Retirement Archives - Panacea Financial

How To Prepare For Retirement As A Physician, Dentist Or Veterinarian

Michael Jerkins, MD MEd — Thu, 03 Nov 2022 19:43:25 +0000

Because of the high income of physicians, dentists and veterinarians, many expect these professionals to easily build up substantial savings to enjoy in their golden years. High debt load, late start in earning, excessive spending and lack of knowledge can get in the way of that.

Preparing for retirement should be a priority throughout your career. We are sharing answers to common questions and tips for early-, mid- and late- career doctors to help you maximize savings and make the right decisions for you.

When do doctors typically retire?

The typical age for retirement in the United States is 65, but physicians, dentists and veterinarians often retire a few years, a decade, or more later.

A majority of physicians retire after age 65, according to a study by the American Medical Association. 31% retire between the ages of 65 and 70, while 27% retire after age 70.

Dentists behave similarly at the end of their careers. According to the American Dental Association, the average age of retirement for dentists was 67.9 in 2021.

There is limited data on the average retirement age of veterinarians.

Why do doctors retire late?

Physicians, dentists and veterinarians retire later in life for a number of reasons.

Some stay in the profession because they love their work and have strong patient relationships. Similarly, some doctors have a strong sense of identity in being a doctor.

But some doctors may retire later because of lack of financial preparation. Doctors in low paying specialties in particular can have trouble overcoming high student debt loads and preparing for retirement adequately with savings and investments.

Why do doctors retire early?

Despite the average retirement age for doctors being years past the U.S. average, there has been an increase in conversation about early retirement due to increased stress in recent years.

Factors that influence early retirement include:

Specialty – Doctors in specialties that have higher salaries are able to save more and retire earlier.
Burnout – Burnout has been a hot topic recently, especially during the continued strain of the COVID-19 pandemic. Doctors who experience burnout may choose to retire early or simply change careers.

When should I retire?

In a survey by the AMA, physicians who retired between the ages of 60 and 65 reported feeling more satisfied than those who retire earlier or later. The next most satisfied group are those who retire between 66 and 70.

Additionally, the AMA found that doctors who retire between ages 60 to 65 report being ahead of schedule financially than those in every other age bracket.

Financial planning for retirement

How do I save for retirement?

There are many different types of retirement savings accounts, but two of the most common are IRAs and 401(k)s. We do a full explanation of both of these in our Retirement Savings article, but we will share an abbreviated version here.

401k

A 401(k) is an employer-sponsored retirement plan that allows you to commit a portion of each paycheck to your retirement savings. Some employers may contribute to this fund as well.

A traditional 401(k) can reduce your taxable income because you contribute to it from your paycheck before taxes are taken out.

A Roth 401(k) is different from a traditional one because the contributions are taken from your paycheck after taxes. The benefit of this option is that when you withdraw your money, you don’t have to pay taxes.

IRA

IRAs are not sponsored by an employer, meaning you are able to invest on your own terms but also allow you to save on taxes. There are two different kinds of IRA — Traditional (deduct contributions on your taxes and pay taxes on withdrawal) and Roth (pay taxes on contributions but not on withdrawal).

When deciding whether to use a 401(k) or IRA account, you could consider the following:

If your employer offers a 401(k) match:

If your employer offers a match on any 401(k) contributions, take advantage of this! You should think about contributing enough to receive the full company match as it is free money you are getting contributed to your account!

If your employer does not offer a match:

If your employer does not offer to match your 401(k) contributions, could consider continuing contributing to a 401(k) or an IRA dependent on your income. This is a great reason many consult with a financial planner (we can connect you with one for free here).

Should I use a financial advisor to prepare for retirement?

A financial advisor can be invaluable throughout your career and as you plan for retirement. According to the same study by the AMA, 72% of physicians work with a financial advisor to reach their retirement goals.

Working with these professionals leads to greater financial satisfaction in retirement. 82% of physicians with a financial advisor were satisfied with their retirement.

