Why Physicians’ Retirement Savings Fall Short

In general, physicians may appear to live financially comfortable lifestyles, but many are falling short when it comes to saving for retirement, a new study by Fidelity Investments shows.

Read on for more about why they're falling short and what financial advisors can do to help them turn their savings habits around. (For related reading, see: How Advisors Can Tap the Doctor Niche.)

The good news is that physicians are saving on average a healthy 19.8% for retirement, according to Fidelity’s analysis of 13,330 physicians' workplace savings plans. This is up from 15.3% in 2012. But despite strong average savings rates, nearly half (48%) are saving less than Fidelity's recommended savings rate of 15%, with an average of only 9%.

Almost half of these doctors aren't taking full advantage of retirement savings opportunities they have available through their employer. Forty-eight percent are not maxing out their contributions to a qualified workplace plan, such as a 403(b).  This number is even higher for female physicians (58%) versus their male counterparts (45%). In addition, 71% are not contributing to a non-qualified retirement plan, such as a 457(b).

Fidelity also found that older and mid-career physicians are more likely to have a mix of investments that may not be aged-based. Many pre-retirees (39%) are very aggressive in their equity allocation, which makes their savings more susceptible to market fluctuations. At the same time, more than one-third of physicians in their 40s are conservatively allocated, limiting their potential for growth.

Why are many physicians falling behind in saving for retirement?  Fidelity found that 45% feel they cannot afford to max out their workplace retirement plan. Even though they are among the most highly compensated professionals—Fidelity data shows that physicians earn an average of $300,000 annually—industry research reveals that 84% of medical students graduate with student debt averaging more than $176,000.  Many also have expensive practice-related costs. The study also found that 61% of physicians are at least a little confused as to how to navigate their financial path for the future. (For related reading, see: A Look at Advisors Serving Niche Clients.)

"While physicians are expected to be confident and knowledgeable about their medical specialty, that confidence doesn’t always extend to financial matters," said Alexandra Taussig, senior vice president, Fidelity Investments in a statement. "In fact, most are looking for help from an expert when it comes to long-term financial planning."

Most (76%) of physicians rely on advice from a financial professional. While Fidelity business data indicates use of workplace retirement guidance is on the rise with 21% of physicians taking advantage of this resource (up from 17% in 2012), there is still substantial room for improvement. For those that are aware of this benefit, the primary reason they haven't taken advantage of it is due to lack of time.

Fidelity recommends the following to help physicians save for retirement:

• Physicians should seek professional financial guidance at least once a year for a retirement plan checkup to revisit savings rates and ensure equity allocation is age appropriate.
• They should maximize contributions to qualified retirement plans such as a 403(b).
• Medical practitioners should take advantage of additional opportunities to save in vehicles such as a non-qualified 457(b) plan. These plans allow highly-compensated employees to defer a portion of their compensation and related taxes until they withdraw the money in retirement. They should also consider saving in individual retirement accounts (IRAs), tax-deferred annuities and brokerage accounts.

Fidelity has launched a Physicians Guidance Program, which provides financial education and tools to help physicians manage their wealth and plan for retirement. Resources designed specifically for physicians include a webinar, a financial checkup overview and an infographic sharing a prescription for financial health.

While physicians are typically highly compensated, many are falling short when it comes to their retirement savings. Steps advisors can take to remedy a shortfall include making sure this demographic is taking full advantage of employer-sponsored plans and ensuring that investments are appropriately aged-based. (For related reading, see: Why Doctors Can't Manage Money.)