The Physician Life Cycle Part Three: How Much Do You Need to Save?

The Physician Life Cycle Part Three: How Much Do You Need to Save?

You know you need to put money away, but how much? Is there a proven approach?

Author: Robert A Felberg MD

Topic: Physician Finance

Keywords: Doctor retirement planning, Physician Financial independence, Savings Rate

Everywhere you look on the physician finance blog-o-sphere, the message is clear. You must save money and invest so your future self can enjoy financial independence.

And, as much as the message makes sense, very few explain how much you need to save. It’s no small matter- if you save too little you risk financial stress and not reaching your goal. If you save too much, you make painful sacrifices that can cause unneeded burden at the cost of present quality of life.

The answers out there range from the standard 10% rule (without any explanation as to why that rate is the correct one), to a series of complex formulas based on sketchy assumptions that you need a CPA degree to follow, to a general idea to save every single penny. Most articles don’t really give you an actual saving rate- they just yell at you for buying coffee or avocado toast while forecasting your impending financial doom.

In the first part I emphasized that need to consider the changes you will go through your physician career. This included the need to live within your means early to purchase your future financial freedom. In the second post, I explored importance of net worth and the typical different financial stages on the way from having negative value to financial independence.

If I’ve done my job right, you are excited to implement a financial plan and you are daydreaming about your future victory lap. Now comes the hard part- designing your plan. And, if you’ve done any research, you’ve probably learned that you need to save, earn, pay down debt, and invest. If your experience if like mine, you may have found a lot of very technical information involving i401ks, Roth-IRAs, or refinancing your student loans. What’s often missing is the straight-forward philosophical understanding of the basic concepts underlying these more complex topics.

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So, how much money do you need to save to have a high likelihood of achieving financial independence at a reasonable point in the future?

Fortunately, there was an excellent research project titled “Life-Cycle Earning and Safe Saving Rates”  by Derek Tharp and Michael Kitces discussed in the Wall Street Journal and elsewhere. They had several very interesting findings.

At higher earning percentiles, your future earnings will change dramatically over your lifespan. If you are in the 95th percentile, your earnings should be expected to raise by 380% from age 25 to 50.   

Because your earnings will be expected to increase, those in the higher percentiles will need to save more than they realize early on to match their future salaries and maintain future life style. If you are in the 90th percentile, you’ll need to save 18.4% over 40 years.

The problem here, is that Doctors don’t have a 40-year window- They start practice at age 30 or 35 and they will want to have financial independence at age 50 or 60.

Looking at this data, we can conclude a few things.

  • Great news. You should expect an increase of your salary by quite a bit until age 50. At age 50 your earnings typically peak and then decline slightly.
  • You will need to save quite a bit early in your career to match your future lifestyle. Since your earning will peak at age 50 and then decline, it is unlikely that future investments will make up for early delays or under-funding.
  • If you can avoid lifestyle creep and be happy living a lifestyle below your earning percentile you will be in a much better position. This includes total accumulation of wealth through increased savings and in the amount of retirement funds and returns required to maintain your lifestyle through reduced spending.

Here’s the hard numbers:

  • If you want to be financially independent after 30 years of practice (about age 60) and maintain your lifestyle you need to save about 16%-25% of your income.
  • If you want to be financially independent at 20 years or about age 50 you need to save about 22%-40% of your income.
  • No numbers are given for age 40 financial independence, but I’d guess 50%-55% would be about right.

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Before you panic, I want to tell you that saving at this rate is completely doable. Yes, it will mean some sacrifices. You may have to suffer the torture of driving a Toyota Camry, vacationing at a rental home at the Jersey Shore, eating healthful meals at home with your family most nights, and flying with the peasants in the back of the plane drinking your pathetic one can of soda.

Keep some perspective here. When you are earning 300k, you are really talking about a high quality lifestyle at 180k. That’s 3 times the average American family’s income! As a highly compensated physician, this type of savings is more about attitude than any true deprivation. Trying to survive at $18,000 and being expected to invest $9,000 is crazy. But, asking you to live at 100k-250k in exchange for financial freedom at age 50 is a great bargain! 99% of the earth’s population would go to war for that chance.

