Retiring may be the furthest thing from a young physician’s mind. After graduating from medical school, completing a residency and establishing a practice, it might seem odd to start planning for a retirement that may be decades away.
But a successful retirement takes advance planning.
It’s important to think about the appropriate steps to take at different ages and stages of life. That’s why breaking down your career and life stages into smaller chunks can make retirement planning easier to digest.
Here’s a rough retirement timeline for Canadian physicians to follow.
30 years out
You’ve established your practice and finally started to earn a physician’s salary. This is a great time to take stock of your financial situation, reduce or eliminate any debt from medical school and residency, and start developing the good habits of saving for retirement.
- Add up any remaining student debt and make a plan to pay it off over the next five to 10 years.
- Build an emergency fund through regular contributions to a high-interest savings account.
- Open an RRSP and tax-free savings account (TFSA) and set up automatic monthly contributions to invest for retirement.
- Whenever you can, catch up on unused contribution room in your RRSP or TFSA.
- Monitor your spending to ensure you can afford your lifestyle while still making savings contributions and repaying debt.
- If owning a home is important, start putting money aside for a down payment. If it’s your first home, the first-home savings account (FHSA) can help you get there.
15 years out
By now, you may have bought a home and be gradually paying off your mortgage. You’re in your prime earning years and have hopefully caught up on unused contribution room in your RRSP and TFSA. Now is the time to start thinking about a retirement date to help benchmark your financial decisions.
- If you haven’t already, consider establishing a medical professional corporation to shelter some of your income from taxes. Make sure to speak with a qualified experts including financial advisor, accountant, and legal advisor.
- Continue to use up all available room in your RRSP and TFSA, and set up a corporate investment account to grow the money left inside your medical professional corporation.
- Set a rough retirement date — something to work toward for planning purposes.
- Consider what retirement might look like. Will you retire gradually or make a full-stop exit from your practice? Where will you live? Will you downsize your home? Will you spend more money on travel and hobbies or continue living more or less the way you do now?
- Set goals — this can help alleviate retirement anxiety.
- Work with a financial advisor to ensure you’re maximizing your savings and investments, taking advantage of tax saving opportunities, and staying focused on your short- and long-term goals so you can fund them appropriately.
5 years out
The home stretch before you retire is an ideal time to ramp up savings and/or pay off the rest of your mortgage so you can enter retirement debt-free. It’s also time to start thinking seriously about some of the least sexy financial topics: tax planning, estate planning and succession planning.
- Make preparations to wind up your medical corporation (if you have one). Is there a succession plan?
- Update your will and estate plan to reflect your current situation and final wishes. MD works with estate and trust professionals who can help you and your family prepare by documenting your wishes and creating a legacy plan (charitable donations, etc.).
- Work with your financial advisor and accountant to understand where your income will come from once you’re no longer practising — RRSP or RRIF withdrawals, corporate dividends, your TFSA, non-registered investments, cash savings, government benefits — and in what order.
- Pay off any remaining mortgage balance.
- Consider getting more conservative with your investment mix (fewer stocks; and more bonds, GICs and cash).
1 year out
This is it — the final year as you wind down your practice and get ready for the big transition to retirement.
- Make sure you’re aware of the tax deductions and the government benefits (Canada Pension Plan/Quebec Pension Plan and Old Age Security) that you will become eligible for as a retiree.
- Decide when to start claiming your CPP/QPP and the order in which you plan to start drawing your retirement income.
- Finalize any succession or winding down activities for your corporation/practice.
- Acknowledge that retirement is not only a big financial shift but a big mental shift as well.
Last word
Be ready to pivot. The pandemic has taught us that even the best-laid plans can be impacted by events beyond our control. A retirement plan may have to be adjusted at any point along the journey. An MD Advisor* can help you set up a sound retirement plan, no matter what stage you’re at.
