Despite adequate savings accumulated by many physicians throughout their careers, living your best life following retirement does include certain recurring expenses that need to be considered. All of these expenses are affected by one key element: inflation. Physicians must bear in mind that the value of a dollar in 1995 won’t have the same buying power in the year 2035. Daily expenses have a direct relationship to time. Basics like food, gas, and utilities will continue to cost more with each year, as is evident by a Bureau of Labor Statistics report that found that the US inflation rate has risen yearly anywhere from 1.3% to 2.3% since 2011.
Rising taxes are another factor that physicians must consider when arranging for retirement. According to Trading Economics, the US personal tax rate rose to 39.6% in 2013 from 35% in 2004, indicating that physicians should expect to pay more in retirement income taxes 10 years from now than they do today. Physicians need to consider the wealth required to maintain their desired lifestyle after retirement, especially given that fixed retiree income will be subject to inflation and rising taxes. Savvy investing, either on one’s own or with a financial advisor, is one way to maintain wealth. Although cashing in on retirement account matches like 401(k)s and 403(b)s is a smart decision, these are generally tax-deferred accounts. At the time, taxable income will decrease, but physicians may end up paying more taxes on that income when they begin to make withdrawals while having a fixed income. A Roth IRA, for which you pay taxes upfront at a likely lower tax rate, may help to offset tax-deferred contributions.
Housing costs are another essential retirement consideration. According to the National Association of Realtors, homes in May 2021 saw a record-setting 23.6% increase in median price. Retiring physicians need to take into account the volatility of the housing market when considering, for example, plans to relocate, as housing prices now may barely resemble the housing market in 10 years. Using the proceeds from a paid-off home to purchase a new home would allow retirees to skirt paying any interest, as opposed to the interest paid when financing the purchase of a new home with a mortgage. Also: All-cash buyers are more appealing to sellers.
Retirees must also consider healthcare expenditures, as some age-related decline is inevitable. In a 2019 study, HealthSystemTracker.org estimated that the average US citizen annually spent almost $11,000 on healthcare. With annual Medicare and Medicaid services projected to grow 1.1 percentage points faster than GDP per year on average until 2028, retiring physicians need to take advantage of options for covering age-related healthcare costs. Healthcare Savings Accounts (HSAs) are great options, offering tax savings by lowering taxable income via contributions, not paying taxes on account earnings, and always being able to withdraw money for qualified medical expenses.
Estate planning is another important consideration for retirees. Physicians must consider hourly rates for an attorney’s estate-planning services, which could reach upwards of $350 per hour. Though many physicians have arranged a will or power of attorney at the start of their careers, they must consider how life and financial situations change through the decades. Periodically re-examining estate planning, even during retirement, helps to ensure financial well-being while ensuring that loved ones won’t have to deal with any added troubles after a death.
