This content is part of a paid partnership with Capital Partners.
Doctors dedicate their lives to evidence-based patient health, yet when it comes to finances many abandon this rigour, choosing an ad hoc approach.
Yet failing to plan adequately can leave you in the ‘retirement red zone’ – a point where your financial resources fall short of sustaining the lifestyle you’ve worked so hard to achieve.
For high-income professionals like doctors, this is avoidable with the right strategies.
What is the retirement red zone?
The retirement red zone refers to a scenario where your retirement assets are depleted prematurely.
The retirement red zone refers to a scenario where your retirement assets are depleted prematurely.
This can happen due to poor planning, insufficient savings, or underestimating future expenses like helping family and inflation.
For affluent families, the stakes are higher because tax inefficiencies and unstructured plans can erode wealth faster than expected.
The retirement scenario below is typical. It shows the retirement red zone, where retirement assets are exhausted well before your life expectancy. In the red zone, the only funding remedies are to downsize your home or apply for the Age Pension.
Why are doctors at risk?
Doctors face unique challenges when it comes to retirement planning.
Late career start: Many begin earning substantial incomes later than other professionals due to lengthy training, meaning they have fewer years to benefit from the power of compound interest.
High tax burden: Without proper structuring, a significant portion of income and investment can be lost to taxes.
Limited time: Busy schedules often leave little time for dealing with day-to-day finances, let alone planning for the long-term.
These factors make it essential to develop a robust retirement strategy tailored to your needs. The time to start is in your forties – or even earlier – but many wait too late into their fifties.
How to avoid the red zone
There are a number of things you can do to avoid slipping into the retirement red zone.
Define your retirement vision
Retirement isn’t just about money; it’s about purpose and fulfilment. Ask yourself:
- How will you spend your time?
- What goals do you want to achieve?
- Who do you want to spend more time with?
- Who do you want to help?
- What adventures and travel are you planning?
Having clarity on these questions helps shape not only your lifestyle but also your financial plan. Tools like a Retirement Goal Planner can help prioritise what matters most.
Calculate how much is enough
A common concern is whether you’ll have enough money. Many academic researchers have considered this problem and concluded that the 4% rule is a great start.
This rule suggests that you will need a capital sum of 25 times your annual spending, plus any lump sums to ensure your retirement savings will last your lifetime.
In our experience, the 4% rule is a good start, but the rule can overstate the capital you need for a comfortable retirement.
The best way to establish the capital you need is to undertake detailed financial modelling based on your actual requirements. This takes the problem out of the realms of theory and into evidence-based strategy.
This kind of modelling provides pathway certainty, where you base your spending expectations on clear goals and a strategy optimised for tax, saving and then spending.
Plan for inflation
Back when your grandparents retired, they probably expected to live another 10 years at most. Now, you could live well into your nineties.
The inflation experience over the past few years tells us that the purchasing power of your money is not guaranteed. Inflation is an invisible force that gradually eats away at your wealth and, if left unchecked, it can severely impact your lifestyle in retirement.
For instance, keeping $2 million in cash might feel safe, but over time its value diminishes. What your $2 million can buy today will cost about $3.6 million in 20 years’ time assuming inflation of 3%.
Build a resilient investment plan
If taking an evidence-based approach to medicine make sense, then it translates to investing.
History shows that markets reward investors for the capital they supply. Since 1926 the S&P 500 index has returned an average of about 10% each year. There is no reason to believe this won’t continue in the future, so your challenge is securing your fair share of this return.
Academic research confirms that strategies like stock-picking or market timing rarely work. Instead, evidence points to steady growth through disciplined low-cost investment strategies.
Key takeaways
Retirement should be a time of freedom and fulfilment, not financial stress.
By taking steps now, you can avoid the retirement red zone and secure the future you deserve. Define your goals, plan for inflation and taxes, and seek professional advice where needed.
Your financial health is as important as the care you provide others.
If you would like to have a conversation with someone to secure your retirement, please reach out here.
Are you on the path to prosperity? Take Capital Partner’s short prosperity quiz here.
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