BOSTON – On the surface, many physicians may appear to live financially comfortable lifestyles, so it would stand to reason the state of retirement savings for most would be the picture of perfect health. In fact, according to Fidelity Investments' analysis of 13,330 physicians' workplace savings plans, physicians are saving on average a healthy 19.8 percent (employer and employee contributions) – which is up from 15.3 percent in 20121. However, a more thorough examination of physicians' retirement savings reveals where many fall short:
- Many physicians aren't saving enough for retirement: Despite strong average savings rates, nearly half (48 percent) of physicians are saving less than Fidelity's recommended savings rate of 15 percent with an average of only 9 percent.
- Almost half 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) retirement savings plan, a number that’s even higher for female physicians (58 percent) than their male counterparts (45 percent). Furthermore, 71 percent are not contributing to a non-qualified retirement plan, such as a 457(b).
- Older and mid-career physicians are more likely to have a mix of investments that may not be aged based: Many pre-retirees (39 percent) are very aggressive in their equity allocation making their savings more susceptible to market fluctuations. At the same time, more than one-third of physicians in their 40s are conservatively allocated, thus limiting their potential for growth during their longer-term savings horizon.
Why are there so many practitioners falling behind the positive financial progress of the "average" physician? According to Fidelity's Money FIT Physicians Study, 45 percent of physicians feel they cannot afford to max out their workplace retirement plan. Although they are among the most highly compensated professionals (Fidelity's business data shows physicians earn an average of $300,000 per year annually) – industry research reveals that 84 percent of medical students graduate with student debt averaging more than $176,0002, with many also juggling expensive practice-related costs. The study also found that 61 percent of physicians are at least a little confused about how to navigate their financial path for the future.
"While physicians are expected to be confident and knowledgeable about their medical specialty; that confidence doesn’t always extend to financial matters. In fact, most are looking for help from an expert when it comes to long-term financial planning," said Alexandra Taussig, senior vice president, Fidelity Investments. "Health care employers can play an important role in addressing physicians' financial health by actively promoting the opportunities to get guidance through their workplace retirement savings plan and encouraging annual financial checkups."
Physicians Value Expert Opinions; Fidelity Launches Physicians Guidance Program to Help Health Care Employees Plan for Retirement
According to the study, 76 percent of physicians rely on financial advice from a financial professional. While Fidelity business data indicates use of workplace retirement guidance is on the rise, with 21 percent of physicians taking advantage of this resource (up from 17 percent in 2012), there is still substantial room for improvement. For a convenient benefit that comes at no cost, the number of physicians taking advantage of workplace retirement guidance remains surprisingly low. According to the Money FIT Physicians Study, for those that are aware of this benefit, the primary reason they haven't taken advantage of it due to lack of time.
Health care employers have an opportunity to help improve the financial prognosis for their employees, particularly for higher-compensated physicians. To help address their retirement readiness, Fidelity has launched the Physicians Guidance Program, which provides financial education and tools to help physicians manage their wealth and plan for retirement. Some of the new resources designed specifically for physicians include a "Fundamentals of Retirement Income Planning" webinar; a "Financial Checkup" overview for physicians; and an infographic sharing a prescription for financial health.
In addition, Fidelity has developed a video series to help health care providers increase the awareness of the retirement planning guidance available to them. Fidelity works closely with health care employers to reinforce the following with their workforce:
- 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.
- Maximize contributions to qualified retirement plans, such as a 403(b) retirement savings plan. The IRS limits allow employees to contribute up to $18,000 for those younger than 50 years old, and $24,000 for those who are turning 503 this year, and older.
- Take advantage of additional opportunities to save in vehicles such as a non-qualified 457(b) plan, which allow high-compensated employees to defer a portion of their compensation and related taxes until they withdraw the money in retirement. Also consider saving in IRAs, tax-deferred annuities and brokerage accounts.
For additional insights for health care employers, read Fidelity's "Financial Checkup on Physicians' Retirement Readiness."
Fidelity's Services for the Tax-Exempt Market
Fidelity serves the most plan participants in the not-for-profit workplace retirement savings market, which includes health care, higher education, research, foundations, faith-based, K-12 and other tax-exempt organizations1. Fidelity's comprehensive suite of 403(b) retirement services includes plan design resources, recordkeeping services, consulting and participant communication, education and guidance. With retirement planning professionals and an array of tools and resources to educate plan sponsors, Fidelity helps employers in the tax-exempt market maximize retirement benefits plans and increase employee retirement readiness.
About the Fidelity Investments Money FIT Physicians Study
The online survey was conducted by Kelton between October 6th and October 30th, 2014 among 360 physicians (205 male physicians; 155 female physicians) ages 18+ who were employed or retired from the health care industry and have a qualifying retirement plan (401(k), 401(a), 403(b), 457, 457 (b), or 457(f)). Fidelity and Kelton are not affiliated.
About Fidelity Investments
Fidelity's goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.2 trillion, including managed assets of $2.1 trillion as of October 31, 2015, we focus on meeting the unique needs of a diverse set of customers: helping more than 24 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 42,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.