By The Welch Group
As healthcare professionals continue to navigate the challenges of the pandemic, many are likely dreaming of a quiet and peaceful retirement. Unfortunately, more than 40% of healthcare workers reported that their financial situations have gotten worse since the onset of COVID-19.
Even without factoring in COVID-19 stressors, physicians and healthcare professionals face several obstacles when it comes to saving for retirement. While other professionals typically enter the workforce in their early to mid-20s and can begin saving for retirement immediately, the average physician doesn’t finish their training until they’re in their late 20s or early 30s. This means fewer years of saving.
Not to mention that healthcare professionals are often burdened with significant student debt that can take decades to pay off. Because of these disadvantages, it is especially important to start planning and saving for retirement as soon as you can.
Here are five reasons to start retirement planning today.
1. You’ll Get to Defer Taxes
If you don’t start early, you’ll miss out on deferring taxes on income by using vehicles like traditional IRAs and employer-sponsored retirement plans. For a physician in a 32% tax bracket, saving for retirement with pre-tax dollars is a great advantage. Pre-tax retirement contributions reduce your taxable income, thereby reducing the amount of taxes you owe.
For instance, many hospitals offer 403(b) retirement plans, which in 2022 allow employees to save up to $20,500 per year pre-tax ($27,000 for those over 50). If you’re a physician making $175,000 per year, your tax liability is $175,000 x 32% = $56,000. But if you maximize your contribution to your 403(b) plan, your tax liability would be ($175,000 – $20,500) x 32% = $49,440. That’s a difference of $6,560 saved in a single year! Imagine how much money you can save in taxes over the course of your working years if you start using this strategy right away.
2. You’ll Be Able to Reduce Fees
As you can see, using pre-tax retirement accounts like 403(b)s can be extremely advantageous for high-income earners like physicians. However, there is a downside to these accounts if you don’t take a proactive approach to managing them.
If you’re like many of our clients, you probably have several different retirement plans across multiple employers. And with everything on your plate, you probably don’t have the time to manage all these accounts. We get it, but chances are you’re paying excessive fees year after year on old plans that are sitting in a previous employer’s account. Consolidating these accounts can save you big on fees while also alleviating stress and giving you more confidence (more on that below).
Organizing your finances will take time, but the sooner you start, the more clarity you’ll have and the more money you’ll save.
3. You Can Take Advantage of Compound Interest
Just as contributing early allows you to take advantage of tax savings over time, there is a compound effect that occurs with money that is invested as well. That $20,500 contributed to your plan each year will grow exponentially over time, but the key part of that equation is time.
A single penny that doubles its value every day for a month may not seem to amount to that much on the surface. But by the time the 30th day of the month rolls around, you would have over $5 million in pennies. This same concept can be applied to your retirement account, but because retirement investments are at the mercy of the highs and lows of the stock market, it will take more than 30 days to see that kind of growth.
Conversely, if you wait to invest, you miss out on growth year after year—and the resulting loss of earnings can be substantial.
4. You’ll Alleviate Stress and Anxiety
Many of our clients came to us stressed and anxious about their financial situations. They didn’t know how they were doing financially and didn’t know how to tell if they could save enough for retirement. Reviewing your situation with a professional today can alleviate unnecessary stress by providing a clear picture of what you have and need.
It can be confusing and overwhelming to navigate your retirement goals—which is why you might be putting it off. But doing so will only delay the inevitable and possibly worsen your financial position as you get closer to retirement.
5. Discover New Opportunities
As COVID-19 has reminded us, life is not static. There will inevitably be surprises that we didn’t see coming and change our trajectory in unexpected ways. Most people plan for a “traditional” retirement, where you work for 30 years and then retire in your 60s. But what if that isn’t what you want? What if there are other things you want to do in life that don’t revolve around working 50-hour weeks?
Planning for your retirement as early as possible will give you more options and opportunities to explore alternatives. It could be decreasing your work responsibilities at a certain age, transitioning to a new career, or something entirely different. Whatever it ends up being, preparing for it today will allow for more opportunities in the future.
Start Saving Today
As you continue to care for our communities and work toward a COVID-free future, make sure you are also working toward a financially sound and stress-free retirement for yourself. At The Welch Group, we can help you make your retirement goals a reality. Schedule an introductory phone call by reaching out to us at 205-879-5001.
About The Welch Group
The Welch Group is a fee-only, employee-owned wealth management firm committed to enriching the lives of its clients. Founded in 1984, The Welch Group helped pioneer the fee-only financial planning and investment management movement and has continued to put the needs of clients first ever since. Offering wealth management and family office services to retirees and young professionals, The Welch Group team strives to simplify financial management and help clients secure their financial future so they can focus on what matters most. Our personalized and comprehensive approach helps clients plan for their goals, needs, and concerns, including estate planning, cash flow, charitable and tax planning, and retirement strategies.
As financial advocates, the financial advising team is made up of educated, experienced, and dedicated professionals, including Certified Public Accountants, a Juris Doctorate (JD), individuals with MBA degrees, and CERTIFIED FINANCIAL PLANNER™, Accredited Estate Planner®, and Chartered Financial Analyst® professionals. The Welch Group is passionate about giving back, creating positive ripple effects in our community by supporting local charitable organizations through The Welch Group Foundation. To learn more about what we do and how we can help, explore our website and schedule a complimentary consultation.
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