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Physicians should explore retirement planning options and employ a strategy that limits volatility, guards against outliving assets, and preserves buying power.

Planning for retirement can feel Sisyphean even for high‑earning physicians. Once the final paycheck ceases, they must determine how much capital can be withdrawn from their investment portfolio each year without jeopardizing their savings.

“You’d never want to start retirement knowing that you have a 50% chance of going broke prior to death,” wrote Jesse Cramer, founder and lead author of personal finance blog, The Best Interest. “But it’s worth understanding where the limits of withdrawal rates lie.”

The 4% Rule

For decades, one of the most popular retirement strategies has been financial advisor William Bengen’s 4% rule, published in 1994 in the Journal of Financial Planning 

“The 4% rule is a retirement strategy that suggests withdrawing 4% of your portfolio’s value annually, adjusted for inflation, to ensure your savings last for a 30-year retirement,” explained Cramer, adding, “Ultimately, you’ll see that the 4% rule comes with major risks.”

AnnuityAdvantage Founder and CEO Ken Nuss concurred, “As a rough guideline, the 4% rule has some merit, but it’s far from a foolproof strategy.”

Early Market Downturns

Nuss explained that market performance in the early years of retirement disproportionately influences long‑term portfolio viability, meaning a 25% market drawdown in year one, coupled with a 4 % withdrawal, could trigger a cascade of premature equity depletion. To temper this threat, he recommended an initial allocation of 40% stocks and 60% bonds, recognizing that bonds, despite lower expected returns, aren’t as risky as stocks.

Likewise, Cramer noted that, “Bengen’s recent research over the past several years shows that SWRs (savings withdrawal rates) of 4.7% to 4.8% are achievable with more diversified portfolios. Better results are possible with further knobs to turn.”

Addressing Longevity Risk

Additionally, Nuss noted that Bengen’s framework presumes a finite retirement horizon. With medical advances extending physicians’ life expectancy, retirees increasingly face the hazard of outliving their assets. Nuss therefore recommended that physicians consider investing in lifetime income annuity plans, which enable investors to create guaranteed lifetime pensions while transferring risk to the insurer. Basically, the insurance company promises lifetime funds in exchange for a lump-sum payment. Income annuities can be applied to either a single investor or to a married couple. For the latter, the same amount of money will come in as long as either spouse is alive. 

Nuss added that with both immediate and deferred options, income annuity offers a flexible option for physicians that’s more lucrative than other plans, as each payment contains both a non-taxable return of principal and taxable interest until the principal is repaid. Nuss stressed that, for those who live exceptionally long lives, they will continue to receive a (taxable) income even beyond the point at which all of their money has been returned. 

Investing in Fixed-Income Vehicles

Nuss also urged physicians to invest some of their money in fixed-income vehicles. Investing in a multi-year guaranteed annuity (MYGA), noted Nuss, can be a particularly attractive option. MYGAs lock in a guaranteed rate for two to ten years without upfront sales charges. Nuss added that MYGAs will build interest at a quicker pace, as nonqualified interest is tax-deferred until it is taken out. Another benefit to MYGAs, according to Nuss, is that they offer a great deal of liquidity, allowing investors penalty‑free annual withdrawals of up to 10% of account value after the first contract anniversary. 

Strategic Takeaways

No single metric guarantees financial invulnerability. Nuss concluded that, while the 4% rule supplies a disciplined baseline, it insufficiently addresses both early market downturns and extended longevity. Cramer wrote, “Quite simply, the biggest risk of the 4% rule is underspending your retirement potential. And its biggest flaw is its rigidity.”

According to Nuss, physicians should therefore take the time to explore a range of options, ensuring they select a retirement investment strategy that mitigates volatility, hedges against outliving assets, and sustains purchasing power, ultimately enhancing the likelihood of lifelong financial security.

Any views and opinions expressed are those of the author(s) and/or participants and do not necessarily reflect the views, policy, or position of Physician’s Weekly, their employees, and affiliates.