Retirement Planning
Zoe Team
8 min read
Physicians often enter the workforce with significant debt, making early, disciplined financial planning essential for wealth.
Managing a high income effectively requires a balance between aggressive debt repayment, retirement savings, and lifestyle control.
Just as medical health requires proactive care, financial health requires consistent monitoring and expert guidance to ensure long-term stability.
Physicians often start their careers later in life with high debt and high income, creating a compressed timeline to achieve financial goals like retirement and college funding.
Evaluate interest rates to decide between aggressive repayment of student loans versus investing in retirement accounts that offer tax advantages or potential market returns.
Adopt a long-term perspective by avoiding lifestyle inflation as income grows, automating your savings, and consulting a professional advisor to align finances with your career stage.
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.
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.
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.
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. 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.
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.
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, 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.
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.
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 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.
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.
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