There are different financial considerations for varying stages in a physician’s life. In today’s post, we share 7 Financial Considerations for Physicians from Residency to Mid-Career to Late-Career.
Financial Considerations for Residency
1. Live Frugally During Residency and Beyond. Typical resident physicians work anywhere from 60-100 hour work weeks. The stress of the work can often lead residents to develop spending habits as if they were already physicians. The problem is most resident physicians are loaded with massive student loan debt and are thus trying to balance spending habits while paying off loan debt. The key is to live frugally during residency and beyond. Consider this: a dollar borrowed at 6%, that won’t be paid back for 15 years, will eventually cost you $2.40. That’s nearly 2.5x the original value.Learning to live as frugally as possible during residency and afterwards can allow you to use a larger portion of your paycheck to pay back loans. During residency physicians typically make $50,000 yearly. Upon exiting residency, physicians typically make an average of $250,000 per year. The jump in salary is significant. If you can manage to hold your lifestyle to the style lived during residency, you’ll give yourself an advantage in creating a financially secure future for yourself.
2. Maximize Retirement Benefits and Lower Your Taxable Income. Most resident physicians are just trying to keep their head above water during 80+ hour work weeks. However, now is the time when resident physicians should begin to consider how they will meet their needs in retirement. Unlike most of the general population, physicians get a late start in the workforce and in earning a paycheck; most physicians do not enter residency until their late 20’s, putting them nearly a decade behind their peers in terms of saving for retirement. Of course the trade off comes with higher salary opportunities upon residency completion.Regardless, it’s vitally important for resident physicians to begin saving towards their retirement to utilize the benefits of compound interest over time. Start by lowering your taxable income as much as possible by maximizing retirement investment vehicles like 401(k) options, defined benefit, profit-sharing, IRA’s, and other Health Savings Account (HSA) plans. Doing so can lower taxable income and boost retirement accounts. Typically, it’s advised for physicians to begin saving 20% of their taxable income to “catch-up” their retirement accounts.
3. Make Sure Your Assets are Covered. Residency is an ideal time for physicians to begin looking at insurance policies, like life insurance, to make sure they’re covered. Life insurance is vitally important for people with dependents like spouses or children, and is especially important for high-earners like physicians. Life insurance can ensure your family isn’t left with massive amounts of loan debt to pay off. It also ensures your family will be able to maintain the lifestyle you’ve worked hard to build. Other insurance considerations include disability insurance, homeowner/renter, auto, and medical malpractice insurance. Ensuring you have the right coverage for your needs, without purchasing unnecessary coverage, is vital in creating a healthy financial plan for you and your family. Let our our team at Idaho Medical Association Family Services (IMAFS) walk you through insurance coverage specific to your situation.
Financial Considerations for Mid-Career Physicians
4. Evaluate Your Current Financial Plan. As a mid-career physician, your financial situation and goals will be very different than during your years in residency. One of the most important steps is to take the time to reevaluate your current financial plan and ensure your strategy is moving in the right direction for your current goals. Just like it’s important to rebalance investments every year, it’s important to evaluate and adjust your financial portfolio. Mid-career considerations include: ensuring your retirement vehicles are maxed out per federal limits each year, beginning to firm up college savings plans for your children, evaluating future career moves, and considering your spending patterns now and in years to come.
5. Pay Off Your Debts and Mortgage. By mid-career your goal should be to have your student loan debts and your mortgage significantly paid down if not paid off completely. This advice is true not just for physicians but for the general working class as well. As you approach your mid-career and begin looking towards retirement you should have basic debt significantly paid down. By working towards lowering your debt, you allow yourself the opportunity to build up retirement accounts, college savings plans, and even purchase that dream car you’ve been wanting.
Financial Considerations for Late-Career Physicians
6. Know Your Assets. As you wind down your career, it’s important to take an inventory of your assets including investments and retirement plans. At age 59½ you can begin pulling money from retirement savings accounts like IRAs and 401(k) plans without facing the 10% penalty tax. However, you will face federal (and state, if applicable) taxation on retirement withdrawals. Investment withdrawals will also be counted towards taxable income. Before beginning the withdrawal process, work with an IMAFS financial advisor to create a strategy that lowers your taxable income as much as possible for your assets and utilizes tax-saving vehicles.
7. Create a Spending Strategy. As you begin to get closer to retirement it’s necessary to work with your IMAFS financial advisor to create a sound spending strategy to utilize your assets. For most the goal is to maintain their current lifestyle during retirement and to create a legacy to leave behind for family members. Typical considerations for late-career physicians include: strategy for investment withdrawals, Social Security, estate planning, developing trusts and wills, and re-evaluating insurance needs. Our financial professionals at IMAFS can help you create a plan tailored to your specific needs.
Idaho Medical Association Financial Services is a financial and wealth management firm specializing in personalized financial guidance to accredited investors in the medical field. Areas of speciality range from investment planning and retirement analysis to in-depth services such as tax analysis and strategies, insurance and estate planning and financial planning. For a free financial consultation, please call: (208) 336-9066 or email email@example.com.