How much should doctors save for retirement? Given the many unknowns of life after work, it’s a challenging question. These include answers to other difficult questions like:

  • How long will you live?
  • What will your health be like?
  • What will be the cost of basic living expenses?
  • How much will your investments grow in the next 10, 20, or 30 years?
  • What type of lifestyle would you like to spend your post-work years?

Typically, financial advisers recommend doctors save 20 percent to 25 percent of their income for retirement. But with all of life's unknowns at play, perhaps the best answer is as much as possible.

Let's dive deeper into the common retirement challenges physicians face (and four steps to overcome them.)

Some are saving enough --- but many are not

Back in 2015, a study by Fidelity shed some telling light on the saving habits of physicians.

On the one hand, it demonstrated the financial discipline of physicians. The average respondent was saving 20 percent of their income in workplace retirement plans. This factored in employer contributions.

However, the same study showed that 48 percent of physicians saved less than 15 percent of their income a year. In fact, many were stashing under 9 percent of their income.

For their part, many medical professionals realize they’re not saving enough. In a 2013 survey by the American Medical Association, roughly half of responding physicians said they feel behind in preparing for their financial futures.

Why doctors struggle to save

It may be difficult to understand why those in such a high-paying profession struggle with retirement planning.

(Just look at that paycheck, right?)

But the two main challenges physicians face actually stem from their education.

First, consider the amount of time it takes to earning your white coat:

  • Four years of undergrad.
  • Four years of medical school.
  • Two years of residency.

Because of this, physicians get a much later start on their careers than the rest of us. That's also an entire decade they could be:

  • Saving for retirement.
  • Compounding interest of those early years.

Second, the amount of student loan debt doctors begin their careers is often crippling early on. Not only does it limit what they save, but it also impacts their first-time home-buying experience.

Saving also requires a great deal of discipline.

Doctors face more pressure than most when it comes to splurging on luxury items:

  • Homes.
  • Cars.
  • Vacations.

Like most people, doctors plan to maintain the same lifestyle in retirement that they had while working. This only further complicates their approach to retirement planning.

Why you can’t just rely on a 401(k)

Another challenge facing physicians is the IRS contribution limits for qualified retirement plans.

In 2017, the contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, is $18,000 for people under age 50. Those over age 50 can contribute $24,000 for the year.

So, say you’re a doctor in your 40s earning $300,000 a year. That means you can only save 6 percent of your income in a qualified retirement plan.

Although employer contributions may boost that percentage a little, it’s nowhere near the 20-25 percent recommended by financial experts.

And remember the Fidelity study from earlier? 48 percent of doctors still did not make the maximum allowable contributions to their qualified retirement plans.

About 58 percent of female physicians did not contribute the maximum.

And a whopping 71 percent of all physicians did not contribute to a separate, non-qualified retirement plan.

How to overcome retirement planning challenges

1. Treat retirement as an immediate priority. It’s easy to think of retirement as something in the distant future. But it will be here before you know it. Envision the type of retirement you want to live. Consider how much it will cost, factoring in inflation and the potential cost of health care.

2. Maximize your qualified plan contributions. If you’re not contributing the maximum limit on your retirement plan, strongly consider doing so. In addition to the increased assets, saving more in your qualified retirement plan will reduce your tax bill.

3. Pay your future self first. It’s tempting to spend what is left after paying the bills right now. Prioritize your future self before splurging for your current self. Since you will need retirement savings outside of your workplace plan, make those contributions a budget item. Treat them like another bill you have to pay before you can spend on discretionary items for your current self.

4. Enlist professional help. As mentioned, saving for retirement means you will likely have to save and invest outside your workplace retirement plan. Doing that requires a thorough analysis of different investment vehicles based on:

  • Risk.
  • Rate of return.
  • The cost of investing.

As a physician you lead a very busy life. You rarely have the time to properly manage your wealth on your own. That’s why it’s important to surround yourself with reputable financial minds you can trust to put your interests first.

Key takeaways

Retirement may feel like a whole lifetime away. But given the unique financial traits of doctors, it's more urgent than it seems. Upon beginning practice, it's important new doctors understand:

  • Why it's difficult to prioritize retirement savings.
  • Why doctors cannot afford to rely on a 401(k) alone.
  • How to overcome retirement planning challenges.

By paying your future self first now, you're setting yourself for the retirement of your dreams down the road.

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