Financial Planning For Physicians at Different Stages of Their Careers
Financial literacy is pivotal for everyone, but for medical professionals, it holds exceptional importance due to the unique pressures and challenges of their profession. From managing student loans to retirement planning, financial decisions significantly impact the lives and careers of physicians. In this blog, we’ll explore the essential components of financial planning for physicians at different stages of their careers, providing them with the necessary tools to navigate through their financial journeys successfully.
Early Career: Understanding Personal Finance for Residents and New Physicians
As a resident or new physician just starting your career, it’s important to build a solid financial foundation. Understanding budgeting basics, building an emergency savings fund, developing a plan for your student loans, and understanding key insurance needs are essential for financial planning for resident physicians and fellows.
Budgeting 101 for New Physicians
A budget can help give you a sense of control over your finances rather than feeling like your money is controlling you. As a resident or fellow, you may find yourself living on a lower income that will increase over time. Tracking your monthly income and expenses can enable you to live within your means. Look for opportunities to reduce spending on non-essentials if you can.
Automated savings deposits can assist in building wealth over the longer term. Reviewing your budget every few months allows you to make adjustments as life changes. Creating a reasonable budget tailored to your individual circumstances takes some effort, but it may be worthwhile to gain peace of mind around finances.
Building an Emergency Fund
Having three to six months’ worth of basic living expenses set aside can provide a financial safety net. This emergency fund means not having to rely on credit cards or loans to cover an unexpected crisis like illness, job loss, or major car repair. To build your fund, save 15-20% of your monthly net pay consistently. Start by saving anything you can until you reach your emergency savings goal for a solid financial cushion.
Establishing Student Loan Repayment and Management Strategies
Physicians often graduate with substantial education debt from medical school. Creating a detailed accounting of student loans, including interest rates and monthly payments, can provide clarity around loan obligations. When financially possible, tackling loans aggressively to limit total interest paid may be an effective strategy. Consolidating or refinancing loans can also potentially help reduce monthly payments in some cases. Staying on top of loans and chipping away at them bit by bit rather than ignoring the problem may help prevent feeling overwhelmed. No matter your approach, it’s essential to have a plan in place to help you maintain control over your finances.
Understanding the Importance of Disability and Life Insurance
Disability insurance can replace income if illness or injury prevents someone from working. It may help pay bills until retirement savings become accessible. Life insurance aims to provide for dependents financially in the event of one’s death. Many institutions offer basic disability and life insurance coverage to residents and fellows through group policies. Reviewing the details of these policies, including exclusions, limitations, premium costs, and benefit amounts over time, can promote understanding. Based on individual family financial situations and needs, additional personal disability or life insurance coverage may be an option to explore. The group policies likely provide basic coverage, but more may be needed depending on one’s personal circumstances.
Mid-Career: Building Wealth and Independence Through Effective Financial Planning for Physicians
In the middle of your medical career, balancing increased earnings with savings and investments becomes key to building wealth. Ongoing goal review, tax strategizing for asset growth, planning for college costs, and ramping up retirement funding all help achieve financial independence.
Review and Assess Your Financial Goals
As attending income rises after training, consider revisiting short and long-term financial goals that were set earlier. Plans around saving for a home, increasing net worth, paying down debt, or retiring comfortably may warrant updates based on your current lifestyle and family needs down the road. Regularly reviewing and recalibrating bigger-picture finances against life priorities allows for course correction rather than strictly adhering to old projections. With both focused saving and market growth over decades, physicians often find financial realities exceeding earlier expectations.
Explore Tax Saving Strategies
Physicians can aim to minimize taxes legally in various ways, such as contributing pre-tax earnings to retirement plans, health savings accounts, or flexible spending arrangements for medical expenses. Additional strategies include harvesting tax losses from investments to offset capital gains, donating to qualifying charities for deductions, utilizing defined benefit or cash balance retirement plans, and backdoor Roth IRA conversions. Given high incomes, discussing the specifics of these advanced strategies for financial planning for physicians with a financial or tax professional can help ensure proper implementation to optimize tax expense control, an area that provides more opportunities than lower-earning professions.
Understanding tax deductions is an essential part of financial planning for physicians. Explore our blog to learn more about managing—and maximizing—your deductions.
Start Saving for Education Expenses
If you have children, consider opening tax-advantaged 529 accounts to save for future education expenses. 529 plans allow funds to grow tax-free when used for qualified school costs. Starting to contribute even modest amounts early allows savings to accumulate through compound growth over the long term before college years arrive.
Later Stages: Retirement Planning and Legacy Preservation
As physicians approach retirement age, new financial considerations come into focus. Careful financial planning for physicians is needed to transition smoothly from earning a salary to relying on retirement income sources. It’s also important to think about estate planning to ensure assets are distributed according to your wishes.
Transitioning From Salary to Retirement Income
Creating a retirement income plan requires a big-picture view of potential income streams from workplace retirement accounts, personal investments, social security payments, and other assets generating ongoing income after stopping work. A financial advisor can analyze current investments, projected retirement spending, and income gaps to suggest tailored adjustments to investment strategies leading up to and during retirement to align with income goals. Prudence suggests conservative initial withdrawals from retirement investment accounts since market volatility can significantly impact assets, so restraint early in retirement helps ensure long-term sustainability.
Estate Planning: Wills, Trusts, and Taxes
Crafting an estate plan is crucial to ensure your assets and personal items are distributed as intended after death, so key elements may include wills, trusts, healthcare directives, and powers of attorney structured to minimize taxes and probate delays for heirs. Working with an estate planning professional can help you review your retirement account and insurance policy beneficiaries, as well as tailor trust and asset distribution recommendations to your financial situation and distribute wishes in a way aiming to maximize legacy impact by minimizing taxes and friction for loved ones.
Philanthropic Giving Plans
As physicians approach retirement, many feel drawn to “give back” through charitable giving, supporting causes aligned with personal values or medical passions nurtured over their career, which allows deeply rewarding benefits from seeing tangible impacts of donations to groups and programs during their lifetime. Strategies like donor-advised funds also allow for realizing tax advantages now while distributing funds later. Estate planning provides additional charitable giving options through trusts and will bequests to pay it forward to the next generation, with estate tax deductions adding further appeal.
Start on the Path to Financial Success to Physician’s Resource Services
Navigating evolving financial needs across various career stages poses unique challenges for physicians. At each step, partnering with a team that understands financial planning for physicians can help you stay on track toward your goals. Contact Physician’s Resource Services today so we can help you thrive financially—at work, at home, and into retirement.
Life Insurance: Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
529 Plan, or “qualified tuition plan,” is an investment account that provides tax benefits when the savings are used for qualified education expenses. Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, you will incur a 10% penalty and owe taxes on any investment gains.
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Advisory services offered through PRS Investment Advisors, a Member of Advisory Services Network, LLC. Tax services and insurance products offered through Physician’s Resource Services. Advisory Services Network, LLC and Physician’s Resource Services are not affiliated.