Physician Retirement Planning: How to Prepare

On average, physicians are the highest paid professionals in the U.S. But even the best paid physicians need to plan carefully for their retirement, and make sure they’re truly putting away enough to be comfortable in their golden years.

Here are some ways to assess your own savings, and retire without financial strain:

How much should you save?

Despite the higher earning potential, physicians can – and do – run into challenges that prevent them from saving enough for retirement.

Many physicians enter the workforce with staggering student loan debt, and aren’t sure how to save for retirement while also paying off that debt. Or they are prioritizing multiple money goals, like buying a home, saving for retirement and contributing to a child’s 529 plan.

When you’re in the middle of juggling a career and a family, it can be difficult to assess what your retirement will look like. The truth is, it’s really important to understand the specifics of what you’ll need after you retire – instead of relying on a vague idea.

So, how much should you save each year to hit your goals? How much will you need to live on annually when you’re retired? 

A very general rule of thumb is to put at least 15-20 percent of your income toward retirement. But again, that number can vary based on when you started saving for retirement, and how much you’re able to save.

You can also get to that number by asking yourself some fundamental questions:

• What age do you plan to retire?
• How many years do you have until you hit retirement?
• Where do your retirement accounts stand now?
• How do you plan to spend your retirement? (i.e. Moving, traveling, hobbies, etc.)
• Looking at average life expectancy, health issues, etc., about how many years will your retirement money need to support you?
• Will you be supporting anyone else during your retirement?

The answers to these questions will get you closer to your number, but there’s still more to consider.

Physician Retirement Planning: What will your expenses really look like?

Let’s say you’re earning $200k as a physician right now. Odds are you are not actually going to need $200k to live on once you retire.

There are some very steep expenses that you won’t necessarily be dealing with in retirement – like a mortgage payment, income taxes and retirement savings. You might have to pay more for healthcare, travel expenses, retirement home fees, etc., but those costs still tend to be a bit less than those other major expenses during your working years. 

You might find that you need to live on 75 percent to 90 percent of your current income to have a comfortable retirement, but again, that number will vary. 

Physician Retirement Planning: Go beyond the 401(k)

Doctors who work for a hospital or other practice typically have a 401(k) plan through their workplace. However, for many high income earners, a 401(k) is just not enough to cover their full retirement savings needs.

In addition to the 401(k), some physicians opt for an IRA or a backdoor Roth IRA, as long as they meet the income requirements. But if you earn too much for an IRA, you can open a brokerage account instead, which is a taxable investment account.

For self-employed physicians, a Simple IRA, SEP IRA or Solo 401(k) are some of the best options for retirement accounts. I explain more about these accounts, and the benefits of each, in this post: Retirement Planning: What Will Work Best for You?

I cover these retirement savings options in more depth in this post: You Maxed out your 401(k) – What Should You Do Next?

Work with an advisor

The sooner you can start putting money away for retirement, the more time your investments will have to compound and grow.

But many physicians are too busy to give their investments the time and attention they need, and their portfolios end up falling by the wayside.

If you feel in over your head with your investments or retirement planning, you might want to seek out a fiduciary fee-only financial planner who can work with you, and take some of the guesswork out of retirement planning.

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