- Retirement planning for surgeons is tricky because most of us get a late start in our careers.
- A successful plan for retirement means saving money and saving taxes.
- Once you’ve decided how much you need to save and where, the hardest and most important thing to do is to contribute regularly and avoid tinkering.
You finally made it. You survived and possibly thrived in surgical training and now you’re early in practice. There are many profound changes and considerations during this time and certainly financial wellness is one of them. Even though you may have just started your career, it is important to consider what happens when you conclude practice and retire.
Unlike most of your peers not in medicine, you likely have had limited opportunity to save for retirement in your 20s which puts you at a disadvantage. The single biggest advantage of saving for retirement is time. It is estimated a dollar saved in your 20s is worth around $75 in your 60s. Similarly, a dollar saved and invested in your 30s is only worth $23 in your 60s. Thus, it is critical to get started using whatever retirement vehicles are available to you as soon as possible.
Where should I start?
The best way to start is to work backward. Here are some important questions to ask.
1.) When do I want to retire?
2.) How much money do I want to spend annually on retirement?
3.) Do I plan to leave money to my heirs?
The answer to these questions will frame how much money you’ll need to save each working year to meet your goals. For instance, if you’d like to spend $100,000 a year in today's dollars thirty years from now, a safe estimate is to have 25 times the annual spending amount saved adjusting for inflation. So, $100,000 at 3% inflation for 30 years is closer to $240,000 per year. Twenty-five times that is approximately $6M. This assumes that your spending of $100,000 accounts for changes in lifestyle, children, housing costs, health insurance, and transportation needs. Several online calculators will show that a person would likely need to save and invest around $50,000 to $60,000 a year for 30 years just for retirement. (These estimates do not include potential social security payments or home equity.)
What are my saving options?
Most institutions offer a traditional 401k or 403b, which is a pre-tax-advantaged retirement account. This often will come with a company match program. This is free money we all should take to the maximum allowed. For those of us who have academic appointments, you may have access to a 457 plan, another IRS-sanctioned, tax-advantaged employee retirement option with its contribution limit. The 457 plan is offered only to public service employees and employees at tax-exempt organizations.
These accounts may have a Roth option, which means that the contributions are made after tax and they will not be taxed on withdrawal during retirement, unlike the traditional options.
Beyond these accounts, other advantaged accounts include IRAs. These are individual accounts not attached to your employer. These typically have lower contribution limits ($7,000 in 2024) than 401ks, 403bs or 457s ($23,000 in 2024). IRAs also have a Roth option, which is filled with after-tax contributions and is tax-free on withdrawal. Most physicians are not eligible to contribute directly to a Roth IRA because of income limits set by the government, but there is a workaround by contributing to a traditional IRA and then converting it to a Roth IRA. This is otherwise known as the backdoor Roth.
If you’ve filled these buckets to your desired ends, then you can consider a brokerage account. This is an individual account that is funded with after-tax dollars and will be taxed at capital gains rates when cashed out.
For all the listed accounts in this section, the money inside the account will need to be invested in specific stocks or better yet low-cost diverse ETFs.
What next?
Once you’ve decided how much you need to save and where, the hardest and most important thing to do is to contribute regularly and avoid tinkering. A simple strategy titrated to how much risk you can tolerate is a very sure path to success if you stay on it and avoid some of the common mistakes, which we will discuss in a subsequent blog post.
Editor’s Note: Dr. Okusanya is not a financial advisor, and this information should not be considered financial advice. This is merely an opinion for education and entertainment. Dr. Okusanya’s comments do not reflect the views of the Society of Thoracic Surgeons.