How does my financial knowledge affect my retirement preparedness?

Even if you don’t have a financial advisor or don’t want to invest in one, learning more about personal finances can help you be more prepared for retirement. Almost a third of physicians indicate that they are “somewhat knowledgeable” or “not very knowledgeable” when it comes to their personal finances.

The more knowledgeable about personal finances, the higher your level of satisfaction in retirement. Physicians who reported being “very knowledgeable” or “knowledgeable” were significantly more satisfied than those who were “somewhat knowledgeable” or “not very knowledgeable.”

If you don’t feel knowledgeable about personal finance and your financial future, working with and learning from professionals. To get connected with a CPA, retirement advisor or financial advisor for free, visit our Build Your Team page.

What should I do leading up to retirement?

Beyond financial preparation, there are many procedural actions you may want to perform before you leave your practice or hospital.

Contract review

Your employment contract may contain points regarding retirement or end dates. Be sure to review these thoroughly before informing your employer to ensure you will not be subject to any forfeitures. A contract lawyer can help you identify these elements and help you determine when and how to take this step.

Decide whether to keep your license

Some physicians, dentists and veterinarians change their minds and decide to return to practice full-time or part-time after retirement. If you think there is even a slight possibility you may decide to return, it may be a good idea to keep your license and certifications up to date for a few years following your retirement.

Obtain insurance

If your employer provides your insurance, retirement means it may be time to find a personal plan that is right for you and potentially your spouse.

Making decisions about retirement

Ultimately, the “right” time to retire for a doctor is an individual decision. You must make a decision that works for you personally, professionally and financially.

If you aren’t sure what steps you need to take when preparing for retirement, there are plenty of professionals who can help you get on the right track. Whether you need a financial advisor, contract lawyer, insurance expert or anything else, our Build Your Team program can get you connected to trusted, healthcare-specific experts completely for free! Visit the Build Your Team page to learn more!

For more financial planning tips, visit our Resources page or check out one of our curated picks below:

The post How To Prepare For Retirement As A Physician, Dentist Or Veterinarian appeared first on Panacea Financial.

What Is A 401k & An IRA? What Doctors Need To Know About Retirement Savings

Michael Jerkins, MD MEd — Fri, 17 Jun 2022 18:17:07 +0000

Key takeaways:

The most important part of saving for retirement is starting as early as possible.
401(k)s are employer-sponsored retirement accounts that are most beneficial when the employer matches a portion of the employee’s contribution.
IRA accounts are individual retirement accounts that allow more freedom to invest on your own terms.
Speak with an experienced financial advisor to create a retirement savings plan that is right for you.

Are you financially prepared for retirement?

As a doctor with steady, sizable paychecks, it is easy to get comfortable spending your hard-earned money without thinking long-term. In our professions, we expect above average salaries but are not taught the importance of handling income effectively.

Retirement planning is a key aspect of preparing for your future financially that you may be uncertain or uneducated about. The options can be difficult to understand, so we have shared what you need to know about two of the most common retirement savings accounts — 401(k)s and IRAs.

Whether early in your career or just years away from hanging up your white coat, actively preparing for retirement now will help you reap the benefits of your years of hard work when it comes time.

What is a 401(k)?

A 401(k) is an employer-sponsored retirement plan that allows you to commit a portion of each paycheck to your retirement savings, benefiting you by reducing your taxable income. Investment gains realized under this plan are not taxed until they are withdrawn.

What are my investment options for my 401(k)?

Investment options for 401(k)s can vary greatly based on the plan provider. Plans typically offer a mix of mutual funds and exchange-traded funds.

Is there an annual limit on 401(k) contributions?

There is an annual limit on 401(k) contributions, but it is worth noting that it is much higher than the limit on IRAs.

Here are the annual limits for 2022:

$20,500 if under 50
$27,000 if over 50 — This includes a catch-up contribution allowance of $6,500.

What is a 401(k) employer match?

