It almost goes without saying: retirement planning for doctors comes with a unique set of challenges and opportunities. Even if you currently have a high income, you have probably started behind peers in other professions, given your delayed entry into the workforce (four years of medical school, plus another three to seven years in residency) – not to mention the debt mountain you likely took on during that time.
Given that relatively late start, you might want to compensate by planning early and effectively now, to better prepare yourself for the retirement phase of your financial journey. Whether you’re an attending physician in your peak earning years or just finishing residency, smart retirement planning today can set you up for long-term financial health.
Retirement Planning For Doctors: 4 Primary Concerns
1. The first factor to consider is what you want to do after you retire. In today’s day and age, there are more options than ever. Beyond just sitting on your front porch, sipping tea, and staring off into the sunset, you can choose from a variety of options, such as:
- working for a non-profit organization locally, or in another country,
- picking up a different career entirely,
- traveling across the US or abroad, or
- volunteering at your local church, hospital, homeless shelter, or any other charitable organization you are passionate about.
If you are just starting your career, you may not yet know what your post-retirement goals are, but it could be good to know ahead of time what your options are, so that you can adjust your retirement strategy as necessary.
2. The second consideration you might want to pay attention to is that, the earlier you start, the more your money can work for you: compound interest allows for greater growth over time.
For example, if, at age 24, you were to invest $500 per month in a 401(k) with an average return of 7%, by age 65, you could have around $1.5 million saved. In contrast, if you were to wait until age 40 to start that same investment, your return would be closer to $380,000 by age 65.
3. Third: remember, there is no ‘one-size-fits-all’ when it comes to retirement planning for doctors. You can look through the following options knowing that you don’t have to pick just one. This is absolutely a “mix and match” situation. The only consistent “rule of thumb” is to try to max out your allowed retirement contributions for as many years as you can.
4. Finally, you might want to consider including a plan for how you manage your funds after retirement – a concept known as retirement wealth management. Retirement wealth management can address what you need financially once you retire, including:
- healthcare,
- withdrawing your funds,
- taxes from withdrawing funds, and
- legacy planning.
How Much Should You Save for Retirement?
For physicians, a good rule could be to put at least 20% of your gross income annually toward retirement. If medical school and an extended residency period landed you with an especially late start, you might even want to increase that figure to 25% or 30% to make up for lost time.
Practical tip: automating your savings and intentionally increasing contributions with each raise can help you to maintain consistency and progress.
Types of Retirement Savings Plans for Doctors
As far as retirement planning for doctors goes, there are plenty of options to choose from; let’s break each one down now. We are including both tax-advantaged and taxable options, so you can make an informed decision about a good place for you to direct your savings.
1. 401(k) Plans
401(k)s are one of the best-known retirement plans. They are available for doctors employed at private practices or hospitals. Some benefits of a 401(k) include 1) the ability to make pre-tax contributions, 2) employer-matching schemes (where they have opted in), and 3) high contribution limits.
Two other 401(k)-specific points to note are: 1) if your employer does offer a matching scheme, it could be a good idea to contribute as much as possible to maximize what goes into your retirement account (it’s almost free money), and 2) under federal law, assets in 401(k) plans are generally protected from claims from creditors, including malpractice suits.
2. 403(b) Plans
403(b) retirement plans are almost the same as 401(k) plans. The difference is that they are for doctors who work at non-profit hospitals or educational institutions. They come with the same benefits as a 401(k).
3. 457(b) Plans (Government and Non-Government)
457(b) plans are not as well known as some of the others on this list. They are available to doctors employed at public hospitals (governmental 457(b)) or nonprofits (non-governmental 457(b)).
457(b)s have the same contribution limits as 401(k) and 403(b) plans, and are sometimes offered alongside 403(b) accounts, allowing you to double your contribution options. The main differences between the two types of 457(b) plans are:
- Government 457(b) plans are more secure and the funds will remain yours, even if you leave your employer.
- Non-Government 457(b) plans have an added risk because the assets are technically employer-owned until distributed, which means you could lose your money if your employer went bankrupt.
