Everything You Need to Know About Physician Retirement

Do you find it hard to imagine a time when you’ll actually be ready to take off your white coat and retire?

Many physicians can’t even fathom walking away from the career they love. Many feel as though they should work later in life since they started their careers late. Others think they should work to keep building their retirement savings to enjoy a better life post-medicine.

According to the American Medical Association (AMA), most physicians retire in their late 60s or 70s. But physician retirement at an earlier age is possible if you take steps to plan it properly.

Doctors can retire when they’re in their early sixties.

Here’s how:

Plan for Retirement Early On In Your Career

We cannot stress enough how important it is to start planning for retirement early on in your career. It’s something that all young doctors should consider. There are aspects of retirement planning for doctors that you can even begin while you’re still in residency or medical school.

As a young physician, retirement often seems like a lifetime away. But like with paying off your student loans, planning for financial stability and future wealth when you’re young should be at the top of your to-do list.

If you haven’t started planning for your retirement yet, now is the time to consult with a financial advisor and put yourself on the right track.

A sound financial plan begins with:

  • creating a budget
  • earmarking a certain amount of funds for savings and investments
  • contributing to retirement plans as soon as you’re eligible

It’s also essential to protect your future income and your loved ones. Young physicians can do this by getting disability insurance and life insurance policies at the beginning of their careers.

Disability insurance will ensure that you’ll still collect a portion of your paycheck if you become too sick or injured to work. Life insurance will protect your loved ones with a financial benefit when you die.

Both disability insurance and life insurance cost less for young, healthy people than for older adults with health conditions. By getting these policies when you’re young, you’ll save money in the short term and set up a safety net for the long term.

Related: The 3 Biggest Financial Mistakes New Doctors Make.

Maximize Contributions to Retirement Plans

For most employees in most industries, pension plans are a thing of the past. And as a physician earning a high income, you simply cannot rely on Social Security as a primary income source to get you through retirement. Establish retirement accounts and make sound investments throughout your career to retire comfortably.

As soon as you become eligible to contribute to a retirement savings plan, do so. There are various types of plans that your employer may offer you as well as a simplified employee pension individual retirement account that you can open for yourself if you are self-employed.

The 401k

The 401k is the traditional retirement savings plan offered by most employers (including most health care systems and private practices). Regardless of how much you earn per year, the IRS sets a maximum contribution limit, which is $19,500 per calendar year as of 2021.

It is always best to contribute the largest amount allowed. Contributions are tax-deductible and can reduce your tax liability at the end of the year.

If your employer allows you to enroll in a profit-sharing 401k, you’ll have the ability to save even more per year. With a profit-sharing plan, your employer can award up to $58,000 in addition to your own contribution limits of $19,500.

Depending on your employer, they may set up this additional contribution as:

  • A reward for productivity.
  • A pro-rata plan where every employee receives the same contribution percentage.
  • An age-weighted benefit. (Where older employees nearing retirement will receive a greater percentage than younger employees who still have decades to work.)

The Solo 401k

If you’re a self-employed physician who works alone in a solo practice or has a spouse who works as an employee of your business, the Solo 401k is another option.

Physicians under the age of 50 can contribute up to $19,500 per year. Physicians over the age of 50 can contribute up to $26,000 per year.

The benefit of a Solo 401k plan is that you can contribute as both the employer and the employee. Total contributions are limited to $57,000 per year (not including allowable catch-up contributions for employees over 50).

The 457b

Instead of the 401k, some employers offer physicians the chance to enroll in a deferred compensation plan, such as a 457b. The maximum contribution to a 457b is also $19,500 and can reduce your taxable income.

The Traditional IRA

There are a variety of IRAs that you can use to save money for retirement. If you currently have a 401k and decide to change employers, you can roll your 401k into an IRA.

You can also open a traditional IRA on your own. Although, you can only contribute a maximum of $6,000 per year, and there are income limit restrictions. This leads most physicians to contribute non-deductible amounts into their traditional IRA before converting them to a Roth IRA.


The simplified employee pension (SEP) IRA is for small employers with only a few workers or self-employed individuals who want to open a retirement account independently. With a SEP IRA, you can contribute up to 25% of your total annual compensation per year, up to a maximum amount of $58,000.

The Roth IRA

The Roth IRA is also an attractive option for anyone looking to enjoy tax-free income in retirement. With a traditional IRA, you don’t pay taxes on the money you contribute — you pay taxes on the funds when you withdraw them in retirement. The Roth IRA works the opposite way: you pay taxes on your contributions and withdraw the money tax-free.

However, the Roth IRA is limited to individuals who earn less than $140,000 and married couples who make less than $208,000. Most physicians exceed these income limits and therefore are not eligible to contribute. But there is a way to get around that: the backdoor Roth IRA.

See also: What Physicians Need to Know About Cash Balance Plans

Put Money Into Varied Investments

Doctor retirement investments

Saving money in a retirement account is key to planning for the future, but you’ll need to make other investments as well.

Stocks, Bonds, Mutual Funds, ETFs, and Index Funds

There’s always some level of risk when investing in the stock market. Yet, the earlier you start to invest, the more likely you will see substantial gains over your lifetime.

The average annual return on stock investments is between 8-10% a year. You can handpick your stocks or put your money into a mutual fund where a professional investment firm decides where to invest your money.

Both can be excellent options and add much-needed diversification to your overall investment portfolio. Yet, the more you lean toward individual equities or large concentrations of certain types of assets — the greater risk you may be taking.

Bonds don’t pay nearly as much as typical stock gains, but the benefit is that they also don’t carry as much risk. If you hold a bond until its maturity date, you will almost always earn interest on your initial investment.

