Treat Your Wealth Like Your Health

Published May 5th, 2023 
Reading Time: 5 minutes
Written by: The Zoe Team

A physician may enter the working world with three figures of income, and also three figures of debt. Financial planning for physicians requires unique considerations and expertise. 

Financial Planning For Physicians: Your Situation is Unique

What makes your profession unique? You’ve prepared for medical school, had late-night studies, and long shifts, to name a few. Not only does your path stand out, but your financial situation also differs from the general financial planning experience. 

A physician can start working right after school and make three figures, while simultaneously holding three figures of education debt. The earning potential of a physician is, without a doubt, higher than most other industries, but the financial specifics involve much more than just earnings and debt. Thus, wealth and financial planning for physicians require unique considerations and expertise.

In this blog, we will unpack financial roadblocks, taxes, debt, certifications, and more. At the end of the day, when it comes to financial planning – long or short-term – understanding your unique situation will ensure you achieve your wealth goals.

The Most Common Financial Planning for Physicians Concerns

Healthcare professionals have an overall higher net worth than most other career paths. As Medscape’s Physician Wealth & Debt Report 2022 illustrates, more than half (57%) of healthcare professionals are worth over $1M. Out of that 57%, 27% say they’re worth over $2 million, and 11% have a net worth of $5 million (or higher). 

Despite physicians’ high net worth and overall earning potential, specific concerns around their wealth often weigh heavier than for other professions. These include:

  • Delayed Investment Strategy: Your peers might have chosen different career paths and started investing a few years back, making you believe you are “late” to the game.
  • Higher Taxes: Higher-income potential also means you are placed in a higher tax bracket.
  • Litigation Target: Protection needs to go into place depending on what area you practice in regarding malpractices or lawsuits. A financial advisor can lead you in the right direction regarding coverage and insurance.
  • High Education Debt: Depending on your capacity to tolerate debt, you should build a plan to pay it off depending on how much stress it gives you in your day-to-day life.
  • Retirement Planning: A common misconception is the thought that you have to clear your debt before you start planning for retirement, and this is not necessarily true.

What’s most important to note is that each of these concerns is manageable with proper planning and advice, ideally from a qualified and interest-aligned standpoint.

How To: Navigate Debt for Physicians

Your net worth is composed of assets and liabilities, and for physicians, there tends to be a big liability when it comes to the cost of education. The graph below shows the average medical school debt over time.
financial planning for physicians

The average medical school graduate owes $250,990 in total student loan debt, 7x as much as the average college graduate.

Depending on your stage in life, there are some strategies you might be eligible for and could explore to make your education debt a little more manageable:

  • Deferral Timing
  • Loan Forgiveness
  • Lowering Spending
  • Extra Payments
  • Income-Driven Repayment
  • Refinancing/Consolidating Loans

Regardless of our debt, income, or your ultimate financial goals, customized financial planning is the most efficient way to manage your finances and plan for your goals, whatever they may be.

Financial Planning for Physicians: The Five Gaps and Five Solutions

Lastly, the five important pillars of wealth management can impact leaders in higher education (aka physicians). More specifically, these pillars make you think about the considerations you should have when it comes to your financial wellness.

Asset Location

The right securities need to be in the right place. Depending on your specific financial plan, it’s very likely your Roth IRA should be invested differently than your other qualified accounts… think IRA, 403(b), 401(a), or 401(k). If you have a taxable investment account (like a brokerage account) it should likely be invested differently as well.

Estate Planning

Estate planning, like medicine, is constantly changing. Laws can change on an annual basis when new administrations enter the White House or both. The most common item I’ve observed is the canyon that exists between estate plan updates over the years. It’s very common for doctors to shift their careers from state to state over a decade or two. When those changes happen, it’s incredibly easy to put the estate plan updates at the very bottom of the to-do list, which can lead to major concerns.

Long-Term Care Planning

It’s interesting to hear the opinions of doctors on long-term care insurance. Half of a financial advisor’s clients will tell them they can’t sleep at night knowing they don’t have one, the other half might say they wouldn’t be able to sleep at night knowing they purchased one. No matter what the opinion is, we all deserve financial peace of mind, which is why planning around the concept is so important.

Tax Planning in Retirement

It’s important to clarify – tax planning in itself is critical in all phases of life, especially when a physician earns the income they’ve worked hard to earn. Tax planning in retirement is what as financial advisors, we have observed to be quite a new experience for physicians. When you look at where retired physicians earn their living in retirement, we must look at what has been accumulated during all the working years. Commonly you may have amassed a large number of qualified funds and are now looking at very large taxable distributions from those accounts to fund retirement.

The Distribution Phase

The distribution phase is exactly as it sounds, it’s the phase in life after you’ve worked to accumulate your assets and are now distributing those assets to create the life in retirement you have dreamt about all these years. Why is the distribution phase challenging? Simply because picking and choosing where you distribute money throughout your retirement life can be tricky and can have adverse consequences if not done correctly.

A “Board Qualified” Advisor Who Has Your Best Interest¹

If anyone understands the value of extensive certifications, it’s healthcare professionals. Like medicine itself, financial planning requires a set of very specific expertise and background knowledge in order to do well. Doctors all over the country have unique circumstances that put each one of them in a different position than their peers, yet they all have the ability to set themselves and their families up for the long term due to the nature of their work and the income they can demand.

The fact of the matter is that physicians require a personalized financial plan unique to their situation, in the same manner, their patients require a personalized healthcare plan. Working with a Certified Financial Planner® who can anticipate and understand challenges in financial planning for physicians in order to create a successful outcome, is something that should be sought after with the same intensity as one seeks elite medical care.

Remember, regardless of your debt, income, or your ultimate financial goals, customized financial planning is the most efficient way to manage your finances and plan for your goals, whatever they may be.

¹ A “Board Qualified Fiduciary Advisor” refers to an advisor with a CFP® certification, provided by the Certified Financial Planner Board of Standards, Inc.

Disclosure: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal, or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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