“All models are wrong, but some are useful”- George Box

This model is far from perfect. It doesn’t take taxes or financial fees into account. It uses only historical data to predict results. It takes a standard 60% stocks/ 40% approach and the classic 4% drawdown method for funding retirement. The retirement is assumed to be 30 years. Prepayment of students loans is not addressed as an expense or saving. I’m certain there are several other flaws.

Despite any modeling problems, there is a strong message here- Save around 25-40% and start today. This saving rate will have a high likelihood of reaching your financial goals. Save less at your future peril. Save more if you’d like, but you don’t have to. If your goal is to be financially independent very early or live an expensive lifestyle, then 50%-55% may be more appropriate.

Here’s some tips to consider:

  • Pay yourself first. Arrange for the money to be invested before it hits your checking account. Then feel free to spend what you have in your account worry and guilt free.
  • Avoid lifestyle creep. As you earn more, you tend to spend more. If you can minimize this leaning to balloon your spending, you’ll be able to enjoy a modest increase in your quality of life while staying on track.
  • Focus on earning more than saving more. It is exponentially easier to earn an extra thousand dollars than it is to save it. Living on half of 500k is much easier than living on half of 250k. Physicians are blessed with the ability to earn more- just work another shift or do a weekend locum tenens. Spend 3 of your 5 vacation weeks doing locums tenens and your CME time as partial vacations. Be a moonlighter and not a coupon cutter.
  • Negotiate to earn more. The easiest way to earn more is to negotiate a better deal. After all, the money you gain by negotiation is earned without a single moment of extra work and is renewed annually. The ability to negotiate well will pay off in your house purchase, car purchase, and your salary.
  • Involve your spouse or significant other. You need your family to back you on this, especially if they are in control of spending while you are at work.
  • Your credit cards can be your enemy. Learn to budget for future large purchases. If you find yourself carrying credit card balances beyond the next pay cycle, you have an issue that will cost you considerably.
  • Sign up for Mint or similar service that allows you to track your net worth, investments, loan status, and bank balances. Having this information at your fingertips can be very motivating, as well as helping you stop leaks.


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Knowing how much to save is an important first step in reaching your goal of financial independence.

Depending upon your desired age of independence and the time left to get there, you’ll need to save somewhere between 15.8% to 39% of your earnings. Saving closer to the top of the range is strongly recommended.

Sometimes, reality can be a dose of bitter tasting medicine. But, it’s much better to realize early what you need to do, than to look back in lost opportunity and regret. Having lived this advice by saving at 40% my entire career, I never truly felt deprived and certainly appreciate my current financial freedom. (I started saving long before this study was done- I took the common advice to save at 10% and added another 10% for each decade I wanted to retire early, plus the 10 years I lost in school and training. It was a complete guess and terrible model, but it worked out just fine…) Taking control of your financial future and having an evidence based plan will help you achieve your dreams.

In part four of this series I will discuss personal finances and a form of easy budgeting that should help you move forward with your plan. I promise it’ll will be a lot more exciting than you think!

Bonus Tip: The best way to improve compensation is through negotiating the best package. Get a handle on your market value, improve your negotiation skillset and take a CME approved course designed for physicians  Don’t leave tens of thousands of dollars on the table- it really adds up over the next 30 years!

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  • If you have any questions, please feel free to  contact us

So, what do you think? Saving nearly 40% sounds crazy, right? I want to live like a Doctor, not some Joe Lunchbox! But, telling my boss “no” when she asks me to start an evening clinic does sounds sweet. And being able to stop taking weekend call sure would be nice.   Share your thoughts in the comment section below…



Good recap. I think WCI has made the argument in the past that physicians may be able to live on 20-30% of the pre-retirement income once they retire as so much of their pre-retirement income is being diverted to taxes and medical school debt. Most retirement calculators on the other hand assume that you will need 80% of your pre-retirement income.
So these numbers may skew quite a bit.



    This particular study used maintaining salary as their goal. I guess you can save less if you want to have less. in retirement. It is true that you live on 50% of your income as a doc when you consider taxes, savings, etc.


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