Many employers offer a match to your contributions, typically a percentage of your contribution, up to a certain percentage of your salary. An employer match can be incredibly beneficial to your retirement savings. We recommend taking advantage of it if offered.

The IRS has set annual limits for total contributions of individual contributions plus employer match. Those limits for 2022 are as follows:

$61,000 in total contributions if you are under age 50
$67,500 if you are age 50 or older, including the $6,500 catch-up contribution
100% of your salary (if it is less than the dollar limit)

Though uncommon, some residency programs offer 401(k) matches. If you are offered this benefit early in your career, we encourage you to take advantage of it!

What is an IRA?

IRA stands for “individual retirement account.” This retirement option is not sponsored by an employer, meaning you are able to invest on your own terms. There are two main options for IRA investments, traditional and Roth.

With Traditional IRA accounts, contributions are tax deductible on both state and federal tax returns for the year the contributions are made, which means your distributions will be taxed at your income tax rate at the time of withdrawal.

Roth IRA contributions are not tax deductible but grow within the account tax-free, meaning you won’t pay income tax on interest, dividends, or capital gains as long as you follow the withdrawal rules.

Why should I invest in a Roth IRA rather than a traditional IRA?

The main way the IRA account types differ is in how they are taxed, but it is generally recommended that those who expect to be in a lower tax bracket in retirement utilize traditional IRAs and those expecting to be in a higher tax bracket utilize Roth IRAs.

Doctors will generally realize greater benefit from Roth IRAs.

What are my investment options for a Roth IRA?

Roth IRA funds can be invested in a number of places, including mutual funds, stocks, bonds, exchange-traded funds, certificates of deposit, money market funds and even cryptocurrency.

Is there an annual limit for Roth IRA contributions?

There is an annual limit for IRA contributions. In 2022, the IRS limits contributions across all IRA accounts to $6,000 if under 50 and up to $7,000 for those over 50. If you contribute to both a traditional and Roth IRA, your total contributions can not exceed these values.

What should I know about withdrawing from my Roth IRA?

Withdrawals from your Roth IRA are permitted beginning at the age of 59 ½. Withdrawing before this age will incur 10% fees, but there are some exceptions to note:

Education: Your IRA can provide penalty-free funding for qualified education expenses for you, your spouse or your child.
Health care: You can utilize your account to pay medical expenses not covered by insurance that are above a certain percentage of your adjusted gross income. These funds can also be used to pay health insurance premiums while unemployed.
Buying a home: First time homebuyers can withdraw up to $10,000 to help purchase their home.
Permanent disability: If you become “totally and permanently disabled,” you will be able to withdraw from your account for any purpose without incurring fees.

So, should doctors invest in a 401(k) or IRA?

The best option for retirement savings depends on your unique circumstances and current place of work. We outline our recommendations below.

If your employer offers a 401(k) match:

If your employer offers a match on any 401(k) contributions, take advantage of this! We recommend investing enough to receive the full company match as it is an almost guaranteed return on your money.

After maxing out your employer contribution, we recommend moving next to your Roth IRA and maxing that out. If you still have more to contribute, circle back to your 401(k) and add any additional funds there.

If your employer does not offer a match:

If your employer does not offer to match your 401(k) contributions, we recommend starting your investments with a Roth IRA because it allows you to have more control over your investments. After maxing out your IRA contributions, take advantage of the tax-deferral benefits of your company’s 401(k) plan if you still have money to invest.

Final thoughts

Financial planning can be tricky with many options and complicated language, especially when it comes to retirement. 401(k) and IRA accounts are both great options to prepare for your future.

An experienced financial or wealth advisor can help you decide which one is best for you. If you are looking for help, we’re happy to connect you with doctor-specific wealth advisors (for free!) who can help you achieve your long-term financial goals. Visit our Build Your Team page to get connected with a trusted professional.

No matter what option(s) you decide to go with, it is important that you start now. Delaying retirement savings can prevent you from retiring when you want to or cause you to play “catch up” in your later years.

Panacea Financial, a division of Primis. Member FDIC.

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