Working as a medical doctor isn’t financially what it used to be, and that’s creating financial struggles for physicians in or approaching retirement.
While salaries are still good compared to other jobs, physician pay largely hasn’t kept up pace with inflation and rising costs. When adjusted for inflation, Medicare physician pay decreased by 20% between 2001 and 2021 according to the American Medical Association (AMA). Other physicians have experienced similar decreases — physician pay simply hasn’t kept pace with rises in consumer prices, education expenses, or simply the costs of running a medical facility or practice.
The change in pay inherently leaves many doctors in a weaker financial position than they expected. They don’t feel — and actually aren’t — as wealthy as they expected to be. This is often true throughout a physician’s years, and can be especially true during retirement.
When there’s no longer an income to rely on, uncertain market conditions, and costs that continue to rise, financial challenges can follow. Whether you’re planning for or already in retirement, however, a financial advisor may be able to help prepare for these financial realities.
4 Major Causes of Financial Hardships in Retirement
People working in any industry can experience financial hardships during retirement. Simply ignoring retirement planning, overspending on personal purchases, and not using tax-advantaged retirement accounts will make managing retirement finances more difficult for anyone.
In addition to the general mistakes that can make retirement financially harder, there are a few other challenges which tend to specifically impact many physicians. Here are four major causes of financial hardships for doctors in retirement.
1. Late Start in Retirement Savings
Completing medical school and residency is no quick process, and few medical students and residents have excess income to save for retirement with. There’s not much additional income when you’re facing large tuition bills and then have a minimal salary.
It’s not until post-residency that most doctors have anything substantial to put toward savings, and that can be well into your late 20s, 30s or even 40s for some late-starters who have long residencies.
Starting late limits your ability to take advantage of compound interest. Compound interest is the possibility of earning on top of interest that you’ve already earned. You might see increased portfolio growth not just from what you actually put in, but also from gains in your investments.
The secret to compound interest is simply time, as in years. The following example shows how much a one-time $1,000 investment might become if it’s made at age 20 – 40. The example assumes early retirement at age 60, and an average annual return of 7%.
| Amount Invested | Rate of Return | Age Invested | Savings at Age 60 |
| $1,000 | 7% | 20 | $14,975 |
| $1,000 | 7% | 25 | $10,677 |
| $1,000 | 7% | 30 | $7,612 |
| $1,000 | 7% | 35 | $5,427 |
| $1,000 | 7% | 40 | $3,870 |
The growth is exponential, and adding years could more than make up for a larger income. It’s sometimes more advantageous to start saving earlier, rather than simply investing more later on.
(Returns are not guaranteed, and retirement investing can include loss. Historical performance is not indicative of future results.)
2. High Medical School Student Loan Debt
High medical school loan debt further makes saving early on difficult. A large portion of many physicians’ salaries initially goes toward medical school loans, and any undergraduate debt from an expensive private college or university only further compounds the problem.
Approximately 70% of medical school students graduate with loans, and those average $202,453 Roughly half have debt exceeding $150,000 when they finish school.
These loans often start being due right when some doctors are trying to start a family. After the financial pressures of purchasing a house, raising children and paying loans, there may not be much left for long-term savings.
Moreover, it’s frequently important to pay those medical school loans down fairly aggressively. While every situation requires individual analysis, continuing to carry expensive loans into retirement often isn’t recommended. Strongly consider paying off loans while you’re earning an income to make payments with.
For an individualized assessment of how you might balance loan repayment and retirement savings, consult a financial advisor. Use our financial advisor finder, and get connected with an advisor who’s familiar with retirement planning for high-income earners.
3. Lifestyle Inflation
It’s not uncommon for doctors to upgrade their living standards rapidly upon finishing their training, and that’s a completely understandable temptation. Who wouldn’t want to enjoy some of life’s luxuries, after studying and working long hours for comparatively little pay?
Lifestyle inflation can include major expenses, like purchasing a large house, sending kids to private schools, and expensive vacations. It also takes the form of eating out more often, going to sports events or live shows more often, and getting designer clothes.
As a physician, you certainly can spend some of your income on nice things. The trick is to make sure that lifestyle inflation now doesn’t force you to cut back later. Few people want to downsize their house or stop going to sporting events later on, simply because they overspent for a few years.
One of the most effective ways to avoid financial problems resulting from lifestyle inflation is to have both a monthly budget and a long-term financial plan. A long-term financial plan can help you see what’s available to be spent each month. A monthly budget can help you allocate that amount, and hold you accountable for your spending.
