How can a Doc retire early?

Docs start earning quite late in life – at least the big bucks come at a late stage. So is it really possible for a Doc to retire early?

It really looks difficult. Docs unless they are super specialized and have created some kind of aura about their capabilities do not really earn the mega bucks of sports star or a film star. However, they do have a lot of flexibility in their profession. They can be on their own, be in a partnership or grow it like Dr. Reddy of Apollo Hospitals.

Having established that it is a good idea to retire early, and to never stop, how does one go about doing this?

Investing early and well, normally means the doc can retire early and well. If things are done properly then by, say, age 55, or whenever the kids are coming off the doc’s financial hands, the income from investing starts to exceed the income from the practice. This is a great position to be in, particularly if the income consists largely of unrealized, and hence un-taxed, capital gains. Also given our current tax structure where there is no INCOME TAX on dividends, the doc may be in a good position to retire.

Interestingly, most docs continue to practice even when they are at this point. But thankfully they can skip the long hours, choose lesser locations, and work more sensibly. They can also decide to and take many more holidays and long weekends. And there is a huge difference between the doc driving to work because she wants to, and the doc driving to work because she has to. One is happier than the other.

The major issue here relates to the costs of general practice. Unfortunately Docs do not have much training in considering Fixed Costs, Variable Costs and Marginal Costs! Not all costs fall just because the doc is doing fewer sessions. Many costs, for example, rent, some wages, depreciation of equipment and so on, stay the same regardless of how many sessions are completed each week. These costs are called “fixed costs”. This is because they are fixed irrespective of how many sessions are completed each week. It is also called a Period Cost. At the end of the period, the cost has to be paid – immaterial of whether the equipment or place got used. A common mistake is to assume that there are no fixed costs. A doc completing, say, 7 sessions a week (only Mornings) and making Rs.15,00,000 a year may reason that his income will fall to, say, Rs.950,000 if he cuts from 12 sessions a week. Sadly this is not so. More probably, because fixed costs stay the same, profit falls by much more than this, say down to Rs.700,000, if not less.

How can he avoid this? There may be some options which he can consider:

1. He may start teaching at a Medical college including doing sessions on how to handle customer psychology. Lady docs are sometimes preferred because of better soft skills.
2. The doc can stop practising solo or in a group practice where costs are shared equally irrespective of the number of sessions.
3. The doc should try to change to a practice structure where all costs (or virtually all costs) are variable costs not fixed costs.
4. The doc can join a friend who has similar ideas and become a partner. One of them could used the infrastructure in the morning and the other person in the evening.
5. The doc could also get into an arrangement with 2-3 junior docs who will use the geography of his practice are – and split the fees.
6. One more alternative is to sell a portion of his practice to a deserving junior and get into a fee sharing arrangement.

Many of these arrangements may look difficult, and in many cases involves the DOC selling all or part of the practice to younger Docs. In at least one case I know the doc used his practice till his age of 81, but sadly many of his customers had gone away. He had to just sell his premises to a dentist. The practice fetched him nothing.

Surely retirements could have been better planned.