You’ve put in the hard work to get through medical school and now you’re investing all of your energy into building a medical practice. Have you made time to think about what your retirement will look like?
If you’re a doctor in Canada, your retirement requires some planning. Traditionally, Canadians have three venues from which to pull income in upon retirement: publicly-funded benefits, personal savings, and workplace pensions. Physicians have generally been limited to the first two, meaning sound financial advice is essential to protect your retirement plans.
Canadians have a number of publicly-funded benefits available to them. The Canada Pension Plan (CPP) is a monthly, taxable benefit that’s meant to help replace lost income when you retire. In order to be eligible, you must have worked and paid into the plan during your lifetime. This includes self-employed physicians, who are entitled to receive a pension upon retirement. CPP payments average less than $1000 per month.
Old Age Security (OAS) is a second benefit administered by the government, but unlike CPP, it’s extended to everyone, whether or not they worked during their lifetime. OAS typically amounts to a similar monthly payment as CPP.
Guaranteed Income Supplement, Allowance, and Allowance for the Survivor are additional government benefits that may apply.
Most doctors enjoy a relatively high standard of living during their careers. Typically, these government benefits won’t provide a similar standard, so doctors should seek expert financial advice to ensure they’re saving and investing enough to fund their eventual retirement.
Tax-deferred savings like a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Accounts can help physicians shelter income throughout their careers. RRSPs are tax-advantaged, meaning that physicians won’t be required to pay taxes on the income they invest in their RRSP in the year they make that income. This is advantageous because the income will presumably be subject to lower tax rates upon retirement, when income typically falls.
TFSAs allow Canadians to accumulate savings in a special account that isn’t subject to taxes. Contributions as well as gains are generally tax-free, even upon withdrawal. However, there are yearly maximum contribution limits. In 2022, the maximum TFSA contribution amount is $6000.
Again, while these strategies may be beneficial for all Canadians saving for retirement, they generally are not viable options for maintaining the standard of living most physicians aspire to in retirement without additional financial support.
This third venue of retirement income has historically been unavailable to physicians, but this is changing. In the past few years, multi-employer pension plans for self-employed and incorporated physicians have been making the news.
Workplace pensions have significant advantages for beneficiaries. By contributing to one pooled pension plan, typically overseen by a board of trustees or something similar, a group is able to reap the rewards of predictable lifetime income upon retirement. They’ll benefit from economies of scale, with lower fees and costs, while growing their investment faster with an endless time horizon that can lead to higher returns. Risk is shared, enabling more investments that are growth-oriented.
In 2020, Blue Pier was launched as a pension solution for physicians in British Columbia, Alberta, and Ontario. It claims to be responsive to the changing needs of physicians and was created to fill the existing void for workplace pension solutions for self-employed doctors.
Similarly, physicians might be interested in Medicus, which is on track to launch in 2023. This plan is targeted at incorporated physicians and physician employers, creating a single fund to provide predictable lifetime income upon retirement from medical practice.
Both of these plans offer retiring medical professionals a higher quality of life in retirement. If planning for your retirement is on your agenda, talk to your financial advisor or a CPA, or find out more about how these pension alternatives might work for you.
It’s never too early
We all tend to procrastinate, especially when our day-to-day lives are busy and demanding. Physicians are no different. However, these most hectic years are essential ones to start putting away retirement savings and planning for the future.
Seeking objective financial advice and expertise can help you keep your retirement plans on track while you focus on building your medical practice.
If you plan to retire from your career in medicine and maintain a similar quality of life to that which you enjoy now, don’t delay. Get the financial advice you need to make sure your retirement dreams are protected.