Doctors face plenty of challenges throughout their day. They worry about the health of their patients, juggle research projects, and try to decipher the changes in the latest Epic upgrade. It’s no wonder they often can’t find time to sit down and do proper financial planning for themselves and their families. On that note, here are three reasons why doctors should not delay their financial planning.
1. Catching Up Takes Time
I once heard a doctor joke that the biggest financial mistake they ever made was becoming a doctor. In truth, doctors do get a much later start in saving for retirement than most other professionals, and it’s easy to see why. Between medical school, residency, and fellowships, it can be a decade or more before doctors start to make “real money.” As a result, 36% of doctors consider themselves behind in their goal of saving for retirement. (1)
Much like managing one’s health, financial planning is a process, not a one-time project.
It may not be easy, but creating a financial plan is the best way to get a delayed savings plan on track. A good financial plan should incorporate things like a target savings rate, a student loan repayment schedule, and an investment asset allocation. It should also have financial milestones for net worth, home down payment, and any other financial goals. Physicians should regularly monitor their progress just as they would a patient’s health record.
2. Managing Medical School Debt
Graduating medical students have some of the highest student debt burdens of any profession—an average of $215,900 excluding pre-med and other educational debt. (2) To make matters worse, student loans typically have higher interest rates than mortgages, especially for graduate/medical school. So, having a game plan to pay off medical school debt is another important reason for doctors not to delay financial planning.
The complexity arises from all the different types of student loans: public (Stafford, Perkins, FFEL, Parent-Plus) vs. private, subsidized vs. unsubsidized, etc. Some loans qualify for a variety of federal income-driven payment plans and loan forgiveness, while others do not. Understanding these nuances can be worth tens of thousands of dollars.
Good student loan debt planning for physicians incorporates determining the optimal income-driven repayment plan, whether to consolidate or refinance certain loans, how much they should be saving in a side fund for the inevitable loan forgiveness “tax bomb,” and how they might become ineligible for certain income-driven repayment programs once their income jumps as they go from resident/fellow to attending. All of this requires advance planning.
3. Protecting Assets and Future Earnings
All doctors should develop a personalized risk management strategy to protect their assets and future earnings. For medical students, residents, and newly-minted attendings, a good, long-term own-occupation disability insurance policy should be a top priority. Disability insurance is insurance that will pay the insured a percentage of his or her income in the event of a disability. There are guaranteed issue disability policies that residents can apply for; once they become an attending, however, there are no such policies. For more tips on disability insurance, here’s another article I’ve written on the topic.
For doctors with children or other dependents, life insurance becomes the next priority. Life insurance, which provides a tax-free death benefit, is important for anyone who is not yet financially independent. In addition to disability and life insurance, doctors must contemplate their need for malpractice insurance and possibly a general liability policy when buying into a private practice—something they typically do early on in their careers.
Take a Wellness Approach to Personal Finances
I’ve never been to medical school, but according to my wife (a radiation oncologist), there aren’t any courses on managing one’s investments, saving for retirement and kids’ college tuition, or figuring out how much home one can comfortably afford. It is my firm belief that doctors and other high-income professionals should educate themselves and engage in financial planning early on to ensure a better outcome. Consider it preventative care. Doctors should treat their finances just like they would their health by doing a routine physical (full financial review) at least once a year.
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