Most doctors work way too hard for far too long, but advisers say there is a better way
Retirement is considered a right of passage for most professionals, but so many things seem to stand between older doctors and a life of leisure.
At the top of the list are loyalty to patients, practice ownership obligations, low super balances and workforce shortages.
“We’ve worked with doctors who are in their early 80s and they are still working full-time”, says Mr Shane Morgan, a partner with Cutcher and Neale chartered accountants in Newcastle, NSW.
Yet most doctors long to put their feet up and enjoy the fruits of their labour. Instead some work at full throttle until they burn out.
Semi-retirement may be a better strategy. Doctors who wind back their work hours slowly will ultimately earn more money, pay less tax, help more patients, and have more time to enjoy their lives.
Some changes to your business structure and finances may be involved, so the sooner you start plotting a course toward semi-retirement, the better off you’ll be.
Financial advisers answer some of the frequently asked questions about semi-retirement:
When should you start?
Financial adviser and solicitor Mr Terry McMaster, of McMasters Accounting, Legal and Financial Planning in Victoria, suggests doctors start to cut back their work hours at around age 55.
At this age, he says, the kids have usually moved out and doctors have acquired a reasonable level of assets. They may also start to become more aware of their own mortality around this time and find they tire more easily when working long shifts, according to Mr McMaster.
He advises his clients to reduce their work intensity by around 20% from about the age of 55 and continue to do so incrementally over the next two decades.
There is no reason a doctor in good health cannot work right through to age 75, earning a high income in a tax-efficient way, Mr McMaster says.
He believes many doctors identify so closely with their work personas that staying in the workforce in a reduced capacity can be better for their mental and physical health.
“If doctors have built up a reasonable amount of wealth, they can afford to work 4 days a week and attend to their bucket list, whatever it might be.”
Can you afford it?
When weighing up whether to opt for full or semi-retirement, there are some solid financial reasons to go for the latter.
For starters it means you can keep adding to your superannuation and other investments, receive tax concessions and reduce the number of years you need to be fully self-funded.
Mr James Gerrard, a financial adviser at PSK Financial Services in Sydney, says semi-retired doctors can also access transition-to-retirement pensions once they reach preservation age (between 55 and 60 years depending on year of birth).
Using this strategy, doctors can gain access to their superannuation lump sum while they’re still working, potentially drawing a tax-free income stream from it, and continuing to make contributions into their super fund.
“In effect, it’s a strategy with a lot of benefit and few disadvantages based on current laws”, Mr Gerrard says. “The tax rate of your super fund earnings drops to 0% once you start a transition-to-retirement pension. Also, if you are over age 60, the pension payments that come out of your super fund are non-assessable income and therefore tax free.”
Mr Morgan says if a doctor who is working full-time and earning $300,000 wants to scale back to 4 days, he or she can draw down a pension to supplement that day off.
“My view is that after age 60, providing the legislation and rules stay the same, just about everybody should be using this transition-to-retirement strategy”, Mr Morgan says. “The combined effect of tax-free earnings in the super fund and tax-free pension draw-downs make this a very powerful wealth-creation strategy.”
How do you do it?
If you are a non-owner doctor working in a practice, it’s simple enough to work less — just scale back your sessions.
Mr McMaster says the shortage of doctors gives you a huge amount of bargaining power.
Obviously things get a lot more complicated if you are a solo practitioner. If you scale back to 4 days, your fixed will costs stay the same, so you’ll lose more than a day’s salary.
Mr McMaster says this can leave some doctors feeling as if they are stuck on a treadmill and, while there are solutions, they aren’t simple.
One option is to sell your practice, but this is often easier said than done.
The alternative strategy is to wind down your practice and enter into a relationship with a nearby practice, such as offering to pay a management fee of say 20% of earnings for the use of rooms and infrastructure.
“It’s like a goodwill payment and it provides extra profit for that practice”, he says.
Mr McMaster says group practices can accommodate semi-retiring owners in a similar way by allowing them to change their cost agreements. For instance, a doctor could sell out of the practice but stay on and pay a management fee.
Mr Morgan says older doctors who own their own commercial premises within a self-managed super fund could opt to rent their building, as this income is tax-free once they are in pension phase.
Shifting the balance
Winding down your work hours is not only about finding a better balance between work and life, it’s also about having an active and creative retirement.
Some people take the opportunity to carve out a new niche that offers more freedom and a sense of purpose.
Financial adviser and solicitor Mr Terry McMaster says one of his South Australian clients works as a locum for rural doctors. He receives all the billings during his stint and the rural doctor gets some time off.
Doctors in specialties that require physical strength or fine motor skills are among those who may need to change tack, Mr McMaster says.
“They may need to think more laterally about how to morph their practice into something that allows them to work part-time.”
He knows an ophthalmologist who only does consults and handballs the procedures to younger doctors.
Dr Geoffrey Boyce, a 65-year-old neurologist in Lismore in northern New South Wales, is looking at a different health delivery model to help him wind back his hours over the next few years.
He already conducts some video consultations from his offices and believes that if he can see 10 patients via telehealth each week, he won’t have to use up his super.
The art of retiring early
When GP Dr Christine Healy turned 56 last year, she decided to close her practice in Carlton, Melbourne, to pursue her passion for painting and sculpture.
The move took a few years of planning, she says, but it’s paid off in some surprising ways.
“I’ve managed to sell quite a few paintings in shows I’ve had this year so that’s an unexpected bonus.”
Like many doctors, Dr Healy thought she’d like to retire, but putting it into action was hard.
“I felt loyalty to my patients and staff”, she says. “I’m interested in helping people and I had fantastic team and a supportive environment, and that’s hard to walk away from.”
Although Dr Healy had initially hoped to sell the practice, she opted to close it when negotiations stalled.
Initially, Dr Healy didn’t know if she’d manage financially if she moved from a steady income to an investment base, so she talked to a financial adviser.
“I got advice 3 years before the time, and I did the obvious things like paying down my debt and maximising super contributions. I also took a more conservative approach to my investments and moved them out of shares and into cash because I was wanted a reliable source of income rather than growth.”
Dr Healy is using her free time to give back to community and has been working as a locum in Wadeye in the Northern Territory.
“That way I still feel I’m contributing and there’s certainly a need here for people interested in all aspects of Indigenous health.”
This year Dr Healy was a finalist in the Glover Prize for landscape painting and has exhibited in a solo show in the Fehily Contemporary gallery in Melbourne.
“My work−life balance used to be skewed to work and a little bit of life”, she says. “Now my lifestyle is good. I’ve got the freedom to pursue my dreams and to dream up new dreams.”
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