In this episode, Amy Walls discusses retirement planning for healthcare professionals, specifically physicians. She highlights the need for smart money management skills, as many physicians are not saving enough for retirement. Amy explains the different retirement plans available to healthcare professionals, such as 401(k), 403(b), and 457 plans, and how employer benefits and matches play a role in retirement planning. She also emphasizes the importance of tax efficiency in savings and the challenges of balancing competing financial goals. Amy concludes by stressing the significance of starting early and seeking personalized advice for successful retirement planning.
Key Takeaways:
For more information contact Amy Walls and her staff at 503-610-6510 or click here Thimbleberry Financial.
0:00:05 - Jag: Welcome in to ThimbleberryU and part two of our six part series of podcast episodes for healthcare professionals. Today we're talking about retirement and planning for the long haul. With that, I welcome in our host, Amy Walls of Thimbleberry Financial.
0:00:18 - Amy: Hi, Jag, it's good to talk to you. I'm excited about today's topic.
0:00:22 - Jag: This is really a universal thing, but especially we're going to niche down, as we have been in this series, to healthcare professionals. What makes retirement planning different for physicians than for other people?
0:00:34 - Amy: So physicians and healthcare professionals in general, they are smart people.
0:00:38 - Jag: Sure.
0:00:39 - Amy: Right. They are smart, they are dedicated, they can commit and they can learn and execute. And that's amazing. I think there is a general assumption that smart people equals money is figured out. But smart money management is actually a skill that can be built and developed.
0:01:02 - Jag: Yeah. You have to learn it like anything else.
0:01:03 - Amy: Absolutely. So these two things do not equal each other. According to a study by Fidelity, many people, as we generally know, are not saving enough for retirement. The average 401K balance is only $103,700.
0:01:19 - Jag: Yikes. Spread out over retirement, that's not a lot of money.
0:01:21 - Amy: Yeah. And that's not just in health care. But when we look at some healthcare data and I don't have it for just retirement plans, but Medscape's Physician Wealth and Debt report, which was published in June of 2023, about 59% of physicians reported family net worth exceeding $748,800, which is the national average for an American family. So this is physicians, it's not all healthcare professionals, but that's 59% report their net worth as being higher than the American average.
0:02:01 - Jag: Okay.
0:02:01 - Amy: That leaves 40% that aren't. Their income, however, is four times that of the average American family.
0:02:12 - Jag: Something doesn't quite add up here, Amy.
0:02:14 - Amy: Yeah. So this points to a need to know how to better save. And by better save, I'm talking being efficient and effective for retirement and other goals. So today we're talking about retirement. And so to answer your question, what makes it different? It's their expectations, it's the expectation of others. It's a combination of the retirement plans available to them and their employer benefits. And it's the benefits and challenges of their higher incomes.
0:02:46 - Jag: Right. You don't think of higher income as a challenge, but it really can be. So let's talk about how employer benefits play a role.
0:02:52 - Amy: Yeah. So there are different types of retirement plans, which we've talked about on different episodes. But 401KS, 403Bs, 457 plans, typically, universities and hospitals offer 403Bs and 457 plans. So these are plans that traditionally you would contribute to pretax and they have limits. So if you're under the age of 50, in 2023, you can contribute $22,500 pretax. And if you're over the age of 50, you can contribute $30,000 pretax.
0:03:28 - Amy: You put that money in, it reduces your tax bill today. It grows tax deferred. And when you take the money out, it's going to be taxed as if you just earned it on a paycheck. These accounts may also have Roth provisions, meaning that you can contribute to them after tax at the same dollar amounts. Interestingly, with a 403B and a 457 plan or a 401k and a 457 plan, but not a 401k and a 403b, that limit of 22,500 or $30,000 that I mentioned earlier that you can put in each year can actually be contributed to each plan.
0:04:08 - Jag: Okay.
0:04:09 - Amy: So it can go into a 457 plan and into a 403B or a 401K. So for example, the largest hospital here in the state of Oregon is also a teaching hospital. Many of the people we work with there have access to two plans, so they can actually double their contributions to retirement plans each year.
0:04:34 - Jag: And how do matches play into all of this Amy?
0:04:36 - Amy: Yeah, that's a good question. So employers will often match an employee's contributions into a plan. So we just talked about being able to contribute to a 457 or 403B. They're probably not going to double match on that. They may match 50% of an employee's contributions up to 6% of their salary, for example. Some plans may also just make a contribution. So the hospital I was talking about earlier, they've contributed 10% directly to employees plan without a match.
