AAOS Bulletin - August, 2006

Take a hands-on approach to retirement

It’s never too early to starting thinking about retiring

By Brent Brotine and Mary Ann Porucznik

Whether you’re looking forward to retirement or dreading the thought, the fact is that someday you are going to be faced with a life transition. What’s more, the retirement years you will experience are likely to be nothing like those your parents or grandparents faced. Instead of basing your retirement plans on yesterday’s rules, it’s time to examine today’s retirement realities and begin preparing for the next phase in your life. One of the comments heard most often at AAOS retirement planning programs is, “I wish you had told me this 20 years ago.” By the time physicians reach their 60s, it is generally too late to take meaningful steps to retirement. Starting retirement planning in your 30s is by no means too soon, so it’s important to begin today.

The hands of time

According to AAOS member census data, most AAOS fellows expect to partially retire from surgical practice by age 60-1/2, and to fully retire by age 62. But the “right” time to retire differs for each individual and may be based on several factors, including ability to perform surgery, personal financial situation, family and medical history and interests outside of orthopaedics. In a surgical specialty like orthopaedics, the customary effects of aging on motor skills and eyesight may prompt some surgeons to cut back or retire from surgery before the “normal” retirement age of 65.

Nearly everyone begins to notice changes in eyesight—such as presbyopia and lens opacification—by age 50. And, while a 20-something resident may have the endurance needed for long cases, long clinic days and nights or weekends on call, a 50-something private practitioner may begin looking for ways to ease up or ease out of such situations.

Television doctors may continue to practice well into their dotage, but in real life it’s better to walk out of the operating room while you’re still in top form. Don’t wait until you’re asked to go; by then, your surgical skills may have slipped to an embarrassing level.

Another way of reducing your surgical load without fully retiring is to move into an administrative position or take on a teaching post.

Handing off your practice

Most individuals start thinking about retirement planning when they’re in their early 50s, according to Joel Blau, certified financial planner (CFP) and president of Chicago-based MEDIQUS Asset Advisors, Inc. But planning for how to leave a practice should actually be part of your signing agreement (See “Writing employment agreements that work,” June 2006 Bulletin).

Many orthopaedic surgeons are finding that a formal slow-down plan eases the transition into retirement. These plans are most often written for the entire practice, and set terms and conditions for when physicians are eligible to enter a slow-down phase and what rights and remunerations they can expect.

Michael J. McCaslin, CPA, principal at Somerset CPAs, PC, in Indianapolis, notes that slow-down plans are a popular topic among orthopaedic practices today. “Some physicians expect a plan will help them work half-time and make full-time income,” he says. “What these plans are really about is helping them begin to transition to a new lifestyle with reasonable compensation for a reduced workload.”

A slow-down plan will usually specify how a physician’s office space, clinic scheduling and surgery block time will be affected in a slow-down situation. If the practice operates ancillary services, the plan will specify how income from imaging, surgery centers, physical therapy and other services will be allocated. In addition, the slow-down plan will provide specific steps for leaving the practice and selling ownership shares.

Many medical liability carriers don’t distinguish between full-time and part-time practice, although the amount of surgery you do will make a difference in your premiums. Before you fully retire, you should meet with your medical liability insurer to review your policy and determine whether you have appropriate “tail” coverage for claims related to acts or omissions during active practice.

A helping hand for patients and staff

Surgeons planning to retire must face both the ethical and legal obligations surrounding the issue of continued patient care. Once your practice closes, you’ll need to retain all medical records for a number of years in case one of your patients needs to access the records or you are named in a liability suit. While it may be easier for a surgeon in a group practice to address this issue (records may stay with the group), individual practitioners must handle patient notification and records storage as well as operational issues (staff, office and equipment) themselves.

Eventually, electronic medical records may eliminate the need for surgeons to store paper and radiographic patient data. If you haven’t yet made the transition, however, you’ll need to find someone else to take custody of your patient records or use a records storage company and plan on paying rental and retrieval charges.

Some states have mandatory requirements for notifying patients. Generally, the earlier you let patients know, the better; a last-minute or missing notice could lead to a charge of patient abandonment, which the courts define as the termination of a professional relationship between a physician and patient at an unreasonable time or without affording the patient the opportunity to procure an equally qualified replacement.

Don’t schedule any complex surgeries within the last several weeks of your practice, and at least 60 days before your closing date, notify all active (seen within the last two years) patients of your impending retirement. While mailed letters are the traditional approach, you can also consider notices in newspapers. Whichever way you choose, make sure you keep documentation of patient notification procedures.

Patient letters should clearly state when you’re closing the practice, which physicians—if any—you would recommend and how patients can obtain copies of their medical records. If you are not recommending specific physicians, give patients a starting point by including a referral to your local orthopaedic society or a list of all surgeons in your area.

