Physicians spend their time focusing on the needs of their patients often forgetting to focus on their own future. As a high-earning medical professional, it is important to safeguard your retirement by planning ahead. We have put together a list of the top five things you need to know about retirement savings accounts for physicians.
Plan To Save 30x Your Living Costs
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When saving for retirement, especially as a medical professional, it is important to plan your savings goals in advance. Before opening a retirement savings account, consider how much you actually need to save. There are a lot of personal finance apps out there that can help you generate a pretty accurate calculation. In general, a physician should be saving about 30 times the cost of their annual living expenses. So if your expenses are $100 annually, set a savings goal of $3 million.
Know What Options Your Employer Provides
A 403b and a 401k are similar employer-provided retirement savings plans. There are some small differences between them, however. Mainly, a 401k is a plan that a for-profit employer will provide, and a 403b is provided by a non-profit. They are an efficient way to start saving for the future while also maximizing your employer-backed contributions. Always check to see if your employer offers profit-sharing options in addition to their contribution matching plans.
Lower Your Taxable Income With 457(b) Plans
Lowing the amount of your taxable income while also saving for retirement is a smart choice for physicians. With a 457(b) plan, which is employer-sponsored, deductions will be made prior to taxes being taken out from a physician’s paycheck. This lowers the amount of taxed income during a physician’s prime earning years while maximizing their savings. Keep in mind that you can hold both a 401k or 403b savings plan at the same time as a 457(b) savings plan. Just make sure to max out both savings accounts each year.
Pay Attention To Your Pension
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On the subject of savings, you may be wondering, do doctors get pensions? Well, self-employed physicians are able to hold a defined benefit plan, while physician employees also enjoy something similar. They are not called pension plans, but they essentially function in the same way. These plans are a combination of savings and retirement plans that will vary from one organization to the next.
Consider A Backdoor Roth IRA
No matter what type of savings account a physician uses to prepare for retirement, there will be some limits to consider. A Roth IRA offers a great deal of tax advantages that will add up to huge savings come retirement. However, most physicians earn too much to be able to directly contribute to their Roth IRA. Using a backdoor Roth IRA fund will help to increase the overall contributions without increasing tax liabilities.
Securing The Future One Physician At A Time
As a physician, there is nothing more rewarding than a bevy of satisfied patients. At the end of a long, fruitful career, retiring in comfort and style is well deserved. With the suggestions above, you can work towards retiring in confidence knowing that you will have saved enough to live the life of leisure you deserve.