How Physicians Must Practically Prepare for Retirement

October 9, 2015

With a large number of physicians planning to retire in the next few years, it will be important for them to plan ahead before hanging it up.

In a broad survey of U.S. physicians by Merritt Hawkins in 2014, nearly 42 percent of those surveyed aged 46 and older said they plan to accelerate their retirement due to current changes in the healthcare industry. In the same survey, more than 55 percent of physicians reported their current morale as somewhat or very negative.

Numbers like those suggest some physicians could be rushing for the exits before their retirement ducks are in a row, which can lead to some regrettable outcomes, experts say. Among them: nest eggs that are too small or too heavily invested in risky assets, missed opportunities for disposing of practice assets, and depression resulting from a lack of purpose once work ends.

Ophthalmologist Arnold Pearlstone retired nearly five years ago at age 80, not because he failed to plan for retirement, but precisely because he planned so well for so long.

He and his practice partners started up a 401(k) plan decades ago when the concept was still new, and Pearlstone learned all he could about investments.

"We were all pretty conscientious about saving and we really had a pretty good amount put away, so we didn't have to worry," he says.

What did concern him was how he was going to spend his time in retirement. He loved practicing medicine and knew he wanted to do it as long as possible.

And so 23 years ago, about the time many people start retiring, Pearlstone and his wife, Marion (now deceased), established a foundation they called Eye Care for the Underprivileged. Through that foundation they received donations in addition to their own and established a clinic in Jamaica while Pearlstone was still actively practicing.

"I didn't limit the foundation's scope to Jamaica, because I thought I might one day need it for other clinics I wanted to open," he says. "I didn't know what I was going to be doing, so when I set up the fund I left it open-ended in case later on I wanted to volunteer and needed to purchase equipment."

Sure enough, as Pearlstone finally started winding down his practice, he contacted AmeriCares, a humanitarian aid organization. He began working at an AmeriCares free clinic in Bridgeport, Conn., two weeks after he retired in 2010, taking most of his office equipment with him and donating it to the clinic. Later, he used money from his foundation to add equipment to other AmeriCares clinic locations. He keeps his Connecticut medical license current with 50 hours of continuing medical education every two years.

"My advice is to not just quit when you retire," he says. "Find someplace to use those skills where they can make a difference. It's good for you to keep the brain going."

Practical Planning

As for the more practical aspects of retirement planning, getting going on those is equally important, experts say.

"Start early, because everything seems to take longer than you think it will," says Roy Bossen, a partner at Hinshaw & Culbertson LLP, with experience in medical office sales and acquisitions.

Increasingly, finding a junior partner willing to buy you out and continue the practice as it was is a rare find, Bossen says. Instead, you might have to consider a multi-year process where you join a hospital network for a few years at the end your career.

"If a hospital really wants a physician, it will often assume the lease or buy the building as part of the transaction," says Bossen. "They won't pay more than fair-market value," but having that obligation off your plate before you retire could be worth it if finding and keeping a tenant is difficult in your market, he says.

"These are issues you want to resolve going into a lease, not out, but if you're in a lease, for example, be aware that you may have to go to a condo board to get a tenant approved," he says, which can mean more delays and missed opportunities.

Near the end of his career, Pearlstone was the last of four partners in his office. He assumed the patient records of two colleagues who were retiring, closed down the office, and rented a new space from a friend who had another practice nearby for the last few years of practice. That doctor then paid Pearlstone a small fee for the patient records, which offset a portion of his rent, he says.

Preparing your nest egg to begin pumping out income at retirement is also a process that can take some time. A significant market correction in the first few years of retirement could doom an income system that relies on an initial withdrawal rate with automatic yearly increases - the oft-cited "4 percent" rule.

Be aware that because of stock market valuations and the low-yield bond market, projections for returns in coming years have market experts saying a more realistic safe withdrawal rate could be more like 2.5 percent to 3 percent.

If you're concerned you might not have saved enough to make it through retirement with just a systematic withdrawal plan, longevity insurance - or fixed deferred annuities - are beginning to be introduced for retirement accounts by insurers including The Principal and MetLife.

Recent federal regulations paved the way for these policies, called qualifying longevity annuity contracts (QLAC). Inside retirement accounts, the annuities allow owners to defer required minimum distributions on the amounts invested in the annuities.

Also, think strategically about how you want to receive Social Security income. You can now get an 8 percent bump-up in monthly benefits for every year you delay claiming benefits past full retirement age, up to 32 percent at age 70. Do this first before purchasing longevity annuities because it's the cheapest annuity available, many financial advisers say.

It's important to reconsider your risk tolerance now that retirement is looming. A decade before he retired, Pearlstone says he began shifting his savings to more fixed-income investments and away from stocks.

"Today I'm about two-thirds in income investments and one-third in equities," he says, noting that he spent considerable time throughout his career learning about financial planning and investments.

If you haven't put in that much time and don't expect to, at least thoroughly check out the financial adviser you plan to use to help tap your nest egg. Online financial management services such as Personal Capital and Betterment are beginning to offer retirement spend-down strategies.  They do so for a fraction of what traditional advisers charge - and they won't approach you with obscure land deals only available to "accredited" investors.

Janet Kidd Stewartis a freelance writer based in Marshfield, Wis. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached at editor@physicianspractice.com.

This article originally appeared in the October 2015 issue of Physicians Practice