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How Should Physicians Plan for Retirement?

January 18, 2018

How Physicians Can Plan for Their Financial Future

Physicians are often perceived as being more financially comfortable than the population at large, but the truth is many doctors fall short when it comes to saving for retirement. According to a recent Fidelity Investments analysis, nearly half of physicians surveyed are saving less than the recommended savings rate of 15%, averaging only 9%.

Why physicians are behind

Although physicians earn $300,000 annually on average, they tend to fall behind in saving for retirement for three key reasons: extremely high student debt loads (averaging $176,000); expensive practice-related costs; and confusion as to how to plan and navigate a viable path to ensure their financial future.

Perhaps the biggest reason why so many physicians are behind in planning for their own retirement is because doctors don’t take full advantage of retirement savings opportunities available through their employers, e.g., maxing out contributions to a qualified workplace plan, such as a 403(b).

Another problem is that many older and mid-career physicians have a mix of investments that are not aged-based. Almost 40% of pre-retirees are very aggressive in their equity allocation, making their savings much more susceptible to market fluctuations. At the same time, one-third of physicians in their 40’s are too conservatively allocated, limiting their potential for growth.

A prescription to improve your financial health

Physician retirement planning can be a tricky proposition because doctors tend to get a late start working and saving for retirement, thereby limiting the power of compound investment growth, which can have a tremendous impact on retirement accounts. The good news is that many employers now provide financial education programs and other related tools to help physicians manage their wealth and plan for retirement.

Physicians should routinely avail themselves of these services and conduct periodic checkups to ensure their financial planning and related efforts are yielding the desired results. Here are a few tips and pointers to help you stay on track:

Seek professional financial guidance and a retirement plan checkup at least twice each year
Revisit savings rates and adjust as necessary
Ensure that your equity allocation is age appropriate
Maximize contributions to qualified retirement plans such as a 401(k) or 403(b)
Take advantage of opportunities to save in vehicles such as a non-qualified 457(b) plan, which allow highly compensated employees to defer an additional portion of their compensation and related taxes until retirement
Maximize contributions to individual retirement accounts (IRAs), including Roth IRAs, and tax-deferred annuities and brokerage accounts

We hope this guidance will help you navigate successfully through the personal finance issues that doctors often encounter when planning for retirement.

Take advantage of Merritt Hawkins’ unparalleled staffing resources and over 20 years of experience recruiting and placing physicians. Jump-start your progress toward a financially secure retirement by calling today and speaking with one of our professional placement specialists.