You should also post a notice of retirement in your office and have your staff remind patients of your retirement date. Staff can also help you make sure that patient records are in order and include information such as radiographs, imaging records and lab reports that support diagnosis, treatment and prognosis.

You may also have to provide employees with a minimum amount of notice as mandated by state or local laws or your employment agreements. Some employees will leave as soon as they find new jobs, so you may find yourself making arrangements for temporary staff to ensure continuous patient care.

If you have any contractual obligations related to staff (such as a retirement plan that will be discontinued), you may have additional notification requirements. Check with your plan administrator for details. Most states also require that employees with accrued vacation time be paid for that time when you close the practice—a fact that should be taken into consideration as you do your financial planning.

Operational details will likely take up more hours than you expect, particularly if you’ll need to get out of a lease or dispose of office equipment. Be sure to commit enough administrative time to these details to assure a smooth entry into retirement.

Computer-savvy practitioners may use the Internet to find buyers for their equipment. If you don’t want to sell direct, you could check out online equipment companies that handle everything—from de-installing your current equipment to shipping it and training the new owners on how to use it. Companies that specialize in buying and selling used equipment and excess inventory over the Web include: www.evergreenmed.com; www.mednetlocator.com; www.medplanet.com; www.medisource.com and www.1-medical-equipment.com.

Have income at hand

Advances in medicine have extended our life spans, including the number of years people spend in retirement. Projections show that by 2050, the United States will have more than 4.2 million centenarians—one for every 5,000 Americans. Although no two orthopaedic surgeons have identical financial situations, these general guidelines can help keep your planning process on track.

Assemble a financial team early on in your career. At a minimum, you’ll need a financial consultant, an accountant, an insurance agent, a stockbroker and an attorney. Meet with them regularly to review your retirement strategies and make adjustments.

Start saving early. Compound interest, according to Einstein, “is the most powerful force in the universe,” and time is the most critical element of compound interest.

Set realistic financial goals. You may need more income in retirement than you realize. Financial advisors regularly recommend a goal of 70 percent to 75 percent of your current income. Surgeons who have retired, however, say that living expenses don’t necessarily decrease and if you want to maintain your current lifestyle, you’ll need just about as much money after retirement as before. And don’t forget to incorporate inflation into your equations.

Take advantage of Web-based planning tools. Several retirement planning tools—such as the Ballpark E$timate retirement savings calculator from the nonprofit American Savings Education Council are available on the Web (see figure 1 below).

Basic retirement planning starts by estimating the amount of money you’ll need for expenses each month. Consider both fixed expenses (housing, food and health care) as well as discretionary expenses (travel, entertainment and recreation).

Next, estimate your sources of income during retirement. Include what you believe Social Security will provide, plus any regular income you may be entitled to from qualified retirement or pension plans. Add in personal financial and real estate assets.

When you’ve subtracted your estimated expenses from your estimated income, you’ll know whether you need to increase your current savings program.

Assets come in handy, too

A diverse investment portfolio will enable you to continue investing during retirement. Although it can be tempting to pull your assets out of the stock market and place them into a stable money market account or fixed annuity product, that can be an extremely risky move.

To avoid outliving your retirement assets, those assets must have the potential to beat the inflation rate. While low interest rate products provide stability, their annual return often lags the inflation rate and robs you of purchasing power. A retirement investment portfolio should include all the major asset classes: stocks for growth potential, bonds for income, and short-term CDs, T-bills and money market funds for liquidity. You will still want to have equities working for you even in your 80s and 90s (as an appropriate percentage of your portfolio, of course).

AAOS medical director Robert H. Haralson III, MD, MBA, notes that “you should essentially plan to live forever, which ideally means living off your interest and not withdrawing from your capital.”

While everyone may not be so lucky as to leave his or her capital intact for future generations, with a diversified portfolio and a sensible strategy for making withdrawals your assets should last. Here are some key tips:

Withdraw your taxable assets first. By leaving your tax-deferred assets to grow in your IRAs, 401(k) plans, profit-sharing plans and tax-exempt mutual funds, you can maximize your tax advantages and add more years of income to your retirement.

Take modest withdrawals initially. Waiting to take that round-the-world vacation or purchase his-and-her SUVs can significantly extend the longevity of your portfolio. Simply put, this gives the stock portion of your retirement investments more time to grow. Take your larger withdrawals later in your retirement years.

Hold your yearly withdrawals to 4.5 percent or less. Research shows that this is the magic number for preserving your retirement assets over a 20-year period.

Consider a two-stage solution. Many financial advisors recommend that you separate your retirement assets into two separate portions—one in a stable investment to provide a guaranteed monthly income to pay your essential expenses, and the second in equity investments with the growth potential to keep pace with inflation. As you pay for non-essential expenses like vacations, home furnishings, theatre subscriptions and other large purchases, you simply withdraw what you need. This way, you can be assured the money for life’s basics can be there for you regardless of the market’s ups and downs.

