10/11/2022

Retirement surprises

Some things are predictable, some not so much

By Louise Leger

Think you’re prepared for retirement? You very well might be. As Dr. Mike Goodwin points out, many physicians have long known there was no company pension waiting for them so they’ve carefully planned from the start of their careers.

“I suspect that things are generally better for us than for many other pensioners, particularly because the absence of a formal pension plan has forced the prudent amongst us to prepare for retirement with several different and diverse investment options which we control,” said Dr. Goodwin, a retired family physician in Niagara Falls, Ont.

On the other hand, according to financial advisors and retired physicians, there can be hard-to-prepare-for surprises, small and big (like the pandemic), good and bad (inflation).

We asked some financial experts as well as some retired physicians what is predictable—and what surprises might be lurking.

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First, the somewhat predictable: Ottawa-based Alan Acton, vice-president and portfolio manager at Polaris Wealth, and a financial planner who has many physician clients, says that a tiger doesn’t change their stripes in retirement—or their penchant for bargain-hunting or thrill seeking.

“From my experience, people tend to maintain their chosen lifestyle in retirement,” he said. “If you’re a person who likes to go do a lot of activities, travel a lot, you maintain that lifestyle. If you’re a person who’s a home body, if you save a lot of your money, you don’t tend to change. You don’t hit 65, retire, and suddenly travel the world on an extravagant trip.”

This can be good or bad, said Acton, especially if taken to the extreme. He’s seen retirees with millions of dollars saved who can’t be convinced to shop anywhere but the thrift store . . . and those who can’t be convinced to slow down their spending.

“Where it becomes difficult is with the big spenders. They tend not to have saved enough along the way while maintaining their lifestyle, and then they continue on with this lifestyle after retirement.” They use up their savings too quickly, which can cause problems later.

“The human psyche kind of gets locked into this way of living by upbringing and experiences. It doesn’t change,” he said, except when people become elderly and even big spenders can’t do as much (but might encounter more expenses in terms of medical or housing.)

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Despite people’s natural spending DNA, Marcello Aquilina, a senior financial planner at CIBC who mostly serves physicians, says that for most doctors, expenses are highest in the first few years. “They find that they spent a lot more on travelling in the first three years, almost like they’re making up for lost time. Generally, after the first three years have passed, their spending starts to normalize.”

Acton agrees—if these were normal times. Not surprisingly, expenses, even those in the “make up for lost time” decreased for physicians who left practice just before or during the pandemic.

Over the last couple of years, said Dr. Goodwin, “My wife and I have saved a lot by not being able to travel to warmer climes to escape the Canadian winter— though it might be classified as a sort of ‘pyrrhic’ savings, in that retirees have less time left to indulge in escapism and travel than the young-uns.”

With current changes in travel, Acton says, prospective retirees might be surprised by the cost of travel. “They should expect it to take up a larger portion of their budget than in the past,” he said, and that is unlikely to change soon.

Toronto-area physician Dr. Howard Goldstein, who retired mid-pandemic, and Dr. John Crosby, a semi-retired physician in Cambridge, Ont. noted the high cost of travel. Said Dr. Crosby: “Travel is way more expensive than we imagined. Hotel rooms are $650 in Toronto for a modest room without a view. Restaurants are also pricey. We paid $100 for two soups and salads and no booze."

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“The times, they definitely are changin’,” said Dr. Goldstein, who recently planned a trip to Palm Springs. “In retirement there is freedom. There is also the necessity to live on a realistic budget which is carefully scrutinized. I didn’t really factor in personal expenditures while working. We actually compared the cost of Uber versus airport limo this evening, something we never would have considered in the past.”

HOME SWEET HOME

Along with travel, in the early years of retirement, says Aquilina, expenses often climb due to home expenses and projects.

“Many newly retired spend more on their ‘projects,’ which they delayed when they were employed,” said Aquilina, adding that, spending more time at home, also justifies spending more money on house and yard. “Things such as landscaping, building materials, renos and even clothes for home—things they didn’t have time for before."

Later in retirement, these expenses can peak again, when people know they want to stay in their house, but it needs upgrades to accommodate their wants and abilities.

