Plan your retirement as you plan your surgeries—ahead of time

According to recent AAOS member surveys, throughout their careers, orthopaedic surgeons tend to push back the age at which they plan to retire. Orthopaedic surgeons in their 40s generally expect to retire by around age 65. Those in their 50s expect to retire at around age 67. Perhaps most surprising, even orthopaedic surgeons in their 70s don’t expect to retire until age 76.

Is it because we decide that we don’t want to retire? The numbers suggest not. In fact, one survey showed that only 13 percent of retired orthopedic surgeons “missed being a doctor or being at the office.” The same survey showed that most of us are happy with retirement; two thirds of retired orthopaedists reported being “delighted” or “pleased” with retirement.

Given these numbers, many orthopaedists who are continuing to practice beyond age 65 might like to retire. But perhaps we as a group are not very good at retirement planning. This series of articles will review basic strategies to prepare for retirement, retirement plan options, investment vehicles, and final steps to take in closing your practice so that you, too, can enjoy retirement.

The impact of waiting
A recent survey indicated that most orthopaedic surgeons don’t even start planning for retirement until age 50. Some simple math shows why this late start may force many surgeons to delay retiring. For example, to retire at age 65 with $120,000 per year (in today’s dollars) for living expenses, a 35-year-old orthopaedic surgeon must save $40,000 a year (assuming tax-sheltered investments, an 8 percent annual return, and a 3 percent annual inflation rate).

By the time the surgeon is age 42, meeting the same goal would require an annual contribution of $60,505. Wait until age 50, and the annual set-aside rises to $107,118 per year. Begin saving at age 50, but delay retirement to age 70, and the annual contribution required drops to $61,212 per year. Therefore, it is easy to see why many of us might be forced to practice longer than we planned.

So the first basic concept is to start saving as early as possible. Meeting your retirement goals is easier when time is on your side. The power of compounding greatly reduces the amount of money that you actually have to save to meet your retirement goals if you begin early. If you have not yet begun to save for retirement, start now.

Ah, the good life!
The next basic concept is to live within your means throughout your life. According to the Medical Group Management Association, the median annual income for a general orthopaedic surgeon is $415,347. The AAOS survey shows a lower median of $320,000. Let’s assume a salary of $375,000, which would translate into take-home pay of about $225,000 annually, or $18,750 per month.

Based on that figure, your budget should include both debt reduction and retirement planning. The largest and most influential portion of a monthly budget will probably be a mortgage payment. Purchasing the maximum house you can afford, based on dedicating 28 percent of your gross income to your mortgage payment, means a monthly mortgage payment of about $8,750 per month. That leaves $10,000 per month for other living expenses.

Now consider retirement plan savings. Saving $60,000 per year means setting aside $5,000 per month, reducing your funds available for other expenses to just $5,000 per month. By the time you pay for life insurance, disability insurance, and other necessary safeguards, you may have very little left to “enjoy.”

As these numbers show, your home mortgage payments can have a significant impact on your retirement planning. Project and budget for a plan that works for you…not your banker. Many of us would be well served by simply downsizing our mortgage payments to enable a larger set-aside for retirement.

Debt and delayed gratification
Orthopaedic surgeons face some unique issues, including a career that doesn’t really start until we are in our early 30s. Many of our college counterparts have been working and saving for 8 to 10 years before we even begin our first real job. In addition, according to the American Medical Student Association, the average young doctor carries between $115,000 and $150,000 of educational debt. As a result, early planning and saving is even more important for us than for those who start their careers much younger.

Ours is a career that begins with delayed gratification. Years of near poverty and long hours as students and residents precede our first “real” paycheck. Initial salaries can lead to a false sense of security and to a lifestyle that cannot be maintained.

With take-home pay of $18,750 per month, young orthopaedists can buy a $1.4 million home and have $10,000 per month for spending money. That means a very comfortable lifestyle for many years before thoughts of retirement start to surface. But orthopaedists in their 50s and 60s will have to either drastically modify lifestyles or work into their 70s to fund a comfortable retirement. Attention to some basic retirement planning can help avoid this situation.

Balancing the books
With this assumed level of income, an astute orthopaedist should be able to have a very comfortable living situation and save for retirement. Begin by determining your present financial state. What is your net worth? What is your monthly budget? Are you keeping up with your finances at all?

One relatively easy way to keep and review your finances is to enter them into a personal financial software program. Many of these programs have Internet links to banks and credit cards enabling you to download transactions rather than key them in. After you’ve categorized your expenses, you can easily evaluate your monthly expenditures. The software may also include retirement planning models to help make projections and plans for your retirement. Once you have an accurate assessment of where you are now, make a plan and set up a budget.

Whether you use software or an old-fashioned accounting ledger, however, you must personally be involved at some level. Your accountant, lawyer, and other advisors will not be able to do their jobs properly without your involvement.

The next step is to start saving. Many financial advisors advise establishing a contingency fund to enable you to meet your expenses during an unexpected disruption of your income or emergency. The minimum contingency fund should equal at least 3 months of expenses. Because many orthopaedic surgeons change jobs within the first few years of practice, this is critical and should be a primary financial goal.

Retire as much high-interest debt—such as credit cards or student or auto loans—as quickly as possible. If debt cannot be eliminated, you can attempt to consolidate or transfer it to get a lower interest rate. Homeowners could consider eliminating high interest debt with a home equity loan.

Once debts are paid off and you have an emergency fund, then you are ready to begin investing. The next article in this series will discuss various types of retirement plans that can be used by orthopaedic surgeons.

Frank M. Griffin, MD, has served as a member of the Practice Management Committee and is in private practice in Van Buren, Ark. He can be reached at fgriffin888@aol.com

Editor’s note: The information contained in this article is intended for general information purposes and is not legal or financial advice. Individuals who need legal or financial advice should contact a duly licensed professional.