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Retirement Plans For Doctors: Pensions

Some Medical Groups Still Offer Pensions

Larger medical groups still offer pension plans even though this is becoming less commonplace. Many industries offered pension plans to their employees a few decades ago. The concept was simple, the company contributed some money every year per employee into a common account. This money would be managed by a 3rd party financial group and as an employee would reach his/her retirement age a certain percentage of their salary would be distributed to them until they died.

Of course the above paragraph gives a very simplistic overview of what a pension program is. The management fees and longer life expectancy of employees have over the years crippled some of the largest pension programs. And so now very few industries offer pension programs as one of their benefits packages.

Let’s use an example. My Southern California medical group hired me on in 2009 and offered me a pension program into which they contributed on my behalf. Like most pensions, I don’t have to put a dime into it. If I were to work with them for 10 years then I would vest into that pension program. If I leave anytime before the 10-year-mark I would get… pocket lint. My pension benefits are calculated based on my annual income and the number of years I have been with them.

I get 2% credit for the first 10 years, then 1% per year for every year after that for a maximum of 35 years credit. Which means I could get up to 45% of my  annual salary paid to me once I retire. There was an early retirement option at age 59.5 and a traditional retirement age of 65. So the earliest I could get any of that pension money would be age 59.5. And of course if I chose the earlier retirement age the benefits would be quite a bit less (cut by nearly 1/2).

The salary that this was based on was the average of the 3 highest consecutive years of income (very convoluted, I know). Most clinicians make their highest salary towards the end of their career and so many tend to hold out as long as possible before retiring. If a clinician decided to retire after only 10 years then they would get 20% of their salary. And if they made $250k then that would be $50k per year starting at age 65. Pension benefits are paid until you die so that’s $50k for potentially another 25 years.

At first that may not sound too bad but let’s not forget about inflation. $50k won’t buy you $50k worth of goods in 2045. For many of us this is hard to grasp but a car that costs $50k now will cost $150k in 2045 (assuming same inflation rates as the last average 30 years). So that $50k will have a buying power of $17k in today’s dollars.

Should you look for a job that offers a pension plan? It really depends on how many years you want to stay with that medical group. Also, do you believe that the said company will still exist 30 years down the road? Will you even have a need for that pension income? 

I am currently in an interesting situation. I need to work another 3 years and 3 months before I can vest in my pension plan. I see myself working with this medical group perhaps another 2 years… could I work an extra 15 months just to vest? I don’t know. My group also allows me to work as little as 50% of a full-time schedule and still qualify for the same pension benefits without losing any of its value… pretty impressive.

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