By Katherine Vessenes, JD, CFP® and Josh Lantz, CRPC®
Here are four key numbers doctors need to keep in mind when it comes to financial well-being and wealthspan:
Rule of 72
The Rule of 72 helps us estimate the time it takes for your money (or debt) to double. For instance, at a 7.2% interest rate, a doctor who has $500,000.00 in investments would grow to $1,000,000.00 over a span of 10 years. This concept also applies to inflation and the cost of living.
Another example: at 7.2% interest rate, your $500,000.00 mortgage would actually cost you $1,000,000.00 over a 10 year period.
Retirement Number
A doctor’s retirement number signifies the total asset value needed for financial independence. This goal guides your saving efforts throughout your career. For higher income earners, a larger lifestyle demands a higher spending capacity. Just as a guppy expands to fit its tank, your assets must match your retirement lifestyle.
Sit down with your wealth manager to establish this retirement number so you can start a saving plan now!
Hourly Rate
We talked about this in our Sidegig Starter Course! This is super valuable to know what a doctor’s bonuses and salary are when converted into an hourly rate. This perspective aids decision-making, such as evaluating whether to outsource tasks like yard maintenance, for example. By considering tasks in relation to your hourly rate, you gain clarity on their actual cost in terms of time.
Withdrawal Rate/Distribution Rate
Your withdrawal rate, or the percentage you can withdraw from your investments during retirement without jeopardizing your funds, is vital. The widely known 4% rule suggests withdrawing 4% of your accumulated wealth during retirement, factoring in inflation. While this rule offers a baseline, software tools can customize the percentage based on factors like your retirement age. For doctors, a suggested rate of around 3% can provide greater security, especially for those retiring at 65.
If you plan to live off of $200,000 per year in retirement / 3% = roughly 6 million dollars needed to save before retirement.
Just like you want to live (not just a long life) but a healthy one, we want our doctors to also live a long life of financial security. Understanding these four essential numbers can significantly contribute to a great wealthspan and a stress-free retirement.
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Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at Katherine@mdfinancialadvisors.com.
Josh Lantz, CRPC®, Chief Investment Officer, Financial Advisor With over a decade of financial planning experience, Josh has worked on more than 450 doctors’ financial plans. “It’s very hard to find a doctor’s situation I haven’t seen before,” says Josh. This is only a snapshot of the expertise Josh brings to MD Financial. He was recently recognized in Medical Economics for Financial Adviser for Doctor’s in 2017-2018, as well as Dental Products Report’s Best Financial Adviser for Dentists in 2019. In 2022, Josh was recognized as a Five Star Wealth Manager Under age 40. He can be reached at Josh@mdfinancialadvisors.com.