Retirement planning: Finding a financially viable approach

September 15, 2008

Wise investments, optimal stock allocation, an understanding of the social security system, and expert financial advice can help physicians achieve a comfortable lifestyle.

Retirement conjures up a variety of images and questions for each physician, depending in part on one's individual goals and desires. While questions about part-time work, where to live, and what to do with your free time are important, the most significant concern is: Will you have enough capital to live the lifestyle you want?

With that in mind, we'll discuss several essentials, including "longevity risk," asset allocations, and sustainable withdrawal rates. Along the way, we'll dispel some common retirement myths.

A longer life requires a more complex plan

These calculations also make it clear why early retirement poses such a financial challenge. For example, compare retirement at age 56 with $1 million in assets earning an 8% annual return with retirement at age 65 when the $1 million will have doubled to $2 million (72/8). By waiting 9 years, you retire with double the money and the money needs to last 9 fewer years!

If you take a closer look at Tables 1 and 2, you'll also notice that according to the Rule, dividing 72 by the expected percent inflation rate shows the number of years needed to cut in half the purchasing power of your investment as a result of inflation.