0:05:13 - Amy: So in some cases for clients that we have that work there, they don't contribute into their retirement plans at all and that's the best thing for them to do. Others contribute to two plans there in order to double those contributions. So it's all dependent. But those benefits have some subtleties that need to be ironed out against someone's personal situation.
0:05:36 - Jag: For sure. Got it. Okay, so we've talked a lot about taxes previously, Amy, in other episodes. How do they play a role in retirement planning for physicians?
0:05:44 - Amy: I'm going to refer back to our very first podcast episode. It's the only one I can remember because we're getting close to number 100 here. What we really talked about there was the three different ways you can save and the tax ramifications of each. So there's the before tax accounts that I talked about earlier, where you put money in and when you take it out, it's going to be taxable.
0:06:04 - Amy: And then there are after tax dollars. These are flexible. So if you are before age 59 and a half, this is money you could use for down payment on a home or kid’s college in many cases. So it's taxed as it grows. And then the third area is tax free money. Often Roth money and taxes play a big role because of their higher incomes. And so we want to be tax conscious to make sure that people aren't paying more than they need to today.
0:06:38 - Amy: But we also need to be tax efficient in our savings so that money stretches further in retirement, especially given what is often a larger lifestyle and a lower ability to save into traditional types of accounts.
0:07:00 - Jag: So you're kind of teeing me up for my next question here. As we zoom back out to the overarching theme of today's episode about retirement planning, I'd imagine healthcare professionals have some competing goals. How does that play out?
0:07:11 - Amy: It's a great question, Jag. Retirement planning definitely can compete with other goals, like paying off student loan debt or saving for a kid's education. Some strategies that can be used could be contributing just enough to the employer sponsored retirement plan to get the full employer match. Because that's free money.
0:07:30 - Jag: Free money. We always talk about that.
0:07:32 - Amy: Yes, taking advantage of free money is good. And then applying extra money to paying down debt that needs to be paid down. And then once that's paid down, returning to increased savings. Savings being cash reserves, being investments. So another option I talked about, we have some clients that don't contribute into their retirement plan who are physicians or researchers, professors, because the hospital they work for contributes such a high percentage already, and they're saving elsewhere.
0:08:06 - Amy: And others may contribute to both the traditional retirement plan plus the 457 plan that's available. So one strategy might be to make one contribution, but not both. We can mix those options together in many different ways. And so my point here is that it's going to be different for everybody based on what those goals are, based on their timelines, even a ten-year difference in when they're retiring. And so how much time we have to work is going to make a big difference on potentially where someone should save. So this comes down to personal advice. Just like no medicine solves all health issues, I can't sit here on the podcast and give specific advice, and I will share that. According to a survey by TIAA, 84% of people say saving for retirement is a priority, but only 69% are actually saving.
0:08:59 - Amy: And so this can point to cash flow and having it be hard to save. So what that says is competing goals. And so I think it ties into your question. But the thing that I want our listeners to take away is the importance of the time value of money. And the sooner you can get money invested and growing, the better off you will be in the future. Because just like compound interest at the bank, you put a dollar in, that dollar grows the next month and grows and grows. Now, I know for the last little while, interest rates have been incredibly low, so growth grew really slowly in investments over time.
0:09:43 - Amy: Ideally, it's going to grow faster based on how you're invested. But getting started early is a very big piece of successful retirement planning, but also making sure you can meet multiple goals.
0:09:58 - Jag: And as we always say, past performance doesn't indicate future results, but every individual circumstance is different. So, Amy, if one of our listeners has questions about any of this stuff or wants to come talk to you about retirement planning, financial planning, competing priorities, as we talked about today. How do they best find you at Thimbleberry Financial?
0:10:14 - Amy: They can give us a call at 503-610-6510 or reach us online at thimbleberryfinancial.com and click the Chat with Us button.
0:10:24 - Jag: All right. Next month, we'll hit number three of our six-part series. We're talking about investments, and we'll talk then.
0:10:30 - Amy: Sounds great, Jag. Look forward to it.
0:10:31 - Jag: Registered representative. Securities offered through Cambridge Investment Research, Inc, A broker dealer. Member. FINRA SIPC. Investment advisor. Representative, Cambridge Investment Research Advisors, Inc. A registered investment advisor. Cambridge and Thimbleberry Financial are not affiliated.