“I’m a big proponent of people trying to stay in their house where they’re comfortable as long as they can,” said Acton. “But trying to make your house more livable as you get older can be expensive and I think this may surprise people. For example, if you want to make your yard easier to maintain, you have to make changes to it. And (renovations) may be needed inside to make it more functional (to advancing age). Maybe they didn’t have a bathroom downstairs before, but they want to put in a bathroom because they don’t want to have to go up and down the stairs.” It can add up.

VANISHING COSTS OF PRACTISING

One area physicians are pleasantly surprised to see decreases in expenses is overhead costs of running a practice. . . . though some costs might linger.

“Overhead costs of running a practice, $100,000 per year plus or minus 30% to 40%, took an enormous chunk of change out of the bottom line,” said Dr. Goldstein. “So retirement spelled relief from these exorbitant costs of doing business. But, severance packages for long-term employees can bite you on the tush unless you’re prepared. You need legal and accounting input well in advance of turning off the lights.”

Dr. Gillian Arsenault is a retired medical health officer and former FP in Maple Ridge, B.C. “I no longer have to pay for the CMPA, or Royal College, or the Doctors of BC, and what I spend on gas and clothes has gone way down! Clothing is particularly affordable for me now because I have time to check out the local thrift stores on a more regular basis,” she said.

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Dr. Goldstein agreed. “Memberships, CPSO, CFPC, OMA, CMPA, all retired when I did. They’re a huge cost, with questionable benefits in some cases. I’ll live with emeritus status.”

MEDICAL EXPENSES

However in many cases and depending on age of retirement and provincial plans, insurance benefits disappear, points out Dr. Goldstein. “I never realized the relatively inexpensive rates offered by the OMA—term life, travel insurance, personal insurance plans, etc. I’ve also grown to appreciate the cost of prescription drugs, dispensing fees and deductibles.”

Not only that, there are other perks physicians might enjoy pre—but not post—retirement. “During almost 50 years of GP practice, I had the luxury of OTC medical products provided by pharma reps, sample packs or stock size samples,” said Dr. Goldstein. “Those provisions have run out finally. I went to Shoppers last week and couldn’t believe the cost of Advil.”

"The main areas where retirement increased my expenses were medical and dental coverage,” agreed Dr. Arsenault. “The cost of my Medical Services Plan didn’t change, but the cost of extra medical and dental coverage certainly went up. I continued with the extra medical coverage but decided to forget dental coverage and just pay my own way.”

Like many Ontario physicians, Dr. Goodwin uses the OMA’s OPIP insurance product, which provides benefits similar to a company benefits package . . . namely medical, drugs plus an out-of-country travel medical insurance, which provides an accumulated total $2 million lifetime in medical and hospital coverage. The insurance is partially subsidized by the province (under the terms of an earlier OMA/MOH Physicians Services Agreement) for working docs, but retirees have to pay the full cost out of pocket. “And costs increase exponentially after age 70. I currently pay $4,500 per annum for me and the missus,” he said, noting that at that cost, he expected (but did not get) a rebate on the travel portion since there was no travel for 18 months.

UNEXPECTED INFLATION

Like the pandemic, current wide scale inflation can have a surprising effect on retirement budgets.

Recently retired family physician Dr. Gordon Watt of Ottawa said he prepared well for retirement, and retired when he wanted to. “I am better off than some of my colleagues who have had to retire recently,” he said. “Nevertheless, the escalating price of gasoline and Trudeau’s commitment to raising its price to fight climate change made me decide to trade my high octane-using automobile in for a new one that uses regular gasoline instead. My wife has revealed one other cost that astounded me. She told me that a tub of margarine she had previously bought at a price of just over four dollars is now more than six dollars. . . . I told her to expect more of the same until the Bank of Canada finally gets inflation under control.”

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Dr. Goldstein says when weighing the cost of retiring, you have to weigh the good and bad. “In the current unsettling environment of medicine, the attitudes of both physicians and patients, the demands, expectations, frustrations, wait times, burnout, paperwork, fees for services . . . early retirement, attrition and the prevalence of mental health sequelae, there are myriad benefits that cannot be measured in dollars and cents that a well-planned retirement can offer. It can be life-saving.”

Plus there are the perks! “On the positive side,” said Dr. Crosby, “people are so nice to seniors. Sobeys opened at 7 a.m. until 8 a.m. for seniors-only during the pandemic, he said. “We get discounts on theatre, cinema and much more. It’s a good deal!”