How Much Money Do Physicians Need to Retire? A 5-Step Guide to Retire Confidently

When I learn that someone in my circle — a family member, friend, colleague, or even a friend’s parent or their neighbor’s son’s wife’s best friend’s mom — I am genuinely thrilled to hear they’ve reached the coveted milestone of retirement. 

Our careers provide a lot: a sense of accomplishment, the opportunity to help others, social networks, and an income that allows us to pay for our lives. However, the ongoing trade-off of our expertise, skills and time for money can be draining and lead to burnout. It’s essential to remember that health and time are two commodities you can never purchase more of, and there’s no time like the present to invest your time in what brings you joy.

Money is a tool that allows you the freedom to spend more time not earning money. How much money do physicians need to retire? It depends. Let’s dive into how you can build your financial plan to afford you that flexibility in the future.

How much money physicians need to retire depends on your picture of retirement

Traditional retirement is a bit of a misnomer. Gone are the days when retirement planning simply meant working full-time until you’re 65 and then completely stopping to somehow enjoy what’s left of life. The American narrative around retirement is shifting. It can mean different things to different people. For example, you might:

• Retire early at the age of 35.
• Continue to work part-time until 75 because it brings joy and a sense of purpose.
• Take a sabbatical and recharge your batteries with a “temporary retirement.” 
• Save enough money to reduce your hours to part-time and supplement your income from retirement savings accounts or passive income sources like real estate investment. 

Retirement is personal. I like to think of it more as “spending time on something other than work” rather than a finite point in the arc of your personal, financial, and professional life. Regardless of your retirement goal, your financial plan requires five pieces to get you to the golden years with ease.

Related: Physician Retirement Planning: Your Options When You Owe Student Loans

Part 1: How much money do you spend in a year?

Your spending patterns during your working years, including credit card expenses, may look different from how you’ll spend once you’re no longer working. 

For instance, your priorities might shift, having you reconsider whether your housing situation still makes sense, or perhaps traveling for three months out of the year becomes a top priority for you. Will you find yourself cooking more at home without work obligations, or is dining out regularly a source of joy for you? It's essential to recognize that your retirement budget will need adjustments.

Planning your physician retirement budget

In planning for life post-retirement, adjust your budget to reflect reduced expenses like commuting and obligatory convenience lunches. However, be sure to account for costs that are now more significant for you, whether it’s travel (flights, hotels, and experiences abroad), activities close to home (joining a sports club), or entertainment (museums, concerts and theater).

Whatever your preferences, build your ideal life in this proposed budget as you start planning how you can afford this life as you transition away from a steady paycheck.

An important shift in retirement is the change in spending, especially regarding benefits previously provided by your employer. For example, you’ll now be on the hook for the full cost of your health insurance if you’re not yet old enough to utilize Medicare. Choosing the right health insurance plan is crucial — consider your coverage needs and get an estimate of what it will cost so you can plan your nest egg accordingly. 

Part 2: Identifying stable income sources in retirement 

As you start answering the question of “how much money do physicians need to retire,” it’s best to begin with the building blocks that will distribute income on a scheduled basis.

Social Security

For most physicians, Social Security is the cornerstone of fixed retirement income. After years of earning a high income above the Social Security wage base ($168,600 for 2024), you may be at or close to the maximum benefit of $3,822 per month (an annual income of around $45,000) at full retirement age. 

However, deciding when to start claiming benefits requires careful consideration of various factors, including spousal benefits, your health, and retirement goals.

Employer retirement benefits

If your employer offers a pension, profit-sharing or defined benefit plan, review your plan documents or consult with a financial advisor to establish an anticipated retirement date and estimate the resulting income. 

While pensions have become a thing of the past for most workers, physicians can rack up a lot of money from generous employer-sponsored plans. Notably, a few hospitals still offer pension plans as a recruitment incentive for medical professionals. 

Related: What Physicians Should Do With Retirement Accounts From an Old Employer

Annuities

And if you’ve invested in an annuity, you can incorporate it into your retirement income planning. Retirees often use annuities to guarantee a portion of their fixed income allocation to shift some risk out of their portfolio. The predictable annual income from annuities can provide a stable financial foundation in retirement. 

Part 3: Maximizing your nest egg: How much can you withdraw in retirement? 

You may have accumulated a variety of investment account types during your career, such as pre-tax accounts (like a 401k), after-tax accounts (like Roth accounts), and brokerage accounts. 

After calculating your anticipated spending needs for retirement and reviewing your fixed income sources, you’ll need to fill the gap using withdrawals from these investment accounts. 

Diversification vs. value investing

An older strategy some investors focused on was investing in value stocks that generate dividends, reinvesting until the dividends matched their income needs. However, we’ve learned that this strategy overconcentrates your portfolio in the value segment of the market, lacking diversification. 

Instead, investment strategies should view performance on a total return basis, which considers the capital appreciation of securities + dividends and interest. 

The 4% withdrawal rule

There’s a lot of research out there based on “what percent of my portfolio can I withdraw in retirement and still maintain the principal.” A lot of that research circles back to the 4% withdrawal rule. This rule of thumb suggests that withdrawing 4% of your portfolio annually is a sustainable strategy that helps maintain the principal over time.

However, this percentage can vary between 3% and 5%, depending on the sequence of market returns, the rate of return, the risk level of your investments, and the types of investments you hold. 

