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An effective retirement plan cannot simply be established at the start of a physician’s career and then forgotten. Retirement planning requires an ongoing commitment to review and redesign, along with a dynamic approach to asset management and response to market volatility. To enable a successful retirement, there are three specific tactics that should be employed in the years leading up to retirement: developing a budget, reviewing asset allocation, and designing a withdrawal strategy.

Developing a Budget

It may seem like overly simplistic advice, but budgeting can push a retirement plan to success or drive it to failure. While many believe a budget is simply an awareness of spending, its purpose is to ensure you live within your means and that every dollar earned is deployed with strategic purpose. To do this, you need a written and managed budget, not a simple mental tally of expenditures.

To begin, make a list of your lifestyle needs, including basic necessities such as meals, mortgage, utilities, and insurance. This list should also include savings contributions.

Deciding how much to save today will depend greatly on how much you expect to spend during retirement. To project future expenses, create budgets based on assorted post-retirement factors including location, size of home, hobbies, frequency of vacations, and other post-retirement lifestyle expectations. These budget exercises provide a broader view of how effective a retirement savings plan can be based on various lifestyle decisions. It may be helpful to model multiple scenarios, including an aggressive and conservative budget.

A common mistake by many investors during this exercise is assuming substantial investment returns to justify expensive lifestyle choices. Expecting massive returns on minimal savings is dangerous to a retirement plan. Consult with an advisor to determine a reasonable expected return based on historical performance, portfolio components, and other factors.

Reviewing Asset Allocation

Asset allocation encompasses the types of investments within a portfolio, their various underlying industries, risk, and level of market correlation. One of the most important strategies for proper asset allocation is diversification.

Managing Diversification. Diversification is the process of varying the allocation of value in a portfolio among a variety of sectors, investment types, and risks to reduce each investment’s correlation with the others, thus ensuring some buffer against significant swings wiping out an entire portfolio. Proper diversification is an effective way to mitigate losses.

Diversification an investor is important. Remeber that history tends to repeat itself, and one unfortunate outcome can result in a complete loss of a lifetime of savings. One example is the employees who were overly invested in Enron stock in the early 2000s. According to the New York Times, the Enron 401(k) plan, which was over<-weighted in Enron shares, lost more than $1 billion in value in 2001 when the company went bankrupt and shares of Enron stock fell 94 percent. Today, employees heavily invested in GE stock are feeling much of the same loss as Enron employees did 17 years ago.

Putting Returns in Their Place. Risk tolerance is an investor’s ability to mentally and financially withstand volatility in investment performance. An investor with a high-risk tolerance may be young, with decades of expected income, and relatively unbothered by large swings in investment values. A more conservative investor may have fewer working years left to replenish investment losses, who becomes stressed at the idea of volatile investment swings.

As you age, you need to reallocate your assets into increasingly conservative investments to best limit your exposure to loss as investment time horizon shortens. Additionally, careful consideration must be made to limit properly downside risk, potentially through fixed income and alternative investments.

The idea of reallocating to more conservative assets can be troubling to those focused on maximizing returns, because conservative investments tend to have limited upside potential. To understand why this move is often more beneficial than seeking higher returns in later life, you need only to be familiar with sequence of returns risk.

Sequence of returns risk is the danger that the timing of liquidation and withdrawal will coincide with a downturn in the market. If it does, it effectively reduces the overall potential performance of the entire portfolio—a high number of shares will need to be liquidated to get the income expected, thus leaving fewer shares in the portfolio to grow.

Sequence of returns risk may not be important during the accumulation phase, but during the withdrawal phase it is one of the most critical factors in the overall success of a retirement plan, making it a higher priority than chasing returns.

Designing a Withdrawal Strategy

While a physician’s primary focus is to save and accumulate funds for retirement, the design of a withdrawal strategy is equally important to financial health in retirement.

Selecting a Withdrawal Rate. A fundamental pitfall in static retirement plans is setting a withdrawal rate that is fixed over a retirement period. Consider that, for many physicians, the retirement stage of life is likely to last 20 years or more. In that time, investment yields may vary widely and tax rates and personal spending habits could change. Therefore it is essential that flexibility be built in to retirement planning, both in initial models (high, middle, low) and when reviewing the plan each year (or more frequently). Only by having flexible planning models and periodically adjusting them based on real-time results, can you expect to follow a model that can endure throughout your retirement—regardless of how many years or decades that retirement may last.

Making Room for Taxes. No one knows what tax rates will be upon retirement. This does not mean you should ignore tax planning, but that you should account for the potential costs of taxes and design a strategy to minimize them.

Having a plan that considers which withdrawals will trigger ordinary income taxes, which will incur capital gains, and which will realize no tax, is essential.

Lastly, you should understand delaying distributions from your assets will have the greatest impact on your ability to have a successful retirement. Physicians in certain specialties have the option of easing into retirement and exploring varying roles within a practice. While still working and engaged with numerous individuals throughout the medical industry, consider making connections that will enable you to transition into consulting roles. This can allow you to generate a supplemental income for several years, moderating the stress on your portfolios by reducing the rate of withdrawal.

Financial success or failure is generally determined in the first several years of retirement. Transitioning into retirement gradually without a sudden loss of income can enhance the odds of success.


While understanding the three strategies above are a good start, there is no substitute for working with an experienced advisor in the field who can make analyses and recommendations specific to your situation. The authors welcome your questions.

To receive free print copies or ebook downloads of Wealth Protection Planning for Dermatologists and Wealth Management Made Simple, text PRDERM to 555-888, or visit and enter promotional code PRDERM05 for a free eBook download of these books for your Kindle or iPad.

David B. Mandell, JD, MBA, is an attorney, consultant and author of more than a dozen books for physicians, including Wealth Protection Planning for Dermatologists. He is a principal of the wealth management firm OJM Group, where Andrew Taylor, CFP® is a wealth advisor. They can be reached at 877-656-4362 or

Disclosure: OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of business in the State of Ohio. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information pertaining to registration status of OJM, contact OJM or refer to the Investment Adviser Public Disclosure web site

For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.

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