Prescribing retirement plans for doctors

Most physicians see their first big paychecks many years after people in other fields, and that sets them back considerably in terms of retirement planning.

That requires special considerations for financial planning, advisers say.

By the time doctors finish residency, they will have spent four years in medical school and as many as four to six years in specialty training. During that time, they’ve seen many college classmates enter professions and earn income.

Watching those former classmates buy houses and take other major life steps involving money can make it tempting to try to catch up, said Jude Boudreaux, senior financial planner at The Planning Center. “They feel behind, financially,” Boudreaux said. “They have friends who enter the workforce or went to law school for a few years, and they see the life they’re living.”

Savings rates in defined-contribution plans in health care lag those in other industries, on average, according to data published this month by Vanguard. The median deferral rate in plans in the industry was 5.3% in 2019, compared with 6% in all other plans in Vanguard’s record-keeping business. Average contribution rates were 6.4% in health care industry plans, compared with 7% in all other industries, according to Vanguard. Overall participation rates were also lower in health care businesses than others, the report found.

Health care workers, including doctors, were also much less likely than other defined contribution participants to be invested in managed accounts. In small health care businesses, just 0.6% of participant assets were invested in managed accounts, compared with 1.9% for health care businesses with more than 250 participants and 5.6% among all Vanguard DC plans.


Balancing financial priorities takes some restraint, but it doesn’t mean that young physicians have to live on a shoestring, Boudreaux said. Rather, they need to recognize the importance of saving for retirement while also paying down massive student loans and saving for other priorities, like buying a home.

Boudreaux, about 70% of whose clients are doctors, tells them they can do everything they want financially — just not all at once, he said.

“Most physicians I work with didn’t pursue this path for the money,” he said. “They’re not in a breakneck rush to retire. They might want to have more flexibility, have less [time on] call … they’re not desperate to stop practicing as soon as possible.”

Having a flat-fee model is helpful, as early-career doctors usually don’t have a large asset base, he noted.

While physicians have considerably higher income than most workers, their delayed earning potential means that they need a budgeting plan when they start their careers, said Rose Swanger, financial planner at Advise Finance, in an email. Swanger cited her husband as an example.

“He didn’t come out to practice until he was 32. A whopping 10-year delayed earning!” she wrote. “Meanwhile, the minute he earned the income commensurate with his experience, the higher income tax and non-deductible student loan set him behind again. This is what all current young physicians are facing: ‘Do I need to save for my retirement or pay down the student loan?’”

Post-residency doctors make good clients, as “they still remember the taste of ramen noodles and have the financial discipline,” she said. “Together, we formulate a plan in budgeting and saving that they can stick with.”


Doctors usually do not get much financial education while in school, financial planner and CPA Laurette Dearden wrote in an email. About 85% of Dearden’s tax practice involves recent post-residency doctors, she said.

“They only know that they are behind in saving for their retirement compared to their peers in other occupations, but they don’t really know how far behind,” Dearden said. “I do educate them on prioritizing contributing to their employer’s plan as well as contributing to Roth IRAs if they are still eligible.”

A source of financial advice that new doctors often have is other doctors, said Robert Schultz, partner and wealth adviser at Rollins Financial, in an email.

“We have seen that other doctors have acted as mentors trying to guide them from very early — and potentially residency — to understand how to structure their financial lives,” Schultz wrote. “We do try to push them to understand that they need to have substantial savings for retirement.”

More than ever, doctors are not self-employed, and they have access to workplace retirement plans such as 403(b)s and 401(a)s — a result of medical care systems acquiring practice groups, Boudreaux said. However, income can vary significantly, and some doctors who work as contractors can benefit from extra financial planning, he said.

Retirement account balances are higher than average in health-care plans with 250 participants or fewer, at an average of about $250,000, according to Vanguard. That is about twice the average across all health-care plans, and higher than the average $107,000 in all of the firms DC plans.

The small health-care plans have much higher utilization of catch-up contributions — about 43% of participants use them, compared with 15% of participants in other plans, according to Vanguard. And 21% of participants in those small plans contribute to Roth accounts, compared with 12% across other Vanguard plans.


Strategies to pay down six-figure student loans are another matter.

“Young doctors with large student loans should consider who they are working for, and if they are going to be eligible for public service loan forgiveness programs,” said Aaron Clarke, wealth adviser at Halpern Financial, in an email. “If so, they may consider paying only the minimum required to meet the forgiveness provisions, while investing alongside these payments to build an after-tax account, in the event they change jobs or are no longer eligible.”

CPAs who specialize in tax planning can help with strategies for doctors who are ineligible for loan forgiveness, Clarke said. But getting doctors to work with just one financial adviser can be a struggle.

“They tend to have multiple SEP IRAs in different places. This affects the planning strategy in that most of the doctors believe that different advisers means diversification,” Michael Whitman, managing partner at Millennium Planning Group, said in an email. “What they do not realize is that most of their investments are in the same securities (not diversified enough). More education is needed.”

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