Retiring soon? Start your preparations now

December 18, 2013

Physicians contemplating retirement within a few years need to understand the future risks of the financial situation they may be facing.

 

I'm starting to worry about my financial security when I retire in a few years. What should I focus on now?

Physicians contemplating retirement within a few years need to understand the future risks of the financial situation they may be facing. People are living longer, which means you may have to provide for a bigger cushion in retirement than you may have initially intended. In addition, uncertainty over future Social Security benefits as baby boomers continue to retire adds to the concerns. As a result, you could face a personal shortfall, especially if you incur unforeseen expenses from a medical condition or some other situation.

What should you do? Even if retirement is imminent, you may be able to make up lost ground quickly or take other steps to protect yourself. Here are several ideas to consider.

Maximize retirement savings vehicles. Just a few years of making contributions at or near the maximum level can significantly bolster your account. If you have any qualified retirement plans that you are not fully funding, determine whether your cash flow will allow you to do so.

Work on your budget. If a financial planning retirement needs analysis determines that you may have a potential shortfall, you might want to dial down your expectations. Make realistic estimates about the income you expect to have coming in and the expenses going out. Although you will likely be paying less for housing (see below) and other items such as life insurance, especially if your children are already adults, consider the impact of potential increases in some expenses such as travel expenditures.

Move to a smaller home or condo. For most people, housing is the largest overall cost, representing on average more than one-third of overall spending. If your kids no longer live with you, but you’re still living in the large home where you raised them, it may be time to downsize. If you are considering moving to a state with a different climate, be sure to take state income taxes into account. Of course, various other factors such as proximity to family and personal preferences will come into play.

Refinance your current home. If you decide not to downsize, you should consider refinancing an existing mortgage if you are paying a rate higher than those currently available. At the beginning of 2013, mortgage rates had reached historic lows. Even though rates have increased slightly since then, you may save tens of thousands of dollars over time by refinancing. Keep in mind that your interest payments will generally continue to be tax deductible.

Do not stop working altogether. Just because you have reached retirement age does not mean you have to stop working completely. If needed, you could pursue part-time employment. For some individuals, working full time a little longer is also a viable option.

Every physician’s situation is unique, but the most important thing to do is assess your financial planning objectives, which of course includes a review of your investment portfolio. Planning involves assumptions about the future, assumptions that may not pan out. Although you cannot avoid making assumptions, you can evaluate whether they are realistic and consider how your lifestyle might change if future economic and financial conditions are much different than projected. And while you also cannot fully control the factors involved in portfolio endurance during retirement, having more wealth can improve the odds of having a less stressful financial life. A more substantial nest egg might enable you to take fewer risks, enjoy a higher sustainable spending rate, or extend the productive life of your portfolio.

 

At this stage of my life, I don’t need life insurance. Should I simply cash out of my old policies?

It is important to keep in mind that with most cash-value life insurance policies, there may be substantial surrender charges associated with canceling or terminating the policy. These charges are generally highest in the early years of a policy and usually decline over time, typically from 7 to 15 years, depending on the specific insurance company.

If your needs have changed since you purchased the policy, you do have options other than just surrendering the policy. You can access cash values without terminating a policy via cash-value withdrawals or through loans. The loan may not have to be repaid, but if there is an outstanding policy loan, the company will reduce the death benefit if the insured dies before the loan is repaid. Be sure to consult with your insurance adviser to determine the best course of action given the terms of the specific policies you own.UT

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