Managing your money--Real stories from real doctors Part 3: Where did all the money go? Prepping for retirement

Dr. Deborah St. Clair is watching her business dry up before her eyes. Dr. St. Clair, an orthopedic surgeon who has a private practice in rural west Tennessee and is affiliated with a local hospital, had always planned on retiring at age 70.

"That's kind of the magical cutoff age for surgeons," says Dr. St. Clair, who began her career in 1982. "It's when many of us start getting sore backs or hands that aren't steady anymore."

But now, at 66, Dr. St. Clair says she is "barely hanging on" to her career, trying to save every penny she can for her retirement, which she predicts will occur within another year or two whether she wants it to or not. Her earlier-than-planned retirement will most certainly have an impact on her bank account as she heads into the next phase of her life. Dr. St. Clair estimates that she has socked away only about half the money she had hoped to have to live on in her golden years.

Just 10 years ago, Dr. St. Clair says her business was booming. But today, she's lucky to log about 20 hours per week. Her private practice is losing money, and the time she spends at the hospital is dwindling from month to month. Part of the issue is that her hometown of Dyersburg, which has fewer than 17,000 residents, just doesn't have as many patients as it used to. Its middle class has been migrating to nearby cities of Jackson and Memphis. But Dr. St. Clair also blames the change in insurance and regulatory issues. Her local hospital has been forced to shorten patient stays and dramatically raise its rates, causing people who have high co-pays or catastrophic coverage to avoid hospitals altogether.

__________________________________________________________________________

Please click on Part 1: Paying off your student loans or Part 2: Patients and toilet paper—doing it all in private practice if you have not read them.

__________________________________________________________________________

Dr. St. Clair's situation has become all too common among physicians approaching retirement age: While 19% of physicians say they plan to retire before age 65—and 32% say they'll retire between ages 65 and 70—according to a recent MDLinx survey of 150 physicians, most just simply haven't socked away enough money to maintain their lifestyles.

According to a study of 360 physicians by Fidelity Investments, nearly half of the respondents said that they can't afford to contribute the maximum to their retirement plans at work. "Physicians get a late start in contributing to their retirement anyway because many of them are dealing with crippling debt when they're fresh out of medical school," says Anthony Criscuolo, a certified financial planner at Palisades Hudson Financial Group. With an average student debt load of $183,000, Criscuolo says some physicians "get a much later start" than other professionals in saving for retirement. Compounding the problem, he says, is that doctors are getting squeezed by insurance reimbursement rates and not maintaining the incomes they expected to as they near retirement age. "They're really getting it at both ends," he says.

As higher income earners, physicians often make a mistake in thinking that they're immune to the risks that can challenge their financial security in retirement, says Rebekah Barsch, vice president of planning and sales at Northwestern Mutual. Barsch says that many physicians hadn't anticipated that insurance and regulatory changes might affect their income. Others haven't paid attention to the fact that people are living longer (and will need their savings to last longer) or accounted for stock market volatility, she says.

Barsch recommends that physicians work with a financial planner, lay out a plan with these risks in mind, and alter their approaches as they near retirement (see sidebar below, "Retirement Planning by the Years.") For example, she says, a decade before retirement, doctors should focus on diversifying across multiple asset types. As retirement draws even closer, she advises physicians to increase the bond portions of their portfolios.

Another mistake physicians make is focusing on a one-size-fits-all approach to retirement planning, according to Criscuolo. "Many times, people use a financial calculator and decide that they need $2 million before they retire and that they'll withdraw 4% from their portfolio every year," he says. Those numbers are often "fiction," he says, not taking into account factors like whether or not you'll sell your practice and if so, how long you might stay on to help with the transition.

A better strategy, Criscuolo says, is to sit down with a financial planner and come up with a realistic retirement budget and work backward to see how much you will expect to withdraw from your portfolio each month for the remainder of your lifetime. "That's going to vary wildly from person to person," he says.

While some physicians eye their retirement portfolios warily as they reach their 60s and beyond, others are taking a different approach. In the MDLinx study, 10% of the physicians surveyed indicated they "never" planned to retire. One such doctor is Dr. Walter Zetusky, a 61-year-old psychiatrist who has had his own practice in Livonia, Michigan, for decades. While Dr. Zetusky says he's invested in properties and the stock market and has a healthy portfolio, "I love what I do, and I'm fortunate that I'm not in a specialty that's physically taxing.

"I have fun at work, and I'm going to do this until the day that I die," he says. Another physician in the MDLinx study indicated that he was in his mid-70s and "couldn't imagine doing anything else. My health is excellent, why quit?" he quipped.

Unfortunately, some doctors, like Dr. St. Clair, are having to call it quits before they're ready. Dr. St. Clair's strategy is simply to "try and ride it out another 2 years" and retire with a smaller nest egg than she'd originally planned on. "It's a little spooky not knowing for sure if I have enough money, but I'll get by," she says.

___________________________________________________________________________

Retirement Planning by the Years: Smart Moves to Make

Like any investor, a physician's financial planning strategy should change with age. Here are some wise moves to make 10, 5, and 1 year out:

10 years — "Make sure you're diversified across different asset types," advises Rebekah Barsch, vice president of planning and sales for Northwestern Mutual. Having potential income sources in retirement across different asset types can create more tax flexibility and hedge against the risk of selling at inopportune times, she says.

5 years — Consider asset allocation and sequence of return risk, Barsch says. "A few market downturns at the inopportune time can have a big impact on your portfolio." As you approach retirement, Barsch says, you can hedge this risk by increasing the bond portion of your investment portfolio. If you do experience a downturn in retirement, having a cash reserve or the ability to tap into an asset that can never go down (like permanent life insurance cash values) can help you avoid selling when the market is down.

1 year — Re-evaluate your asset allocation with a financial planner, advises Criscuolo. "Many people make the mistake as they retire of moving to a very conservative investment posture. This isn't always correct," he says. "If you're retiring at 62, you may live 20 to 30 more years, so you might need to invest a little bit more aggressively."

___________________________________________________________________________