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Time to Get Your Retirement Savings Organized!

  

Tax Day has come and gone. Since you’ve already spent time putting your financial statements together, why not take this opportunity to make the most of that effort? By Jeffrey Steiner, DO, MBA



Most physicians don't have a great handle on their retirement savings and investing. Chances are, you've built your financial system as you went along. April is the perfect time of year to build some structure around that system and plan for the future.

Whether you're early in your career or eyeing early retirement, there are some simple things you can do now to set yourself up for success. Make a huge impact on your retirement savings by using this four-step process.


Step 1: Organize your retirement accounts.

This is where you see where you are now. Make a list of all your accounts and organize them by type: Traditional (pre-tax) and/or Roth (post-tax). For example, you may have a 403(b) from residency that you forgot about or a different retirement plan from fellowship. Maybe you have a Roth IRA that you started during training and haven’t done much with because you have gotten busy. You might even have a 401(k) or 403(b) from a former attending job.

Find all your retirement accounts (both current and older), learn how to log into them, and find out how you have your money invested. Some employers will divest your account when you leave their employment and move your money from investments to cash within the retirement account. I have met with multiple physicians who had a substantial amount of their retirement savings sitting in cash instead of being invested.

Since you are reviewing your investments, see how they compare across accounts. You haven’t made any changes yet. You just figured out where your retirement money is and how it is invested.


Step 2: Simplify your retirement accounts and holdings.

The next step is to simplify your retirement savings. You have four basic options for those retirement accounts to which you are no longer contributing. You can:

  1. Cash it out. Please don't do that; you will owe a 10% penalty on top of paying ordinary income tax if it is a traditional account.
  2. Leave it where it is. This might not be a bad plan if you can leave it invested and the investment options for you are reasonable. If you have a Thrift Savings Plan (TSP) because you worked at the VA or are a former military member, leaving your retirement savings in the TSP could possibly be the best option due to the insanely low expense ratios.
  3. Roll it to an Individual Retirement Agreement (IRA). You will have more control over your investment options. However, rolling traditional money to a traditional IRA can cause issues for you if you plan on doing a backdoor Roth IRA in the future.
  4. Roll it into your current employer’s retirement account. This is a great option if you are happy with your investment options and want to simplify your retirement savings.

Decide what you want to do with each retirement account and if it is reasonable to combine some of the accounts. This could help you with the ongoing management of selecting your investments and rebalancing your portfolio.

This might also be a great time to simplify your investments within those accounts. You might have changed your investing philosophy or added some investments that made sense at the time but don’t make sense now. Do you need to change how you are invested? If your retirement money is not invested, should you consider getting a better return? These are some questions to consider.


Step 3: Automate your retirement savings/investing.

Once your updated retirement system is organized and simplified, it is time to implement some automation. Automation's superpower is that once you make a decision, you don't have to make it again. The more things you can automate, the less time you spend managing them.

Where are there places in your retirement savings system that you want to automate?

  • Automate your savings for investing. Many W2 employees have their retirement savings automatically taken out of their paychecks before it hits their checking accounts. (1099 employees will have to build in some systems to help them do this if their income tends to be uneven.) You may automate by setting a date to pre-load your backdoor Roth IRA for the year. Once the money goes to your retirement accounts, then you will need to automate how it is invested. Automating the savings AND investing will help your retirement savings grow.
  • Automate your “retirement” savings outside your retirement accounts. If you have maximized your retirement savings in your retirement accounts, then it is time to automate your savings into a brokerage account. Schedule a deposit to go from your checking account to your brokerage account each month and have it automatically invested. Also, make sure you are reinvesting capital gains and interest if that is part of your plan. Saving and investing in your brokerage account becomes easier when you turn it into a "bill" each month.


Step 4: Anticipate changes in your life.

Three big changes to anticipate are:

  1. Increase in salary. If you are on a career track where you are earning more money, plan for an increase in salary. You may not have maximized your retirement savings because you have had other financial puzzles to solve. That’s OK, life happens. As your income increases, you may have more margin to increase your retirement savings if that is your goal.
  2. Increase in the maximum you can deposit each year in your retirement account. The rules regarding how much you can save each year in your retirement accounts are calculated based on inflation. The IRS will periodically increase the maximum amount you can put into your retirement accounts. If you are trying to increase your savings in your retirement accounts, check annually to see if the amount has been increased.
  3. Turning 50 years old. One of the benefits of reaching this milestone is that you can participate in “catch-up provisions” and save more money in your retirement accounts. These provisions go into effect for the year you turn 50, so anticipating this milestone can help you save more.


There you have it! Taking these simple steps will go a long way toward saving and investing for your future.



Jeffrey Steiner, DO, MBA is an early retired pediatric anesthesiologist turned financial planner. He is the author of Anesthesia Made Easy: The survival guide to make your first anesthesia rotation a success. He is also author of Physician Personal Finance Made Easy: The Review Book for the Course You Never Had in Medical School. You can find him at SecondOpinionFP.com.

Dr. Steiner (Second Opinion Financial, LLC) is a registered investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice or as tax, accounting, or legal advice. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.



The ASA Committee on Young Physicians is pleased to present this monthly article series on personal finance. These articles are not written by hedge fund managers or real estate tycoons but by practicing physicians. Some have business degrees and some do not – but every contributor is an anesthesiologist who has some guidance to offer the rising generation of attending physicians. It is not the intention of the committee to offer definitive financial advice, but rather some pearls of wisdom to consider while developing a personal fiscal plan.


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ASA Community Blog is published as a benefit for ASA members. The views expressed on this blog are those of the individual contributing writers only and do not necessarily represent the opinions of ASA.