Real Estate

Physicians looking to build wealth throughout their career understand the value of investing in real estate. Every piece of property you buy, be it your primary home, a vacation home, or an apartment building that you rent to tenants, has the potential to earn significant gains.

This one simple statistic proves why:

In the year 2000, the average price for a home in the U.S. was $126,000. As of 2020, the average U.S. home price was $259,000. If you buy smart, you can turn a small investment into a sizable gain.

See Why Doctors Should Consider Real Estate Investing to learn everything you need to know about making smart real estate investments as a physician.

Beware the Dreaded Inflation Tax

It may feel good to see the balance of your savings account rising and rising and rising over the years. But you need to be aware of an evil little entity called the inflation tax.

The inflation tax isn’t an actual tax, per se …

It’s an unseen tax that refers to how today’s money will be worth less tomorrow.

The rate of inflation varies from year to year, but it’s hovered around an average of about 2% in the past ten years. That means that a product that costs $100 today will cost $102 next year, and so on.

The cash you save today will be less valuable tomorrow and much less valuable in twenty or thirty or forty years when you retire.

Having liquidity and cash on hand can be an empowering feeling, but it’s much better to put that cash into investments that will net you gains, not losses.

Read this: Semi Retired: Redefining Success and Leisure

Maximize Your Retirement Plan Mid-Career

From family physicians to anesthesiologists to neurosurgeons, all healthcare professionals should start planning for retirement early on in their careers. But once you reach the middle of your career (in your late 40s or early 50s, it’s time to ramp up your plan.

As a young physician, you should start investing in a retirement plan, putting some money into stocks, mutual funds, exchange-traded funds, index funds, and thinking about buying real estate. But when you hit mid-career level, you should take it up a notch.

Mid-career is the time to make more aggressive investments, buy more real estate, and put as much money as possible into various retirement accounts. As you near retirement age, you can shift your money into safer investments to ensure that your money will be there when you need it.

As you move through different stages of your career, revisit your retirement plan to ensure that you’re still on track to reach your goals.

Related: Which Physician Specialties Retire Early?

How to Know When It’s Time to Retire

The more years you work, the more likely you may experience burnout. And if you’re feeling burned out after the age of 60, it may be time to start thinking about retiring. You simply have to consider your own well-being and settle on a retirement age that will afford you enough years to enjoy your life after medicine.

But in order to do that, you’ll need to have enough money saved.

Experts recommend saving 10-15% of your pre-tax income every year that you work to have enough money to sustain your lifestyle in retirement.

But let’s be clear: this is the bare minimum you should put aside.

Life Expectancy Is Increasing

Peter Diamandis, the co-founder of Human Longevity, Inc., predicts that life expectancy will increase by as much as 30 years. Largely, due to advances in bio-engineering, advancements in medicine, and the fact that researchers and physicians are working to grow new organs for organ transplant purposes.

So if you plan to save enough money to spend 20 years in retirement, it’s probably not enough. You may need to save enough to spend 30 or even 40 years in retirement. The more money you can put aside now, the better. At the very least, try to save at least 20% of your pre-retirement income every year.

The age that you become eligible to receive Medicare is also a factor for some those seeking retirement in the physician workforce. If you retire before you can receive Medicare benefits, you’ll have the added expense of having to pay for your own health insurance out of pocket.

You Can Retire and Still Work

Not ready to retire completely but looking for a way to scale back on your workload?

It may be time to consider working part-time, cutting back on hours and responsibilities, or bringing another physician into your practice to shoulder some of the workload. As long as you maintain your medical license, you can practice as little or as much as you prefer.

If you’re looking for a great book on this topic, check out The New Retirementality. It’s a fascinating read that sheds new light on how we should start thinking about and planning our “golden years.”

How to Retire When You Don’t Think You’ve Saved Enough

Doctor retirement savings
Financial experts say that if you want to live a comfortable life in retirement, you should aim to live on 70% to 80% of your pre-retirement salary.

So if your net income were $200,000 per year while working, you’d want to have approximately $160,000 to spend per year in retirement.

This varies, of course, from person to person. It depends upon your lifestyle, your healthcare needs, and how and where you intend to live.

As You Approach Physician Retirement Age, Save More

Depending upon how much money you’ve put aside, the years leading up to retirement may require you to save more aggressively. You can do this by cutting back on your spending habits a bit, ceasing to give your adult children money, or shifting risky stock investments into safer funds.

Some physicians are more than comfortable living a retired life on 50% of their salary. Others need more. It’s worth noting that there’s less of a need to save for your future as you age. In other words, you can spend the money you were putting toward saving for retirement now that you’re in retirement.

Here’s the Good News:

There IS life after being a physician. If you’re not ready to walk away from your career completely, you don’t have to.

Many retired physicians decide to work part-time, work locum tenens, or consult for nonprofits. There are many opportunities to put your medical education and decades of experience to use in other ways.

Whether you’ve owned your own medical practice or worked as an employee of a major healthcare system — we want you. Physicians Thrive is hiring consultants (many of which are retirees) to assist new physicians in navigating the world of starting a practice, planning for retirement, and building long-term wealth.

See also: How Much Money Do You Need to Retire?

Older physicians approaching retirement age often think that they should continue working. And for some, that’s the right choice. But if you want to retire in your early sixties, you can – it just requires the proper financial planning.

Contribute as much as you can to retirement accounts and IRAs. Make investments in stocks, bonds, mutual funds, exchange-traded funds, index funds, real estate, and other private equity investment opportunities. You may also consider starting a business as a way to produce wealth. Protect yourself and your loved ones with disability insurance and life insurance.

If you’re ready to start planning for retirement or need to ensure that your current plan is sound, contact Physicians Thrive now.

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