How much should doctors save at every life stage to retire?

By Naveed Saleh, MD, MS
Published February 2, 2021

Key Takeaways

A quick search of how much money is needed to retire often yields disparate results. Many experts shy away from specific numbers, because it can be difficult to come up with a dollar amount that is universally applicable.

After all, so many individual factors are at play. How old are you now? When do you plan to retire? Are you in declining health? How long do you expect to live based on family history? What type of lifestyle do you desire in retirement? What will your sources of income be?

Long years spent in school and training can put physicians in an enviable financial position for retirement. Becoming a physician is hard and no one will begrudge a physician for their expectations about a certain status of living that they wish to maintain throughout life.

Why work so hard just to downsize?

But maintaining this status of living while retired requires a large nest egg. Conventional numbers bandied about in the ether, such as $1 million, will not come close to cutting it. Instead, it’s probably best to set up age-based savings goals.

Before we delve into specific financial milestones to hit at every age before retirement, however, let’s first look at some other considerations.

Money out

Nobody argues that modern life is expensive. Various financial obligations must be taken into consideration with respect to retirement.

Early in retirement, when retirees are typically healthy, bigger financial expenses will likely involve travel and entertainment. As a retiree ages, however, travel becomes more difficult, and these expenses decrease. Toward the end of life, assisted living costs can become a huge expense. And then there are unexpected expenses—many retirees found this out when adult children moved back in thanks to the COVID-19 pandemic.

The good news is that certain expenses should have been eliminated by the time of retirement, such as student-loan payments, mortgage, childcare, and disability insurance.

For some physicians, these expenses could have comprised more than half of the monthly expenses, which now can be redirected to well-deserved travel and pleasure.

Don’t underestimate disability insurance! Premiums for some doctors top $1,000 a month, so to have this financial albatross off your back is a huge relief.

For those who plan to retire before 65, then private health insurance becomes a definite need. Without Medicare, private insurance amounts to at least $1,000 per couple.

Once you outline all of your projected expenses during retirement, add these up in today’s dollars. This number will give you a rough estimation—without taking inflation into consideration—of how much money you may need to retire. When coming up with these projections, it may be a good idea to sit with a financial planner who can help you further hammer out the details.

For high earners, the Employee Benefit Research Institute suggests the breakdown of expenses at various ages of retirement. For example, for those aged between 65 and 74 years, 43.9% of total expenses goes to housing, 9% goes to food, 8.2% goes to healthcare, 11.9% goes to transportation; 13.4% goes to entertainment, 7.1% goes to gifts and contributions, and 2.7% goes to clothing.

Money in

Fortunately, the price of retirement isn’t solely derived from one’s nest egg. Green does come in, and this cash flow should be considered when planning. In addition to social security, sources of post-retirement income could include pensions, annuities, proceeds from selling a house or practice, rental income, or inheritance.

Moreover, many physicians take on other gigs after retirement. The beach and links are fun, but seeing patients is enjoyable, too. In addition to locum tenens, other side hustles to consider as a retired physician include teaching, consulting, hospital administration, and telemedicine.

Age-based estimates

Once you figure out how much you need to live comfortably per year, one way to get a good idea of how much you will need to retire is calculated by taking your annual income and multiplying it by 25. This represents 25 years of retirement if you plan to retire at age 65.

But, keep in mind, if you are 35 years of age and plan to retire at 65, and you and your partner have decided that you both need $100,000 per year directly derived from your nest egg to live comfortably, then inflation doubles this number. Per the rule of 25, you will need about $7.5 million saved.

Here is the breakdown of how much you would need to save each year to reach this goal. Keep in mind that with inflation and different levels of earning power at different ages, the benchmarks leading up to retirement may not be linear.

  • $250,000 saved by age 30

  • $937,500 saved by age 40

  • $2,500,000 saved by age 50

  • $5,625,000 saved by age 60

Now, let’s say you desire $200,000 per year derived from your nest egg. In this case you need $10,000,000 saved. That translates into:

  • $333,333 save by age 30

  • $1,250,000 saved by age 40

  • $3,333,333 saved by age 50

  • $7,500,000 saved by age 60

In all honesty, residency and fellowship make saving that much money by 30 years of age quite difficult. Many physicians don’t start saving in earnest until around age 40. In these cases, it’s a good idea to save about 25% of your gross income per year compared with 20% saved by those in professions other than medicine who save for retirement starting at age 30 years.

Other experts recommend a different metric by which to measure savings for retirement. It entails multiples of annual salary based on age.

  • Between 36 and 40 years, have 2.2 times your annual salary saved

  • Between 41 and 45 years, have 3.1 times your annual salary saved

  • Between 46 and 50 years, have 4.2 times your annual salary saved

  • Between 51 and 55 years, have 5.4 times your annual salary saved

  • Between 56 and 60 years, have 6.8 times your annual salary saved

  • Between 61 and 64 years, have 8.2 times your annual salary saved

The bottom line

Saving for retirement can be a daunting process. Although physicians tend to make more money when compared with people of a similar age in different professions, they also start saving later, after years of training and education.

It is important to set up a financial timeline that reflects savings milestones.

If needed, work with a financial planner to meet your money goals and secure the enjoyable retirement that you have earned.

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