Although doctors easily earn six figure incomes annually, Fidelity Investments reports that most of these high-earning physicians are currently on track to contribute a mere 55 percent of their salary to their retirement nest egg. While this is definitely a higher than average contribution to retirement savings, it doesn’t seem quite right that doctors making over $100,000 a year should fail to have the 71 percent contribution rate recommended by Fidelity. So why are physicians no better off retirement-wise than your average American worker who makes about $40,000 a year?
Doctors face many challenges to saving for retirement, such as repaying exorbitant student loan debts which often prevents them from beginning a retirement portfolio until after age 40. This “lost decade” (between 20 and 30 years of age) is not experienced by people who chose careers requiring four to six years of college instead of the 10 to 15 demanded of physicians and surgeons. Although doctors could begin investing before they have paid off their student loans, the financial markets remain consistently variable while the interest on their student loans remain fixed and inescapable. This makes discharging all student loans as quickly as possible almost mandatory to ensure a successful career as a physician.
What can doctors do to prepare for retirement without creating overwhelming financial difficulties that could hinder their practice? Here are a few tips recommended by professional CPAs and financial experts:
Try to contribute as much as possible to your 401(k)–the majority of doctors under the age of 50 are not contributing the maximum amounts permitted under IRS regulations ($17,500 and $23,000).
Consider other ways to save and invest–for physicians who are contributing as much as as the IRS will allow, a few higher earning doctors are unable to contribute more than 15 percent of their annual wages without approaching or exceeding that limit. Therefore, Insurance and Financial Advisor suggests hospitals and other health facilities employing physicians should look into offering them IRAs, non-qualified defined CSPs (contribution savings plans), brokerage accounts and tax-deferred annuities.
Use asset allocation that is age-appropriate–working as a physician means working steadily and getting much higher than average pay in a career field that never experiences downturns. Consequently, doctors can afford to engage in aggressive investment participation than people employed in less consistent professions. Investment experts assert that most doctors whoudl be able to maintain a 100 percent equity dial possibly past the age of 45, as long as market fluctuations don’t influence his or her decisions.
However, Fidelity Investments states that nearly 45 percent of doctors between 60 and 64 are investing a little too aggressively, putting almlost 65 percent equities into individual portfolios in a frenzied attempt to catch up with the time they lost as young, up-and-coming physicians. Executive Vice President of Fidelity Investments’ tax-exempt retirement services Rick Mitchell comments that “given their shorter savings horizon, we urge physicians to seek guidance on their proper investment mix at all stages of their professional life.”
Last Updated on March 14, 2014