PERSPECTIVE: Doctors’ retirement strategies need to evolve during their careers

The road to financial security mirrors many types of journeys. It’s filled with twists and turns, unexpected forks, and detours. This road is different for each person and even medical doctors need the right map to guide them to financial security. In fact, the traditional road to financial security for many doctors has changed in recent years. Your original set of directions likely needs an update.

How will doctors know if they’re following the best route or need a course correction when it comes to their retirement? The best place to start is by evaluating where you are in your career. There are typically four distinct phases in the careers of doctors.

The first phase of a doctor’s career begins in medical school. Soon-to-be doctors should try to secure medical school loans with the lowest rates possible because interest adds up quickly. The lower the rate locked in, the less those loans will cost in the long run.

Medical school students don’t have to rely solely on debt. Explore scholarship and grant opportunities to help decrease

debt load during medical school years. Finally, keep living expenses low. These steps will help set up a strong retirement strategy once these doctors enter the workforce.

The second phase of a doctor’s career is typically dominated by residency. As in the medical school phase of their career, it’s important to keep living expenses low during residency. Pay off high interest medical school loans as soon as possible because that debt can become overwhelming and incredibly expensive.

The third phase begins with a doctor’s first job out of residency. In this stage of their careers, doctors should continue to pay off high interest debt. This debt should always be prioritized first because it’s the costliest. Also, these doctors should prioritize paying down private loans versus those issued by the federal government. The latter are currently on deferral while private loans are not.

In addition, doctors just starting out should establish an emergency fund with three-to-six months of living expenses. This fund provides a crucial safety net that can bring financial security and peace of mind. At this stage of their career, doctors, like most individuals, are more likely to become disabled than die, so it is imperative that you protect yourself and your loved ones by purchasing disability insurance. Doctors also should consider life insurance policies — but prioritize disability coverage. This financial protection will help you create a strong foundation for future financial security.

Finally, take an important two-track approach to your early retirement planning. Pay down lower interest medical school debt (after the high interest debt is eliminated) and contribute to retirement accounts. Paying down debt and contributing to retirement accounts is vital for doctors early in their career. They’re often playing retirement catch up with peers because the additional years of school and residency mean they need to wait longer before they begin contributing to retirement accounts.

As doctors progress in their careers, they enter the fourth phase, the wealth-building years. This is the stage where they can supercharge their retirement savings and create a pathway for future financial security. There are several retirement strategies that doctors should pursue in this phase of their career. Among the most effective are contributing the maximum amount possible to employer tax-deferred retirement accounts. Utilize Health Saving Accounts for their tax benefits and be sure to invest in 529 college savings plans for children.

Diversifying your investment strategy is a powerful way to ensure long-term financial security. Doctors are well positioned for a variety of investment vehicles, including brokerage accounts, alternative investments, and cash balance plans. Finally, doctors in the wealth-building phase of their careers would be wise to save 15 – 20 percent of income annually. This money should be used to fund the retirement strategies outlined.

By the time doctors arrive at retirement, the directions may look different and the road that lies behind them is likely twisty. Yet, with the proper guideposts and adjustments during various phases of their career, medical doctors can enjoy a retirement defined by financial security.

Marilee Falco, CFP®, ChFC, is a principal and financial strategist at Agili, responsible for client financial strategy and counsel, comprehensive financial planning and investment management as well as managing the firm’s Bethlehem office. She can be reached at [email protected]

Michael Joyce, CFA, CFP®, founder and president of Agili in Bethlehem, PA and Richmond, VA is responsible for overall investment strategy, management of investment portfolios and financial planning services. He can be reached at [email protected].