Whether it is lack of financial sophistication, a sense of entitlement, or lack of self-discipline, you cannot invest if you cannot save. Choosing to skip on retirement plan contributions, especially early on when compound interest has plenty of time to work its magic, can devastate a retirement plan. Consider this: One physician saves $50,000 a year for his first 15 years of practice, then saves nothing until he retires 25 years later. ($750,000 total saved) A second physician saves nothing his first 15 years of practice, then saves $75,000 a year for the next 20 years. ($1.5 Million saved)
Which one ends up with more money? The physician who saved early ends up with $2.86 million and the late-saving physician, despite saving twice as much of his income, ends up with $383,000 less.
The longer you wait until you start saving, the more you need to save. Likewise, saving just 5 or 10% of your income isn’t enough. With savings rates like that, you’ll end up with a much lower standard of living in retirement than while in practice. Another benefit of a high savings rate is that you’re used to living on less money.
A doctor earning $200K a year and saving $50K a year only needs 75% of his pre-retirement income to have the same standard of living. A doctor earning $200K a year and only saving $20K a year would need 90% of his pre-retirement income to maintain his standard of living. That will mean more years of work. You should aim to save 15-25% of your income each year you practice. More if you had a late start or want to retire early.
With a high income and a high savings rate, any reasonable investment plan should get the physician investor to his goal. Unfortunately, far too many doctors have inappropriate investment plans. These range from day-trading tech stocks, to huge swings in asset allocation into the asset class with the most impressive recent performance (buying high/selling low), to being overly conservative and leaving money in assets without adequate long-term returns. Getting 5% after-inflation long-term returns is not that hard to do, but without a reasonable investment plan, even that may be asking too much. Compounding doesn’t do any good if it doesn’t happen at a rate significantly higher than inflation.
There are really only a few things that can wipe a doctor (or his family) out financially. Death, disability, natural disaster, and liability. These are all very easy to insure against.
Getting help from a financial adviser can help the physician investor avoid the problems outlined above.
Each financial situation is unique. Understanding retirement objectives and current financial status is the first step in creating a manageable retirement strategy.
Mintco Financial Team of Independent Advisors have been helping many doctors achieve their financial goal.
Mintco Financial Advisors understand you as a doctor has a busy schedule and will be glad to accommodate time to review your plan.
Mintco Financial is located in Tampa, FL and Buffalo , NY.
Call 813-964-7100 or 716-565-1300.
Visit the website for more info www.MintcoFinancial.com
