In my prior post, I wrote about my father’s career and retirement preparations. He retired just over 20 years ago, and from what I can see, had a pretty good time.
Over the years we have talked about finances, and though I haven’t announced firm plans to retire early, I think he can tell I am thinking about it. He has been giving more advice recently, mostly to keep working.
I thought I would share some of his recent advice, and some of my observations of his two-decades-long retirement, which I hope will go another decade more.
Tax-deferred means you pay the taxes when you are retired.
- Tax deferred accounts (the IRA) are a bear once you have to pull money out in retirement. About 1/3 of the money he pulls out goes straight to federal and state taxes. Though it’s true that he is likely paying a lower tax rate now on the money than he would have paid in the 1970s [I see that the marginal tax rate for a married couple on income of 50,000 in 1973 was 50%], he still finds it quite painful to send the government large checks every quarter. Also, this bumps up his income (as all the money pulled out of the IRA counts as taxable income), meaning he pays higher rates for income-adjusted benefits. Like, you know, Medicare.
- Lesson to self: diversification of accounts can be very helpful in retirement. That’s a fancy way of saying: tax deferred accounts, like IRAs, are great. But it’s also very convenient to have Roth accounts, where the withdrawals don’t count as taxable income; and/or taxable investment accounts, where you pay long-term taxable gains on your withdrawals, and maybe some taxes on dividends. Both the long-term capital gains and dividends have favorable tax treatment as compared to straight income.
Delay taking Social Security
- My dad never thought he would live this long. Really. Given this, he took Social Security as soon as he stopped working (before age 65). Now that he’s still here 20 years later, he definitely regrets taking Social Security so early. Had he waited until age 70, he would get a much larger check every month. Plus my mom’s check (she gets 50% of his check, as a spousal benefit) would also be bigger.
- Lesson to self: you never know how long you have to live, but you very well might live long enough to make it worthwhile to wait for your Social Security check.
- Another note to self: you don’t have to draw Social Security as soon as you stop working, if you have the money to support yourself until age 70.
Stopping work altogether might not be what you really want.
- My dad tells me he wasn’t ready to retire before 65. I think he means emotionally. He says he still had more to offer as a doctor. However, he had joined a larger group, and after a major surgery, could no longer generate enough income to cover both his share of the overhead and a salary. He might have been happy doing office work (seeing post-op patients, for example), while the full-time partners were super-productive in the OR. His (younger) partners didn’t or wouldn’t see a way for him to work part-time, though, so he retired.
- Lesson to self: start planning an exit strategy long before you need it. Think about priming the practice to allow part-time work from older partners. (Crispy Doc has a nice series, talking about doctors who cut back).
Retirement can be a lot of fun. And can bring fulfillment in other ways.
- My dad says now that he wasn’t ready to stop working. I note my parents had a very exciting few years of travel after dad retired. They both love to travel, and this was their time: they had money, and no obligations at home as their children were launched. They went to Alaska, Japan, Europe and Antarctica. However, they had only 12 years of travel, until dad ended up in a hospital in a foreign country. After that, my mom put an end to travel outside the US. Had dad waited another 2 to 5 years to retire, I think they would have missed out on a lot of great trips.
- I also point out that until a few years ago, he delivered Meals on Wheels once a week; it may not be the same as practicing medicine, but he still gave to society.
- He’s also seen all his kids get married, and a number of grandchildren show up. No worries about canceling clinic or cases to attend life events.
- I think my dad made a pretty good decision to retire while he could enjoy it; I suspect we have some revisionist history as he worries about the FIRE movement and the chance his daughter might run out of money.