If you’re a physician practicing in Canada, you might know that retirement can look…well, a little different for doctors. Many health care professionals spend years building and serving their practice, a calling that can be complicated and all-consuming. It can be hard to visualize what retirement even looks like, let alone know how much you’ll need to save or where your retirement income will come from.
“For physicians, the qualitative factors around what retirement looks like can be just as important as the quantitative ones,” says Julie Seberras, a Senior Manager, Wealth Planning Support, at TD Wealth. “What does life look like for you when you are no longer a practicing physician?”
Whether you think you might be in a position to retire in the next five to 10 years, or you’re mid-career and wondering what you should be doing now to plan for retirement, here are six questions you can ask yourself. They can show that, for physicians especially, getting ready for retirement may require some careful planning.
1. Do you know what your ideal retirement might look like?
Working part time or not at all? Travelling or enjoying hobbies you love? Many physicians will gradually transition into retirement, continuing to work part-time in some capacity (which could include more flexible locum work). Others may have a more definitive date in mind. “Many physicians will see their work in medicine as a calling instead of a career, which can make the transition to retirement challenging,” Seberras says. “Consider what this transition may look like for you.
2. Do you know your magic retirement number?
Once you have determined what retirement could look like for you, you can start to put some numbers around what is needed to achieve your goals. Seberras says few physicians have a formal pension plan so many will fully fund their retirement with personal savings. Her suggestion? Start early, create a plan, and track your progress along the way.
3. Are you maximizing your savings?
Many physicians start their careers with a heavy debt load and may start earning an income later than their peers. It’s not uncommon for doctors to begin saving in earnest until they are in their 40s. “If you are incorporated, whether you pay yourself salary or dividends will determine whether you accumulate Registered Retirement Savings Plan (RRSP) contribution room and contribute to the Canada Pension Plan,” says Seberras. It can be vitally important to maximize savings and make the best use of RRSPs and Tax-Free Savings Accounts (TFSAs) to help you reach your magic number.
4. Do you know where your retirement income will come from?
As with most Canadians, the income you draw in retirement may come from a number of sources, a mixture of government benefits and personal savings in both registered and non-registered accounts. “If you’re incorporated, you may be accumulating much of your retirement savings within your corporation to take advantage of tax deferral opportunities,” says Seberras. “At retirement, your Medicine Professional Corporation will convert into a holding company with a new name. As well, any RRSP savings you have will get converted to a Registered Retirement Income Fund (RRIF) or annuity so you can start drawing an income. Be strategic how you draw down these funds in order to minimize taxes and maximize government benefits.
5. How might your insurance needs change?
Insurance can be an essential part of the financial picture for a physician to protect what matters. “Your ability to earn income is your greatest asset, and the need to insure yourself in case of disability or critical illness will likely change as you transition into retirement,” says Seberras. Review your insurance needs and update your coverage to reflect your circumstances.
6. Have you begun any estate planning?
The basics of an estate plan begin with a Will and Powers of Attorney and evolve based on the complexities of your unique circumstances. “As a physician, it is crucial that you establish an estate plan early, and update it in tandem with life events,” says Seberras. Retirement is a significant life change, and can be a critical time to revisit your plan, including any philanthropic goals, so that it reflects your new phase of life.
Getting prepared for retirement rarely comes naturally to people, and it can be the last thing a busy physician has time for. That’s why it can be important to start early and check in along the way, says Seberras. “In many cases, a professional can help you look at your full financial picture, and help you find ways to grow your net worth, pay less tax and protect and plan for your loved ones.” No individual has the same plan, but it can help to have someone in your corner who knows you, your practice, and what matters to you.