What to Know When Retirement Planning for Physicians

College, then medical school, then residency—and maybe a fellowship to top it all off. Most doctors spend about 12 years in training before becoming an attending doctor. Personally, I'll have done 14 years by the time I’m done. All this is to say that becoming a doctor is a huge investment in both time and money.

If you’re like me, you’ll want to make the most of your hard-earned income through careful retirement planning.

How do physicians save for retirement?

One thing you’re not going to learn in all those years of training is how exactly to save money for retirement. It’s a subject that really should be covered, because despite their high-earning potential, lots of physicians struggle in this area.

In fact, about half the doctors in a recent survey reported being behind the curve in prepping for their financial future. Although the average physician retirement savings rate was overall okay, nearly half the doctors reported saving only 9-ish percent of their salary. That’s barely half the ideal rate.

This situation is largely thanks to the high cost of medical education coupled with relatively low salaries for residents and fellows. But attending doctors also struggle to save. After years of ramen noodles and grueling hours, new attendings understandably want to enjoy their new six-figure salary. And not to get too philosophical here, but we could also talk about the spending mentality in the United States.

Basically, even as a doctor, it’s hard to save for retirement. Thankfully, there are some easy ways to prepare for retirement even early in your career:

• Focus on your 401(k). If you can, you should max out your work’s retirement plan starting in residency. This is an easy way to set yourself on the right course for retirement. Having money from your salary going directly into an investment account means you don’t even have to think about it.
• Deal with your debt. On the debt side of things, you should really take the time to refinance your student loans as soon as you can. Depending on your career, you might even be eligible for a loan forgiveness program.
• Save, save, and save some more. Once you’ve completed your medical training, aim to start saving about 20 percent of your gross income. Depending on what sort of lifestyle you want after retirement, you might be able to get away with less, but saving about a fifth of your income should put most docs in a really good place for retirement.
• Do the math. Think about when you want to retire, and then work backwards to figure out how much you actually need to save. A financial advisor can help you fine tune that 20 percent savings benchmark to your particular retirement goals, especially as you get closer to the big day. 

What types of retirement plans are there for physicians?

Retirement plans for doctors differ based on where you work. Here are a few examples:

• 403(b). This is a plan commonly available to physicians at non-profits, which most hospitals are. The 403(b) is a retirement account to which you can defer some of your salary to be invested. Your employer can also make deposits. Contributions can be made on a pre-tax basis, meaning that only the money from your salary that you don’t deposit into the account will be taxed that year. Nice!
• 401(k). This is basically the for-profit equivalent to the 403(b). It’s for doctors at private groups and for-profit hospitals. Like the 403(b), you can make contributions on a pre-tax basis, or sometimes on a Roth basis. Deposits made on a Roth basis will still be taxed as income that year. But as long as you don’t withdraw the money early, it’ll be tax free in retirement! Also very nice.
• 401(a). Lots, but not all, hospitals offer this type of retirement account. With the 401(a), the employer sets the rules for contributions. Like the above plans, you can’t really use the money in a 401(a) account until you’re close to retirement age.
• SEP IRA. Self-employed physicians who would like to save for retirement on a pre-tax basis can choose a SEP IRA. With this plan, you can make pre-tax contributions totaling up to 20 percent of your income, with a limit of about $57,000. If you’d like to save even more than that, you can consider adding on a cash balance pension plan.

I hope this helps you feel better about saving for retirement. For some other ideas, check out our blog on financial planning for young physicians. Good luck!