Doctors and Dentists Face Unique Challenges in Saving for Retirement
When it comes to saving for retirement, many of the same general saving principles apply to doctors and dentists that apply to everyone else. But according to Cullen Douglass, a wealth management advisor at Northwestern Mutual, there are certain special considerations they should take into account.
“Saving for retirement is different for medical professionals for a variety of reasons,” he said. “One of the big reasons is that they often start saving later since they go to school for an extended period of time. That makes a huge impact on their savings because they have less time for their money to grow.”
While medical professionals face a more complicated savings journey, Douglass has seen them easily overcome these challenges and meet their savings goals if they plan properly.
Getting a Late Start
Upon finishing their education and training, Douglass has found that doctors and dentists tend to fall into two categories.
“There are some who finish their training and immediately start saving for retirement,” he said. “But there are others who are more motivated to improve their lifestyle and spend money on expensive cars or real estate.”
After struggling through medical or dental school with little or no money, many want to spend immediately. “While they should enjoy their hard work, they also shouldn’t forget that they’re likely already behind in retirement savings,” Douglass said.
One of the things that distinguishes doctors and dentists from other professionals is the large student loans that they typically carry.
According to the American Dental Education Association, dentists have the highest average student loan debt at around $261,000. Doctors usually have a little less debt, according to the Association of American Medical Colleges, and graduate with around $183,000 in student loans.
Douglass has seen folks want to pay down this debt as quickly as possible. But he cautions against those who are tempted to focus all their extra money toward paying down their student loans. “Some professionals get out of school and want to pay their student loans off very aggressively,” he said. “Instead they need to leverage their low-interest loans. This can allow them to pay off their debt over time and also focus on saving to build retirement assets that will have more time to grow through compound interest.”
Medical professionals who own their own practices need to take more of an active role in planning for their retirement than others who work for employers and have 401(k)s or other retirement plans.
Douglass recommends that they max out their pretax savings options through vehicles such as IRAs and that they also invest additional money in non-qualified accounts that don’t offer tax savings options but will allow them to keep on track with their retirement plans.
Cash value that accumulates in a permanent life insurance policy can be another great way to supplement income in retirement. “If you own your own practice, you likely have life insurance to cover your practice loan. By taking out cash value life insurance, you can build value within your policy that you could potentially tap into in retirement if you need to,”1 Douglass said.
On the subject of insurance, life and disability income insurance is even more critical for doctors and dentists. They have made a significant investment of time and money into a career path that typically pays very well. If something happened that prevented them from working, life and disability income insurance can provide the income that will keep their (and their spouse’s) retirement plan on track.
“The last thing that anyone wants is to not have control over his or her retirement plan,” said Douglass. He frequently works with medical professionals who were able to start saving early and ensure their retirements, and those clients are on track to having the retirement they desire. “They feel confident,” he said, “knowing that they are planning appropriately and saving enough.”
1The primary purpose of life insurance is to provide a death benefit. Utilizing the cash value within a life insurance policy while living will reduce the death benefit paid and can potentially trigger a taxable event, depending upon your individual situation.