How much do real doctors actually save for retirement? | White coat investor

Sometimes here in WCI land we think that all doctors make billions of dollars, save 75% of it, get a 25% return, never pay taxes and retire as decam millionaires. In the real world none of that is the case. Every month I see data showing that many regular doctors are not saving much for their pension.

Where does that data come from? Two places. First of all, I sit on the pension committee for a large group of hundreds of documents. Second, my little department of these documents has open books so I can see down to the cent what my partners are earning and what they are sending into our excellent retirement plans. So I decided to do some calculations on the data.

My group is not unique

Some of you will look at this completely anonymized data and conclude that many of my partners should be saving more money for retirement. That’s probably fair criticism. But you shouldn’t conclude that there is anything unique about my partners. In fact, I find most of them to be quite frugal and quite knowledgeable about personal finance. The more limited data for the much larger group of the entire organization (as well as my experience dealing with tens of thousands of physicians over the years) suggest that my division is in no way unique.

Limitations of the study

The data also has some limitations. For example, withholding money from benefits is NOT the only way to get money into our retirement plans. In fact, I generally write two checks per year to our 401(k), one in January for my employee contribution and one in April for my “employer” contribution, once the maximum contribution has been calculated. While it will be pretty obvious which of the partners I am, my actual savings rate for this income is probably over 55% if you include these checks. Maybe one or two of my partners will also write a check during the year. But I know most don’t.

This analysis also does not include any IRA or HSA contributions they may make, only the contributions to our two retirement plans. They can also invest in a taxable brokerage account, real estate or something else. The main reason why my percentage is the highest is that, unlike most of my partners, my clinical income is a less important source of income for us. I only work part-time and full-day shifts (I actually have the lowest income of all the partners), have plenty of investment income, and make more at WCI than clinically. Unlike me, they actually have to pay taxes and live off what they earn. So don’t focus so much on my savings rate as on the others. Plus, some of them may even be putting more dollars into our retirement plans than I am because they make so much more. It may be a lower percentage, but actually a higher amount. This is also just a snapshot of two months, not a full year. But I still think you’ll find it interesting.

More information here:

Real-life examples of how WCIers live, worry, and withdraw money during retirement

How Much Money Do Doctors Actually Need to Retire?

How much do doctors save?

These are the savings rates for my partners:

• 0%
• 3%
• 3%
• 3%
• 7%
• 10%
• 12%
• 14%
• 17%
• 22%
• 25%
• 26%
• 29%
• 38%
• 43%
• 46%

The dollar-weighted average for the group is 16%. Not so bad. It’s certainly close to the 20% I typically recommend. However, the average is incredibly misleading. In reality, 1/3 of doctors save less than 10%. More than half (56%) save less than 20%. Less than half are on track to max out their 401(k) ($72,000 by 2026 for those under 50) [visit our annual numbers page to get the most up-to-date figures]). Only 62% are contributing to the cash balance plan at all, and only 38% are on track to contribute more than $10,000 to it. And to be honest, I think my little division is doing GREAT compared to most doctors.

The reason why many doctors don’t become millionaires

This small demonstration is very similar to what we see when we look at net worth surveys of physicians in their 60s. I have no idea of ​​the net worth of my various partners, but we can look at the Medscape surveys of the past when they reported this information for thousands of physicians.

Among physicians in their 60s, 10%-12% have a net worth of less than $500,000, while 25% are not millionaires, 52% are not multi-millionaires, and only 12%-15% are pentamillionaires. It’s not too difficult to look at the savings rates of different partners and figure out which ones won’t retire as multi-millionaires, and which ones are likely to retire with more than $5 million.

More information here:

Why doctors should retire as multi-millionaires

5 Ways to Retire with $5 Million at Age 55

Roth vs. Traditional 401(k) Contributions

Would you like to know something else interesting? On this website we continually debate Roth versus traditional contributions for 401(k)s. Sometimes it seems like more WCIers are doing Roth, even in the years when they were making the most. That is not the case with my partners. At least for the two months included in this analysis, every dime that went into our division’s retirement plans was pre-tax (except for the check I wrote for my employee contribution). That’s certainly the right move for those with the lower savings rates and probably the right move for most others as well. Most physicians should save in pre-tax accounts during their peak earning years.

If you want to have more money in your retirement accounts when you retire, you need to put more money into your retirement accounts now. That’s really the secret. Becoming rich is not complicated:

1. Earn a lot of money.
2. Free up a lot of it to invest.
3. Make sure your money works as hard as you do.

All docs in my group accomplish step 1, on any reasonable comparison. Our committee has ensured that these plans are filled with nothing but excellent investments, so step 3 is complete. But there is a lot of variation in step 2.

What do you think? Were you surprised by this real-world data? Why or why not? What has your savings rate been over the years? How much did it increase when you became financially literate?