As an early career cardiologist, you just finished a long journey of hard work and dedication; now is the time to reap the fruits of your labor. You might be tempted to live large and buy that sports car you were dreaming about or that Louis Vuitton ensemble you always wanted.
Beyond the philosophical virtue of moderation, it is important to realize that unlike other lines of work, cardiologists have a short earning period. The average cardiologist entering practice is in their mid to late thirties, after completing eight years of college/university education and a minimum of six years of training. With most people scaling down their workload in their mid to late sixties, the earning period is roughly 30 years. It is also the time when people have important family commitments such as caring for elderly parents, saving for their children's college tuition, paying back student loans, or all of the above. It is also the time when many people buy their first house. With all these competing commitments, one can easily foresee the possibility of not saving enough for retirement.
How much should you save for retirement?
The simple answer is "as much as possible," but perhaps "it depends" is more appropriate. The main determinant is your ability to predict when you want to retire and how much money you need to maintain your chosen lifestyle. The earlier you retire and higher required monthly income, the more you need to save. Extreme examples are aggressively saving most of your income and retiring relatively early in your fifties vs. saving the bare minimum with a willingness to work late into your sixties.
Regardless of which choice fits your life goals, it is generally better to save as much as you can earlier in your career to allow your investments to grow while you are still earning. With that strategy, you will be in a better financial position later in your career to reduce the amount you save, and you can start withdrawing from your hard-earned savings without eroding the principal when you retire. This will give you the most peace of mind and make your financial future more predictable. To better understand how money grows and to learn the time value of money calculations, view this video.
What retirement accounts should I have?
The median income for a cardiologist exceeds $500,000 (2), so most cardiologists fall in the higher income bracket with a federal tax rate of 35-37% (3). Therefore, tax-deferred retirement accounts (401k, 403b) are an obvious choice. Furthermore, with more cardiologists being employed rather than in private practice, employer matching contributions are a rare form of "free" money. Make sure you maximize your annual contribution into such accounts (4). This is a relatively simple step that can generate a retirement monthly income of $5,500/month without withdrawing from the principal, assuming 5% interest growth and 30 years of saving. These funds are usually deducted before you get your payroll check, so you don't feel the "pain" of saving. Finally, as a tax-deferred account, it reduces your taxable income, i.e., you pay less tax. Understandably, this may not be enough retirement income for most cardiologists to live on and one might be interested in exploring additional investment options. This brings us to the question of whether you should hire a financial advisor to help guide your investment choices.
Should I hire a financial advisor?
Again, like most questions, "it depends." Before you hire a financial advisor, you should reflect on your personal financial knowledge and your risk tolerance. If you have no professional training in finance and are planning on investing your money on a long-term basis with low risk tolerance, then a professional financial advisor can help select the appropriate investment options. The fees you pay them are usually affordable when considering the big picture. On the other hand, if you are financially savvy and have a high risk tolerance, then you may opt to go solo and carve your journey to a graceful retirement on your own.
If you decide to hire a financial advisor, you need to make sure that your financial advisor is obliged to put your interests first (and not those of the investment broker), i.e., has a fiduciary duty. Fiduciary investment advisors are registered with the Securities and Exchange Commission, which provides an online tool to look up registered investment advisors (5).
Finally, whatever you end up deciding, make sure you have good control over your financial future.
The article was authored by Salaheldin Abusin, MD, MBA, FACC, interventional cardiologist, Rush University System for Health, Chicago, IL, assistant professor, Rush University, Chicago, IL. Twitter: @abusinsalah
1. Wyvern66Economics. Retirement Planning and the Time Value of Money [Available from: https://youtu.be/Lin6pRivAW4.
2. 2020 Medaxiom Cardiovascular Provider Compensation and Production Survey. Available from: https://www.medaxiom.com/2020complink.
3. IRS provides tax inflation adjustments for tax year 2021 [Available from: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021.
4. Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits: IRS; [Available from: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits.
5. Securities and Exchange Commission. Investment Adviser Public Disclosure website [Available from: https://adviserinfo.sec.gov/.
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