Retirement Advice for Radiologists

A big salary does not, in itself, guarantee a comfortable retirement - even for radiologists and other top earners in medicine.

“If they fail to get in the savings habit and take advantage of retirement plans, they can really end up short when it comes to retirement,” Jeffrey Brown, MD, chairman of radiology at St. Louis University School of Medicine and co-founder of Shearwater Capital investment advisory firm told Diagnostic Imaging. 

How much is enough? Brown advises retirees to plan on spending no more than 4 percent of their retirement savings each year. With $4 million saved, that’s roughly $160,000 per year - decent, but for couples used to bringing in $350,000 or more, there may be unpleasant adjustments.

 “We like to see radiologists save a little more than that,” Brown said.

Other expenses radiologists may not consider when planning for retirement include increasing healthcare costs with age, said Greg Dorriety, a certified financial planner with Optimum Asset Management in Daphne, Ala. and an ambassador with the Washington, D.C. Certified Financial Planner Board of Standards, Inc. “And for the 65-year-old retiree who lives to be 90, inflation and the cost of living also become concerns,” he said.

Dorriety and Brown both advise radiologists to shield as much income as possible through 401(k) and other retirement plans. “They eventually have to pay taxes when they withdraw from the 401(k),” Dorriety said. “But that’s OK. They’re able to shield their money, let it grow tax deferred, and then withdraw it gradually at whatever tax bracket they’re in when they retire.”

Brown explained that retirement planning for radiologists, and physicians in general, is different than for the general population. Unlike business owners, who potentially could retire on assets from the sale of the business, radiologists tend to rely entirely on saved income as their sole source for retirement. High earners usually are subject to high taxes, largely because most of their cash-flow comes from wages reported on the W-2 form. For the 2014 tax year, married couples filing jointly must hand over 39.6 cents of every dollar earned over $457,600 to taxes.  At the same time, deductions are phased out, Dorriety said - unlike the business owner, once again, who can write off a lot of income on expenses. The whole idea of retirement savings is to harness the power of compound interest, he said. While most people launch their careers in their 20s, the average age for radiologists is 33. “You have 12 years of opportunity lost,” he said. In addition, it is not unusual for radiologists to complete their education with more than $200,000 in debt.

Retirement for Academic Radiologists
Radiologists employed by universities generally have a different set of options for retirement than those in private practice, Brown said. These include:

• 403(b), also called a tax-sheltered annuity, and similar to the 401(k) plan most non-profit organizations offer their employees. With the 403(b), employees may contribute a certain amount of their salary into the account, along with an employer match.  Contributions grow tax-free, but the money is taxed when it’s withdrawn from the account after retirement. 

• Roth 403(b), offered by some universities, in which the contributions are taxed going in rather than at retirement. A Roth is not necessarily better than a traditional 403(b), Brown said, advising radiologists to secure retirement money in both types of funds, if possible. Generally there are restrictions on annual contribution amounts for each type of 403(b) based on salary. Brown recommends radiologists contribute the maximum allowable to a 403(b), or combination traditional and Roth 403(b). “You never want to pass on that,” he said. “It’s good to max out.”

• Individual retirement accounts, or IRAs and Roth IRAs, in which individuals may contribute up to $5,500 per year, or $6,500 if you are older than age 50. 

• Taxable asset funds: stocks, bonds, exchange-traded funds, mutual funds and the like.  There are no restrictions on withdrawing money, although there is no employer match and withdrawals may be subject to a capital gains tax.

• 457(b), a less-common option, which allows academic radiologists to supplement their 403(b). A 457(b) is a defined contribution plan, meaning that the account value is determined by the amount of money contributed to it and the investment performance, with the employee bearing the investment risk

Retirement for Radiologists in Private Practice
Instead of a 403(b), radiologists in private practice generally have the option of contributing to either a traditional or Roth 401(k). These radiologists generally earn a high enough salary to contribute the maximum, which in 2014 is $52,000 per year for employees who are younger than age 50. The employee may contribute as much as $17,500 with the remainder coming from the employer in a 2 to 1 match. Older radiologists can contribute a maximum of $57,500, Brown said, noting that the employer may choose a match or contribution via pension or profit sharing. 

Some private practices also offer their own supplemental retirement plan, known as a cash balance plan, similar to the academics’ 457(b), although the structures of the cash balance and 457(b) are completely different. And unlike the 457(b), the investment risk in a cash balance plan resides fully with the employer.

Brown explained that in a typical cash balance plan, the radiologist’s account is credited each year with a “pay credit,” which may be a percentage of income.  The radiologist also receives an “interest credit” based on a fixed or variable interest rate linked to a standard rate, such as the prime rate. The money in the plan grows tax-free, and when a radiologist in the group retires, he or she receives the account balance at that time, either as a lump sum or in the form of an annuity. A cash balance plan sometimes is called a hypothetical account balance because it is based on a series of calculations rather than the group’s actual retirement assets.[[{"type":"media","view_mode":"media_crop","fid":"24229","attributes":{"alt":"","class":"media-image media-image-right","id":"media_crop_3979493370753","media_crop_h":"0","media_crop_image_style":"-1","media_crop_instance":"2067","media_crop_rotate":"0","media_crop_scale_h":"0","media_crop_scale_w":"0","media_crop_w":"0","media_crop_x":"0","media_crop_y":"0","style":"height: 223px; width: 350px; border-width: 0px; border-style: solid; margin: 1px; float: right;","title":" ","typeof":"foaf:Image"}}]]

Radiologists in private practice may also open a traditional IRA, however their contributions may not be deductible on their tax return if they contribute to an employer plan. Any growth on the non-deductible contributions will be tax-deferred going forward. Additionally, married couples filing jointly and making more than $191,000 per year in 2014 are not entitled to contribute to a Roth IRA, Dorriety said.

Other Retirement Tips for Radiologists

• Refinance your education loans. As Dorriety explained, a steadily employed radiologist may be able to refinance student loans at lower interest rates. 

• Start out with a modest lifestyle. “Don’t go right out and buy a big house,” Dorriety said.  “Bankers love to give them big loans because they know they can afford the payments.  We tell them to pay down their student debts first and start saving for retirement.” More expensive houses also are more expensive to operate and can be harder to sell, should the radiologist decide to move to a different city, he said.

• If an investment opportunity seems too good to be true, pass on it.  Dorriety explained that people looking for financial backers tend to prey on radiologists and other high earners. “Everyone and their brother are coming after you saying, ‘hey, invest in this, hey look at this,’” he said. “It’s important that radiologists get good, trusted financial advisors and establish relationships early in their careers.” As a start, look for advisors who are either certified financial planners (CFP®), certified public accountants (CPA) or chartered financial analysts (CFA), for investment management.

• Consider long-term-care insurance. “Uncovered healthcare expenses can wreck anyone’s finances,” Dorriety said. “But purchased early in life, the costs can be reasonable and help ensure a financial legacy for their heirs.”