Financial Planning for Physicians: Options & How to Choose

As one of the highest earners by occupation, money is never far from a physician’s mind.

Depending on what stage you are in your career, you’ll be thinking of ways to make more money, grow what you have, or ensure you have an income when you stop working.

This article explores financial planning for physicians while revealing the strategies you can use to take control of your finances as a new, up-and-coming, or veteran physician.

Early-Career Financial Planning for Physicians

At the start of your medical career, you’re unlikely to have lofty financial goals. Saddled with a higher student loan debt than your peers in other (non-medical) fields, you’ll juggle paying down debt with managing the little you earn. Thus, the following strategies focus on maintaining your financial health during the rocky transition from trainee to high-income earner.

Be Diligent About Your Student Loan Payments

Your first step to establishing a physician financial plan is to understand your debt load. If you haven’t already, check your loan balance and its interest rate to confirm what you owe. Knowing whether you have a fixed or variable interest rate will inform future repayment decisions (more below).

Upon confirming your debt amounts, repay them diligently. In addition to helping physicians avoid financial issues (like a bad credit score), paying student loans promptly can make you eligible for financial relief. For example, federal loan borrowers who’ve been diligent about repaying and fulfilled other necessary conditions can become eligible for student loan forgiveness.

Finally, if you’re struggling with monthly payments, explore student loan refinancing (for private loans) and consolidation (federal loans). The reorganization of your debt can help you lower your monthly payment and give you more leeway to pursue your personal and professional goals.

Create and Stick to a Budget

Living within your means isn’t just personal finance 101–it’s a foundational component of financial planning for doctors. Since you’re bound to begin your career earning a modest income while shouldering a larger-than-average debt load, it’s financially prudent to keep track of your income and expenses.

For this reason, the next phase of your financial planning at this stage of your career should involve creating and sticking to a budget.

Budgeting can give you greater control over your earnings by providing clear visibility into where your money goes. You can categorize your expenses into essential and inessential expenditure, trim the fat, and save more money.

Build a Rainy-Day Fund

While budgeting can be an excellent way to take control of your finances, there’s no accounting for unplanned expenses. Anything from an unexpected repair to a sudden job loss can put you in a financially dire situation if you don’t have the means to meet it head-on.

You can prepare for unexpected financial emergencies by building a rainy-day fund. If possible, put away money amounting to at least six months’ of living expenses (though three months’ worth will do if that’s what your income allows). Even if it isn’t possible to save a set amount, putting away what you can each month will eventually get you to your goal.

Mid-Career Financial Planning and Investment Management

Once you complete your residency (and possibly fellowship), get licensed, and begin practicing, your earning power should increase. With your significantly increased income, you’ll want to consider hiring a financial advisor as you save, invest, and grow your wealth. If you’re inclined to start a family and have kids, you’ll need to plan for the associated expenses.

Additionally, being a practicing physician opens you up to malpractice lawsuits, meaning you must put risk management measures in place. Here are a handful of wealth management, risk mitigation, and investment strategies to consider when your income inevitably increases.

Get Insured

During residency, your workplace likely offered group disability insurance and life insurance plans to its employees. Since such policies don’t follow physicians across workplaces, your coverage ended once you left. In that case, you’ll need to get a personal insurance policy for both types of coverage.

Disability insurance is crucial to your ability to earn an income when an illness prevents you from working for a period of time. Meanwhile, life insurance will ensure that your next of kin are provided for if your life is cut short. You need both policy types when creating a comprehensive financial plan in the middle part of your career.

Additionally, it’s worth getting malpractice insurance once you start practicing as an attending physician. Whether you’re self-employed or not, it fits into your financial planning by covering your legal defence expenses if you’re ever accused of medical negligence.

Invest

Building wealth requires parking a portion of your income in investments, whether to get closer to financial freedom or contribute to your retirement income. There’s no shortage of traditional investment vehicles to use, with notable mentions including:

• 401(k) plans
• Individual Retirement Arrangements (Roth IRA); and
• 403(b) plans

Additionally, you can diversify your investment portfolio by investing in real estate or establishing a private practice further into your career.

These investments will require outside funding, like Home Equity Lines of Credit (HELOC) and medical practice loans. However, lenders will be willing to overlook your high debt-to-income ratio and offer favorable terms due to your potential future net worth.

Get Tax Planning Advice

As your income increases, so will the amount you must pay as taxes. However, you can minimize your tax liability by using tax strategies. Some tax strategies you can incorporate into your financial planning include:

• Retirement Plan Contributions: According to IRS Publication 525, contributions to traditional retirement plans (unlike Roth plans) aren’t counted as taxable income. This means you can reduce your tax burden by contributing to eligible retirement funds.
• Donating to Charity: You can claim deductions on charitable donations, as long as they amount to up to 60% of your adjusted gross income. The deductible amount goes up to 100% of your adjusted gross income if it’s a qualified contribution (i.e., a cash contribution made to a qualifying organization in 2020); and
• Using losses incurred on investments to reduce your capital gains tax bill.

A financial advisor who specializes in tax planning services can advise you on all available strategies you can use to reduce your taxes. When in doubt, hire one to seek financial advice.

Save for Tuition Fees (Optional)

This planning measure applies to you if you have (or intend to have) children. You can save toward their college, elementary, primary, or secondary school tuition by stashing money away in a 529 plan account. Since the earnings on your contributions grow tax-free, 529 plans offer another avenue for reducing your overall tax burden.

Late-Career Retirement Plan and Estate Planning

As you get closer to retirement age, your mindset will shift from building wealth to retiring and figuring out how to protect your assets for the next generation. In addition to financial advisors for physicians, you’ll work with estate planners to close out your career in the following ways:

Create a Will

You’ll need one to remove any ambiguity as to how you’d like your assets to be distributed among your heirs once you’re gone. Work with an estate planning attorney to draft it along with complementary documents to make inheriting your fortune as smooth as possible.

Wind Down or Sell Your Practice (Optional)

If, like many physicians, you went into private practice, you’ll need to decide on your business’s fate. In particular, you must devise an exit strategy five or more years before you retire. Your options include:

1. selling the business to a physician or company in the same field
2. closing it; or
3. putting succession mechanisms in place to ensure your legacy carries on.

Each option carries different legal and tax consequences that can significantly impact your retirement finances, making expert guidance essential before making your decision.

Transition to Retirement Income

Establishing a retirement income plan will ensure your everyday needs are covered once you stop working. The plan will help you track all the income sources available to you during retirement, including your retirement plan contributions and investment dividends.

Also, your financial advisor can examine your income sources and provide spending projections and money management advice.

The Best Financial Advisors for Medical Professionals

Many professionals and establishments offer financial advisory services to physicians. In our opinion, the best of the bunch are as follows:

• Physicians Thrive
• Harness Wealth
• Hillcrest Financial Group
• Facet Wealth
• Vanguard
• J. P. Morgan
• Empower
• Fidelity Investments
• Charles Schwab

To learn more about them, including what makes them excellent picks, check out our guide for the details.

Plan Your Financial Future with Expert Advice

Having a financial plan at every stage of your medical career will help you create, grow, and preserve wealth. Even when faced with a higher debt burden, applying the strategies discussed in the article will put you on the path to a brighter financial future.

Of course, without adequate knowledge, financial planning can be a complicated endeavor filled with potential legal pitfalls. You’ll need expert advice on the tax implications of the decisions you make early on in your career and through to your twilight years.

That’s where Physicians Thrive can help. If you’d like advice on the financially prudent measures you can take to improve your money situation, don’t hesitate to contact us and speak to an expert.