How Much Money To Retire From Medicine?

Unless you plan on seeing patients until the day you drop dead, you need to read this.

Having an understanding of how much money you need invested in order to retire is a basic requirement of success.

If you don't know where you're going, you will definitely not get there.

Let me break down but it looks like to figure out your "financial independence number". First things first, retirement is not an age. It is actually a mathematical destination where you can live off of your investments. We all need to hit this mark (hopefully at least by 65), but some folks (like myself) set themselves up to hit it far sooner. 

So what's your number? 

1) Calculate how much money you spend in one month. Unless you have a budget, you likely do not know the answer to this question. In my experience with working with thousands of medical professionals, when people attempt to guesstimate this number they typically guess a number about 20 to 30% less than the actual number. If you have a large expense that will not occur during retirement, like childcare, you can leave it out. Then multiply by 12.

Example: A pharmacist earning $125,000 may have monthly expenses (not including saving & investing) of $6,000. $6,000 x 12 = $72,000.

2) Inflation adjust your current expenses to the year you anticipate retiring. For simplicity sake, let's do 65. If you are 30 years old in 2024, you would be inflation adjusting your expenses to 2059. You can use a free future in inflation calculator like the one linked here. The question is, what inflation rate do you use? Most use the US target inflation rate of approximately 2%, but if you wanted to be more conservative you could assume 2.5% or even 3%. 

Example: $72,000 in annual expenses in 2024 projects to a future cost of $170,871 in 2059, assuming a 2.5% inflation rate.

3) Multiply the number you get by 25. This assumes a 4% withdrawal rate in retirement. We have lots of content elsewhere diving into withdrawal rates if you want to learn more. Regardless, this is classically considered a safe scenario for someone retiring in the mid-60s. If you are retiring early, this may NOT hold true.

Example: $170,871 x 25 = Goal Nest Egg of $4.27M

These types of calculations exclude social security benefits. You can visit the Social Security Administration website and create your free account to get an idea of what you may be able to anticipate from Social Security. I personally do not rely on this in my planning, but consider Social Security benefits to be a financial bonus. Travel fund, maybe?!

If you've been hanging out with me for a while, you know that I encourage every medical professional with a high income that becoming a multimillionaire is not a luxury, but a necessity. These types of calculations demonstrate that beautifully.

If the multi million dollar result scares you, don't worry. By starting early and being consistent, any medical professional can achieve this (and even better).