There are many good budgeting tools available for you to use, ranging from online forms to your grandmother’s envelope system. There aren’t online tools that can provide a fully customized long-term financial plan. For that, you’ll want a financial planner experienced in retirement planning, college savings planning, and perhaps budgeting too. We can match you with such an advisor through our free online financial advisor tool.
4. Lack of Financial Education
Medical education isn’t financial education, and many physicians aren’t well-versed in financial planning. It takes a special person to read financial books after spending years starting at pages from medical books.
From compound interest and tax-advantaged retirement accounts, to asset allocation and investment selection, there’s a lot that can impact your retirement savings. Any misinformation or unknown information could have a sizeable impact on your nest age and monthly retirement income, as mistakes can compound over years and decades.
Financial advisors are also financial educators. Part of their role is to help you become better informed about financial topics. These could range from general financial concepts like compound interest to advanced strategies for portfolio risk management. Education can often come through specific meetings, and also through simply learning as they make recommendations.
You can think of many financial advisors as “financial teachers.” Get matched with a financial teacher who’s well-suited for you.
Top Financial Mistakes Doctors Make
The above challenges frequently lead to mistakes when planning for retirement. A few common and potentially costly mistakes that doctors make when retirement planning are:
Inadequate Retirement Planning
Mistake: Not planning for retirement is one of the worst long-term financial mistakes anyone can make. Failing to plan will likely prove extremely costly and stressful. Simply delaying retirement planning for now can result in a much smaller nest egg, because of how compound interest can impact your savings.
Solution: If you haven’t developed a retirement savings strategy yet, at least meet with a financial advisor one time. They can work with you to devise a plan that works for your finances, and also for how much (or little) time you want to spend focusing on finances. Many strategies can be automated through direct deposits, and passive or other investing strategies — they just need to be set up first.
Poor Investment Selection
Mistake: Choosing the wrong investments can have serious consequences in two different ways.
First, selecting overly conservative investments may result in much lower savings come retirement times. Overly conservative investments frequently have much lower returns.
Second, selecting risky investments in hopes of higher returns also can be a mistake. Taking on too much risk can increase the potential for loss, and retirement isn’t something you want to take too much risk with. This is savings you hope to rely on later in life.
Solution: Virtually all investments come with some risk, and even the most knowledgeable financial advisors can’t eliminate the risk of loss without being extremely conservative with investment choices.
A knowledgeable financial advisor can guide you toward a well-balanced portfolio that’s comprised of well-reasoned investments, though. They can work with you to determine your risk tolerance. They can then recommend asset allocations and individual investments based on your risk tolerance, time horizon, and financial goals for retirement.
Over-Reliance on Income
Problem: Even if doctors’ pay isn’t what it used to be, physicians still earn fairly good salaries. Over-relying on income is a common pitfall, and one that can create struggles come retirement age when that income stops coming in.
Solution: Saving for retirement can help you prepare for when income from work is no longer. Then, planning how to structure your retirement distributions can help cover monthly expenses and other costs.
Strategies to Avoid Financial Struggles in Retirement
The good news is that there are steps that doctors can take to reduce the likelihood that they face financial struggles during retirement. Best of all, many steps are actually quite easy to take:
- Plan for Retirement Early: Don’t delay retirement planning. At least have one consultation with a financial advisor sooner rather than later.
- Start Saving: The best time to start saving for retirement was a year ago, and the next-best time is today. Begin saving if you haven’t already.
- Budget Monthly: Live below your means so that you have funds to save and invest with. A monthly budget is a great way to plan how much you’ll spend.
- Diversify Income: Diversifying beyond your paycheck can provide more stability during retirement. Side work, real estate, dividend stocks, and annuities are a few other potential income sources.
- Properly Insure: Long-term disability insurance might provide payments should you become unable to work. Long-term care insurance and other coverages can help reduce various financial risks, too.
How a Financial Advisor Can Help
No matter where you are in your career, a financial advisor can assist with many of these challenges and mistakes. They’ll be able to help you better prepare for retirement by:
- Teaching you about financial principles and strategies for retirement
- Recommending savings goals, and how to balance savings with loan repayment
- Calculating a reasonable monthly budget that allows for savings and fun
- Suggesting asset classes and individual investments, based on your risk tolerance
- Developing a comprehensive retirement savings plan based on your situation
At Invested Better, we have an extensive network of financial advisors who provide retirement planning services for high-income earners — including doctors. It takes just a few minutes to complete our financial advisor quiz, and we can quickly connect you with an advisor who should be able to help.
General Disclaimer: The information provided on this site is for informational purposes only and should not be construed as financial advice. Invested Better does not guarantee the accuracy or completeness of the information provided. Please consult with a licensed financial advisor before making any financial decisions.
Investment Risk Disclaimer: Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results