Is ‘retirement’ based on outdated rules?
With many physicians not retiring until age 70, some misconceptions should be pondered
The number one financial topic prompting questions from attending ophthalmologists at a recent ophthalmology conference was on “retirement” and how the current market volatility might affect planning.
One recurring theme is that no physician appears to be in a hurry to retire. Almost without exception, most seem content to work until at least age 70—and then perhaps work part time.
This is much different from the Great Depression, when Congress passed the Social Security Act in 1935 and life expectancy was 58 years for men and 62 years for women. Now, we are only thinking to begin retirement at age 70. And according to some research, babies born today have a chance of living to the age of 120. Now that’s a long career.
Physicians wanted to know how to calculate:
· When could they actually retire, if they were forced to?
· How much could they spend in retirement?
· Would they ever run out of money?
· Were they saving enough?
· Were they taking too much or too little risk?
These are not questions that spur any level of confidence by guessing. Some outdated rules of thumb were being used by some, such as:
· You only need about 65% to 75% of current income needs after retirement.
· As long as I don’t withdraw more than 4% off of my portfolio, I will be safe.
· I should come out of equities just before or during retirement because I won’t need growth any longer.
All of these simple calculations sound acceptable, except that none of them holds true in 2016 and moving forward. At least, as far as we can predict.