doctors.

We interviewed certified financial planners (CFPs) for advice on how physicians can retire early. Here are 10 tips to keep in mind.

1. Limit riskier investments

The risk inherent in some investments can hinder plans for early retirement, according to Lewis J. Altfest, PhD, CFP, CFA, CPA, PFS, CEO at Altfest Personal Wealth Management. “Unless you have a track record of success over many years, save your investing to smaller medical startups and other speculative medical and similar type companies to a relatively small portion of your portfolio,” he said.

2. Make sure to save enough

Adequate savings can protect you and sustain dreams of early retirement. “Provide yourself with a margin of safety in savings prior to early retirement so that any setbacks, whether they be stock market or practical earnings such as drops in insurance company reimbursement levels, do not delay your retirement,” said Altfest.

3. Don’t sell your home

It’s probably a good idea to own your home as long as possible if you plan to retire early, according to Altfest. “Keep your home as a buffer in case your early retirement plus an extra-long life amount to 30 to 40 years of living,” he says. “A potential sale of your house when you are in your 90s provides extra cash flow if required.”

4. Find a future buyer for your practice

Not all physicians own their own practice, but for those who do, it’s a good idea to plan early. “If you have your own practice, take a new person in as a potential future buyer well before your planned retirement,” said Altfest. “For example, if you desire to retire in 10 years, you have plenty of time to train the person and to develop the capital to replace you. You still will be able to compare the sale price, if available, for selling to other practices or to hospitals.”

5. Make the most of your Roth IRA

A great way to get an early start on saving for retirement is the Roth IRA, according to Anthony Watson, CFA, CFP, of Thrive Retirement Specialists

“Physicians should aim to fund a Roth IRA earlier in their career while they are training and earning and being taxed less. The ability to contribute to a Roth IRA gets phased out at an Adjusted Gross Income of $125,000 if single and $198,000 for couples. High growth assets like stocks in a Roth IRA early in life can put physicians in a great position later in life by giving them a sizable tax-free income source to fund retirement. Combined with qualified retirement vehicles like a 401(k) or IRA that get taxed at personal income rates when withdrawn in retirement, an individual can craft a superior tax-efficient withdrawal strategy later in life adding tremendous value to their retirement situation,” Watson said.

“Ideally, a physician should first seek to max out their employer's matching provision in their 401(k), then the priority should switch to maxing out their Roth IRA funding (up to $6,000), then the priority should shift back to maxing out the rest of their 401(k). When a physician turns 50, they should also take advantage of the additional ‘catch up’ contributions allowed over the annual contribution limits,” he added.

6. Make a plan

Retiring early requires forethought, according to Watson. “First, you should consider how you want to spend your years in retirement. Once you have a vision of what an ideal retirement looks like, you can translate that vision into financial goals that need to be met. Once you know your financial goals, you can then figure out a savings plan to achieve those financial goals.”

He continued, “Additional planning is needed if you plan to retire before the age of 59.5. Tapping into retirement accounts to fund retirement before this age is problematic because most retirement savings vehicles—namely, traditional 401(k)s and IRAs—enforce a 10% penalty for any withdrawals made before 59.5.”

7. Keep interest expenses in check

Interest may free up cash, but its effects are insidious. It’s best to avoid interest as much as possible, according to Watson. “Minimize interest expense,” he said. “Incurring interest expense is like moving backward from your goal. Minimize interest expense by staying away from debt and considering a 15-year mortgage over a 30-year mortgage. Not only will you pay only a fraction of the interest expense, but you also will build equity faster and be more likely to retire without a mortgage payment.”

8. Rein in investment costs

Like incurring interest, spending money to invest can move you further away from your early-retirement goals.

“Keep investment costs low, so you keep more of your return and avoid making concentrated ‘bets’ in an attempt to beat investment markets,” said Watson. “While possible to earn a great return, it is not probable. Retiring early means investing in what's probable and avoiding mistakes that take additional time from which to recover.”

9. Don’t be a spendthrift

Fancy cars, lavish vacations, and vacation properties are a lot of fun. But, money spent on an extravagant lifestyle makes it harder to retire early.

“Beware of lifestyle creep,” said Watson. “It's easy to allow yourself more and more luxuries in life as your compensation grows that are hard to give up later in life. These luxuries can become necessities that will only add to the amount that will be needed to fund your retirement.”

10. Make the most of your Health Savings Account

It’s important to leverage your HSA (if offered) along with a high-deductible health care plan, according to Watson. 

“Healthcare costs are one of the main concerns when individuals contemplate early retirement, and HSAs are an often-overlooked tool for savings,” said Watson. “HSA accounts allow for you to contribute tax-free, have the assets grow tax-deferred, and make withdrawals for qualified expenses tax-free. Contributions made to the account carry on year to year and even carry on with you if you change employers. If you can avoid withdrawing from the health savings account during your working years by paying your deductible out of pocket, any amount remaining can be used in retirement for qualifying health needs.”

Learn more here about how you can catch up on retirement savings.

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