It seems counterintuitive. Here I am writing this, 1.2 years out of my training and I’m talking about retirement. But this should not be the exception, it should be the norm. And I didn’t start out this way… but the best time to think about retirement is before doctors even start working. Plan ahead and you can control your time, work because you want to, not because you have to, and retire comfortably on your terms. To help you do this, I’ve developed a simple 5 step retirement calculator for doctors that I’d like to share with you all.
Let’s walk through the retirement calculator for doctors together
Step by step…
Oh yeah…if you want to download this calculator for free, just use the side bar over on the right side here –>
Step 1: Figure out how much monthly expenses you want/need to cover in retirement
Once you enter retirement, you exit the accumulation phase of your financial life cycle.
So, in the purest sense, you are no longer worried about your active income covering your monthly expenses.
You now are going to use your savings and investments to cover all expenses. That’s how you retire and live each day however you want.
Doesn’t mean you can’t still make money. Plenty of “retired” folk do. But we are keeping it pure. Plus it’s always better to know you can retire without income and then have any income be the cherry on top.
Anyway I digress…
The first step in the retirement calculator for doctors is figuring out your monthly expenses.
To do this, sit with your budget (use my template here). Go through your expenses and think about how these will change in retirement.
For example you will need to make sure you include:
- Healthcare if not Medicare age
- School expenses if kids are not yet through their education (Here are some tips)
- Long term care costs
Some examples of things you will no longer need include:
- Life insurance
- Disability insurance
- Student loans
- Consumer debt
- Hopefully your mortgage since you will have paid this off
I recommend always overestimating how much you want/need.
Step 2: Calculate yearly expenses
This step is a gimme…multiply your number from Step 1 by 12.
Step 3: Determine how much nest egg you will need
Once you know how much money you want/need to have in retirement on a yearly basis, you can figure out the nest egg you will need to achieve that.
It’s a simple equation based on the 4% rule.
Remember, the 4% rule is based on the Trinity study which showed that you can safely withdraw 4% of your investment nest egg each year in retirement and have a very high chance of not running out of savings before you die.
Before people get up in arms, this is a ground rule…a rule of thumb…a guideline. It is by no means perfect. But it’s a great way to make these estimates.
For more detailed information on the 4% rule, check out this post.
Anyway, if you divide your yearly desired retirement expenses by 4% (or multiply by 25), you get the nest egg required to sustain your retirement.
But don’t stop there…you still need to figure out how to put that nest egg together
And that is what the second half of the retirement calculator for doctors is designed to help you with
Step 4: Determine your required savings rate
Remember, the key to achieving financial freedom is simple.
Increase the difference between what you make and what you spend. This is your “margin.”
Then invest this margin.
So, to reach your retirement nest egg you need to figure out 4 main variables.
- How much you need to save each year
- How much you already have saved
- Your expected rate of return on your savings
- How long you have until you plan to retire
These 4 variables will largely determine the nest egg that you retire with
And the cool thing is that they are relatively in your control. #1, #2, and #4 are definitely in your control.
And with a thought out written financial plan in your pocket, #3 becomes more and more controllable.
So, in Part 2 of the retirement calculator for doctors, first enter your current savings and how long you plan to work until you retire.
Next, enter your expected after tax, after fees return on your investments. Be conservative. Better to underestimate and have more later on than vice versa.
Then, play around with your annual savings
As you do this, you will see that your expected nest eggs will change.
That way, you can play around with these variables until you see that you meet your desired nest egg.
Now you have all of the information needed to start building towards that nest egg!
N.B. This calculator does not directly factor in forms of passive income that can sustain you during retirement
Things like rental income or dividends. What Selenid and I do is subtract that expected yearly total of passive income from our expected yearly expenses. Then we calculate the savings needed to reach a now amended nest egg based on the amended yearly savings.
For example, let’s say we expect to have yearly expenses of $200,000. But we have rental income of $100,000/year. Then, we would really only need to cover $100,000 ($200,000-$100,000) in annual expenses. This equals a nest egg of roughly $2.5M compared to compared to $5.1M without the rental income.
I hope this also demonstrates just how powerful passive income can be! You can learn about how Selenid and I generated $60K in passive income in just one year here!
Step 5: Enact your plan!
This is the most important step.
I have seen and know so many people who will spend hours and hours running these calculations. But then they don’t change their spending habits or increase their savings or invest their money (wisely or at all)!
What you have effectively done in steps #1-4 is create a plan to reach your goal retirement on your terms.
It’s in your hands now.
It’s within reach!
And as a bonus, check out these physician side gigs to make you passive money!
You can also save the hours and hours of reading that I did to figure all this out and check out my course, Graduating to Success, where I condense all of this into high yield information that I promise will deliver you financial freedom. I think that is well worth the cost!
You can learn more about my course here.
What do you think? Have you calculated your desired nest egg? What about your plan to reach that nest egg? Let me know in the comments below!
Check out my free masterclass webinar, 12 Steps to Financial Freedom for Physicians here!