Preparing For Retirement: What You Should Know

Retirement may seem far off but there are steps podiatric physicians can take today to help ensure a comfortable living after practice. Accordingly, this author discusses good financial habits, how much you need to live comfortably and keys to addressing when and whether to stop working when the time comes.

Everyone has some concept of retirement. However, if you were to randomly ask people about plans for their own retirements, you would find a myriad of perceptions as to what their retirements would look like.

Looking up the word “retirement” in various dictionaries, we find that it is most commonly defined as, “the point at which someone stops working, especially because of having reached a particular age or because of ill health.” It is also defined as “a pension or other income on which a retired person lives.” Within these definitions, we find two distinct but related matters that one must address when planning for retirement: health changes that might occur as one ages and the source of the income doctors will receive when they are no longer working.  

How might our perception of retirement evolve from these definitions that we find in the dictionary, and why might retirement pose a greater challenge today than in the past? According to the 16th Annual Transamerica Retirement Survey, which tallied the responses of 4,550 working men and women from across the country, a majority expect to work past the age of 65, and many do not plan to stop working at all.¹ Those who do plan to eventually stop working envision a transition period into retirement — gradually reducing work hours and utilizing their increased leisure time to enjoy life — rather than a “sudden” cessation of work. In this survey, people of all age ranges share this vision with most believing they will never be able to retire fully and comfortably.  

Based on the information gleaned from the Transamerica survey as well as data from other sources, there is a suggestion of retiring the word “retirement” itself and finding a new word that more accurately describes this period of life. Possibilities for new terminology have included: renewal, rest of life, financial independence, second beginnings, new chapter and financial freedom. For purposes of our discussion of the financial issues related to “retirement planning,” I prefer the term “financial independence” or “financial freedom” as relevant substitutes for “retirement” because neither sets an arbitrary age at which working stops. “Financial independence” is flexible and physicians can use this for slowing down, stopping work or continuing to work by choice rather than out of financial necessity.

The “retirement fear” most frequently cited in the 16th Annual Transamerica Retirement Survey was “outliving my savings and investments.”¹ If you have this concern, note that this statement could translate to the idea that good health and longevity are actually the greatest potential financial risks in retirement. The second greatest fear the survey cited was “declining health that will require long-term care.” Considering these two fears, we realize that both relate to health as well as money. It is clear that one should take these matters into account when planning for retirement.  

Taking A Close Look At Your Financial Habits
I recommend that as part of his or her financial planning, every doctor should read the book The Millionaire Next Door.² It was published nearly 20 years ago and the book’s suggestions for breaking bad financial habits are still relevant today. These bad habits are all ones that deplete wealth. The authors’ suggestions for developing good habits that increase wealth are equally relevant. According to the authors, the two most beneficial financial outlooks one can adopt are recognizing that achieving financial independence is more important than displaying high social status and learning how to live below one’s means.

It turns out that physicians tend to have difficulty adopting both of these tenets. For those who intend to become financially independent, it is more important to develop these traits than it is to earn high income. Both traits are also essential to a continuation of adequate income after retirement, especially for those who maintain good health, which typically results in greater longevity.  

Fortunately, these two habits do not really require major sacrifices in lifestyle. While there are many ways to adopt the idea of living below one’s means, I will give one example of what I do. My next-door neighbors have two new cars, an electric Mercedes and a Maserati. They buy new cars at least every three years.  

In contrast, my wife currently drives a 15-year-old Odyssey minivan and my transportation is a mountain bike. I have not owned a car for 20 years. This was not part of any financial plan. Cycling was part of my resolution to live a healthy lifestyle and my wife appreciates the passenger and cargo flexibility of the minivan. The motivation for giving up my car was that I felt it was difficult to find the time to fit exercise into a busy day. I also came to realize that a bicycle could get me everywhere that I needed to go. Plus, I have always found it stressful to be sitting in a car, stuck in traffic. The bicycle solved both my exercise and stress problems. In addition, both my wife and I prefer to walk to shops and restaurants that are a mile or so from our home.  

While this lifestyle choice has saved us money that we can use for other priorities, an equally important outcome for me has been the increased energy I have achieved as a result, making both work and play more “doable” and enjoyable. You can imagine my reaction when one of my former residents showed up driving an expensive luxury car in the first month of his employment as an associate. Over time, I saw that car depreciating to almost “zero” over time while an investment of the amount he had spent on it would have grown by retirement age to more than most people save by the time they want to retire. Of course, he had his reasons for such a purchase but these reasons enabled him to form a bad habit at the very beginning of his career, and it is a habit that only got worse as he earned a larger salary.

Why The Career Choice Of Podiatry Can Support A Solid Retirement
Another important recommendation in The Millionaire Next Door is that a person choose the “right” occupation with part of what makes it right being that it can provide enough income for a person to eventually be able to meet his or her financial goals.² Earning a good income does not ensure the accumulation of wealth when one has bad financial habits. It does, however, make it easier to live below one’s means and still live quite well. The typical podiatrist’s income should make this a solid career choice money-wise.

