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What to consider when making a decision to retire early
For a number of reasons, ranging from managed care's hassles or the government's onerous burdens to the new economic realities of medical practice, more and more physicians are looking to hang up their stethoscopes early.
The idea of practicing medicine until age 65 or longer just isn't all that appealing anymore to many doctors, especially in an era when working professionals with half their education stand to earn twice their income, and the notion of the loyal patient base - always considered one of medicine's most gratifying aspects - is fast becoming ancient history. In short, many doctors have no interest in or hopes of becoming Marcus Welbys.
"In the old days doctors didn't retire early - primarily because there was a premium for experience, for gray hair, for knowledge. But that's not as important anymore," says David Marcincko, DPM, MBA, an Atlanta surgeon turned financial advisor and author of the recently published book Financial Planning for Physicians and Healthcare Professionals.
Statistics support the trend. Recent surveys by both Harvard University and the physician recruiting firm Merritt Hawkins & Associates produced similar findings: Nearly 40 percent of physicians over age 50 are either throwing in the towel or actively thinking about it, and 12 percent are considering changing careers. And a recent unpublished study by the American Medical Association found that the average retirement age for physicians dropped from nearly 70 in 1980 to 67 in 1995 - and industry watchers are predicting we'll see a precipitous retirement-age drop when the numbers are tallied for 1995 to 2000.
"Doctors no longer enjoy the autonomy and control they once did. Many of the things that attracted them to medicine are no longer there," explains Merritt Hawkins CEO Joseph Hawkins.
Can you afford it?
For many physicians, the question is not so much whether they ought to retire early but whether they can actually afford early retirement. That's not an easy question to answer, says Marcincko - who at 45 recently left practice completely to pursue his new career. But the first step is to objectify the goal.
"You can't just say, 'I want to retire early.' You have to say, 'I want to retire with how much in my qualified and nonqualified pension plans, and with how much money coming in each month - before and after taxes,'" Marcincko says.
Determining the amount and cost of "fringe benefits" - health and long-term care insurance, for example - that will be needed also is necessary, he adds.
The second step is to develop a comprehensive - as well as accurate and brutally honest - net-worth statement that takes into account both current and potential liabilities, such as college education for children or support for aging parents.
"With computers, it's a lot easier to do this now than it used to be," Marcincko says, but it's best to obtain professional help for the "big picture" perspective. Because of the changing financial realities of medicine under managed care, Marcincko says that his next version of the financial planning book will contain revised benchmarks for physician lifestyle spending, and for liquid assets and savings physicians need even before retirement.
"Because of the volatility of the industry, we're revising all of those benchmarks - how much to spend on a house and car, how much cash and liquid assets doctors should have," he says.
Although most advisors recommend six months' income worth of liquid assets, Marcincko thinks it should be "more like one to two years'" worth.
Stephanie Enright, president of Enright Financial Consultants in Torrance, Calif., says some of the physicians she advises are so anxious to get out of medicine -especially in managed-care-war-scarred Southern California - that they have trouble looking at the issue rationally.
"If physicians plan to retire early, they really have to have quite an accumulation of assets to tide them over," Enright says. "With lifespans increasing, I tell 50-year-olds that it's not unrealistic to think they'll live almost as long as they've already lived - which takes a lot of money."
Planning is key
Marcincko, who began retooling five years ago to leave medical practice because he "saw the writing on the wall" in terms of the industry's physician-unfavorable economics, and who frequently speaks on healthcare financial issues, advises against retiring early merely out of frustration.
"The doctors who actually retire for negative reasons - such as quitting because they hate managed care - seem to fare poorly psychologically, versus those who leave because they want to do something else," he says. "It's important to have a transition plan."
Mike Megalli, MD, MBA, chief medical officer for Catholic Healthcare System Resources in New York, N.Y., says he still works, and plans to continue working into his 60s, because he's enjoying it and "it's nice to get this check every month." And he's seen physicians who didn't have a transition plan bomb out when they abruptly end their careers, a prospect he hopes to avoid.
"Certainly anyone who plans to retire should have something [planned] to occupy his time and keep the mind working," Megalli says." But physicians in general have a problem because medicine becomes their life, they tend not to have hobbies, and they don't know how to do anything other than their profession."
In general, Enright advises physicians to begin planning their departure strategy several years before they actually plan to leave practice. Physicians who are a decade away from a hoped-for early retirement should focus on "maxing out" contributions to both defined contribution and defined benefit plans, and using any excess funds to diversify into other areas, such as income-producing real estate or bonds.
At five years out, physicians who plan to retire relatively young should begin scaling back their expenditures, especially if they expect their post-retirement income to be substantially less than their earning-years income.
"I tell physicians that if they're going to cut down spending in five years, they had better start doing it now, and begin putting the surplus into something that's not currently taxable to them - such as variable annuities or tax-free bonds," Enright says.
The five-year timeframe is also a good time to look at how assets are held, she adds, to ensure they're in the most tax-advantageous format for the retirement years. When retirement is imminent - or within two to three years - Enright advises physicians to begin looking at lifestyle issues such as how they'll spend their time, where they plan to live, and how they'll change their spending habits.
In the "don't-do" category, Enright cautions against investing in medical industry-related new ventures with the thinking that the business' growth will fund the retirement.
"These are what we call 'the doctor deal,' and there's one every minute. Often, these industry-related endeavors are either very risky or very expensive," she says. "They're not scams, necessarily, but they may eat up more funding than anyone anticipates."
Don't sell out
Both Marcincko and Enright agree, based on their experience, that it's best not to count on the sale of the practice as a route to early retirement. It used to be that physicians who operated a financially and reputably successful practice would have potential buyers lined up outside the doors when the word got out that retirement was imminent. No longer, Marcincko says.
"A lot of doctors have money tied up in their practices but practices just aren't selling like they used to," he says, because with managed care, a patient base can no longer be guaranteed, and few young physicians have the capital to buy into a practice anymore. Even if the practice is sellable, Enright says, physicians eyeing early retirement should avoid pumping a lot of money into it - especially equipment purchases - a few years before the sale because they stand to lose valuable tax deductions for depreciation.
"I have a couple of clients who saved nothing their whole careers, thinking that they had would sell the huge practice they'd developed, but the market just isn't there," Marcincko says.
He also advises against earmarking a highly appreciated home as a principal source of retirement funds, because many physicians find, as retirement nears, that they're not yet willing to give up the big family home. In any event, Marcincko says, physicians considering early retirement shouldn't count on needing far less money in retirement.
"If you want the golden years to be golden, you aren't going to live on 70 percent of what you lived on before. It's going to take 90 or 100 percent or even more, if you have grandchildren and want a nice lifestyle for them, or if you have charitable intents," Marcincko says. "I see physicians who worked 70 hours a week and made a lot of money but had no time to spend it. When they retire, they want to start spending that money."
Bonnie Darves can be reached at firstname.lastname@example.org.
This artcile originally appeared in the March/April 2001 issue of Physicians Practice.