Saving for Retirement

In the early 1980s, when I first began designing and managing small firm pension plans, one group that was often among the most aggressive participants in qualified plans were physicians.

They were looking to be cutting-edge in plan design, funding for full retirement at age 55 and seeking ways to cut out employee participation by hiring many parttime employees. In some cases I worked on plans where the physician was contributing to their plan an amount equal to 50% of their net profits from self-employment. Oh, for the good old days!

Changing $ WaysToday as I speak to my physician friends I’m hearing a different story. “My income is down, my expenses are up, I have given my employees a greater raise over the last six years than I gave myself. How can I afford to pay for my kid’s college, let alone a retirement plan?”

Unless you expect to have a career like Dr. Michael DeBakey, the pioneering cardiac surgeon, who's still practicing as he approaches his 100th birthday, I can only ask one question, how can you not? Medicine is not as profitable a career as it once was. It’s unlikely that you will able to rely on the sale of your practice to fund your retirement. Therefore you have one choice: Fund it yourself!

If you are new to medicine and part of a bigger practice, participate to the fullest in your 401(k) plan. If you are self-employed as many are and have little to budget for retirement, or your partner is not interested in a costly plan, than a Simple Employee Pension (known as a SEP) is for you. A Simple IRA is like a super IRA where the annual contribution limits are not just $4,000 but $10,500 or 100% of pay if you are under age 50.

It’s primarily an employee funded plan, and you don't have to make any contributions to employees who don't wish to participate. If they do, your maximum employer contribution is only a match up to 3% of pay. Also, since it can be almost completely funded with employee contributions, you can put your spouse on the books for around $10,000 to $12,000 and shelter almost 100% of his/her earnings.

Real Possibilities

Maybe it’s not as powerful as putting half of your earnings away, but if you are young and this is all that you can afford, it certainly is a Simple way to start to build a nest egg. If you are 40 years old and both you and your spouse contribute the maximum, that $21,000 contribution will grow to over $1.5 million at 65 at an 8% return, which is not bad for a start.

The Simple Plan works great if you have a part-time job too. Let's say you are working as an ER doctor as you are setting up a new practice. You are covered by the hospital for your work there, and with proper planning you can set up a Simple Plan for your part-time income. Be smart with your money, not just with your degree.