Key Takeaways:
- Physicians in California navigate unique financial challenges, from high incomes to significant debt and cost of living, all of which should be carefully considered when planning for retirement.
- Determining your retirement savings goal is a highly personal process that should account for key factors such as cost of living, healthcare, and lifestyle goals.
- As a starting point, there are common rules of thumb for calculating how much is enough for retirement but a personalized approach helps ensure your plan is aligned with your needs and goals.
- Blankinship & Foster specializes in retirement planning for physicians, offering expert advice to early-career and established medical professionals.
Physicians face unique financial challenges, from high incomes to significant medical school debt and lifestyle creep. For physicians in California, additional factors can make finances complex, such as the state’s high cost of living and taxes, making financial planning more critical to ensure you have enough to retire when the time comes. Explore key factors to help you stay on track toward your retirement goals.
How Much Money Do Physicians Need for Retirement?
How much physicians need to retire in California varies widely depending on factors such as student loan debt and lifestyle preferences. For some, retirement means more travel and time with the grandkids. Others may decide to retire early in their career, while some may continue to work part time beyond retirement age. The possibilities are endless and unique to everyone.
Whether you are new to your career or established, now is the time to visualize your ideal retirement and track your spending. We recommend clarifying your plans as early as possible so you can best prepare financially and ensure you have enough saved to support your goals. Once you define your goals and current spending, you can begin calculating how much savings is enough for your retirement.
Key Factors to Consider When Retiring in California
While California is a highly desirable retirement destination, expenses and the cost of living — which can be significant — should factor into your retirement savings plan.
Managing the High Cost of Living in California
California is one of the most expensive states when looking at housing, transportation, groceries, and more. San Diego’s cost of living is also significantly higher than the national average. It’s essential to weigh the various pros and cons of where you decide to live. For example, the closer you live to the city center or to major hospitals, the higher the cost of housing. On the other hand, areas like Poway, Chula Vista, or Eastlake might be more affordable but farther away from family, the beach, or the hobbies you wish to pursue. Factoring in the cost of living plus inflation when you plan to retire are critical components of your retirement strategy.
Retirement Lifestyle and Activities in California
With California’s rich culture, beautiful landscapes, and vibrant entertainment scene, it’s a prime destination for retirees. Your lifestyle preferences and post-career pursuits may present new expenses you haven’t had before, so setting clear retirement goals is essential for long-term financial planning. Working with an advisor can help you align your savings and budget to account for goals like more travel, sailing, or philanthropy.
Healthcare Expenses in Retirement in California
Healthcare is one of the most significant expenses in retirement. Medicare will only cover some expenses, so we recommend also considering the costs of supplemental insurance, long-term planning, and out-of-pocket expenses. You may consider saving money in a health savings account (HSA) while you’re still working to cover additional costs and planning for your health insurance needs once you no longer have employer-provided coverage.
Retirement Taxes in California
While California doesn’t tax Social Security benefits, other retirement income sources, such as pensions, 401(k) distributions, and IRA withdrawals, are subject to California state income tax. With steep tax brackets, things like required minimum distributions (RMDs) from retirement accounts can quickly push you into a higher state tax bracket. Proactive planning is key to navigating these challenges. As you plan for the future, explore additional ways to help manage high taxes, from tax-loss harvesting to charitable giving and tax-efficient investments.
What Role Does Social Security Play in a Physician’s Retirement Plan?
Social Security retirement benefits are a cornerstone of many retirement plans but their role in a physician’s plan varies. While these benefits are dependable and inflation-protected income for life, the percentage of pre-retirement income it replaces for medical professionals ranges depending on their lifestyle preferences and circumstances.
Still, factoring Social Security into your broader retirement plan is essential. An advisor can help you develop a strategic claiming plan to help maximize your benefit while considering tax implications, as payments are subject to federal income tax.
Is Relocating After Retirement a Good Option for California Physicians?
As California is the second most expensive state in the country, many physicians consider relocation after retirement. This is a personal decision that could affect more than just your expenses but also your time with your family, access to high-quality medical care, and ability to pursue your passions.
Relocating out of California will likely reduce overall living expenses. However, you should also consider what’s most important to you, whether it’s proximity to loved ones, reliable access to transportation and healthcare, or fulfilling lifelong goals like living close to the ocean or starting a business.
If you decide to relocate, you should work with an advisor to help account for moving expenses, state-specific taxes, and how a move fits into your retirement savings goal and budget.
How Much Should I Be Saving for Retirement?
We commonly advise physicians to save at least 20% of their gross income annually, avoiding big financial purchases, to replace 70% to 90% of their pre-retirement income. However, many doctors aim for a higher percentage, often saving between 30% and 60% of their income, depending on their financial goals and personal expenses.
Another method to help ensure you’re on track is the Rule of 25. Take the annual spending amount you initially calculated and multiply it by 25. Be sure to consider inflation, which could double your final savings goal amount by the time you choose to retire.
In general, many of the doctors we work with target a retirement savings goal between $3 million and $5 million, depending on their desired lifestyle and expenses during retirement.
Retiring in California as a Physician Requires a Retirement Plan
California retirees have unique financial hurdles, and for physicians, complexities only increase. Thankfully, achieving a comfortable retirement in California is entirely possible with proactive action, a solid retirement strategy, and guidance from a trusted expert. At Blankinship & Foster, we specialize in guiding physicians through these decisions at every stage, whether early in their career, building wealth, or approaching retirement. In addition to our retirement expertise, we’re deeply familiar with the various health system benefits packages, such as Scripps, Sharp, and UC Health, allowing us to tailor our guidance to you.
Our team is here to help you through strategies such as:
- Calculating your annual spending and developing a retirement savings goal based on your lifestyle and objectives
- Helping you save for the future while managing significant debt
- Managing longevity risks and costs in a high-cost and tax state
- Minimizing your tax burden through tax-advantaged savings accounts and strategic planning
- Coordinating employer benefits and other retirement income sources
- Building your estate plan and planning for your legacy
We’re here to help you build a financial roadmap to achieve a secure and fulfilling future. Contact us to learn more.