Handing down to heirs

If you want to leave a legacy—whether to your family or to a charity, you’ll need an estate plan and a will. If you die without a will, the state decides who gets what, and it may not be how you would want it to happen. Your estate could be divided in such a way that people you have promised assets to do not get them. Moreover, heirs who receive money may be faced with taxes and expenses they are unprepared to pay.

In an era when mixed families are quickly becoming the norm, wise financial planning dictates the need for a pre-nuptial agreement for second (or additional) marriages. It is not uncommon for children of mixed families to bicker over the estate. A formal agreement providing that neither spouse will change his or her will without the other’s permission can help ensure that your wishes are upheld.

Until Congress makes permanent the estate tax repeal passed in 2001 (see Figure 1on pg 38), you should have dual plans for your estate (one considering the tax and one without it). Your estate plan will likely include one or more trusts to help your heirs avoid the expensive and complex probate process. You can also do extra good by leaving money to a charity or not-for-profit organization through a charitable trust.

While you are at it, make certain that your plan includes a living will or a health care power of attorney. You’ve probably seen the difficulties that arise in families when terminal patients fail to make their wishes known; you certainly will not want this to happen to your family.

Don’t twiddle your thumbs

One of the first things that new retirees discover is that there are only so many things you can do around the house to stay busy. Keeping yourself mentally alert through outside activities—paid work, volunteering, hobbies and continuing education—is vital. In fact, an AAOS survey of retired orthopaedists found that nearly a third identified the most difficult aspect of retirement as having “nothing challenging” to do.

According to Robert L. Veninga, PhD, author of Your Renaissance Years: Making Retirement the Best Years of Your Life, most people experience a steep decline in satisfaction about a year after they retire. By then, they’ve “done all the things they wanted to do,” and were wondering “what’s next?”

The most challenging part of preparing for retirement could be redefining yourself as someone other than a surgeon. That is why laying the groundwork today for rewarding post-retirement pursuits is a smart way to ease the transition. Spend a few minutes thinking about activities that will make you happy during retirement and consider if you are giving them adequate emphasis in your life right now.

Steps you can take include developing strong relationships with those you love, nurturing your friendships, developing both hobbies and avocations, living a balanced life with time for fun as well as work and keeping an open mind and a sense of humor.

Retirement can be a time to pursue an entirely different career that has always piqued your interest—from food preparation to home construction. One of the most rewarding ways to spend your newfound time is by volunteering for social service, youth assistance, disaster relief and other not-for-profit organizations. Your first inclination may be to turn to an organization you already support, where you will find like-minded people who will welcome your participation. However, do not overlook volunteering for an organization that can teach you something new.

Not surprisingly, there are many umbrella organizations that can connect you with worthwhile volunteer opportunities. For example, your local United Way chapter may have a volunteer placement service. Among the general not-for-profit web sites that work with hundreds of local agencies are VolunteerMatch and SERVEnet.

Some of the national programs that welcome retired professionals include America’s Second Harvest, Experience Corps, Habitat for Humanity and Volunteers of America. The Peace Corps also has no upper age limit; volunteers receive transportation to and from the country of service plus a stipend for food and housing.

If you want to stay involved with medicine, you can volunteer to work at medical clinics in your neighborhood, such as those run by Volunteers In Medicine Institute. Or you can combine travel with humanitarian service as a field volunteer for such organizations as Orthopaedics Overseas or Doctors Without Borders.

Brent Brotine is a freelance writer who specializes in financial planning topics. Mary Ann Porucznik is managing editor of the AAOS Bulletin. She can be reached at porucznik@aaos.org

Figure 1.

How much of your estate is exempt from federal estate taxes?

Under the Economic Growth and Tax Relief Reconciliation Act of 2001,

If you die in…





    Tax-exempt amount

    $2 Million

    $3.5 Million

    Estate tax repealed

    Reverts to $1 million if tax law is not made permanent

Get ready for “Life After Orthopaedics”

The next AAOS course on planning for retirement is scheduled for November 3-5, 2006, at Hilton Head Island, S.C. Course director Joseph S. Barr Jr., MD, has put together a program designed to help you prepare for career changes and retirement.

The course is open to AAOS fellows and their spouses to help prepare for the complete retirement process: changing family roles, emotional and career transitions and financial choices. Even if you are already retired or semi-retired, you can benefit from learning about new opportunities and your retirement experiences and challenges will benefit your colleagues.

Course sessions will cover the psychology of retirement, calculating income needs, managing your practice into retirement, investing and managing funds, health and insurance issues, protecting your income, and electronic gadgetry. The course faculty includes orthopaedic surgeons who have made the transition from active practice to active retirement, as well as active practitioners and a full range of advisors who apply their knowledge and planning skills to the retirement process.

For more information, visit the courses section of the AAOS Web site.

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