403(b)s and 401(k)s – The marathon from residency to retirement.

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C/C: Altered Financial Status

HPI: A 27 year-old EM intern presents to the hospital for orientation. He has $200,000 in student loans. While at orientation, he learned about the many benefits offered by his employer. They include a 403(b) retirement plan, health/dental care, and a subsidized gym membership. He has no idea what a 403(b) is or how he should approach saving for retirement.

Hm…that sounds familiar.

Many of us can relate to our inexperienced intern and feeling uncertain on how to start saving for retirement. The most important thing he can do is to START SAVING SOMETHING. It is common to choose inaction when confronted with multiple choices. This is called decision paralysis. Think about going down the cereal aisle of the grocery store. There are so many types of cereal that it is enough to get you frustrated, turn paleo, and eat a carton of eggs. (I hear the yolk is healthy again.)

Long story short, the 403(b) is an amazing retirement tool and worth knowing about. A 403(b) is named after the section of the IRS code that describes it. As an employee, you have the option of placing money from your salary into your 403(b). From there, you can place your money into stocks, bonds, mutual funds, etc. Some employers will match your contribution though, anecdotally, most hospitals do not provide a match for residents.

A 403(b) is tax-deferred account. You pay taxes on the money when you withdraw it.

How do I contribute?

When evaluating your residency benefits, investigate which company runs your retirement account. Common companies include Vanguard, TIAA-Cref, and Fidelity. Then, set up an account and automatic withdrawal from your paycheck.

How much should I contribute?

That is up to you. There are many variables that play into how much you should save and whether you should put your money into the 401k or a Roth IRA.

Let’s say you’re single and plan to save around $5000 in a year. You may wish to forego saving in your 403(b). It is probably best to put your post-tax funds into an IRA and withdraw it, tax-free, when you retire since you probably will be in a higher tax bracket.

If you are married and file separately, perhaps for a lower student loan payment, you could save your money in the 403(b) or 401(k) since you are not allowed to directly fund a Roth IRA if you file your taxes as “married/filing separately.” (You could do a backdoor Roth – more on that later)

My suggestion is take a number you think is reasonable. Lets say $150 a week and set it up to automatically go into your account then re-evaluate after a month. Did you miss the money? Could you put more? Do it. Just make sure you do not contribute over the maximum amount ($18,000 unless over 50).

What should I put my money in?

Are you sick of this already?! If so, put your money into a lifecycle fund. Commonly, these funds are named for the date you retire. If you plan to retire in 30-35 years, you can put all your money into the Vanguard Target Retirement 2050 or 2055 fund. These funds automatically rebalance into more conservative investments, as you get closer to retirement. They are quick and painless.

If you would like to have more control over your assets, you should invest into low-cost index funds. Many books have been devoted to building the optimum portfolio. You can check out the bogleheads wiki for ideas on simple portfolios.

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Financial Scut List

[ ] Sign up for your residency’s 403(b) or 401(k)

[ ] If you get matching, contribute AT LEAST what you need to get the match

[ ] Enroll in automatic debit from your paycheck

[ ] Reassess in one month. Contribute more if able.

[ ] Continue monthly serial financial exams


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