Retirement investing: Everything you need to know

Published November 10, 2023

Key Takeaways

Be mindful of the contribution limits in your retirement accounts and try your best to contribute the maximum each year.
Decide if you want to make “pre-tax” or “Roth” contributions. The general advice is that if you are in your peak earnings years (eg, an attending physician working full time) choose pre-tax. If you are not in your peak earnings years, choose Roth.
Consider all of your investment options and choose the asset allocation that is best for you. If you are unsure, a target-date retirement fund is a good option.

When it comes to investing money in your employee-sponsored retirement account, such as a 401k or a 403b, there are a few steps you must complete before you can start contributing and earning. The good news is that once the account has been set up, you won’t need to make many changes over time.

Initial retirement investing decisions

The first thing you have to do is fill out the proper paperwork and go through the steps to enroll in the retirement program online. Your work’s HR department should supply an email with all the pertinent instructions to get started.

Next, one of the first things you will be asked is what percentage of every paycheck you would like to contribute to the account. Keep in mind, there is a maximum contribution that you can make each year as an employee—this maximum is $22,500 in 2023 and $23,000 in 2024.

Many doctors decide to make the maximum contribution each year, as doing so allows them to save thousands of dollars in taxes, build wealth, and adequately fund their retirement. If this is what you plan to do, then figure out what percentage of your pay allows you to contribute the maximum each year.

For example, if you plan to contribute the maximum in 2024 (which is $23,000) and your base salary is $250,000, then you would elect to contribute 23,000/250,000, or approximately 9% of your paycheck.

Decide if you will make pre-tax or Roth contributions

Once you pick the percentage of each paycheck you want to contribute, it will usually ask you if you want to make “pre-tax” contributions or “Roth” contributions. The main difference between these options is the timing of when you pay taxes on the money.

If you want to pay the taxes up front, and not upon withdrawal (or on the amount it grows), choose “Roth” contributions. If you would like to defer paying the taxes until you take the money out in retirement, then choose “pre-tax.”

The general advice is that when you are in your highest income earning years, it may be better to defer the taxes (by choosing “pre-tax”). When you are in your lower earning years, it may be better to pay the taxes upfront (by choosing “Roth”). The goal is to pay the taxes when you will be in the lowest tax bracket.

So if you are a resident or are in your lower earning years as an attending (because you work part time, for example) then choose Roth. If you are an attending physician in a much higher tax bracket, then defer the taxes for a later time.

Decide how you want the money to be invested

Once you designate your regular contribution, you will need to pick how you want the money to be invested.

"This is usually the step many people forget about. Just putting money into the account is not enough. You have to actually invest the money inside of the account."

— Lisha Taylor, MD, MPH

Some jobs have a default investing option if you don’t specifically choose, but other jobs will let the money sit in a regular savings account until you choose your investment options.

Considering your investment options

Each job has a different set of investment options. Usually, it is a list of mutual funds you can choose from. A mutual fund is a group of stocks or a group of bonds, and there are different types. For example, there are index mutual funds that follow an index, such as the S&P 500 (which invests your money in the 500 largest companies in the United States). There are also actively managed mutual funds, where someone is hand-picking which stocks will go into the fund.

When I started my new job, I asked for a list of my investment options. I don’t expect many people to research every single fund like I did. In fact, I find there are two kinds of people: the folks who know a decent amount about investing and already have an idea of which funds they want to invest in at various percentages, and the folks who are new to investing and aren't really sure which funds to choose.

If you are in the first group, select the funds you desire at your desired percentages. If you are in that second group, don’t panic.

At most jobs, they will have something called a “target-date retirement fund” or a “lifecycle fund” to choose between. These funds automatically invest your money in the most common index mutual funds: A total stock market index fund, which has your money invested in almost all the companies in the United States; a total international index fund, which invests in the most popular companies around the world; a total bond fund, which invests in most of the bonds in the United States; and a total international bond fund, which invests in many bonds around the world. The percentage of stocks vs bonds depends on the date you plan to retire.

If you plan to retire soon, you might be investing half in bonds and half in stocks. If you have decades left before your retirement, it will be invested in mostly stocks and only a smaller percentage of bonds. The exact amount of stocks vs bonds changes every few years throughout the course of your career.

Choose the target-date fund that is closest to the year you plan to retire

If you decide to invest in a target-date retirement fund, select the fund with a target date closest to when you might retire—it will do the work on your behalf.

"I probably won’t stop working completely until I am in my 60s, around 2050. I’d choose the 2050 target-date retirement fund, and my money would automatically be invested in most of the stocks and bonds from around the world."

— Lisha Taylor, MD, MPH

If you plan to retire in the year 2040, then choose the target-date fund for that year. These target-date funds are the default investing option at many jobs. At others, they are called lifecycle funds. If this is the case for you, that’s great; it’s a good option. If it is not the default option at your job, then you may have to select that investment option yourself.

Set it and forget it

Once you choose what you want to invest in, then you can set it and forget it. Some people change their asset allocation every so often to “rebalance their portfolio,” but doing so is not necessary for those invested in a target-date fund, as it “rebalances” things automatically.

What this means for you

It’s easy to start investing and building wealth by taking advantage of your work retirement accounts. Just enroll in the program, choose your contribution percentage, decide on pre-tax vs Roth options, and select your investments. Remember, if you don’t know what you want to invest in, a target-date retirement fund is a good option.