As any physician knows, it’s a long road to an established medical career.
Many physicians don’t earn a high salary until after seven years—often more—of taking out loans and getting by on a minimal salary or stipend as they complete their education, residency, and specialized training.
That may be why most working physicians are often ahead of the average American when it comes to accumulating funds for retirement and seeking professional advice.
“Many physicians are self-made,” says Diane Texin, who has 16 years of experience working with physicians and individuals on their retirement financial needs. “They want to ensure that a lifestyle that took years to establish continues after retirement. Others are part of physician families and saving is a habit that’s handed down. Savings attitudes vary by individual and even by specialization. But most [physicians] do save, and they have specific goals in mind for leisure, philanthropy, children, or grandchildren.”
An array of choices and changes
So if physicians are ahead of the game when it comes to retirement, are there any pitfalls they might not be aware of?
“For physicians, the issue is rarely about funding or having enough savings,” says Gabe Ward, another retirement consultant with eight years of industry experience as a senior retirement counselor. “It’s more of a choices challenge—how to use those funds effectively. For example, many physicians don’t always consider the implications of taxes or how well certain retirement-income sources will work with their later goals.”
Making the right choices with those hard-earned savings can come down to a few key steps.
Starting with the right questions
According to Scott Taylor, who works with Texin and Ward on retirement solutions for physicians and individuals, and has 11 years of experience, any choices about retirement savings should start with what he calls “the five questions.”
What kind of lifestyle do I want?
Consider whether you will continue to work or how you will spend your time when you’re no longer working full-time. How do travel—or a new vocation and education—figure into your plan? Will you be helping out family members with college tuition? When you’ve answered these questions, estimate costs along with other basic living expenses to arrive at your estimated annual costs per year.
What will my health care expenses be?
As you may already know, Medicare pays only 55 percent of health care costs for people age 65 and older.1 Health care may eat up nearly 25 percent of a retiree’s income.2 When planning what your annual costs may be, and how to allocate savings among different retirement products, consider the gap in covering health care costs. Talk to your financial advisor about how to estimate for future health needs and costs, including insurance premiums, office visits, and Medicare.
Where will my income come from?
Evaluate all of your current or potential income sources to arrive at a grand total of what income you’ll have available at retirement. Start with “guaranteed” income, like pensions, annuity payments, and Social Security benefits (estimates available at www.ssa.gov). Also include income from typical sources of potential retirement income, such as stocks/bonds, savings/CDs, real estate, and tax-deferred sources like 401(k) plans, traditional and Roth IRAs, cash-value life insurance, and municipal bonds.
Can I save even more?
Consider whether you’re contributing the maximum allowable for employer-sponsored retirement plans—amounts were increased to $15,500 annually as of 2007. If you’re age 50 and older, you may be able to save even more. Consider how much more you can save each month, and whether your spouse is taking advantage of all retirement saving opportunities.
How will I manage my retirement income?
Be sure to balance earnings from savings and investments (those outside of a tax-sheltered plan) against what you hope to withdraw from your assets each year. A good goal would be to invest neither too conservatively nor too aggressively (so that earnings remain on target), while not withdrawing too much too fast. Some experts suggest no more than a 4 percent withdrawal rate. Professional retirement, tax, and financial advisors can help you navigate the best path and recommend additional strategies, such as laddering fixed-income securities or holding dividend-paying stocks, for managing retirement income.
1. U.S. Government Accountability Office, Federal Trustees of the Medical Program, 2006, as reported by Prudential Financial. www.prudential.com.
2. International Longevity Center, NYC, AARP, 2005, as reported by Prudential Financial. www.prudential.com.
