Strong Total Savings Rates Not Enough for Highly Compensated
Fidelity Offers Suggestions to Improve Retirement Readiness
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
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:
“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
Maximize Savings Opportunities to Help Improve Physicians’ Retirement Outlook
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
To reduce the income replacement gap, physicians should consider finding ways to save more. To start, physicians should save up to the
Even for physicians saving up to the
Asset Allocation: Older Physicians More Aggressive With Retirement Savings
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 lost time.
“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 Readinessreport, which is now available online, offers additional details of these key findings and best practices.
Among the suggestions for physicians:
Best practices for employers to help physicians in the workplace:
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 retirement readiness.
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.
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1 “Physicians’ Savings Behaviors and Retirement Readiness,” Fidelity Investments,
2 Fidelity recommends a replacement income guideline of 85% for individuals earning
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Source: Fidelity Investments