Planning for Retirement—What Orthopaedic Surgeons Need to Know

Maureen Leahy

Retirement planning is more important now than it has ever been,” said Cynthia K. Hinds, CLU, ChFC, MSFS, president of Hinds Financial Group in Lakewood, Colo., during Tuesday’s Instructional Course Lecture, “Planning for Life After Orthopaedics.”


Cynthia K. Hinds, CLU, ChFC, MSFS	Following her presentation, Ms. Hinds answered questions from the audience

Not only are today’s retirees living longer, but the amount of income they will need to retire is expected to increase by 50 percent in 8 to 12 years, according to Ms. Hinds. Yet investment returns are lower, and taxes, healthcare, and insurance costs are on the rise.

During her presentation, “The Retirement Planning Process—Generating Income and Preserving Assets during Retirement,” Ms. Hinds shared information that orthopaedic surgeons need to know, offered advice on how to manage obstacles, and provided tips for successfully navigating the retirement planning process.

Work the system
It’s important to evaluate when and how to take Social Security benefits, and to do this early in the retirement planning process, because many complex issues can affect Social Security payments, noted Ms. Hinds. For example, 81 different possible scenarios exist for how married persons can collect Social Security benefits.

Fortunately, optimizing techniques—such as working longer, applying for benefits at the optimal age, and coordinating spousal benefits—can help orthopaedic surgeons maximize their benefits. Ms. Hinds recommends working with a financial advisor who is familiar with the Social Security system. Several computer software programs are also available to help surgeons calculate their options.

Determining retirement income needs
“I can’t tell you how much money you will need in retirement,” Ms. Hinds said. “Typically, individuals need 70 percent of pre-retirement income, but it’s important to take into consideration how your lifestyle is going to change after you quit working. Therefore, the most important step in retirement planning is evaluating your budget needs.”

When preparing a budget, it’s very important to align fixed expenses with fixed income and variable expenses with variable income, according to Ms. Hinds. “The easiest way to think about it is that fixed expenses are things that you absolutely need and variable expenses are things that you want. Often there is quite a difference between the two, so it’s important to structure your income accordingly.”

Income and investment strategies
Orthopaedic surgeons shouldn’t put all of their money in one place, advised Ms. Hinds. “In reality, you need to have different ‘buckets’ of money,” she said. “If you plan to have 1 to 3 years of income needs set aside in a very safe place (such as certificates of deposit or savings accounts), you can then afford to put the rest of your money in other places (such as investments), which are more volatile but will yield a bit more return.”

This time-segmented strategy allows retirees to ride out market fluctuations. “In the years when the market does well and you earn unexpected profits, you can take that money and put it in the safe bucket,” explained Ms. Hinds.

Another thing to keep in mind is that tax brackets are blended—not all income dollars are taxed at the same rate. “The goal is to blend tax rates in your investment strategy. Retirement accounts such as IRAs, 401(k) plans, and pension plans are taxed at ordinary income tax rates. If you have other assets that are taxed at lower rates, you’ll want to structure them in such a way that you lower your total tax bracket,” she said.

Ms. Hinds also recommended that orthopaedic surgeons build their retirement income portfolio 2 to 5 years before retirement and review it annually.

Retirement plan distribution
The election to receive retirement plan distributions is another issue to consider. Ms. Hinds noted that distributions are taxed as ordinary income in the year received and are taxable at the recipient’s tax rate. Distributions are mandatory at age 70½, she said, and several accounts may be combined for calculating distributions.

Retirement account distributions can be taken as a lump sum, although Ms. Hinds advises against it. “Generally, when you’re taking money out of a retirement account, the goal is to create an income stream over time,” she said. “In addition, any amount you take out is subject to taxes.

“When it comes to your retirement accounts, naming a beneficiary may be your single most important planning step,” said Ms. Hinds. “If you die before age 70½ and you don’t have a named beneficiary, your retirement accounts must be paid out in 5 years—that is a negative tax consequence.”

Conversely, a named beneficiary can choose to have the payout made over life. “Beneficiaries can take the payout quicker than that, but they are only required to take it at the rate of their life expectancy—that is a tax minimization opportunity.”

She added, “If you die after age 70½, without a named beneficiary, the entire amount has to be paid out within 1 year—again a nasty tax consequence.”

During her presentation, Ms. Hinds also stressed the importance of reviewing life insurance and estate plans.

According to Ms. Hinds, retirement planning doesn’t have to be a daunting task. To help keep on track and organized during the process, she provided the following to-do list: