Most people aim to have a solid amount saved for retirement, whether it’s through traditional accounts like 401(k)s or Roth IRAs, or even standard taxable brokerage accounts. Yet, many struggle with the right strategies to increase contributions to these accounts. So, let’s break this down.
Ready? Here it is:
“The best way to increase savings in your retirement accounts is simply to put more money into them, especially early on in your career.”
Sound too straightforward? Maybe it does, but it’s the plain truth. I often find it perplexing why so many opt for different, less effective paths. Allow me to unpack this with an example and a comparison.
Some Case Studies
Let’s crunch some numbers. We’re considering below-average income for the doctors discussed. In 2024, the average doctor in the U.S. is expected to earn about $376,000, meaning they’ll have about $300,000 available to spend in 2026.
Our first doctor finishes residency at age 30 in 2026. By maintaining a resident’s lifestyle for four years, they manage to save 30% of their $300,000 income and pay off student loans within those four years. This doctor continues saving 30% of their income until the age of 65, earning an average real return of 5% on investments. What does their retirement look like at age 65 (in 2026 dollars)?
=FV(5%,35,-30%*300000) = $8.1 million.
This amount generates a retirement income of around $325,000 each year, far surpassing their previous earnings. This doesn’t even factor in other income sources like Social Security. Where did this wealth come from? Well, $3.2 million of it is attributed to forced savings over time. A significant portion of their retirement wealth stems from dedicated contributions.
Now, our second doctor takes a bit longer to finish school and completes training at age 35, also earning that $300,000. After five years of focusing on paying off student loans, they prioritize buying a nice house over savings. By 45, they finally start saving, but at only 15% of their income—having read that this percentage was a decent target for retirement savings. A few years in, feeling a bit weary, they embrace a “Coast FIRE” mindset, planning to quit and live off savings till retirement at 65. But what do they have saved for retirement when they hit that age?
At 45 years old, they have nothing.
If you check at age 55, =FV(5%,10,-15%*300000) = $566,000.
And at 65, =FV(5%,10,0,-566000) = $922,000.
This yields a modest retirement income of $37,000 annually (in 2026 dollars). Even with a possible $50,000 from Social Security, their retirement will be comfortable but far from luxurious.
What accounts for Doctor #2’s $922,000 compared to Doctor #1’s $8.1 million? It boils down to the reduced savings into retirement accounts. They contributed around $450,000 total, which is roughly one-seventh of Doctor #1’s total. The discrepancy is stark.
I’m not suggesting everyone must work for 35 years or save 30% of their income to retire well. If you save consistently, you can indeed have a comfortable retirement without amassing millions. My point is simple: To build substantial retirement savings, you need to save significantly and, if possible, start early to take advantage of compounding.
Even if you develop a balanced approach, the results will still favor consistent saving over time. Consider a third doctor.
This physician finishes training at 32, earns $300,000, and pays off student loans in five years, living like a resident while saving 10% initially and then bumping that to 20% until age 60. After that, they stop saving until retirement at 65. What’s their retirement snapshot at 65?
At 32, they have nothing.
By 37 years of age, =FV(5%,5,-10%*300000) = $166,000.
After eight more years, =FV(5%,8,-20%*300000,-166000) = $818,000.
If they cease saving at 60, they’ll reach $3 million.
Retiring at 65 would give them =FV(5%,5,0,-3000000) = $3.8 million.
That’s roughly $153,000 annually to spend (in 2026 dollars). With the added $50,000 from Social Security, their expenses may well mirror what they experienced during their working years, minus taxes and retirement contributions, allowing for a fulfilling retirement without financial strains.
How did Doctor No. 3 manage this? Simple: they contributed more consistently to their accounts. Over time, they’d saved about $1.5 million, significantly more than Doctor #2.
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Safe Savings Rate — What percentage of your income should you save for retirement?
A high savings rate mitigates many issues.
It’s Just Math
You can’t dodge math. There aren’t any reliable shortcuts. Sure, working harder or picking up side gigs can boost earnings. You might achieve better returns by accepting more risk or optimizing your investment strategies. But honestly, none of these methods outshine the fundamental principle of putting more money into retirement accounts early on. Seriously, take five minutes to fiddle with a financial calculator or spreadsheet, and you’ll find this is no secret.
Boring?
Absolutely.
Effective?
Very much so.
I’ve yet to meet anyone who hasn’t found success with this approach. Honestly, go ahead and find a doctor who’s scrambling financially in retirement after saving at least 20% of their income for 25 years; I’d be surprised if you can.
No one?
Exactly—such a hypothetical person simply doesn’t exist. While life holds no guarantees, this principle comes pretty close.
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Save for future possibilities.
Here’s what we earn, save, and spend as “middle-income earners.”
Why Don’t People Save More For Retirement?
Even though the process is straightforward, many still avoid it. Here are some reasons:
- They feel entitled after making sacrifices in their 20s and 30s.
- Their partner prefers to spend rather than save.
- They have personal spending wants.
- Desires for luxury items.
- Living in high-cost areas with high taxes.
- Struggling between patient care and efficient practice management.
- Lack of investment education from medical training.
- Unawareness of the potential for greater investments beyond retirement accounts.
- Burnout has set in.
- Living in areas with poor schools, despite community attendance.
- Prioritizing healthy food or lacking time to prepare.
- No time for trips—plus, driving to Italy isn’t feasible.
- They save for retirement only after buying homes or clearing student debt.
- Receiving misguided advice from dubious financial advisors.
Does this resonate? I imagine it does. I hear variations of this sentiment frequently, even informally.
This is the hard truth about retirement.
And honestly, if you aspire to accumulate wealth, start by curbing your spending now. Next, channel those funds into sensible investments, preferably in retirement accounts, and let them grow over time.
What’s your perspective? Why is it so challenging for healthcare professionals to accumulate retirement savings? What strategies have you implemented to promote consistent saving from the start?
