Physicians have a number of items to consider when planning for retirement, including factors beyond their control. Given increasing rates on inflation, many doctors may wonder if their retirement plans will be affected. According to a Bureau of Labor Statistics news release, the consumer price index rose 7.5% year-over-year from January 2021 to January 2022—a comparable leap not seen since 1982. However, this does not warrant panic amongst retiring physicians.
Primary financial advisor W. Ben Utley, CFP, of Physician Family Financial Advisors believes that inflation today is no more worrisome than inflation 25 years ago. In other words, while inflation may be a concern, the level of concern should not be elevated more so than it has been in recent decades. Utley advises physicians to manage inflation with hedge tactics like purchasing stocks, which yield positive returns in the end due to a coupling of rising corporate price and inflation. Although some might advise against purchasing stocks due to the possibility of a weak US economy stymying price increases and leading to decreasing profits, Utley suggests that such views are mere scare tactics.
Asset Diversifications Is Important During Inflation
Purchasing bonds is another tactic that Utley encourages clients to explore, stating that rising inflation occurs in tandem with yields on bonds rising, and although this decreases bond prices in the short term, it increases the yield on bonds in the long term. James M. Dahle, MD, FACEP, FAAEM, founder of The White Coat Investor, stresses the importance of asset diversification in the presence of inflation. In particular, he suggests choosing a sizable amount of assets that function well in the face of inflation.
More specifically, Dr. Dahle suggests that most of physician’s portfolio should include investments in stocks, real estate, and inflation-indexed bonds (eg, Treasury Inflation-Protected Security and Series I Savings Bonds). For those physicians concerned about carrying debt into retirement, Dr. Dahle advises them not to worry, noting that fixed interest rate debt provides a superb hedge against inflation.
Utley and Dr. Dahle also emphasize the flexibility inherent in many physicians’ monthly budgets, which affords them the luxury of altering discretionary income to account for inflation. For example, physicians could lower costs by simply spending less money on travel plans or on expensive cars. Unlike people who are tied to a fixed income, physicians have the ability to manage inflation, rather than having inflation manage them. Dr. Dahle suggests that ultimately, the rate of inflation that a physician can control is what matters most.