With the health and safety of your patients as your primary concern, things like retirement planning naturally can fall by the wayside. Before you know it, you’re staring down the last slide to your Golden Years, and you realize you can’t or don’t want to work as hard as you have been. Yet, your finances aren’t where you’d like them to be, so you continue with those long, busy days.
But that doesn’t have to happen. Even the busiest physicians can begin planning for retirement, and it only takes a few minutes to get started.
No matter where you’re at in your financial journey, these simple tips can get you on track to meet your retirement goals.
1. Follow the 50/30/20 Rule
Have you heard of the 50/30/20 rule? It’s a financial strategy that encompasses spending on your needs and wants and setting aside money for savings.
According to the rule, your budget should be broken into three after-tax categories, with 50% allocated to your needs, 30% to your wants, and 20% to your savings.
With this budgeting strategy, you can confidently invest in your future without sacrificing on your immediate needs and wants. You work hard for your money; it’s understandable that you want to enjoy some of the fruits of your labor.
2. Diversify Your 20%
But what should you do with that 20%? You could set it aside in a high-interest savings account and let it grow passively with compound interest. However, as this article by OJM Group explains, diversifying your portfolio gives you a greater chance of higher gains. Mixing your investment to include stocks and bonds, index funds, and real estate ensures a varying risk and return that can outweigh the dips of a volatile market.
3. Invest in a 401(k) Plan
Both employees and self-employed physicians can utilize the advantages of a 401(k) retirement plan. Traditional 401(k) plans permit investments by employers matching employee contributions, self-employed persons, and independent contractors.
If your employer offers a matching investment, find out what the maximum match is and meet or exceed that amount. The impact on your paycheck will be minimal, but the compound effect of those dollars can be significant.
Note that governments and nonprofit organizations don’t use 401(k) plans. Instead, their retirement savings programs are 403(b) and 457(b) structures. These plans are similar to the 401(k), but there are a few changes in federal regulations.
4. Create Your Own Benefit Plan
Until recently, many retirees invested in pension plans, which helped them live comfortably in their Golden Years. Some industries, such as state and local government workers, nurses, and unionized workers, continue to receive pension options. For others, today’s version of these defined benefit plans are Roth IRAs or Keogh retirement plans.
A Keogh plan or H.R. 10, officially called a qualified plan, is designed for self-employed individuals or unincorporated businesses. The employer funds tax-deferred net earnings into the plan is an employer-funded, tax-deferred retirement plan designed for unincorporated businesses or self-employed persons.
Individual retirement accounts (IRAs) are for anyone wishing to save for retirement. There’s a limit on how much a person can invest per year. Should your goals exceed that limit, your financial advisor may recommend a backdoor Roth IRA and, if you’re married, a spousal backdoor Roth IRA. These boost your allowed savings slightly higher than the traditional IRA limits.
5. Find a Trustworthy Financial Planner
The world of financial investments can be as muddy and confusing to those outside of it as detailed anatomy is to the general public. When you find a financial advisor that you trust, this person will guide you on your journey to a sound retirement plan. They’ll take the stress off of monitoring your portfolio for you, suggesting when you may need to take action so you can meet your goals more efficiently.
Since physicians have different goals than most other career individuals, look for an advisor who works with those in the medical profession frequently. Ask for recommendations within your network, and don’t settle for an advisor until you find the person or group that you feel comfortable understands your goals.
Conclusion
Your hectic schedule may seem like it will carry you through the rest of your life, but at some point, you’ll want to slow down and relax a bit. When that happens, your long-term retirement plan will determine how much you can enjoy this downtime. Follow these simple tips, and let the few minutes it takes to set up your portfolio turn into a lifetime of passive earning.
