As a doctor, you work hard to save lives and make the world a better place. You’ve spent years dedicating and honing your craft. But long workdays and a complex financial situation means you often put retirement planning on the back burner as you deal with more pressing matters.
If you’re confused and overwhelmed by your pension elections and Social Security decisions, then this article is for you. Read on as we discuss what you need to know about pensions and Social Security—and how we help doctors just like you prepare for a secure retirement.
The Truth About Pensions
Pensions are far less common than they once were. Back in the 1950s, over 50% of private-sector workers had access to traditional pensions. (1) Fast-forward to today, and only 7% of employers offer pensions and 14% offer hybrid plans. (2)
But if you’re a high-earning doctor with your own practice, you have the option to establish a defined benefit plan for you and your workers, which is essentially a modernized pension. These plans often have “hybrid” options known as cash balance plans, which allow you to save even more money per year than you ever could with a 401(k). For 2020, you can contribute up to the lesser of these two amounts: (3)
- $230,000; or
- 100% of your average compensation for the highest three consecutive years
As you progress in your career and earn a higher income, your contribution limits increase drastically. That’s why these hybrid options are an attractive choice for older physicians who are trying to make up for lost time when saving for retirement. Plus, contributions are usually tax-deductible as a business expense.
The Truth About Social Security
It’s important to understand that Social Security was only designed to cover 40% of income for the average worker. (4) For high-income earners such as doctors, this percentage is even less. For 2020, the maximum amount anyone can receive in Social Security benefits is: (5)
- $3,790 for someone who files at age 70
- $3,011 for someone who files at full retirement age
- $2,265 for someone who files at 62
Your Social Security payout increases by 8% each year you wait to claim benefits—until it maxes out at age 70. As you can see from the example above, postponing benefits could add an additional $1,500 in your pocket each month. But deciding when to take Social Security is a highly personal decision. From a mathematical standpoint, it makes sense for everyone to wait until age 70. Ultimately, factors like your health, age, and financial obligations will influence your decision.
How We Help
The truth is, Social Security will only cover a portion of your expenses in retirement and choosing pension plan elections is a tough thing to do. At Harvest Asset Group, we have years of experience helping doctors navigate these tough decisions. Together, we help physicians just like you gain financial clarity with these three easy steps:
- We start by creating a clear picture of your current financial situation. (This includes talking through your current level of wealth, risk tolerance, health, current mix of assets, and family obligations.)
- From there, we analyze your current mix of fixed and reliable sources of income and discuss the advantages and disadvantages of each (e.g. pensions, Social Security, annuities, taxable brokerage accounts, rental income, and more).
- Lastly, we develop a Social Security election strategy that helps you maximize your benefits.
Your First Step
Just as you wouldn’t leave your patients’ physical and mental health to chance, you shouldn’t leave your financial health to chance. At the Harvest Asset Group, we’re dedicated to helping you maximize your Social Security benefits and make pension elections you won’t outlive in retirement. We welcome the opportunity to assess your current financial situation and offer suggestions on how we can help you gain financial clarity. To get started, call us at (207) 775-1151 or email us at email@example.com.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.