Physician Finance: Determining How Much to Save, Spend

February 9, 2015

The uncertainty of knowing just how much money one will need over decades of retirement is a challenge faced by most physicians.

As we save for the future, we face an inherent tension.  How much to put away for later instead of enjoying now.  Most of the families I work with do not particularly wish to die wealthy, but instead would like to enjoy the fruits of their labor to the fullest extent possible, yet without running out of funds too early. 

But the uncertainty of knowing just how much money one will need over decades of retirement is at best an educated guess.  There are so many variables, perhaps the largest being just how long you (and your spouse) will live.

So, we plan on averages.  We decide on what the desired lifestyle will probably cost, make an assumption about inflation causing adjustments to future purchasing power, and then go on to estimate a joint lifetime survival estimate.  Using these factors, we can at least come up with a “number” that suggests we have enough money to retire.

But during the years prior to retirement, we are faced with how aggressively to save (versus spend).  Sometimes it is obvious that we will easily reach our goals and can spend more of our income.  Sometimes the opposite is true.  This process requires periodic reappraisals of whether or not we are likely to reach our accumulation goal.

As we enter retirement, we again are faced with how much to spend.  Do we really need or want the ability to spend on a level basis for up to four decades in retirement?  Don’t most people slow down activities and spending in their ninth decade?  When we first enter retirement we are most interested in travel and doing other things that we have been waiting and saving for. Should we continue to deny ourselves the gratification of doing things we have “always wanted to do” in order to prepare for very old age?

It is tough.  Most people face the tension involved with immediate versus delayed gratification.  Most of us would have remorse if we became sick and unable to do those things we have been saving for, and most of us know individuals this has happened to.  Yet, we appropriately fear running out of money at a time in which that can’t be fixed.

If you feel this tension, talk to your adviser and come up with a game plan and pace you can live with.  Best of luck to you!