4. Thrift Savings Plan (TSP)
A Thrift Savings Plan (TSP) is also relatively uncommon. It is typically only provided for physicians employed by the military or federal government. This type of plan comes with very low fees, as well as employer-matched contributions. It can be a very efficient way to save for retirement, so you would be wise to max out your contributions if you do have access to it.
5. SEP-IRA
A SEP-IRA is a Simplified Employee Pension, Individual Retirement Account. It is a plan designed primarily for self-employed doctors or those in a small practice. As of 2024, you could put in up to 25% of your compensation for this kind of plan, or up to $69,000 annually (whichever is lower). SEP-IRA advantages further include the fact that they are easy to set up and maintain, making them a great option for high-income earners who do not have employees.
6. Traditional IRA
If you are a physician with earned income, you can use a traditional IRA, while also stacking that account with other retirement savings plans.
Traditional IRAs come with the benefit of tax-deferred growth, which delays the need to pay taxes until withdrawals from the account are disbursed. One downside to using this as a physician is that most doctors earn too much to effectively deduct contributions, though they can still be used strategically, in the form of a Backdoor Roth IRA, as discussed below.
7. Backdoor Roth IRA
A Backdoor Roth IRA allows high-income earners to fund a Roth IRA while sidestepping its usual income limits. You can do this by contributing to a non-deductible traditional IRA, and then converting that account to a Roth IRA shortly after. One thing to avoid when implementing a Backdoor Roth is having other pre-tax IRA balances, as that could result in a messy pro-rata tax calculation.
8. Health Savings Account (HSA)
If you work in the medical profession, it’s likely you are already aware of Health Savings Accounts (HSA). HSAs are used to pay for certain medical expenses. One of their big benefits is often referred to as the “triple tax advantage”, whereby 1) your contributions are tax-deductible, 2) your money increases tax-free, and 3) withdrawals for qualified medical expenses are tax-free as well. Win-win-win!
HSAs are available for physicians enrolled in a high-deductible health plan (HDHP). If you use your HSA as a ‘stealth retirement account’ (by paying current medical expenses out of pocket and letting the HSA grow over time), it can effectively double as a long-term retirement option. HSAs can be especially helpful once you hit your retirement years, when you statistically have both greater health needs and a lower income.
9. Taxable Brokerage Accounts
A taxable brokerage account is an investment-based account. It is often used as a supplemental retirement savings account and functions by buying and selling stocks, bonds, and mutual funds to generate income.
Taxable brokerage accounts are available to almost anyone over the age of 18. They offer flexible withdrawals, and come with no contribution limits. While this option might not be your primary retirement plan, it could be a helpful addition to your retirement strategy.
10. Defined Benefit Plans
A defined benefit plan is an employer-sponsored benefit with either a lump-sum payment or a series of payments awarded after retirement. The amount is based on your salary (as an employee) and length of service, among other factors, and is basically a pension plan.
This plan could be good for high-income physicians, and especially practice owners as it can provide large, tax-deferred savings and a guaranteed income stream in retirement. However, it does require ongoing contributions and actuarial support, so you would likely need a stable, high-income platform to consider it.
Not Sure How To Mix And Match?
At Iron Point Financial, we have trained, certified, and experienced Retirement Income Certified Professionals (RICP®) who can review your specific situation to narrow down your options.
Consulting with one of our RICP® specialists can provide you with an opportunity to define your goals, values, and passions, and in turn inform your unique retirement planning options.
If our thorough, 10-option list seems overwhelming to you, why not schedule an appointment today to meet with an Iron Point Financial Certified Financial Planner (CFP®) or RICP®? We’re ready to discuss your finances and retirement goals, and to come alongside you in your retirement planning. You work every day helping others, so why not let us help you?
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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA.
We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have security registrations for 22 other states across the continental USA.
Further Information
IRA Disclosures
- Converting from a traditional IRA to a Roth IRA is a taxable event.
- A Roth IRA offers tax-free withdrawals on taxable contributions.
- To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum).
- Depending on state law, Roth IRA distributions may be subject to state taxes.
