Tips to help you prepare for retirement
Building a plan for the future is critical, whether you’ve just started a medical practice or you’ve been in healthcare for decades. Particularly in an uncertain economic environment, saving and preparing for retirement can make a significant difference when the time comes to hang up the shingle.
Many physicians put off retirement longer than those individuals working in other fields. Since healthcare requires years of training, providers tend to start their career later – which means they retire later. It also means they have fewer years to build up retirement savings. Other factors that impact a physician’s decision to retire include the facts that:
- Medicine becomes a large part of the provider’s identity, making it difficult to end a career
- Physicians worry that they will miss the social aspects of providing care on a daily basis.
- They enjoy practicing medicine.
Financially, most people are simply not prepared for retirement. Common issues include not understanding where money is going when it is spent and not saving enough on a regular basis. The situation with physicians is no different. It is wise to save for retirement, regardless of where you are in your healthcare career. A good rule of thumb is to save 20% of gross income. More is better.
Investing in a 401k or 403b is also helpful to prepare for retirement. The IRS has announced that the 2022 contribution limit for 401(k) plans has increased to $20,500. Other IRA contribution allowances are also substantial with limits that depend on the individual’s tax filing status.
Joel Greenwald, MD, CFP, president of Greenwald Wealth Management, speaking with Medical Economics Senior Editor Jeffrey Bendix, says that in his opinion, “all doctors should be maxing out their retirement savings vehicle, the 401k or the 403b. Those are tax advantaged.”
Dr. Greenwald explains that when physicians retire, they should have “money in three different buckets” so that when a doctor does want to spend money, it can be taken from different accounts to keep them in the lowest tax bracket possible. Those “buckets” are:
- 401k or 403b pre-tax money
- The Roth bucket, which is tax free when they take it out.
- A regular investment account, which is subject to capital gains taxes, but not to income tax.
Independent physicians who own their own practice have more flexibility when it comes to investing and saving. For example, the practice might have a 401k profit-sharing plan in addition to the individual 401k for the provider.
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Student debt is a concern for many younger physicians, in particular, and that may keep them from saving appropriately for retirement. However, most physicians qualify for debt refinancing as they grow in their healthcare careers and bring in more income, which in turn helps them with lower interest rates and lower loan payments.
Beyond the financial considerations, sticking to hard numbers such as age and deadlines can be detrimental when you think about preparing for retirement. However, following some basic guidelines will prove helpful as long as you maintain flexibility in your planning. For example, if you want to retire by age 60, give yourself some leeway in the years leading up to that time. Cut back on your work hours and flexibility during that time so that you can begin to enjoy a life outside of healthcare while still creating an income and contributing to your retirement funds.
There is no magic number or set formula that physicians must follow in order to be prepared for retirement. It’s all based on how much you are willing and able to save, where you put that money, and how much you plan on spending once you retire, based on the type of lifestyle you desire.
