Doctors are not saving enough for retirement.
A new study shows that even though physicians have an average annual salary of almost $300,000, they just don’t do a good job of preparing themselves to enjoy a financially secure lifestyle once they leave the practice.
Fidelity Investments analyzed the retirement behaviors of over 100,000 health care professionals, including 5,100 physicians, and found that docs are on track to replace only 56 percent of their income in retirement, which is considerably lower than the income replacement rate of 71 percent that Fidelity suggests for those earning more than $120,000 annually.
“This analysis reveals that physicians are not as financially prepared for retirement as one might think,” said Rick Mitchell, executive vice president, Tax-Exempt Retirement Services, Fidelity Investments.
There are several possibilities as to why doctors fall short of those savings goals. First, by the time they’re done residency, physicians are often into their early 30’s and haven’t yet made any money, let alone saved any. Also, now that they’re out of med school, docs have to start paying back school loans that could be as high as $300,000.
Fidelity found that older docs (age 60-64) save 16.3 percent, compared to their younger peers (age 30-39) who are saving 13.1 percent. That’s most likely because the older physicians are no longer burdened by debt and can save discretionary income.
“Especially given their shorter savings horizon, we encourage physicians to seek guidance on their appropriate investment mix at all stages of their professional life,” said Mitchell.
In their analysis, Fidelity found that non-physician health care providers receive a greater portion of social security benefits (30 percent) than physicians (12 percent) due to the higher income of docs. For these reasons, doctors are encouraged to save at least 15 percent per year of their salary to make up for lost time. Some financial experts suggest going as high as 20 – 30 percent per year.
Other findings include:
- Because of IRS contribution limits, many physicians do not have adequate savings opportunities in their defined contribution plans
- Physicians need access to additional savings opportunities, such as non-qualified plans
- Many pre-retiree physicians have overly aggressive asset allocation
(photo by StockMonkeys.com via Flickr)