Physicians are among the best-paid professionals but that doesn’t make them immune from financial challenges. From coping with sudden wealth when just starting to work to planning for business succession at the end of many years of owning a practice, physicians may face special needs for careful financial planning. If you’re a physician contemplating your financial future, consider talking to a financial advisor who specializes in strategies for medical professionals.
Every physician’s financial situation is different, but many confront common situations. Here are nine financial planning strategies for physicians to consider:
Physicians spend years earning low incomes while studying, then relatively quickly become some of the highest-earning workers. Physician earnings averaged $352,000 in 2023, according to a Medscape survey. But while more income is positive, a windfall doesn’t mean that you can buy anything you want. Physicians also face increasing competition from alternative healthcare providers as well as cost-cutting pressure from corporate owners of healthcare practices. This strategy calls for planning cash flow conservatively and considering risks of stagnant or declining income before making large purchases or committing to major debt financing.
One of the most impactful moves any physician can make is to effectively negotiate with a new employer. Simply asking for a better signing bonus, more paid time off or more generous moving allowance can boost earnings for years to come.
About a quarter of physicians are self-employed in practices they own. That means you have to think about general business strategies around picking a location, selecting a business structure, deciding how to pay yourself, taking on partners or going it alone, hiring and firing employees, paying estimated taxes and more.
Physicians typically carry four times the average student loan burden, so managing cash flow to accommodate education debt payments is a key financial strategy. However, it may be best to first pay off high-interest loans, whether student or other kinds. And paying off private student loans before federal ones may also be advisable, given the prospect of student loan forgiveness.
Medical malpractice lawsuits represent a special risk for physicians. Insurance can mitigate it, but premiums can be high, especially for some specialties. And a well-crafted risk management strategy for a physician also calls for life, disability and other types of insurance.
Physicians in private practice or employed in hospitals are advised to maximize tax-advantaged contributions to 401(k) or IRA retirement accounts. Many who work for hospitals or other non-profits can do likewise with 403(b) plans. Because they earn higher incomes while working, physicians may need more savings to maintain their lifestyles in retirement. And, because they start their careers much later than many workers, they have less time to save, so they may have to set aside larger percentages.
High earnings create potential for a larger estate, so physicians have more at risk when it comes to estate planning. They also face additional possible calamities, such as a large medical malpractice claim eroding the value of their estate. As a result, estate planning strategies are a bigger emphasis for physicians. Trusts and other estate planning tools can ensure their assets are distributed the way they’d prefer after they are gone.
Physicians who own their practices need special strategies. Identifying, training and installing someone to take over the practice when they retire is one possibility. Selling is another. Both require long-term planning to maximize the financial value of the business.
Physicians are known as high earners who work long hours, leaving them little time to oversee personal finances. The combination makes them desirable clients of financial advisors, some of whom may have little specific expertise in helping physicians devise and execute financial strategies. With that in mind, physicians are well advised to be careful when selecting a financial advisor, and choose someone with experience working with physicians.
Physicians earn good incomes but still need to plan carefully to achieve long-term financial success. Controlling spending, budgeting for debt relief, saving for retirement, mitigating risk and planning for business succession are all financial issues requiring specific financial strategies to manage. Financial advisors who specialize in helping physicians can bring focused insight to their special challenges.
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Mark HenricksMark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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