How Doctors Can Catch Up For Retirement

darts It’s a common misperception that all doctors are rich and set for life.  Yet as many physicians can attest, it’s not always so easy to feel like you’re on the road to a comfortable retirement.  In fact, physicians are on track to replace only 56% of their income in retirement, according to a 2014 Fidelity Investments report.[1]

As a doctor, you face several disadvantages when it comes to saving for retirement, despite an above-average income.  In most professions, a person graduates from college at age 22 or 23, enters the workforce, and can begin saving for retirement.  Not so for most physicians, who, because of the amount of schooling involved, do not enter the workforce until their 30’s.  Not only do they miss out on some of the benefits of compound interest, but they also have a shorter amount of time in which to save.

Furthermore, many doctors come out of school with immense student loans that take years to pay off, shortening their savings horizon even more.  Because of their higher incomes, physicians are not eligible for all tax-advantaged savings programs and will also receive a Social Security benefit that replaces a lower relative share of their income in retirement. Regardless of these disadvantages, it’s not too late to bulk up your savings and catch up for retirement in a hurry. Here are six steps you can take today.

1. Maximize Tax-Advantaged Accounts

Many employers offer a 403(b) or 401(k) plan which allows employees to save up to $19,500 a year pre-tax ($26,000 for those over age 50). According to the Fidelity Investments report, 60% of physicians younger than 50 years old and 30% of those over age 50 did not save up to the limit.  Tax-advantaged accounts are one of the most effective ways to save for retirement and many doctors are not taking advantage of the opportunity. For a doctor who finds themselves in the 32% or higher tax brackets, being able to save for retirement prior to paying their high tax rate puts them in an incredible position to build wealth for a comfortable retirement.  One of the first things anyone looking to bolster their retirement savings should do is take advantage of every benefit offered by the IRS and maximize their tax-advantaged accounts.

2. Contribute More than $19,500 to your 401(k)

Adding a “cash-balance plan” to your 401(k) can allow you to make significantly larger retirement plan contributions and save on taxes.  A cash balance plan is like a 401(k) on steroids.  Done properly, you can squeeze twenty years of savings into ten.

A cash balance plan works by allowing participants to put additional tax-deferred dollars into their retirement after they’ve maxed a 401(k). This allows profitable practice-owners to accelerate savings and pay significantly less in taxes.  Depending on your age, cash balance plan contribution limits are as high as $250,000 each year.  These contributions bring down your taxable income on a dollar by dollar level.  That means that any income you put into a cash balance plan will not be taxed in that year.

A cash balance plan is much less flexible than a 401(k), making it a good fit only if you can commit to making large contributions year after year.


3. Supercharge Your Roth IRA

The Roth IRA is perhaps the most attractive retirement savings vehicles for investors.  Unlike traditional IRAs which provide tax-deferred growth (you pay the tax eventually), Roth IRA assets grow tax-free.  Assets with this favorable tax characteristic can provide desirable flexibility in retirement years, where the future state of tax rates is very uncertain.  The Roth IRA protects you from paying future income taxes and this protection also continues for your heirs.

Only those with an adjusted gross income under $193,000 can contribute to a Roth IRA, so most physicians are ineligible.  However, there is a way to move money from a traditional IRA to a Roth regardless of income level; this is called a backdoor Roth conversion.

At the end of the year in which you contribute to your traditional IRA, you must submit a Roth Conversion Form to your brokerage firm, who then distributes the money from your traditional IRA into your Roth account.  You must ensure that your tax preparer knows that the distribution went to the Roth so that you don’t deal with unnecessary taxes.

4. Invest For Growth

Your goal retirement date doesn’t have to dictate your investments’ time horizon.  You may be retiring in 10 years, but you don’t need to set a 10-year horizon for your investments because you’ll only need a small portion of your nest egg in the early years.  The rest of your money may stay invested for another 20 to 40 years.  Make sure you invest with the right perspective, so you can achieve as much growth as possible.

Don’t try to chase unreasonable returns to make up for a lack of retirement savings.  With the proper asset allocation, your portfolio can still see healthy growth without questionable, high-risk investments.  Concentrated risks aren’t worth the chance of losing a large amount of money that you cannot recover from should the investment turn sour.

5. Minimize Fees

Often overlooked, another thing that can impact your retirement savings is the fees that you pay for investments, advice, and plan administration. Fees and commissions can add up, and the effect on your nest egg can be exponential as time goes by.  If you were to invest $100,000 in a mutual fund with an expense ratio of 2.5%, after 30 years, assuming an 8% growth rate, you would have just under $500,000.  Now, if you took the same money and invested it in an indexed mutual fund with an expense ratio of .25%, after the same amount of time with the same rate of return, you would have just under $940,000.  That’s close to half a million dollars just because of a small difference in fees.  The finance industry is notorious for having all kinds of confusing fees, so make sure you understand what you’re paying and how it will affect your retirement savings.

6. Maximize Your Health Savings Account Contributions

One more tax-advantaged way to save money for retirement is to maximize your Health Savings Account (HSA) if you have one. HSAs are often offered in conjunction with high-deductible health plans and are a way to save money pre-tax toward qualified medical expenses.  You should maximize all other tax-advantaged accounts first since that money can be used for anything in retirement, but afterward, an HSA is a great way to protect your retirement savings from taxation.  Even if you don’t currently have many medical expenses, your medical expenses will increase as you age and you will be able to use the funds in your HSA instead of paying with after-tax dollars.

We Can Help

As physicians, you are in a unique position to make the most of your income to have the retirement you dream of.  If you would like to discuss any retirement and investment options that are specific to your situation, you can reach us at Windgate Wealth Management by calling (844) 377-4963 or emailing  You can also book an appointment online here.


Updated 12/31/2020.

Perritt Capital Management, Inc. is the Registered Investment Advisor for Windgate Wealth Management accounts.  Windgate does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation.

Information here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed. The data above is based on current laws that may change.

First published November 2018.  Updated March 2019.

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