When can this 55 year old doctor retire?

What are the first thoughts that come to your mind when you hear about a 55 year old doctor who has been practicing medicine for about 15 years but only has approximately $90,000 in her 401k? I’d certainly like to hear more of the story.

Dr. X, who is a Hospitalist is exactly that doctor. She moved to the United States after finishing medical school outside of the country, and had to retrain. She has three kids, two of whom are currently college students attending private schools. Where did all of her earnings go?

As a cost-conscientious immigrant she did learn to pay for everything in cash, including her house which is worth about $700,000. All three of her children own cars that are paid off, as does her husband.  As a high-income professional, she also enjoys nice vacations and fine luxuries.

I think that the easiest reaction to hearing all of this is to pass judgment.  However, the reality is that not all of us have had the opportunity to learn sound financial habits.  Cases like Dr. X are incredibly common.  What’s more important is to realize that Dr. X’s situation thins out her financial buffer—she needs to continue working hard at her day job and make prudent financial choices going forward.

Tackle your expenses to gain control of your finances.

Dr. X’s financial situation has similar issues as someone who earns $30,000 a year and has thousands of dollars in credit card debt. The only difference is that she probably is dealing with another zero to her salary. It’s also unlikely that she will have any salary increase given that she is likely at the upper end of her earnings at this point in her career.  The biggest variable that Dr. X can control is her expenses.


Dr. X is currently paying for her children’s education but she doesn’t have to. The youngest child is currently in private school while the older kids attend private colleges. There is financial aid for college students, even though Dr. X is a high-income professional.  It is unlikely that they would qualify for need-based grants, but current federal student loans can be obtained for a jaw-dropping 6.8% interest-rate!  Top tier private college tuition in 2018 is nearly $60,000, with total education packages estimated to be in the $75,000 range. Dr. X does not have the career longevity to put two kids through private college…unless her kids become entrepreneurs at an early age to fund their parents’ retirement.

Room service macarons will add another year to your working career!

If either of the children’s cars are not paid off, then Dr. X should reassess what options she has to reduce operating costs.  Can Dr. X sell the cars and pick up a beater for the kids? Or should they rid of the excess gas/electric/money guzzlers unless the children can afford the cars themselves?

Lifestyle habits and other expenses

Dr. X should break out the credit card and bank statements do perform a thorough exam. Expenses should be scrutinized to the level of a twenty-some year old medical student or resident who has a negative net worth to her name. Cable bills, grocery and restaurant bills, and all other recurrent big-ticket items need to be assessed. This includes mega heating bills in the winter or four-figure monthly cooling bills in the summer.  Major vacations for the family need to be reconsidered until a set financial plan that can get Dr. X into retirement can be made.

The greater amount that can be moved out of the fixed household expenses, the greater that one can shift towards a retirement savings bucket.  Is her husband working? If so, the husband needs to perform a physical examination of his wallet.

Retirement savings

At age 55 with only $90k of 401k to her name, Dr. X doesn’t have much leeway in the tax-advantaged buckets. Assuming a capped catch-up contribution of $24,500 in 401k per year, Dr. X ought to be able to put in close to another $250,000 by age 65.

So starting with $90,000 in the 401k, with monthly investments of $1875 and annual growth conservatively of 4%, Dr. X would have around $403,000 in 10 years. This would only support an annual expenditure of $16,120 with a safe-withdrawal rate of 4%. Tack on roughly $20,000 of social security benefits at age 65, and that adds up to less than $40,000 a year to spend on living expenses. Doable? Absolutely. Most American households aren’t going to have even that, but that’s a far cry from Dr. X’s current expenditures.

The conclusion? I still think that Dr. X can retire, but she will have to make tough decisions to curb her spending, stay healthy throughout her career, and make the most of the situation.

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