CHAPTER 9

It’s not too early to save for retirement.

If you’ve read some of the other advice we’ve written about staunching the financial hemorrhage of medical training and planning for a productive and lucrative career, good job! Thanks for sticking with us. Give yourself a pat on the back.

Now (finally) let’s turn to a more fun topic, investing your money for the future and hopefully turning that (small) pile of money into more and more money over time. We find it fun, anyway!

Here’s the thing. Even after you carefully budget, hustle for extra money, figure out your insurance needs and make a plan for your loans, investments during residency should be targeted at retirement savings. The advice we share here is not about day trading in your spare time in the ICU or raking in millions in BitCoin. Instead, we have some practical advice about protecting your nest egg and family over time. Maybe not flashy, but you’ll thank us later!

There’s plenty of great reasons you should start saving for retirement now:

● Tax Savings: You can pay a lower rate of income tax on the money that you save now, saving you money down the road when you are in a higher tax bracket.

● Investments Grow: The money you invest now should grow over time, assuming you don’t invest all of your money in AOL or WorldCom. Compound interest is magical.

● Building Good Habits: If you get into the habit of living on less money than you make, it will make your attending life much more financially advantageous.

Not to mention, you cannot borrow for retirement. You can borrow for medical school, your house, your children’s college, etc. However, you cannot borrow for retirement. It’s on you. Start now, and take advantage of compound interest as soon as you can. Ready to learn more? Great!

Generally, you can choose whether to pay taxes now on your income or later. Through your employer or individually, you can get a taxable or a tax-deferred retirement account.

●     Traditional retirement accounts allow you to defer paying taxes on the money that you invest. It gives you more money to invest now, but the downside is that you have to pay income tax on the money when you withdraw it. Your income may be higher later than it is now, meaning you will likely pay more income tax on the money you invest.

●     Roth (tax-deferred) accounts are types of retirement accounts where you pay income tax as you earn it, but the money that you invest is then tax-free forever, no matter how much your investments grow. This is advantageous when you are a resident because you are almost certainly in a lower tax bracket now than you will be as an attending.

After a certain level of income, you are no longer able to contribute directly to a Roth account. In all likelihood, you will vault over this limit the year you finish residency (or the following year) and will no longer be able to make a standard Roth contribution.

There are many types of retirement accounts, some of which you may be eligible for through your employer, or through the market.

● 403(b). In most residencies, you will be working in the non-profit setting. A 403(b) is the nonprofit version of a 401(k). This should probably be the first account that you contribute to because it’s the easiest. Money can come directly out of your paycheck and into the account. In the words of many wise investors, ‘pay yourself first’!

You can choose to contribute to a traditional 403(b) or a Roth 403(b). We recommend choosing the Roth (for reasons explained above).

You can contribute up to $19,000 per year to this account. (Add an additional $6,000 per year if you are over 50). This amount changes yearly and is accurate for 2019.

● IRA (Individual Retirement Account). This is essentially your own personal retirement account that you can set up with many different banks or financial institutions.

As with the 403(b), you can choose whether to contribute to a traditional or Roth version. Choose the Roth during residency.

You can contribute up to $6,000 per year to this account. Again, this number changes with time and is accurate for 2019.

This means that, in 2019, you can protect up to $25,000 of your income from certain taxes. Why should you start these accounts during residency? Simple, my friend.

Compound interest is one of the miracles of the universe.  Imagine that you open up a high yield savings account online, earning, say 2%. Every month, the bank pays you 0.12% interest (2% ÷ 12 months). That amount is added to your balance, and the next month, the bank pays you interest on your new, higher balance. Underwhelmed? We have some shocking examples of the impact of compound interest in Chapter 9 of our book, Advanced Wallet Life Support: How to Resuscitate Your Finances (And Your Sanity) During Medical Training, along with insight about the best retirement accounts to set up as a medical resident.

Remember- If you start your career by putting aside some portion of your paycheck towards retirement, you’ll get used to it. 10% is good, 20% is better. When you continue this habit as an attending, you will be on a comfortable path towards retirement.