Your 401k Plan Sucks As A Retirement Account

One of my more financially interested colleagues recently asked me how it is even possible to retire even after maximizing his 401k his entire working career. This is definitely a valid questions. If he were to contribute  every year for 35 years (starting contributions at age 30 right after he finishes residency), he’d only have $18,000 x 35 = $630,000 in today’s dollars, not assuming any growth from his investments.

That’s not a huge amount of money, especially by doctor standards.

In contrast, a poll by Financial Samurai shows that 25% of his readers have between $201,000-$500,000 in their 401k’s and 17.5% have over $500,000! To add insult to injury, 76% of his readers are between the ages of 26 and 45!

Financial Samurai’s poll is both enlightening and motivating. Clearly the majority of his audience are not doctors—if you look at my friend’s situation, in the absence of investment windfall there is no way he’d have as much in his 401k as his non-medical professional counterparts. This is simply due to the fact that doctors are usually at least 10 years behind their peers in retirement contributions. The maximum limits for 401k contributions are set universally; sometimes you can shove more in with profit-sharing plans, but duration of working life plays the largest role in building your 401k size.

It’s also sobering to think that despite earning solid six-figure incomes, doctors are still typically in the lower end of high net worth individuals. Those that fill the top can include real estate moguls, small business owners who picked the right niche for their industries, and the community college dropout who started a business selling parts for construction cranes.

If You Want To Get Rich, You Have To Work For It.

Just as we spent weeks mastering our basic medical science knowledge to pass the USMLE Step 1, we have to spend time and brainpower in order to get rich. I’ve discussed ways doctors can become rich previously, but the fundamental principle in doing so is still blood, sweat, and tears. As doctors, we can work harder than probably 90% of others around us (exceptions that come to my mind include the marines, military workers, and a handful of other grueling labor-intensive occupations), so I have no doubt that we can become rich if we want it badly enough.

We’d have to want money badly enough to become rich because time is limited. Success requires many trials, failures, reassessments, perseverance, and luck.  It’s difficult to experience all of that simultaneously. To win, something in our lifestyle has to be sacrificed.

Great surgeons I’ve known became great from talent and the years they spent operating emergency cases while being away from their families.  Prolific scientists dedicate their time on their research and publications—this is time not spent on any of their ancillary hobbies. I’ve also known a handful of successfully rich doctors who are twice divorced with alimony from L.A. to Washington D.C.!

If A 401K Not The Solution To Retirement, What Is?

Even though there is a limited amount that can be squirreled away in a 401k, it still is one of the only means for a doctor to save in a tax-deferred manner. You still have to max it out. But know that contributing to a 401k in not enough. You will have to build your retirement by saving through other means. This means that you have to make an active plan to put away a percentage of your income towards retirement. This money should be put to work, either through interest growth from CD’s or savings, dividends in equities, or capital growth. If you believe in banking on yourself while having a defined amount of your net worth allocated for your heirs, buy some whole life insurance. Whatever you do, save some before you buy a fancy car.


I told my colleague that he still needs to maximize his 401k every year, and even consider front loading the entire amount during the first quarter of the year to maximize the amount of time his money is in the market working for him. Whether or not his employer decides to match or offer a profit sharing plan within the 401k is irrelevant.  As a moderately high income employee, he should have no problem contributing the maximum allowed amount. Additionally, he should aim to save 20% of his post-tax income for additional investments with the intention of increasing that percentage until the amount left over after each paycheck is sufficient only for living expenses. As living expenses change, so will that percentage of income that you save. The earlier he can contribute his earnings into workhorses for the market, the higher chance these workhorses will grow. Remember, he is financially a decade behind his non-medical peers.

If he is motivated, he can project out his savings rate and rate of return on his investments to predict the amount that he will have in 1, 5, or even 10 years.

How else are you contributing your earnings towards retirement?

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