As a private practice psychiatrist, you wear many hats: you’re a physician, a counselor, a business owner, and a person who goes home and goes to sleep at night. However, there is little attention paid to the concept of what saving for retirement looks like for a psychiatrist, which is the subject of this article.
- How a psychiatrist can save money for retirement
- Managing cash flows – paying down debt when you start working and beyond
- Retirement plan options for your practice
- The importance of retirement income planning
- The basics of closing a practice
Before we get into the blog, we are a financial planner for therapists and mental health professionals.
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If you are interested, it may be a good idea to check out the following blogs about finance for therapists:
Financial tips for therapists starting a private practice!
How does a therapist decide on a fee structure?
How to expand your therapy practice to another state
When do therapists retire (and how?)
Retirement savings tips for psychiatrists
Given the high debt load that psychiatrists can have in the initial stages of their careers, it’s not an easy thing to save for retirement, especially if you are a psychiatrist in private practice.
We’ve seen many psychiatrists work well into their 70’s. This career can have a long tail, and by the time you are in your late 30’s or early 40’s you should be able to put aside some cash for retirement. Follow these tips.
- Remember to establish a financial plan that includes savings goals. Financial planning for psychiatrists is critical. You will need to map out what your projected cash flows are, what the likely expenses will be, and what that means in terms of the amount you can sock away. Even in the early (penniless) days, you should have a financial plan.
- Also, in the early stages, don’t overlook employer-sponsored options. Many psychiatrists work for someone else’s therapy practice before striking out an starting their own. If this is the course you are taking, don’t overlook the employer-sponsored 401(k) or 403(b) plan.
- A financial plan for a mental health professional, once you become established, usually includes a plan for retirement. Here you would start with the end goal in mind, try to identify the age you are likely to retire, and then devise a plan for your yearly saving milestones, and how you intend to invest the money in accordance with your risk tolerance. A financial advisor for psychiatrists can assist you with this.
- Cash flow management is a challenge for most business owners, and private practice psychiatrists are no exception. Don’t wait until the end of the year to figure out your tax deductions. Especially in years when earnings are strong, sit down with your accountant and financial advisor in May or June to devise a strategy for directing your savings into the appropriate savings vehicles, whether they be retirement plans, savings accounts, etc.
How to set up a retirement plan for your psychiatry practice
As a psychiatrist in private practice, you have some degree of control over what type of retirement plan you set up for your employees and yourself. You should speak with a financial advisor and/or your CPA before moving forward, but here is an overview of your basic options.
SEP IRA – allows you to save up to 25% of net earnings. Low administrative burden.
Solo 401k – not as easy as a SEP IRA, and can only be used if you have no employees in your practice. You can contribute $61,000 in 2022.
401(k)/403(b) – This is a popular option. Both you and your employees can contribute but there are limits. If you wish, you may match employee contributions, which may help increase participation in the plan and overall job satisfaction.
SIMPLE 401(k) – This is an option for practices with less than 100 employees. In this scenario, you are required to make the contributions for all employees of your practice. You also can not have any other retirement plans in place – this must be the only such vehicle at your private therapy practice.
Defined Benefit – This type of retirement plan provides a fixed benefit to the employee upon retirement, determined by actuarial assumptions. The onus is on the company to invest the money in accordance with the plan’s obligations. There is a potential for a private practice psychiatrist to put away a large amount of money, if certain conditions are met, in some cases much more than other retirement plan options would permit.
How to close your psychiatry practice
If retirement means shutting down your business, there are several aspects you’ll need to consider as a psychiatrist in private practice.
A few of them are:
- Telling your patients
- Managing the legal, administrative, and operational tasks associated with closing a therapy practice
- Finding engaging ways to spend your new free time, whether it be an encore career, volunteering, etc.
- Managing the financial and tax aspects of closing down a group practice
We’ve written at length on these topics. Please feel free to review our blog on how to close a therapy practice.
You don’t have to face retiring from a psychiatry practice alone!
As financial advisors for therapists, psychologists, psychiatrists, and private practice owners, we believe that mental health is a noble profession, and we are proud to serve those who help others in this capacity, no matter where you are: starting out, mid-career, or terminating a private therapy practice. If you are a therapist looking for financial advice, closing down your therapy practice, or thinking about retirement, contact us for a chat.