Welcome to this week's Future Proof post on Physician's Money Digest (PMD). Today we are featuring a classic from the Future Proof archives, updated for PMD readers. If you are visiting this site, you probably have thought about retirement, maybe even early retirement. Let me share with you my method in A Simple Stepwise Approach to Retirement Savings. An excerpt is provided below.
As PMD readers, you are rightfully concerned about retirement. There are many different retirement strategies. Let me share with you my simple stepwise approach to retirement savings. The best part? You can start following these steps even on a meager resident's salary! This reflects my personal opinion and has not been endorsed by any third party. As always, consult an appropriate financial professional before you make any personal finance decisions.
STEP 1: If your employer offers an employer-sponsored plan such as a 401k/403b/457 AND matches contributions, contribute up to the maximum matched in the account. Example: If you make $50,000 a year and your employer matches up to 4% of your income in a 401k, then you should put up to 4% of $50,000 = $2,000 into the 401k. If your employer does not match contributions, start with STEP 2.
Some of you may benefit from both the options of a 401k or 403b AND a 457 plan, you're in luck! You will be eligible to contribute up to $18,000 for the 401k or 403b and another $18,000 for the 457 plan if you're under 50 years old ($24,000/year for each if you are 50 years or older).
STEP 2: If you still have money to save after STEP 1 or if your employer-sponsored plan does not match, start a ROTH IRA and contribute up to the maximum allowed ($5,500/year if you're under 50, $6,500/year if you're 50 or older).
If you make too much to directly contribute to a ROTH IRA, congratulations! That's what I call a First World Problem. But you can still benefit from the tax advantages of a ROTH IRA - see Backdoor ROTH IRA.