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Tuesday May 29, 2018

Start Saving for Retirement Now

(Editor's note: The Fresh Perspectives blog launched in 2014 as a platform for new physicians who have been out of training for no more than seven years. Peter Rippey, M.D., leaves the blog with this final post as he enters his eighth year of practice. We thank him for all his contributions to Fresh Perspectives.)

[piggy bank with sunglasses in beach chair]

As my days as a new physician come to a close, there is one area I am, unfortunately, just beginning to learn about in earnest -- retirement finances. It has been estimated that most Americans close to retirement age have saved only 12 percent of what they actually need to retire.(www.cnbc.com) 

A study of physicians(www.chicagotribune.com) found that 45 percent of men and 60 percent of women were not maximizing their work retirement account savings. A recent survey of physicians indicated that of physicians age 65 and older, nearly a quarter had a net worth less than $1 million,(www.medscape.com) which is not enough to fund retirement unless you plan on retiring at age 75 or older!

It seems we can add saving for retirement to the growing list of topics we wish were better addressed in medical school. The task falls on us to educate ourselves.

Physicians often start saving later than many other professions because additional schooling and training delays our entrance into the job market and leaves many of us with a great deal of debt. Physicians also may need to save more depending on the lifestyle they wish to maintain in retirement.

But there is hope for those of us who are late bloomers. The first thing you should do to save for retirement is get started. Never underestimate the power of compounded interest, which means that saving a small amount of money over a long period of time will net you more in the end than saving a larger amount over a shorter period. Don't put this off thinking you will make up for it by saving more later when you're out of residency, when your career is more established, when that better job comes along. Even if it seems like a small amount, start saving now.

For those of us who are employed, this might be as easy as taking advantage of our companies' 401(k) or 403(b) plans. This money is withdrawn pretax (which helps at the end of the year) and most employers will match up to a certain percentage of your investment. I would recommend putting in at least the percentage needed to get the maximum match from your employer each year. For those with 1099 income, you can start your own 401k, although there obviously will be no matching contribution. You can also have both if you moonlight and get 1099 income on the side. Whatever your options, get started right away; don't put it off!

Another option for retirement savings is using a health savings account (HSA) to save for retirement.(www.whitecoatinvestor.com) These accounts can be funded with pre-tax dollars. They accrue interest tax-free, and withdrawals are not taxed if they are used for health care expenses. After age 65 you can withdraw money from your HSA and use it for whatever you want without paying a penalty, though the withdrawal will be taxed if it is not for a health expenditure. Currently these accounts have a higher contribution limit than an IRA.

Also keep in mind that although you may have already started saving with a 401(k), it may not be enough. How much do you need to save for retirement? An oft-quoted rule of thumb is to save 20 percent of your gross income.(financialresidency.com) I have seen numbers ranging from $1 million to $10 million(www.physicianonfire.com) thrown around. There also are savings goals you can set for certain ages.(www.cnbc.com)  

However, the actual amount you will need will depend on how old you are now and at what age you want to retire. What kind of lifestyle do you want to have? Be reasonable. What are your spending habits like, and do you have specific things you want to do in retirement, like a bucket list, that may add to expenses?

You also should consider variables like potential increased spending on health care as you and your spouse age, as well as inflation, because the cost of living likely will be higher 30 years from now.

There are ways to estimate how much you need to save. The Physician on Fire blog offers a good overview(www.physicianonfire.com) if you want to make an estimate yourself. A financial advisor also can help you set reasonable goals.

On the subject of financial advisors, should you get one? I think that depends on how interested you are in taking on this task yourself. I have found that like many things, retirement investing has a steep learning curve and no relation to practicing medicine. At first it is like a foreign language, and I can't read a single blog without having to open three other windows to figure out what some of the terms mean. If that sounds akin to pulling your toenails out with pliers, then perhaps a financial advisor is best for you.

But you still need to educate yourself so you can be actively involved in managing your finances. Try to find an advisor who is familiar with managing physicians' assets. It is also important to know how they are compensated. There could be a big difference in the advice of a financial advisor who is paid in a retainer or hourly compared to one who works on commission from selling you certain types of financial products. Just like physicians, not all financial advisors are the same. You need to be able to trust their advice, but you also should know enough to realize when you might be getting bad advice.

There are many resources for starting your financial education. Two blogs that are worth a look are The White Coat Investor(www.whitecoatinvestor.com) and Physician on Fire(www.physicianonfire.com) that I mentioned above.

In short, I would start by making sure you are taking full advantage of your 401(k) or 403(b), because this is an easy way to get started. Consider your goals, including when would you like to retire, and assess your spending habits to estimate how much you will need at retirement. Look at some other common retirement savings products, like individual retirement accounts. From here you should have enough information to get your money's worth from meeting with a financial advisor or a good start to taking control of your retirement planning. But do not put this on your list of things you need to get to at some point. Start today. Otherwise, you may find yourself in that unfortunate group of physicians forced to work until they are 75.

Peter Rippey, M.D., enjoys outpatient family and sports medicine practice in a hospital-owned clinic in South Carolina.

Posted at 09:41AM May 29, 2018 by Peter Rippey, M.D.

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