By Paul Bullock
As healthcare professionals continue to grapple with the ongoing aftermath of the global pandemic, many are likely yearning for a peaceful and tranquil retirement. Unfortunately, over 40% of healthcare workers have reported that their financial situations have deteriorated since the emergence of COVID-19.
Even when we take away the stressors linked to COVID-19, physicians and healthcare practitioners deal with many hurdles when it comes to building their retirement nest egg. While other professionals typically join the workforce in their early to mid-20s and can immediately begin saving for retirement, the average physician completes their training in their late 20s or early 30s. This means they have fewer years available for saving.
In addition to that, healthcare professionals often bear the weight of higher student debt which can linger for decades. Given these challenges, it’s more important now than ever to start retirement planning and saving as early as possible.
Here are four reasons to get you headed in that direction:
1. You’ll Get to Defer Taxes
If you don’t start early, you’ll miss out on deferring taxes on income by using vehicles like traditional IRAs and employer-sponsored retirement plans. For a physician in the 32% tax bracket, being able to save for retirement with pre-tax dollars is a great advantage. Pre-tax retirement contributions reduce your taxable income, thereby reducing the amount of taxes you owe.
For instance, many hospitals offer 403(b) retirement plans, which in 2023 allow employees to save up to $22,500 per year pre-tax ($30,000 for those over 50). If you’re a physician making $175,000 per year, your tax liability is $175,000 x 32% = $56,000. But if you maximize your contribution to your 403(b) plan, your tax liability would be ($175,000 – $22,500) x 32% = $48,800. That’s a difference of $7,200 saved in a single year! Imagine how much money you can save in taxes over the course of your working years if you start using this strategy right away.
2. You’ll Be Able to Reduce Fees
As you can see, using pre-tax retirement accounts like 403(b)s can be extremely advantageous for high-income earners like physicians. However, there is a downside to these accounts if you don’t take a proactive approach to managing them.
If you’re like many of our clients, you probably have several different retirement plans across multiple employers. And, with everything on your plate, you probably don’t have the time to manage all these accounts. We get it, but chances are you’re paying excessive fees year after year on old plans that are sitting in a previous employer’s account. Consolidating these accounts can save you big on management fees.
Organizing your finances takes time, but the sooner you start, the more options you have and the more money you can save.
3. You Can Take Advantage of Compound Interest
Just as contributing early allows you to take advantage of tax savings over time, there is a compound effect that occurs with money that is actually invested, as well. That $22,500 contributed to your plan each year will grow exponentially over time, but the key part of that equation is time.
A single penny that doubles its value every day for a month may not seem to amount to that much on the surface. But, by the time the 30th day of the month rolls around, you would have over $5 million in pennies. This same concept can be applied to your retirement account, but, because retirement investments are at the mercy of the highs and lows of the stock market, it will take more than 30 days to see that kind of growth.
Conversely, if you wait to invest, you miss out on growth year after year—and the resulting loss of earnings can be substantial.
4. You’ll Alleviate Stress and Anxiety
Many of our clients came to us stressed and anxious about their financial situations. They didn’t know how they’re doing financially and didn’t know how to tell if they would be able to save enough for retirement. Reviewing your situation with a professional today can alleviate unnecessary stress by providing a clear picture of what you have and what you need.
It can be confusing and overwhelming to navigate your retirement goals—which is why you might be putting it off. But doing so will only delay the inevitable and possibly worsen your financial position as you get closer to retirement.
Your Needs Matter Too
While you continue your service in our communities, don’t forget to prioritize your own retirement needs to experience a financially stable and worry-free future. At Wellington Investment Advisors, we’re here to assist you in transforming your retirement dreams into a tangible reality. Don’t hesitate to connect with us: schedule a no-obligation introductory meeting or reach out to me at paul@wellingtoninvestmentadvisors.com or by phone at (812) 333-0874.
About Paul
Paul Bullock is CEO of Wellington Investment Advisors, an independent, boutique fiduciary firm serving pre-retirees and university faculty across Indiana. With over 34 years of financial experience, Paul is committed to building long-term relationships through thoughtful, personalized investment advice and guidance. He focuses on a disciplined tactical asset allocation approach to money management through a strong understanding of economic and market conditions and strives to build trust with clients by providing sound guidance. Paul understands the hard work his clients have put in to arrive at where they are today and wants to see them succeed in their goals for the future. Paul graduated from the University of Texas with an MBA, as well as a bachelor’s degree in finance, and has been dedicated to assisting clients with their financial needs ever since. When he is not working, Paul enjoys time with his family and is also an avid equestrian polo player who helps raise money for over 18 different charities through his playing. To learn more about Paul, connect with him on LinkedIn.