I recently read a summary on a study on physician savings published by Fidelity. One of the conclusions was that 45% of physician felt they were unable to maximize their workplace savings plans! This includes the typical 401k and 403b accounts. There was no mention whether any of these accounts included the profit sharing components.
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Assuming that these do not include profit-sharing, how almost half of doctors don’t/can’t contribute $18,000 per year in pre-tax earnings is beyond me. The Fidelity survey states that the mean salary for the doctors surveyed was $300,000. That’s actually more than what many internists, pediatricians, family practitioners make. This is also almost three times what many early retirement bloggers made each year before they retired at age 35! Surely by maximizing your 401k, you’ve already saved 6% of your income.
Fidelity states that the doctors they surveyed saved an average of 9% of their income! Again, this is shocking to guys like Mr. Tako Escapes, MMM, or [insert your favorite finance blogger]. Where does this money go? I’ll tell you where it goes:
- House mortgage or rent. Times two. Doctors have to live in nice houses. Period. Nice houses are usually not cheap. Many doctors I know actually have two mortgages since they’ve moved onto a second job without being able to sell their first home. Ouch. In these situations, one whole paycheck could go towards two mortgages easily.
- Food consumption. A busier lifestyle with meetings can translate into more restaurant meals. I have several coworkers who drop at least $1,000 a month on alcohol, bar tabs, and various restaurant expenditures. Many of my coworkers (and spouses) end up shopping at Whole Foods for their groceries. Organic health foods are not cheap.
- Discretionary spending. This category is huge. Think about car leases, impulse purchases, subscription services, and repairs. The busier your main job is, the more likely you are going to drop money to solve your problems.
- Student loans. I came out of my training with a solid six-figure debt. There are doctors who come out with $300,000 in debt. Many of us just pay the minimum amounts due, whether by choice or if you’re going after PSLF. If you are paying only the minimum amount, I hope that you either have a low interest rate or are waiting for Uncle Sam to write off your debt.
- Divorce and alimony. While the dreaded D isn’t as common as multi-home mortgages, it can set you back financially a very long time (sometimes payments can last up to half the duration that you were married).
It is depressing to see many in my profession not save enough for retirement. It should never happen. Becoming a rich doctor is not a mystery, but you must have discipline. Grow your value, stay healthy, and hustle.
What percentage of your income are you saving?