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Retirement Planning > Retirement Investing

Many Doctors Can’t Afford to Max Out Their Retirement Plans

By Michael S. Fischer

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Physicians are highly compensated professionals, and on average save for retirement at a healthy rate, according to a new study from Fidelity Investments.

However, in a closer look at data from 13,330 workplace savings plans, Fidelity found that many practitioners were falling well short of recommended savings rates.

The analysis showed that physicians were saving at an average rate of 19.8%, up from 15.3% in 2012.

Nevertheless, 48% of physicians were saving at an average rate of only 9%, well below Fidelity’s recommended 15% rate.

In addition, 48% were not maxing out their contributions to a qualified workplace plan. Here gender differences were stark: 58% of female physicians fell short of maximum contributions, compared with 45% of their male counterparts.

Furthermore, 71% of physicians were not contributing to a nonqualified retirement plan.

Fidelity’s analysis also showed that 39% of pre-retirees were aggressively allocating to equities, making their savings more susceptible to market fluctuations.

At the same time, some 33% of midcareer physicians were more conservatively allocated, which limited their potential for growth during their long-term savings horizon.

Why are many physicians lagging the average savings rate of their colleagues?

Fidelity said in a statement that a survey it conducted in November 2014 found 45% of physicians unable to afford to max out their workplace retirement plan.

Even though physicians on average earn $300,000 annually, based on Fidelity’s business data, industry research showed that 84% carried medical school debt averaging more than $176,000. Not only that, but many practitioners were strained by heavy practice-related costs.

Sixty-one percent admitted to being at least somewhat confused about how to navigate their financial path for the future.

“While physicians are expected to be confident and knowledgeable about their medical specialty, that confidence doesn’t always extend to financial matters,” Fidelity Investments senior vice president Alexandra Taussig said in the statement.

“In fact, most are looking for help from an expert when it comes to long-term financial planning.”

Seventy-six percent of physicians rely on advice from a financial professional, according to the study.

Workplace Retirement Guidance

Fidelity said health care employers have an opportunity to help improve the financial prognosis for their employees, particularly for higher-compensated physicians.

“Health care employers can play an important role in addressing physicians’ financial health by actively promoting the opportunities to get guidance through their workplace retirement savings plan and encouraging annual financial checkups,” said Taussig.

Employers have a long way to go. Fidelity’s business data showed that although use of workplace retirement guidance was on the rise, there was much room for improvement.

Just 21% of physicians were taking advantage of this resource, up from 17% in 2012 — “surprisingly low” for a convenient, no-cost benefit, Fidelity said.

According to the 2014 study, physicians who were aware of this benefit said their primary reason for not having taken advantage of it was lack of time.

Fidelity said health care employers should encourage their work force to do the following:

  • Seek professional financial guidance at least once a year for a retirement plan checkup
  • Maximize contributions to qualified retirement plans as allowed by the IRS: up to $18,000 for those younger than 50, and $24,000 for those turning 50 this year, and older
  • Save in vehicles such as a non-qualified 457(b) plan, which allow high-compensated employees to defer some of their compensation and related taxes until they withdraw the money in retirement
  • Consider saving in IRAs, tax-deferred annuities and brokerage accounts

In its statement, Fidelity announced that it had rolled out the Physicians Guidance Program to help physicians manage their wealth and plan for retirement, including a “Fundamentals of Retirement Income Planning” webinar; a “Financial Checkup” overview for physicians; and an infographic sharing a prescription for financial health.

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