|[February 27, 2014]
Fidelity® Report Finds Physicians in Need of Financial Check-up, as Many Face Retirement Income Shortfall
BOSTON --(Business Wire)--
Despite being among the most highly compensated professionals, with an
average annual salary of $299,0001, many physicians are not
on track to support a financially secure lifestyle in retirement,
according to a new report from Fidelity
Investments®, the leading provider of not-for-profit
workplace retirement plans for the health care industry. The report
analyzes the retirement savings behaviors of 5,100 physicians and 95,500
other health care professionals using proprietary Fidelity data, and
provides suggestions for employers and physicians to help improve
The findings challenge the assumption that because physicians earn high
average salaries, they should be financially prepared to retire. In
reality, based on Fidelity's analysis, physicians are on track to
replace only 56 percent of their income in retirement, considerably
lower than the income replacement rate of 71 percent2
Fidelity suggests for those earning more than $120,000 annually. The 15
percentage point income replacement gap could be attributed to factors
limiting physicians' ability to save more for retirement, such as a
shorter savings horizon, since they often don't begin careers until
their 30s; plus, many carry substantial student loan debt from
undergraduate and medical school.
The report also reveals good news: physicians' average total savings
rate, from both employer and employee contributions, is quite healthy at
14.9 percent. Not surprisingly, older physicians are saving more than
their younger peers with 60-64 year olds saving 16.3 percent, compared
to younger physicians (age 30-39) who are saving 13.1 percent.
Other key findings from the Fidelity report:
Because of their high salaries, physicians are likely to receive lower
Social Security benefits, suggesting they should consider saving more
than those who earn less.
Younger physicians are demonstrating age-appropriate asset allocation
in defined contribution retirement plans, while many older peers may
be investing too aggressively.
"This analysis reveals that physicians are not as financially prepared
for retirement as one might think, which is a clear indication that
employees at all income levels need financial guidance," said Rick
Mitchell, executive vice president, Tax-Exempt Retirement Services,
Fidelity Investments. "Physicians work hard, and the well-being of their
patients are at the center of everything they do. That's why they should
enjoy the peace of mind of knowing their retirement plan has been given
a 'clean bill of health,' and we are working closely with our health
care partners to help their employees-including physicians-achieve
Maximize Savings Opportunities to Help Improve Physicians' Retirement
Even with a strong total savings rate, which includes both employee and
employer contributions (14.9 percent), and falls within Fidelity's
recommended 10-15 percent, the analysis suggests physicians and other
employees with higher salaries generally need to save at an even higher
rate of 15 percent or more, as Social Security benefits cover less of
their income needs in retirement. In fact, according to the Fidelity
report, Social Security benefits for physicians age 60-67 are projected
to account for a much smaller portion of retirement income (12 percent)
than non-physician health care professionals covered in the analysis who
are in the same age range and average $60,000 in annual salary (30
To reduce the income replacement gap, physicians should consider finding
ways to save more. To start, physicians should save up to the IRS
imits, which allow employees to contribute up to $17,500 for those
younger than 50 years old and $23,0003 for those 50+ in their
qualified workplace retirement plans. Surprisingly, many physicians are
not maximizing this savings opportunity. In fact, 60 percent of
physicians less than 50 years old and 30 percent of those age 50+ did
not save up to these limits-a lost opportunity to increase retirement
Even for physicians saving up to the IRS cap, savings challenges remain
given their salary levels, as they cannot contribute 15 percent or more
without reaching that limit. To address this, plan sponsors should
consider offering alternative saving plans, such as a non-qualified
457(b) plan, to help physicians increase retirement savings.
Asset Allocation: Older Physicians More Aggressive With Retirement
The report also uncovers another positive trend: younger physicians tend
to invest at levels appropriate to their age, with 58 percent of
early-career physicians (30-39 years old) demonstrating an
age-appropriate asset allocation in defined contribution plans. However,
investing behaviors tend to shift with age. In contrast, only 41 percent
of physicians age 50-64 demonstrate age-appropriate asset allocation,
and 42 percent of older physicians age 60-64 tend to be overly
aggressive, an indication they may be overcompensating to make up for
"Especially given their shorter savings horizon, we encourage physicians
to seek guidance on their appropriate investment mix at all stages of
their professional life," said Mitchell. "Additionally, considering
physicians' high salaries, there's an opportunity for employers to offer
alternative non-qualified savings plans to health care professionals,
which would provide additional options to help increase their retirement
savings rate to more than 15 percent."
Best Practices to Help Improve Physicians' Retirement Readiness
To assist in improving retirement readiness, the Defining
Excellence: Physicians' Savings Behaviors and Retirement Readiness
report, which is now available online, offers additional details of
these key findings and best practices.
Among the suggestions for physicians:
Save up to the 402(g) limit of $17,500 (and $23,000 for those 50+) in
2014 in qualified retirement savings plans, and maximize Health
Savings Accounts if the plan offers.
Take advantage of other savings vehicles, such as non-qualified
defined contribution savings plans, IRAs, tax-deferred annuities and
Target (News - Alert) a total retirement savings rate of 15 or more percent annually.
Seek professional guidance to develop savings rates goals, ensure
asset allocation is age-appropriate and create a retirement income
Best practices for employers to help physicians in the workplace:
Use plan analytics to assess the retirement readiness of both
physician and non-physician populations and adjust the retirement
program design accordingly.
Provide additional retirement savings opportunities for physicians,
such as a non-qualified 457(b) plan, which are widely used in the
not-for-profit health care sector.
Provide physicians with one-on-one guidance outlining opportunities
for increasing savings and allocating their assets.
Define key metrics to measure progress, including: percentage of
physicians with total savings rate of 15 percent or more, percentage
of physicians with age-based asset allocation and income replacement
rates for physicians and non-physicians.
In addition to the report, Fidelity also provides guidance through a
series of educational Viewpoints
articles offering insights into topics such as non-qualified
deferred compensation plans, target
income replacement rates and measuring
Fidelity's Services for the Tax-Exempt Market
Fidelity serves more than 4 million plan participants in more than 2,000
workplace savings plans across the not-for-profit market, including
health care, higher education, research, foundations, faith-based, K-12
and other not-for-profit organizations. Fidelity's comprehensive suite
of 403(b) retirement services includes plan design resources,
recordkeeping services, consulting and participant communication,
education and guidance. With retirement planning professionals and an
array of tools and resources to educate plan sponsors, Fidelity helps
employers in the tax-exempt market maximize retirement benefits plans
and increase employee retirement readiness.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of
financial services, with assets under administration of $4.5 trillion,
including managed assets of $1.9 trillion, as of January 31, 2014.
Founded in 1946, the firm is a leading provider of investment
management, retirement planning, portfolio guidance, brokerage, benefits
outsourcing and many other financial products and services to more than
20 million individuals and institutions, as well as through 5,000
financial intermediary firms. For more information about Fidelity
Investments, visit www.fidelity.com.
Investing involves risk, including the risk of loss.
Guidance provided by Fidelity is educational in nature, is not
individualized, and is not intended to serve as the primary or sole
basis for your investment or tax planning decisions.
Fidelity Investments and Fidelity are registered service marks of FMR
Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917
© 2014 FMR LLC. All rights reserved
Savings Behaviors and Retirement Readiness," Fidelity Investments,
2 Fidelity recommends a replacement income guideline of 85%
for individuals earning $120,000 or less
3 IRS 402(g) contribution limits for 2014. Each year, the
limits may be changed by the IRS based on inflation tracking.
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