It is difficult to put a specific number on the average, or median, podiatric salary because this varies based on years of training, geographic location of the practice and practice focus. CareerTrends put the average annual salary at $171,196.³ Last year’s American College of Foot and Ankle Surgeons (ACFAS) survey had the annual salary at $211,723 with those certified in reconstructive and rearfoot/ankle surgery making $261,755.⁴

For our purposes, no matter which survey you consider, it is significant that, using the lowest average salary estimate from these surveys, the majority of DPM compensations put them in the top 5 percent of all U.S incomes, an amount at which sound financial management should ensure a comfortable retirement when the time comes.

Calculating Your Number To Retire Comfortably
Have you seen the television commercial asking whether you “know your number”? It depicts people walking around with large numbers over their heads. Each person’s “number” represents the amount he or she will need to have in place in order to retire comfortably.

Given that many of us will not be receiving a guaranteed retirement payment from our employers when we stop working, we need to learn how to manage our investments and grow them to produce enough income to live on in retirement. Even for most individuals in the top 5 percent income category, wealth comes from growth in investments rather than from savings. Savings, however, are needed for those investments. Today, most financial advisors recommend saving 20 percent of one’s income as the foundation for building financial independence. A good habit to develop is to “pay yourself first,” which means removing that 20 percent from your compensation before depositing the remainder in your checking account. This savings will be your source of money for making future investments.

Selecting and managing investments is beyond the scope of this article, but it is a skill you can learn. If you use a consultant to assist you in investing, always keep in mind that financial advisors and insurance salespeople often have conflicts of interest when giving advice on such matters. Their advice is not necessarily bad but it is important to understand financial matters well enough to be able to recognize good from bad or biased advice.  

One recommendation that financial managers will assist you with is setting a financial goal for retirement. An investment advisor who works with Merrill Lynch manages my IRA portfolio. One of the company’s services is calculation of a number that a client is to shoot for as a retirement goal. The number my advisor calculated for me is $6 million with the assumption that I will live to be 100 and take no more than 4 percent in withdrawals each year.

Without doing the math, I felt that this number was way too high and that the 4 percent withdrawals were too conservative. Most such numbers are calculated with the goals that the retiree will have enough money to reach age 100 and take very conservative withdrawals (between 3 and 4 percent a year). Financial advisors typically give little recognition to how much one could scale back expenditures and still have a happy and comfortable lifestyle in retirement.

When we use these two goals my advisor was using, everyone’s number is going to be huge and, most likely, unreachable. When this is the case, the number one fear of “running out of money” only becomes greater and any amount of savings will never seem enough.  

One way to mentally overcome this primary fear of “running out of money” is to begin by picturing worst-case scenarios. Assume that you have to stop working and that through lack of planning or bad investments, you have no savings whatsoever. Kathleen Peddicord, founder of Live and Invest Overseas Publishing Group, recently posted on U.S. News and World Report “10 Surprisingly Affordable Retirement Hotspots” where one could live on less than $1,500 a month.⁵ The majority of DPMs could easily afford these places because most who have passed the full retirement age of 67 currently receive a monthly Social Security benefit of $2,639. This assumes that, while they were working, they were earning the amount needed to attain maximum Social Security benefits, which have risen today to $118,000. The worst-case scenario is that they could live quite well in many of these places around the world on their Social Security alone, even with no savings at all.  

For those who feel that living outside of the United States is an undesirable option, GOBankingRates recently posted the amount of money needed to live comfortably in the 50 most populous cities in the U.S.⁶ Its definition of “living comfortably” was spending 50 percent of income on necessities with 30 percent for discretionary spending and 20 percent for savings. This would be a good strategy at any age because it ensures you will “pay yourself first” by investing 20 percent of your income annually while still living well.

The amount of annual income that these researchers calculated as necessary for living comfortably in 22 of the 50 cities discussed in the analysis was between $40,000 and $49,000.⁶ Many of the cities listed (where one could live comfortably in the $40,000 income range) are desirable places to live with varying weather options. These include cities such as Albuquerque, Colorado Springs and Phoenix. Again, this “living comfortably” annual salary includes a 20 percent cushion for savings and would be within the range of Social Security payments of a couple in which one spouse is receiving 50 percent of the Social Security income of the other, who is earning the maximum $2,639.

With the exception of San Francisco, where the survey estimated the income required for comfortable living to be $119,570, a majority of the remaining more expensive cities require incomes in the $50,000 to $70,000 range. While this upper range would require a combination of savings and Social Security, the size of the “savings number” needed would be far below the $6 million my advisor has calculated for me.    

Staying Healthy After You Leave Practice
Many years ago, I watched an interview of the world’s oldest living man. The interviewer asked him what, if he had it to do over again, he would have done differently in his life. The interviewer was expecting a learned answer from this man, who would clearly have gained insight from witnessing tremendous changes over his 100-year-plus lifetime. His response to this question? “I would have taken better care of my teeth.”

