Retirement planning tips for resident physicians—what to do now

Resident physicians are stretched thin financially. Considering that, your time in residency training might not seem like the right phase of your career to begin saving for retirement. 

According to experts on physician finances, investing during residency should not be out of reach. With a plan for student loan-repayment and small, consistent contributions to retirement funds, resident physicians can lay a solid foundation for their financial future as they begin this next chapter in their careers. 

What does that foundation look like? Experts from Laurel Road, selected by the AMA as a preferred provider to help you navigate your financial future, offered a few tips.

Before you lay out any sort of investment strategy for your career as a resident, you need to have a handle on your student-loan repayment strategy. As a resident earning a fraction of what you are likely to earn after completing your training, the right plan can make your monthly payments somewhat manageable, according to Janet Fields. She is head of health care partnerships at Laurel Road. 

Along with paying off any high-interest credit card debt and setting aside cash for an emergency fund—typically a figure that can cover at least three months of expenses—Fields also advised PGY-1s to try to avoid deferring student-loan payments during training. She said it’s imperative for residents to create a plan to methodically tackle their medical student-loan debt. 

“While managing an average of over $227,000 in medical school debt can seem overwhelming, there are ways to make your student loan payments more manageable, especially during training,” Fields said. “Whether that includes an Income-Driven Repayment plan or refinancing, once you have a plan to tackle your student loans, you’ll be free to focus on your career and next financial goals, including investments.”

Laurel Road offers special refinancing options for residents and fellows, and you can schedule a free consultation to evaluate your repayment options.

Dive deeper:

Compound interest works in your favor with tax-advantaged retirement accounts—like a 401(k), 403(b) or Roth IRA—by letting your earnings generate their own earnings over time.

Compound interest is calculated periodically—either daily, monthly or quarterly—and then added back to your account balance. Each time your interest is calculated, the calculation is based on the new, increased balance. That means the more times your interest is compounded, the more money you will make.

Because of compound interest, investing even small amounts early in your career can have a big impact over the long term.

Many of the hospitals that employ resident physicians offer a 401(k) plan with employer matching. That’s money you don’t want to leave on the table.

“The employer match is essentially increasing your income by the match amount—think of it as free money,” said Chirag Shah, MD, an anesthesiologist and former investment banker who works with Laurel Road in an advisory capacity. “Those contributions are going to compound during your residency and beyond, so it’s a great way to take advantage of guaranteed returns.”

Dr. Shah advises residents to at least contribute enough to get the full match, which typically ranges from 3% to 6% of your salary.

Dive deeper:

While it’s smart to prioritize taking full advantage of your employer’s 401(k) match first, any additional retirement savings—if your budget allows—might be best funneled into a Roth IRA. 401(k) contributions are tax-deferred, meaning that your contributions and any capital gains will be taxed at whatever your personal income-tax rate is upon withdrawal. Roth IRA contributions, by contrast, are funded with after-tax income and your contributions can grow tax-free. Unless Congress rewrites the tax laws, you will not owe additional tax at the time of withdrawal in retirement.

“A Roth IRA can be a good savings option for those who expect to be in a higher tax bracket in the future, making tax-free withdrawals—which you can start making at age 59.5—even more beneficial,” Dr. Shah said. “Just note that if you’re married, whether you file your taxes separately or jointly will impact your ability to contribute to a Roth IRA, so you may want to speak with a financial adviser to fully understand your options.”