Your doctor’s retirement plan may need CPR
February 28, 2014, 2:40 PM
By Matthew HeimerThe odds are good that your doctor makes quite a bit more money than you do. But when it comes to retirement savings, you may have him beat. According to a study of the savings habits of 5,100 physicians, released this week by financial-services giant Fidelity Investments, the typical physician hasn’t saved enough money to adequately sustain his lifestyle in retirement.
 A $300,000 salary doesn’t stretch as far as it used to.
Doctors face one significant financial challenge that sets them apart from, say, attorneys or MBA holders: Because of residencies and other training requirements, they typically can’t start earning significant incomes until after age 30. Couple that with student debt that can climb high into the six-figure range, and it’s easy to imagine why a younger physician might struggle to fully fund her nest egg.
Indeed, the Fidelity analysis finds that the typical doctor isn’t able to save 15% or more of his annual income until after age 50. The authors also find that a high percentage of doctors in their 50s and 60s have particularly aggressive asset allocations, with a lot of money tied up in higher-risk, higher-reward equities—probably, the researchers theorize, because they’re playing catch-up. Despite such efforts, Fidelity concludes that the average doctor is on track to replace only 56% of his income in retirement, well short of the 71% Fidelity recommends for higher earners.
Here, however, is where some perspective is in order. Doctors earn between seven and eight times what the average American earns, according to the Bureau of Labor Statistics. (And more power to them—I don’t know about you, but I didn’t save any lives today.) The average physician in Fidelity’s survey earns $299,000 a year, which is in line with industry averages: The Medical Group Management Association, a trade group, calculated the average earnings of primary-care doctors at $221,000 in 2012, while estimating that the average specialist earned $396,000.
The implication of the Fidelity study is that for someone earning $300,000 a year, having to retire on 56% of that—or $168,000 a year—would be a highly undesirable comedown. In this, the study shares a common weakness with many others of its kind, because it uses income continuity as the main proxy for retirement quality of life. But that assumption–that your retirement income needs to be pretty close to your working-life earnings–starts to break down when you’re talking about the needs of higher earners.
A retired doctor with a paid-off mortgage and the kids finished with college will probably live very well on a 56% income-replacement rate; her retired colleagues with bigger and more complicated obligations later in life may feel tightly squeezed. But that’s exactly the point: it’s the spending needs and habits of the individual retiree, rather than a one-size-fits-all income-replacement goal, that should set the savings target. For a financial planner’s perspective on this idea, see this recent post by RetireMentor Larry Stein’s recent article, The 2 retirement levers you can control.
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