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The Retirement “Red Zone”: What You Need to Know to Score Financially

Dermatology TimesDermatology Times, September 2023 (Vol. 44. No. 09)
Volume 44
Issue 09

Experts explain tactics that should be employed during the “retirement red zone” to allow for a financially successful retirement.

As football fans know, the “red zone” is the area of the field where the offense is within 20 yards of scoring a touchdown. Applied to retirement, the red zone concept means the period where retirement is in the near future.

For a financially successful retirement, 3 tactics should be employed during the “retirement red zone” and into retirement itself: developing a budget, reviewing asset allocation, and designing a withdrawal strategy.

Developing a Budget



It may seem like simplistic advice, but budgeting can either push a retirement plan to success or drive it to failure. To begin the budgeting process, physicians should make a list of their lifestyle needs, including necessities such as meals, mortgage, utilities, and insurance, as well as savings contributions.

Deciding how much to save today will depend on how much one expects to spend during retirement. There is no way of determining that without attempting to project future expenses. One can accomplish this by creating budgets based on various postretirement factors including location, size of home, hobbies, frequency of vacations, and other lifestyle expectations. These budget exercises provide a broader view of how effective a retirement savings plan can be based on various lifestyle decisions. It may be helpful to model multiple scenarios, including an aggressive and conservative budget.

Top 3 Retirement Strategies

1. Develop a Budget: Creating a budget that accurately reflects expected retirement expenses is crucial. This involves listing lifestyle needs, projecting future expenses based on various factors, and avoiding overreliance on investment returns to justify expensive lifestyle choices.

2. Review Asset Allocation: Proper asset allocation, including diversification, is essential to mitigate investment losses. History has shown that overconcentration in a single investment or sector can result in significant financial setbacks.

3. Strategize Withdrawals: Planning for withdrawals during retirement is as important as saving for retirement. This includes selecting a flexible withdrawal rate, considering potential tax implications, and exploring options like delaying distributions to moderate portfolio stress and ensure a successful retirement.

A common mistake made by many investors during this exercise is assuming substantial investment returns to justify expensive lifestyle choices. Expecting massive returns on minimal savings is dangerous to a retirement plan. Investors, including dermatologists, should consult with an adviser to determine a reasonable expected return based on historical performance, portfolio components, and other factors.

Reviewing Asset Allocation

Asset allocation encompasses the types of investments within a portfolio, as well as their various underlying industries, risk, and level of market correlation. One of the most important strategies for proper asset allocation is diversification.

Diversification is the process of varying the allocation of value in a portfolio among a variety of sectors, investment types, and risks to reduce each investment’s correlation with the others, thus ensuring some buffer against significant swings depleting an entire portfolio. Proper diversification offers one of the most effective ways of mitigating losses.

For investors to understand the importance of diversification, they should realize that history tends to repeat itself, and one unfortunate outcome can result in a complete loss of a lifetime of savings. One example is the employees who were overly invested in Enron stock in the early 2000s. According to The New York Times, the Enron 401(k) plan, which was overweighted in Enron shares, lost more than $1 billion in value in 2001 when the company went bankrupt, and shares of Enron stock fell 94%.

Putting Returns in Their Place

Risk tolerance is an investor’s ability to mentally and financially withstand volatility in investment performance. An investor with a high risk tolerance may be young, with decades of expected income, and unbothered by large swings in investment values. A more conservative investor may be one with fewer working years through which to replenish certain investment losses.

As physicians age and their investment time horizon shortens, they should consider reallocating their assets into increasingly conservative investments to best limit their exposure to loss. Additionally, careful consideration must be made to properly limit downside risk, potentially through fixed income and alternative investments.

The idea of reallocating to more conservative assets can be troubling to those who are focused on maximizing returns because conservative investments tend to have limited upside potential. To understand why this move is often more beneficial than seeking higher returns in later life, one should be familiar with sequence of returns risk.

Sequence of returns risk is the danger that the timing of liquidation and withdrawal from a retirement account will coincide with a downturn in the market. If it does, then it effectively reduces the overall potential performance of the entire portfolio because a high number of shares will need to be liquidated to get the income expected, thus leaving fewer shares in the portfolio to grow. Sequence of returns risk may not be as important during the wealth accumulation phase, but during the withdrawal phase it is one of the most critical factors in the overall success of a retirement plan.

Strategizing Withdrawals

Although a dermatologist’s primary financial focus is to save and accumulate funds for retirement, the design of a withdrawal strategy is equally important to financial health in retirement.

Selecting a Withdrawal Rate

A fundamental pitfall in static retirement plans is setting a withdrawal rate that is fixed over a retirement period. Consider that, for many physicians, the retirement stage of life is likely to last 20 years or more. In that time, investment yields may vary widely and tax rates and personal spending habits could also change. Because of these changing variables, it is essential that flexibility be built into retirement planning. By having flexible planning models and periodically adjusting them based on real-time results, one can expect to follow a model that can endure throughout retirement, regardless of how many years or decades that retirement may last.

Making Room for Taxes

No one knows what tax rates will be upon retirement. This does not mean physicians should ignore tax planning, but they should account for the potential costs of taxes and design a strategy to minimize them. To do this, one must understand how taxes will affect withdrawals and liquidations. Having a plan that considers which withdrawals will trigger ordinary income taxes, which will incur capital gains, and which will realize no tax is essential.

Lastly, dermatologists should understand that delaying distributions from their assets will have the greatest impact on their ability to have a successful retirement. They may have the option of easing into retirement and exploring varying roles within a practice, perhaps transitioning to a consult-only role. This can allow a physician to generate a supplemental income for several years, thus moderating the stress on their portfolios by reducing the rate of withdrawal.


Most dermatologists see a comfortable retirement as a reward for decades of hard work. Do not let the absence of preretirement planning in the “retirement red zone” hinder this goal. While understanding the 3 strategies above is a good start, there is no substitute for working with an experienced adviser in the field who can make analyses and recommendations specific to your situation. The authors welcome your questions.

David Mandell, JD, MBA, is an attorney and author of more than a dozen books for doctors, including Wealth Planning for the Modern Physician. He is a partner in the wealth management firm OJM Group (www.ojmgroup.com).

Andrew Taylor, CFP, is a partner and wealth adviser. They can be reached at 877-656-4362 or mandell@ojmgroup.com.


OJM Group, LLC (“OJM”) is a US Securities and Exchange Commission (SEC)–registered investment adviser with its principal place of practice in the state of Ohio. SEC registration does not constitute an endorsement of OJM by the SEC nor does it indicate that OJM has attained a particular level of skill or ability. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact practice in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure website www.adviserinfo.sec.gov.

For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

This article contains general information that is not suitable for everyone. The information contained

herein should not be construed as personalized legal or tax advice or as a recommendation of any particular security or strategy. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently; accordingly, information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.

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