Asset allocation in your withdrawal strategy

It’s crucial to align your asset allocation (the ratio of stocks to bonds) with your planned withdrawals. Holding bonds is important for risk management — bonds will protect you if the equity market takes a downturn when you need to make distributions. This is because bonds fluctuate less than the stock market and can be a safe haven in times of volatility. 

Part 4: Smart strategies to minimize taxes on withdrawals

Different investment account types can impact your withdrawal strategy in retirement. It’s a big reason why doctors need specialized tax services. Let’s look at two scenarios to see how taxes can impact your retirement income plan.

Scenario 1: Arnold and Angelica

At 66, Arnold and Angelica are considering whether they’re ready to retire. They would love to travel more in their golden years and have maintained a modest lifestyle throughout their careers. They’ve paid off their student loans and saved diligently — they don’t have a pension or any annuities, and most of their investments are in tax-deferred 401ks. 

Here’s where they stand:

• Annual retirement living expenses: Projected at $120,000, plus an additional $40,000 on travel. 
• Social Security benefits: Starting this year, with each claiming $3,000 per month. 
• 401k balances: Arnold’s is $1.1 million and Angelica’s is $1.3 million.

With the majority of their investment withdrawals coming from their 401ks, they aim to stay within the 22% federal tax rate. their state income tax is an additional 3%. 

Their monthly retirement expenses come in at $13,333, so they’ll need a slightly higher gross income to account for taxes. Here’s their withdrawal strategy:

Gross (pre-tax) withdrawal amount	Gross (pre-tax) withdrawal amount	Net (after tax) withdrawal amount
Social Security	$6,000	$4,725
401k	$11,477	$8,608
Total	$17,477	$13,333

Withdrawal Rate on their investments: ($11,477 * 12) / $2,400,000  = 5.74% 

Scenario 2: Brianna and Brandy

Brianna and Brandy are also 66 years old and have a very similar portfolio and living expenses. While Arnold and Angelica plan to fund their retirement primarily with 401ks, Brianna and Brandy also have Roth IRA accounts to pull from in their golden years. Additionally, Brandy managed to stash some money away into a taxable brokerage account.

Here’s where they stand:

• Annual retirement living expenses: Projected at $120,000, plus an additional $40,000 on travel.
• Social Security benefits: Starting this year, with each claiming $3,000.
• 401k balances: Brianna and Brandy both have $800,000 in each of their accounts.
• Roth IRA balances: Brianna has $300,000 and Bandy has $200,000.
• Taxable brokerage account: Brandy has a balance of $300,000.

To make the examples easier to compare, let’s say Brianna and Brandy also spend $13,333 a month in retirement, just like Arnold and Angelica. Now, let's take a look at how they manage withdrawals, considering they've got Roth IRAs and a taxable account, along with their 401ks:

Income source	Gross (pre-tax) withdrawal amount	Net (after tax) withdrawal amount
Social Security	$6,000	$4,725
401k	$8,121	$6,091
Roth IRA	$1,667	$1,667
Brokerage account	$1,000	$850
Total	$16,788	$13,333

Withdrawal Rate on their investments: [($1,000 + $1,667 + $8,121) * 12)] / $2,400,000)  = 5.39%

Because Brianna and Brandy were able to pull some retirement funds from Roth IRA and brokerage assets, they were able to reduce the tax impact of their investments. This approach allowed them to fund their living expenses with a lower effective withdrawal rate, even though their assets and living expenses were equal to Arnold and Angelica's. 

What’s the lesson here?

Withdrawal rates are useful tools in determining “am I ready to retire,” but it is important to remember that preservation of principal isn’t always the primary goal.

You worked really hard to save this money while you were working, and you should enjoy the fruits of your labor in retirement. In this scenario, with a 5.39% withdrawal rate and assets earning 4% annually, the principal would remain intact for about 33 years. 

Part 5: Estate planning: Are you covering all your bases?

Think about all the assets you’ve worked so hard to earn, invest in, and accumulate, from the best retirement accounts for physicians to your home, vehicle and even your beloved family pet. What happens to these assets after you’re gone?

Do you prioritize passing assets to support your spouse, children, friends, other family members or charities that mean a lot to you? Or would you rather have these assets fund your life’s passions above and beyond your core living expenses, like travel, art, shows and other experiences that bring you joy? 

While some manage to achieve both, for most, it’s a decisive choice about the purpose of their wealth — who is this money for?

Cement your intentions with proper estate planning

When you’ve thought through some of these difficult questions, be sure to cement your intentions through estate planning. It’s crucial to formalize your wishes by updating the beneficiaries on your accounts and having a Living Will, Power of Attorney, and Health Care Directive. 

Part of this consideration is choosing how you want your property divided upon your passing, and if you’d like your loved ones to navigate probate (the court process to distribute property of a person who has died) or if you’d rather lay out your full wishes in a Trust. 

These end-of-life considerations can also influence when to retire and start living off your investments. If leaving a legacy matters to you, build that into your financial plan and make sure your documents accurately reflect your decisions. 

Retirement isn’t just about the numbers 

Retirement means different things to different people. It can be solely about financial independence, or it can be choosing to work part-time because you enjoy it, taking a sabbatical, or working less to spend time on other passions.

A retirement plan goes beyond simply knowing your net worth or running the numbers to see if you can retire. It involves having conversations about your retirement goals, what a fulfilling post-work life looks like to you, and working with a financial planner to support that vision of what you want to retire to. 

While a good financial plan can help with the quantifiable “is it a responsible choice to retire at this particular time?,” a good financial planner dives deeper into the personal finance question of “what does retirement mean to me, and where do I need to be financially to attain that goal?”