Physicians Facing a Retirement Income Shortfall

Despite their high compensation, many physicians are facing a retirement income shortfall, just like the rest of the country, according to a new report from Fidelity Investments.

Analyzing the retirement savings behaviors of 5,100 physicians and 95,500 other health care professionals, Fidelity found that many physicians are not on track with a financially secure life in retirement.

The report revealed that physicians are on track to replace 56% of their income in retirement—the suggested rate for those earning more than $120,000 is 71%, according to Fidelity.

“This analysis reveals that physicians are not as financially prepared for retirement as one might think, which is a clear indication that employees at all income levels need financial guidance,” said Rick Mitchell, executive vice president, Tax-Exempt Retirement Services, Fidelity Investments. “Physicians work hard, and the well-being of their patients are at the center of everything they do. That’s why they should enjoy the peace of mind of knowing their retirement plan has been given a ‘clean bill of health,’ and we are working closely with our health care partners to help their employees—including physicians—achieve retirement readiness.”

Physicians might be behind on retirement savings despite their high income because they often don’t begin their careers until their 30s. And even then, they carry substantial student loan debt for years.

Fidelity also reported that physicians are likely to receive lower Social Security benefits because of their high salaries and many older physicians may be investing too aggressively based on their asset allocation in defined contribution retirement plans.

Fidelity’s analysis suggests that physicians should be saving at a rate of 15% or higher to offset the smaller amount of Social Security benefits. Physicians between the ages of 30 and 39 are saving 13.1%, while those aged 60 to 64 are saving 16.3%. For physicians between the ages of 60 and 67, Social Security benefits are projected to account for 12% of retirement income, compared to 30% for non-physician health care professionals in the same age range.

Fidelity also found that 60% of physicians younger than 50 and 30% of those over the age of 50 were not saving up to the IRS limits, which allow employees to contribute up to $17,500 before the age of 50 and $23,000 for those over 50 years.

Other ways physicians can better prepare for retirement is to take advantage of other savings vehicles such as IRAs, tax-deferred annuities and brokerage accounts, while employers should consider providing non-qualified 457(b) plans to provide additional retirement savings opportunities for physicians.

“Especially given their shorter savings horizon, we encourage physicians to seek guidance on their appropriate investment mix at all stages of their professional life,” said Mitchell. “Additionally, considering physicians’ high salaries, there’s an opportunity for employers to offer alternative non-qualified savings plans to health care professionals, which would provide additional options to help increase their retirement savings rate to more than 15%.”