What ails you, doc?
For financial advisors looking to cut their health costs, here’s a simple idea: Propose to barter an hour of your financial acumen for a 60-minute physical. Give your doctor a financial checkup. Your doctor may just say yes.
Here’s why: Doctors aren’t doing enough to save for their retirement, according to data collected from 13,330 doctors and analyzed by Fidelity for its “Money FIT Physicians Study” earlier this month.
(Of those 13,330, the Fidelity researchers looked closely at the retirement and advice habits of 360 doctors within the larger sample.)
Before readers turn away, repulsed by the idea that some of the highest-paid professionals in the land deserve still more investment advice, it’s worth thinking about the obstacles faced by those in the medical community.
Doctors often don’t have access to a bona fide employer-sponsored retirement plan before they start working full time in their mid-30s. That is a decade later than many graduates often start their careers.
Many doctors emerge from medical school with enough debt to sink a small armada.
Operating room surgeons who rely on their hands for intricate work requiring hours of long-term concentration may not have as long a career as they thought. That is a phenomenon referred to as “compressed timeline,” in the words of David Martin, vice president of client analytics and industry research with Fidelity Investments.
But wait, there’s more.
Maxing out within employer-sponsored qualified plans limits doctors to setting aside the allowable maximum of $18,000 a year. As it turns out, many doctors aren’t going beyond that and putting aside anything in nonqualified plans.
“Our advisors tell us that objections to nonqualified plans are that assets in nonqualified plans are not held in separate trust, so there’s some risk of that person losing those assets if hospital goes bankrupt,” Martin said in an interview with InsuranceNewsNet.
The bottom line is this: “There’s a significant structural reason that we believe that the doctors need more advice,” Martin said.
Many doctors make the same mistakes as college grads, which is to say doctors are often overexposed to equities right before they retire. Also, they are underexposed to risker assets when they begin their careers and have a 30-year time horizon.
Then there’s Social Security.
The government benefit program was designed to replace a good chunk of a worker’s earnings, not the earnings of a highly-compensated professional.
For workers making $50,000 to $75,000 a year, Social Security may replace, say, 50 percent of that in retirement. But for a doctor making $250,000 to $500,000, Social Security is only going to replace less than 20 percent or even as little as 10 percent of preretirement earnings.
“While physicians are expected to be confident and knowledgeable about their medical specialty, that confidence doesn’t always extend to financial matters,” said Alexandra Taussig, senior vice president of Fidelity Investment, in a news release.
“Health care employers can play an important role in addressing physician’s financial health by actively promoting the opportunities to get guidance through their workplace retirement savings plan and encouraging annual financial checkups,” she said.
Recent mergers and acquisitions among hospitals and physicians’ groups offer individual doctors who join larger organization more access to plan guidance. Doctors and physician’s practices that join larger groups should do relatively well in terms of retirement advice and plan guidance.
But among plan sponsors with difficulty in coordinating and harmonizing benefit plan structures in the wake of a merger, what may be a detriment to individual practitioners might well be an opportunity for advisors, Martin said.
Structural impediments to retirement savings aside, doctors have demonstrated an average retirement savings rate of 19.8 percent in employer and employee contributions, an increase from an average rate of 15.3 percent in 2012, according to Fidelity.
That’s good news, on the surface.
But that’s only an average, and many — as much as 48 percent — of doctors are saving less than the industry recommended savings rate of 15 percent in employer and employee contributions, according to Fidelity.
All of which is to say that the next time an advisor visits his or her doctor, it may pay to ask about the doctor’s retirement saving habits.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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