When Will I Have Enough Money To Stop Practicing? This is a question that we are often asked. Traditionally, doctors have enjoyed high incomes and funded substantial retirement plans. In the distant past, it was not uncommon for doctors to put $100,000 per year into a tax-deductible plan. With declining reimbursements and higher costs of malpractice insurance, a new economic reality has set in for physicians. As medicine becomes more difficult as a profession, many doctors have their eye on the concept of "economic independence". In other words, "How much money do you need to accumulate before you feel you choose to go to work rather than you have to go to work?" Rule of 5% We have developed a basic rule, which gives you a rough guideline. It is referred to as the "Rule of 5%". To calculate the amount you will need for retirement, take your expected annual personal expenses and divide that number by 5%. For example, most physicians need from $10,000 to $14,000 per month after taxes to live comfortably. This amount excludes expenses such as children's education and life and disability insurance costs, since these will cease to exist post retirement. The $10,000 per month amount ($120,000 per year) divided by 5% equals $2.4 million.This is the net worth you will need to have saved to provide this income for life. Monthly expenses of $14,000 require a present net worth of $3.3 million.The 5% rule assumes an actual rate of return of approximately 8.5% less taxes and inflation. To be able to retire comfortably, the average physician will need $2.4 to $3.3 million in net worth. Can this premise fail? Yes. By far the most important variable in retirement planning is your actual rate of return on investments. Earning only 8% versus 9% could mean having to work an additional five years to make up the difference. Another pitfall is making poor investment choices. Suppose you are 45 years old and put $20,000 in a high-risk opportunity that goes sour. The $20,000 amount may seem like an affordable risk to you now. However, at a 9% return, your $20,000 would be worth $112,000 in twenty years, and $628,000 in another twenty years. Through a small, bad investment, you will have lost over $600,000 that could have been used for retirement. Unfortunately, many physicians don't pay attention to their investments, although they have worked so hard to earn and save money. In today’s environment, earning a slightly higher return can shave years off the "I have to work" formula.  Conclusion The 5% rule is a simplified calculation. Of course, many other variables come into play when doing a formal retirement analysis. We have designed a retirement calculation worksheet that you can do on your own. It will take approximately ten minutes for you to see where you stand financially regarding your own retirement goals. Call our office to request your complimentary copy. Singer Xenos does not provide legal advice. Please consult with your own legal counsel.