Retirement planning requires ongoing planning throughout your career—an effective plan cannot simply be established at the start of a physician’s career and then forgotten. In fact, an ongoing commitment to review and redesign, along with a dynamic approach to asset management and response to market volatility is required.

To ensure a successful retirement, employ these three specific tactics in the years leading up to retirement: develop a budget, review asset allocation, and design a withdrawal strategy.

1. Develop a Budget

It may seem like overly simplistic advice, but budgeting can either push a retirement plan to success or drive it to failure. While many believe a budget is simply an awareness of what they are spending, its actual purpose is to ensure that your live within your means and that every dollar earned is deployed with strategic purpose. To accomplish this, you must have a written and managed budget, not a simple mental tally of expenditures.

To begin, make a list of lifestyle needs, including basic necessities, such as meals, mortgage, utilities, and insurance. This list should also include savings contributions.

Deciding how much to save today will depend greatly on how much you expect to spend during retirement. There is no way to determine that without attempting to project future expenses. This can be accomplished by creating budgets based on assorted post-retirement factors, including location, size of home, hobbies, frequency of vacations, and other post-retirement lifestyle expectations. These budget exercises provide a broader view of how effective a retirement savings plan can be based on various lifestyle decisions. It may be helpful to model multiple scenarios, including an aggressive and conservative budget

A common mistake made by many investors during this exercise is assuming substantial investment returns to justify expensive lifestyle choices. Expecting massive returns on minimal savings is dangerous to a retirement plan. Consult with an advisor to determine a reasonable expected return based on historical performance, portfolio components, and other factors.

2. Review Asset Allocation

Asset allocation

Asset allocation encompasses the types of investments within a portfolio, their various underlying industries, risk, and level of market correlation. One of the most important strategies for proper asset allocation is diversification.

Managing Diversification

Diversification is the process of varying the allocation of value in a portfolio among a variety of sectors, investment types, and risks to reduce each investment’s correlation with the others, thus ensuring some buffer against significant swings wiping out an entire portfolio. Proper diversification offers one of the most effective ways of mitigating losses.

To understand the importance of diversification as an investor, keep in mind that history tends to repeat itself, and one unfortunate outcome can result in a complete loss of a lifetime of savings. One example is the employees who were overly invested in Enron stock in the early 2000s. According to the New York Times, the Enron 401(k) plan, which was over-weighted in Enron shares, lost more than $1 billion in value in 2001 when the company went bankrupt and shares of Enron stock fell 94 percent. Today, employees heavily invested in GE stock are feeling much of the same loss as Enron employees did 18 years ago.

Putting Returns in Their Place

Risk tolerance is an investor’s ability to mentally and financially withstand volatility in investment performance. An investor with a high risk tolerance may be young, with decades of expected income, and relatively unbothered by large swings in investment values. A more conservative investor may be one with fewer working years through which to replenish investment losses, who becomes stressed at the idea of volatile investment swings.

As you age, you need to reallocate assets into increasingly conservative investments to best limit exposure to loss as investment time horizon shortens. Additionally, careful consideration must be made to properly limit downside risk, potentially through fixed income and alternative investments.

The idea of reallocating to more conservative assets can be troubling to those who are focused on maximizing returns, because conservative investments tend to have limited upside potential. To understand why this move is often more beneficial than seeking higher returns in later life, you need only to be familiar with sequence of returns risk.

Sequence of returns risk is the danger that the timing of liquidation and withdrawal from a retirement account will coincide with a downturn in the market. If it does, then it effectively reduces the overall potential performance of the entire portfolio because a high number of shares will need to be liquidated to get the income expected, thus leaving fewer shares in the portfolio to grow.

Sequence of returns risk may not be important during the accumulation phase, but during the withdrawal phase it is one of the most critical factors in the overall success of a retirement plan, making it a higher priority than chasing returns.

3. Design a Withdrawal Strategy

While your primary focus is to save and accumulate funds for retirement, the design of a withdrawal strategy is equally important to financial health in retirement.

Selecting a Withdrawal Rate

A fundamental pitfall in static retirement plans is setting a withdrawal rate that is fixed over a retirement period. Consider that, for many physicians, the retirement stage of life is likely to last 20 years or more. In that time, investment yields may vary widely, and both tax rates and personal spending habits could also change. Because of these changing variables, it is essential that flexibility be built in to retirement planning, both in initial models (high, middle, low) and when reviewing the plan each year (or more frequently). Only by having flexible planning models and periodically adjusting them based on real-time results can you expect to follow a model that can endure throughout retirement—regardless of how many years that may last.

Making Room for Taxes

No one knows what tax rates will be upon retirement. This does not mean you should ignore tax planning but that you should account for the potential costs of taxes and design a strategy to minimize them.

To do this, you need to understand how taxes will impact withdrawals and liquidations. Having a plan that considers which withdrawals will trigger ordinary income taxes, which will incur capital gains, and which will realize no tax, is essential.

Lastly, understand that delaying distributions from your assets will have the greatest impact on your ability to have a successful retirement. Physicians in certain specialties have the option of easing into retirement and exploring varying roles within a practice. While still working and engaged with numerous individuals throughout the medical industry, you may want to consider making connections that will enable you to transition into consulting roles. This can allow you to generate a supplemental income for several years, thus moderating the stress on portfolios by reducing the rate of withdrawal.

Financial success or failure in retirement is generally determined in the first several years of retirement. Transitioning into retirement gradually without a sudden loss of income can enhance the odds of success.


Most physicians see a comfortable retirement as a reward for decades of hard work. Do not let the absence of pre-retirement planning hinder this goal. While understanding the three strategies above are a good start, there is no substitute for working with an experienced advisor in the field who can make analyses and recommendations specific to your situation. The authors welcome your questions.

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This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.