As a doctor, you are more likely than most people to be well-versed in the matters of physical or oral health. However, you may not know where to begin the retirement planning process because your specialty is in healthcare, not finance. Determining what your specific retirement strategy looks like can be challenging as there are no one-size-fits-all solutions.
There is a misconception that retirement planning will go more smoothly for high-income earners. However, just because you bring in a substantial income does not guarantee smart money management. Even those that are well-educated and accomplished are not immune to making financial missteps.
A typical miscalculation that younger doctors are likely to perpetrate is focusing all of their disposable income on paying off student loans and waiting too long to save for retirement. Juggling the obligations of bills and loan repayment strategies as well as future financial goals can often be overwhelming for even the most detailed of planners.
Due to the arduous schooling and training timeline that doctors experience, this can delay your ability to save for retirement. Therefore, it is essential to begin saving for your golden years when you start your first attending position. This decision gives your retirement investments more time to potentially grow and accrue value than if you had waited until your student loan debt was repaid.
Remember paying off your student loan debt isn’t singular. At the same time, you can be saving for retirement.
As a doctor, you generally enjoy a higher standard of living because you are a high-income earner. In order to maintain a similar lifestyle in an extended retirement, physicians and dentist need to find ways to increase their savings. This reality and a later start in saving can translate into making this a challenge – doctors may have less time to amass money for retirement.
Lifestyle creep, where discretionary spending increases on non-essential items as your standard of living improves, can also hinder you from saving what you should to achieve your retirement goals. Indeed, spending one’s income on luxury items is not wrong. However, it doesn’t make sense to do it at the expense of your financial future. One thought is that once you pay yourself first – in terms of fixed costs, debt management, asset protection, future savings, and investments – you can decide on what to spend the remainder of your income.
As you and your partner grow in your careers, it is more than likely that you will change jobs several times. In 2019, the Bureau of Labor Statistics (BLS) surveyed baby boomers, and, on average, this group has 12 different jobs in their lifetime. That is a lot of retirement accounts.
The question becomes what to do with the balances in workplace retirement accounts. Typically, the worst option from a planning perspective is to take the money in a lump sum payout and spend it. Taking the money and spending it cause you only to receive a portion of it after taxes and penalties (if you are under 59.5 years) are withheld. Even worse, using this money for frivolous items or experiences can severely hurt your financial prospects in retirement.
Generally, a good option is to roll over the funds into an IRA or your new employer’s retirement account. If you decide this is the right move for you, make sure the assets in the retirement plan are rolled directly into the new retirement account or IRA instead of them being sent to you.
There are many misconceptions about debt and retirement. For most, debt is a fact of life – whether it should be part of your retirement planning remains debatable.
Debt is typically divided into two types: “good” debt and “bad” debt. Good debt can help you achieve your goals, like an affordable home or low-interest debt to further your education. On the other hand, high-interest credit cards and personal loans for discretionary purchases are examples of bad debt because they can drag down your financial situation.
In most cases, a best practice is eliminating all high-interest – bad debt – before retirement. Depending on your financial situation and comfort level with debt can determine whether carrying other forms of debt into retirement is going to hinder your retirement savings or not. Having ongoing, detailed conversations with your financial advisor can help determine what makes the most sense for you.
Believe it or not, it is easy to fall into the trap of minimizing how much healthcare costs are rising. Healthcare spending per person in the U.S. was almost $12,000 in 2020, based on analysis of the OECD Health Statistics database and the CMS National Health Expenditure Accounts data.
Does your retirement plan account for unexpected health issues? If it doesn’t, be sure you have the proper conversations or make the necessary changes to include the escalating expense.
According to Gallup’s latest poll, less than half of American adults, 46%, have a will detailing how to handle their assets and estate after their death. Not surprisingly, those 65 and older are the most likely subgroup to have a will or estate plan, with 75% saying one exists.
Physicians and dentists work hard throughout their lives to take care of their families and experience a stress-free retirement. Estate planning is an integral part of retirement planning, especially for those who want to leave a lasting legacy for their loved ones. This type of planning may not be as fun or glamorous as planning for vacations or buying a dream car, but it is crucial to decide who will inherit your assets after you are gone.
To put it simply, your estate plan is arranging the management and ownership of everything you own during your life and after death. In order to avoid a potential lengthy probate process and costly attorney fees, it is essential to have an estate plan in place.
Just because you have a retirement account through your workplace doesn’t mean you have a retirement strategy. It is critical to have a thorough plan that considers multiple factors. These factors include your financial goals post-retirement, your earning potential, how long your want to work, how you think your will spend your time in retirement, family dynamics, higher education savings, and healthcare cost in retirement, to name a few.
Both physicians and dentists tend to lead hectic lives. Finding and working with a financial advisor can help take some of the pressure off you to do everything in planning for retirement. It really boils down to preference and how you want to spend your time and energy. If you know you should be putting a plan together but never get around to it, it may be time to enlist some help.
No two doctors are alike in what they value and the decisions they make in their financial lives. However, physicians and dentists tend to play the retirement-savings catch-up game due to the length and design of their education and training. All is not lost, though. Being committed to creating and implementing a retirement strategy that is part of the larger comprehensive financial plan can help you meet your financial goals for your golden year.
As you look ahead to retirement, Spaugh Dameron Tenny can help you create a sound strategy for lifetime income. Connect with our dedicated team of financial advisors to get started today!
The team at Spaugh Dameron Tenny works to present timely educational content that benefits doctors and their unique financial situations.
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