Being a doctor or a lawyer can be a very appealing career option for many people. Much as it ensures a life full of luxury and success after relentless educational toil, it is also important to ensure that the fruits of your success last your entire life. This means that even before you retire from practice as a doctor or lawyer, you should ensure that not only are your retirement savings enough to keep you afloat for the rest of your life, but also that they keep growing in some way or the other.
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It is a common misconception to believe that all doctors are rich and set for life. Physicians are on track to replace only 56% of their income in retirement, as per a 2014 Fidelity Investments report. Although we have passed over a decade since then, the situation remains more or less the same.
A study by Transamerica has found that 55% of doctors at present are also worried that they are not saving enough for their retirement. Again, according to a 2018 study by the American Bar Association (ABA), it was found that only about 25% of the lawyers had $250,000 or more saved for retirement. All of these show that supercharging your retirement savings as a doctor or lawyer can be extremely important for the future of your family as well as yourself.
In this blog, we will shed light on the various ways in which doctors and lawyers can save up wisely for their retirement. Moreover, we will also show how retirement savings for such top professionals can actually be supercharged with time.
How doctors can catch up for retirement and increase their savings
For doctors, it may sometimes prove more difficult to save up for retirement than for individuals who are working in other professions. In most professions, individuals graduate after receiving an education at the age of 22-23 and enter the workforce almost immediately. It is from this very juncture that they can even begin saving up for retirement from their salaries.
However, the case is a little different for doctors. They may not be able to enter the workforce until they are 30 or even older because of the amount of schooling involved. Not only does this mean missing out on compound interest, but also a shorter time to save money. So how should doctors make the best of their retirement plans to start supercharging their savings? Here are some simple steps to follow.
1. Maximizing tax-advantaged accounts
Many employers offer a 403(b) or 401(k) plan which allows employees to save up to $19,000 a year pre-tax ($26,000 for those who are above 50). According to a Fidelity Investments report, 60% of physicians who are younger than 50 and 30% of those over 50 did not save up to the limit. Tax-advantaged accounts can be very effective when it comes to saving up for retirement. For a doctor who finds themselves in the 32% or higher tax brackets, it is a great chance to build wealth for a comfortable retired life. Doctors should take advantage of every benefit offered and maximize their tax-advantaged accounts.
2. Contribute more than $19,500 to your 401((k)
Adding a cash balance to your 401(k) can allow you to make great contributions to your retirement savings and save on taxes, A cash balance plan allows participants to put more tax-deferred money into their retirement after they have maxed a 401(k). This allows profitable doctors to accelerate their savings and pay significantly less taxes. Depending on your age, cash balance plan contribution limits are as high as $250,000 a year.
3. Supercharge your Roth IRA
Unlike traditional IRAs which provide tax-deferred growth, Roth IRA assets grow tax-free. Those assets that have this favorable characteristic can provide you with the flexibility needed in retirement years. Only those with an adjusted gross income that is under $193,000 can contribute to a Roth IRA, so most physicians are ineligible. However, the options remain open for those who hope to establish themselves in a bigger position shortly.
Supercharging retirement savings for lawyers
The legal career is filled with several pressures which means that there is little time to think about your long-term future. According to the Bureau of Labor Statistics, the median salary for a lawyer in 2023, for example, is as much as $145,70. Still, many legal professionals fail to save up for their retirement as amply as they may want to. According to a 2021 survey by the American Bar Association, only 60% of solo practitioners had their retirement plans in place, compared to the 80% of lawyers working in large firms. Whether you are practicing by yourself or representing a company, it is important to make sure that you save up and supercharge your retirement savings.
So what are some ways in which lawyers can increase their retirement savings in a sustained way? Let us take a look.
1. The role of pensions
The sooner you start making small yet regular contributions to your pension, the better prepared you will be for your retirement. Personal pensions can be invested in a range of assets including stocks and shares, gilts and bonds, and even property. They have the potential for good growth and returns in exchange for a certain degree of risk. Solo traders with personal pensions get a tax top-up from the government on personal pension contributions in most cases.
2. The superpower called compounding
Compound interest means that any gain you are making on your investments will be reinvested. So, you will have more money that will keep generating greater and greater interest for you in the future. This is a form of interest on interest that can boost your pension savings over the years. If you keep adjusting your contribution, you can make the best of the compounding process.
3. Salary and bonus sacrifice
Use your salary and bonus sacrifice allowance, if your company has it. Salary sacrifice means paying into your pension by bringing down your gross salary. This does reduce your net income for the time being, but it saves you both income tax and national insurance. It may keep you just inside a lower tax rate band as well while also adding to your pension. You may also be able to do the same thing with the bonus you receive. You can do this by having it paid into your pension in the same way.
Summing up
Planning for your retirement is very important be it in any professional field. No matter how much we earn today, failing to take responsibility for our future is only going to put us in a tight spot. Although professionals in the medical and legal fields do enjoy a lucrative career that lasts even after they are 60-65 years old, they too must take care to save up for retirement. Taking advantage of profitable bank accounts, making the best of compound interest to keep growing your retirement savings, and taking money aside to keep building up your pension are some of how you can supercharge your retirement savings as a doctor or lawyer.