This was not the profound answer that the interviewer had been expecting but it gives some insight into the fact that even “small” health problems matter as one ages, especially those that affect quality of life. As podiatric physicians, we have had the opportunity of encountering many elderly patients. What has stood out for me is the wide variation in physical and mental abilities that these patients possess, even amongst those of the same age. It was clear that people do not “wear out” from activity; rather, they “rust out” from inactivity.

If we are financially independent, the quality of our lives in retirement should be significantly improved. The level of quality, of course, will also dependent on how healthy, mobile and energetic we are in our retirement. Whether we need or choose to continue working are also dependent on these factors. While there are certainly health issues that can arise or accidents that can occur — both things over which we have little control — we do have control over most of what we worry about as we age. As podiatrists, we already know how important walking and other types of activity are in terms of keeping us healthy and mobile. We need to be proactive regarding our own lifestyles.

According to Exercise is Medicine (a global healthcare initiative initiated by the American Medical Association and the American College of Sports Medicine to integrate scientifically proven benefits of physical activity into the healthcare system), walking just 30 minutes a day dramatically lessens any decline we may have in functional capacity as we age.⁷ This is the difference between staying independent and ending up in assisted living or a nursing home. Walking also has a positive impact on obesity, type 2 diabetes, cardiac disease, hypertension, stroke, osteoporosis and depression.

While walking 30 minutes a day or 150 minutes a week is the minimum recommended by the World Health Organization, and the Centers for Disease Control and Prevention (CDC) recommends 7,000 to 8,000 steps a day, the U.S. average is only 5,900.^8,9 Many put the optimum “active” standard at 10,000 steps a day. What is important is that we find the time to be a little more active today than yesterday and make this a habit that we look forward to. While each of us is busy, even on my busiest day, I find the time to take at least 12,000 steps and this habit has made all the difference in both my level of energy and my mobility.

Will You Actually Stop Working After Retirement?
The biggest decision to make regarding retirement is when or whether to stop working. Obviously, if you are not active now and continue on this course, you will have no choice as you most likely will not have the ability or the energy to continue working productively beyond a certain age. You are also more likely to lose functional capacity and quality of life as you age. Being financially independent will not change this unfortunate outcome. It will only enable you to afford a higher quality of in-home or nursing home care.  

Podiatric physicians are lucky in that they have careers rather than jobs. Chris Rock has a stand-up routine in which he discusses the difference between the two. He says, “With a career, there is never enough time. With a job, there is always too much time.” Reminiscing about my jobs in high school, I remember that every time I would look at the clock, I could not believe how little time had passed. When working at my career, however, there was never enough time in the day. The attractiveness of working beyond retirement age will be different for those with a career than it will be for those working a job.

Another good thing about a career is that it can evolve over time and you can take it in multiple directions. Within the career of the podiatric physician, I feel that group practice is a good option if you plan to work beyond retirement age. If you no longer want to do surgery, you can find DPMs in your group who welcome it. If you want to focus on a specific area that you most enjoy, you can. If you want to cut back on hours, this too is possible because you have others with whom you share overhead as well as follow-up patient care. As long as you are healthy, you can work as long as you want.

If you eventually want to transition into another career, the skills you have learned in this career can translate to many other careers. Whether you choose to work beyond age 65 because you enjoy the work or because you fear “running out of money,” doing so not only provides the opportunity to save more money, it also reduces the number of years that your savings need to last. As you prepare for retirement, it is never too late to develop better financial habits or make changes in your lifestyle that reduce the odds of running out of money or becoming physically dependent on others. Now is the time to begin.

Dr. Hultman is the Executive Director of the California Podiatric Medical Association He is a Consultant for Medical Business Advisors and the former CEO of Integrated Physician Systems (IPS). Dr. Hultman is the author of Reengineering the Medical Practice (1994) and The Medical Practitioner’s Survival Handbook (2013).

References

1.     Transamerica Center for Retirement Studies. 16th Annual Transamerica Retirement Survey. Available at https://www.transamericacenter.org/retirement-research/16th-annual-retirement-survey .
2.     Stanley TJ, Danko WD. The Millionaire Next Door. Gallery Books, New York, 1998.
3.     CareerTrends. Available at https://industry-salaries.careertrends.com/ .
4.     American College of Foot and Ankle Surgeons. 2015 Annual Compensation and Benefits Survey Results. Available at https://www.acfas.org/compensation/ .
5.     Peddicord K. 10 surprisingly affordable retirement hotspots. US News and World Report. Available at https://money.usnews.com/money/blogs/on-retirement/2015/01/27/10-surprisingly-affordable-retirement-hotspots . Published Jan. 27, 2015.
6.     Kirkham E. How much money you need to live comfortably in the 50 biggest cities. GO BankingRates. Available at https://www.gobankingrates.com/personal-finance/much-money-need-live-comfortably-biggest-cities/ . Published April 18, 2016.
7.     Exercise Is Medicine. Available at https://www.exerciseismedicine.org/support_page.php/eim-in-action/ .
8.     World Health Organization. Global recommendations on physical activity for health. Available at https://www.who.int/dietphysicalactivity/factsheet_recommendations/en/ .
9.     Centers for Disease Control and Prevention. Available at https://www.cdc.gov/physicalactivity/basics/adults/ .