Physicians have a lot going on financially. Between a truncated career as a result of lengthy education, piles of student loan debt, and a high-earning occupation, they face a unique set of challenges when it comes to managing money. And because they are most often concerned with the health and wellness of others, this leaves them little time to focus on financial health for themselves.
It’s important to properly address the financial complexities of well-compensated physicians in order to maximize their financial health and help steer them toward financial freedom. Time-deprived physicians may end up turning to substandard financial solutions, suffer from missed opportunities, make hasty investment decisions, or even overspend and under save. No one wants to waste their hard-earned money and have little left for the sunset years. You need a game plan.
Developing a Holistic Financial Care Plan
Similar to how you planned out your educational roadmap, the same is true for financial planning. It’s a process, not a product. Having a financial roadmap will help you define your lifestyle goals and the steps you need to take to get there, while also serving to prevent any costly mistakes along the way. Financial planning for physicians will tackle strategies from repaying student loan debt to retiring in the lifestyle you want, and everything in between.
According to a recent report by the American Medical Colleges, 73% of medical school students who graduated in 2019 incurred an average of $200,000 in student loan debt. That means it’s not uncommon to be paying $2,000-$3,000 or more a month. Depending on your situation, there’s a number of different tactics that can be used to pay of student debt that incorporate flexible repayment schedules, loan forgiveness programs, and even hospital sign-on bonuses.
The long road to becoming a doctor also means you’ll also need to make up for lost time earning compound interest on savings that you missed during medical school and residency. Based on Fidelity’s Physicians’ Savings Behaviors and Retirement Readiness report, many physicians are not on track to fund a financially comfortable retirement. A couple key findings note that doctors need better savings options outside of their defined contribution plans and pre-retiree physicians have overly aggressive asset allocations. So, not only do you need to play catch up, but you’ll also need to make the right investment choices to retire comfortably.
Once the high-income potential kicks in, what’s the best way to manage that cash flow and save for retirement? A holistic financial plan will take a 360 degree look at your financial picture, both near and long-term. It will consider opportunities, such as:
- how to take advantage of tax deferred retirement savings,
- what vehicles provide passive retirement income,
- what asset location strategies are best to minimize tax impact (because we all know that a tax dollar saved is a dollar earned),
- how to efficiently save for college,
- how to use estate planning to ease the burden on your family after death, and
- which alternative investments can generate additional monthly income.
It also considers challenges that you may face by implementing proper strategies, such as:
- asset protection planning for both personal and business purposes,
- student loan debt repayment plan,
- long-term care benefits, and
- risk management planning.
Most high-net-worth individuals benefit from having this structured outlook, as it provides the clarity that they need to organize all the moving parts, with minimal to no time needed to manage it on the day-to-day.
Safeguarding Your Assets
In a highly liable profession, every doctor needs an asset protection plan to safeguard their personal assets from lawsuits. As you know, there’s the chance that at least once in your career you will be sued for malpractice. Research by the American Medical Association reports that 34% of all physicians have been sued, and almost 17% have been sued more than once.
To protect you and your business, you will need to consider the following:
- Forming limited liability companies (LLC) for various assets based on use, value, and risk
- Purchasing malpractice insurance
- Obtaining umbrella insurance to cover expenses outside the limits of other insurance coverage
- Titling your property as “Tenants by the Entirety”
- Forming asset protection trust accounts
Remember, asset protection protects against civil law (money), which is governed by the state. And each state is different. This means that depending on where you and your practice resides, asset protection strategies may vary from state to state.
Asset Location Strategies: Where You Place Your Money Matters
Tax-savvy investment and withdrawal strategies are another important ingredient to financial health. There are several tradeoffs to consider when making asset location decisions. Depending on the asset class and type of account, there are different rates of return and tax implications associated with each. Being smart about where you place your money and when you take it out can make you—and save you—a bunch of money in the long run.
Because of the high earning capacity for physicians, you may also meet the requirements to be regarded as an accredited investor, which opens doors to unique investment opportunities that are not widely available to everyone. Knowing which investments to pursue and which ones to avoid is key for investing physicians.
It’s Time to Address Your Financial Health
We understand that this overview is a lot to digest, and physicians oftentimes put off these abstract concepts to focus on more pressing topics. We get it.
But, if you’re questioning your investments, concerned about retiring comfortably, or recently experienced a life event, such as marriage, birth of a child, inheritance, divorce, or death of a loved one, you will benefit from speaking with an experienced financial advisor who specializes in financial planning for physicians. A financial plan can bring a lot of confidence and reassurance to your life.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
Securities and financial planning offered through LPL Financial, a registered investment advisor. Member FINRA www.finra.org / SIPC www.sipc.org
