Optometrists are among one of the highest growing professional occupations in the United States. Along with many professional fields like primary medicine, pharmaceuticals, and dentistry, optometrists can have a difficult time saving for retirement due to the looming responsibilities of , growing a private practice, and starting a career.
One of the main reasons people fall behind in their savings is that they don’t have a clear plan or know how to start. There can be a lot of uncertainty especially when you are just starting out. I want to help prevent your retirement savings from falling to the back burner. I’ll show you 3 simple ways you can be proactive about saving for your future throughout your career.
1. Understand the benefits of a workplace plan:
For young medical professionals, a workplace plan offers two great benefits.
A workplace plan is one of the simplest accounts to start adding to your retirement savings. You can select a percentage of your paycheck to be funneled into your retirement account, making it easy to contribute each month. This automated system will help ensure you are saving and can keep your savings momentum high. Since you are able to decide how much of your paycheck goes into the plan, you can adjust it based on your income level.
Another great facet of a 401(k) account is the potential for a company match. Many employers offer anywhere from a 2%-6% match on your savings which will help boost your retirement savings even more. If you have the opportunity to enroll for the match program, do it! By not contributing the amount you need to get the match you are leaving money on the table.
It is important to note that if you own your own practice and have a 401(k) with a match, you have to offer that same match to your employees which is a wonderful benefit but can be expensive. Evaluate your business profit to determine the match percentage that works best for you.
The most important thing here is to take advantage of the opportunities in front of you. There may be many workplace benefits that you haven’t fully participated in, and maximizing your 401(k) might be one of them.
2. Open an IRA
An Individual Retirement Account or an IRA is a great opportunity for you to save up money for retirement. These accounts are set-up, managed, and contributed to only by you and not through your employer. There are many variations that could work for you, but the two most common types are:
- Traditional IRA
- Roth IRA
A Traditional IRA will operate in a similar fashion to your 401(k). Your contributions are pre-tax as is the money that accumulates in the account. The only time you will need to worry about taxes is when you take distributions in retirement, and those distributions are taxed as income. This account will allow you to lower your taxable income which is great since optometrists fall into a higher salary range. Traditional IRAs are a great savings vehicle for medical professionals because there is no income limit to contribute like there is with a Roth IRA.
A Roth IRA is a great account for new optometrists to consider. With a Roth IRA, the contributions are made with after-tax dollars. While this will not help lower your taxable income, all distributions are free of taxes. That means that whenever you need to take money out of the account (provided you follow the contribution rules) it is not taxed as income, making it an attractive option to many investors.
There is a catch, and that is the income threshold. Roth IRAs place limitations on the amount of money you can contribute per year like a Traditional IRA, but they also place an income limit on contributing. For 2019, taxpayers filing as single cannot exceed an income of $122,000 and those who are married and filing jointly cannot exceed $193,000. Medical professionals in the prime of their career will make well over that amount which is why I advise you open a Roth IRA early in your career when you are not making as much money.
After you reach the income threshold, there are ways to transfer funds from a Traditional IRA to your Roth IRA through a system called a backdoor Roth IRA. If this pertains to you, talk with your financial advisor as they will be able to give you advice on the best way to accomplish it.
Health Savings Account
A Health Savings Account or HSA is a great addition to your retirement savings plan. HSAs are savings options accompanied by high deductible health insurance plans that offer wonderful tax incentives. The money you contribute is pre-tax, it grows in your account tax-free, and if withdrawn for medical purposes remains tax-free!
With even a healthy couple spending on average upwards of $250,000 on medical expenses during retirement, this account is something you should consider working into your savings strategy.
Saving for retirement is not easy for anyone, let alone medical professionals. The key to a great strategy is a great savings plan. I have a savings approach designed for medical professionals that would be a great resource for you to check out. My team and I are dedicated to helping you thrive. If you want personalized advice for your retirement savings plan, give us a call!