Sometimes, smart people simply aren't aware of the financial issues they need to take care of. New physicians either need to do their own financial planning, or pay someone else to assist them with it. Doing it yourself will require the acquisition of a new body of knowledge and the discipline to appropriately use it. You'll still need to do some of that with a good financial planner, but the planner will appropriately carry the lion's share of the burden, for a price ($400 an hour or a flat fee of $2000-3000 is not unreasonable.) This post will serve as a “To-Do” list for financial planning for the new physician.
1) Develop an insurance plan
This plan should be begun as an intern, but also requires adjustment upon residency graduation and for any marriages or childbirths.
- How much disability insurance do you need as a resident?
- How much more should you buy as an attending?
- Which disability policy should you buy?
- Should you use a group policy offered by your employer for part of your coverage?
- Do you need term life insurance?
- How much term life insurance should you buy and how should you structure it?
- How much umbrella insurance should you buy?
2) Develop An Investing Plan
This should be begun as a resident (in a Roth IRA or Roth 401K/403B), but will become most important upon starting your real job.
- How much will you need for retirement, college, or other goals?
- What will your savings rate (and budget) be, and how will you split it up your savings between your goals?
- What types of investment accounts will you use?
- What mix of Roth vs Traditional contributions will you make?
- What will be your asset allocation?
- What specific investments will you use to fulfill your asset allocation?
- Will you hire an investment manager, or do it yourself?
3) Determine A Housing Plan
This plan requires thought during your MS4 year as well as your final year of training.
- Will you rent or buy as a resident?
- Will you rent for a while as an attending, or buy right away?
- Will you begin with a “starter home” or buy the “dream home” first?
- How much should you spend on your dream home?
- How many times will you move in your career?
- Will you use a conventional mortgage or a physician loan?
4) Decide On A Student Loan Plan
This plan also needs to be determined primarily as a medical student, but the final portion really cannot be decided until residency graduation.
- Will someone else pay for your medical school, will you owe time, or will you owe money?
- How much will you borrow?
- What types of loans will you take out?
- As a resident, will you make the minimum Income Based Repayment (IBR) payments, pay enough to get the full student loan interest deduction ($2500 a year) or pay as much as you can?
- Will you take a job at a 501(c)3 or a private employer?
- Will you refinance your loans and pay them back as soon as possible, or go for Public Service Loan Forgiveness?
5) Determine A Debt Reduction Strategy
This is a strategy made as an attending, after the housing and student loan plans have been developed.
- How fast can you pay off high-interest debt?
- Will you prioritize retirement plan contributions or moderate interest student loans?
- Will you prioritize taxable investments over low interest student loans or paying off the mortgage?
- When do you want to be completely debt-free?
- If investing in real estate, how leveraged will you start out and how quickly will you reduce that as your career moves forward?
6) Develop an Estate Plan
Although a will needs to be in place as soon as you have children, the rest of your estate plan can be put into place gradually throughout your life.
- Do you have a will?
- Who will be the guardian of your children?
- Who will be the guardian of the assets used to care for your children?
- When will you put a revocable (living) trust in place?
- Are you likely to be subject to Federal or State estate taxes?
- What is your plan to reduce estate taxes if you are likely to be subject to them?
- Do you have a plan to reduce income taxes for your heirs? (Stretch Roth IRAs, step-up in basis at death etc)
- Have you appropriately designated beneficiaries for your insurance, investing, retirement, and bank accounts?
- Where do you want your money to go when you die?
- Are you willing to give up money before you die in order to ensure a chosen legacy?
7) Determine an Asset Protection Plan
This plan should be put into place as a young attending, and occasionally updated.
- How much malpractice insurance, and what type, will you carry?
- How much personal liability (umbrella) coverage will you carry?
- Will you have a dog, pool, trampoline, boat, ATVs etc?
- How will you title your house?
- What will you put in your spouse's name?
- Will you get a pre-nuptial agreement?
- What is the homestead exemption in your state?
- What protections do retirement accounts get in your state?
- What protections do cash value life insurance and annuities get in your state?
- What will your business structure be (sole proprietor vs partnership vs LLC vs corporation)?
- Do you need advanced asset protection techniques like irrevocable trusts, family limited partnerships, overseas trusts, equity-stripping etc?
Many of these questions have no right answers, but there is usually a right answer for you. The key is to have your plan aligned with your values and priorities. There are good professionals (insurance agents, financial planners, asset managers, and attorneys) available to help with each of these questions. However, the more you can learn to do yourself, the less expensive your financial planning will be and the less risk you have to run of ending up with a poorly-trained or unethical professional who either gives bad advice, or gives good advice at too high of a price.
What do you think? Are there any significant financial planning issues new physicians face that I haven't listed? Is it realistic for most doctors to do most of this themselves? Comment below!
Looks good to me. Very well thought out. Maybe somewhat outside the conventional ‘financial planning’ but for students and residents, I might add two other categories in:
1) An earning plan – what area of medicine will you go into – highly paid or maybe a bit less so and within the area that you chose, do you plan to go for broke and shoot out the lights or maybe go for a little more on the work/life balance side and not earn quite as much. Do you see an evolution to your practice/income? Working like crazy early and slowing down (perhaps when family young) and then picking it up again near the end. Where do you plan to practice? Income prospects and cost of living considerations. Academic v military v private practice…
2) A spending plan. You have stressed this time and again, as have many others – ‘it’s not what you make, it’s what you save/invest’. Are you able to continue to live like a resident for a few years (or longer!) or do you (or your partner/children) have to have the big house and every toy/vacation/etc. And of course, when I say ‘live like a resident’ I mean like a resident in the days before big LOC’s were available to allow residents to dig such big holes.
Thanks for the great work. Cheers.
I’m finishing up residency and will be doing a one year fellowship. My net worth is negative at this point. I can get a 1 million umbrella policy for $160/yr. Does it make sense to purchase the umbrella if I don’t have many assets?
When you consider that one of your assets is future earnings, then yes.
Great article, I know I’m making a copy of it and saving it in my digital library 😉
Just a couple of things to add:
1) For docs who will either join a small practice or will own or co-own a practice, they’ll need to worry about retirement plans:
https://www.whitecoatinvestor.com/how-to-run-a-successful-retirement-plan-for-a-medical-or-dental-practice/
2) There is an alternative to paying someone by the hour or paying a one-time flat fee for financial planning. With either an hourly or a one-time fee there is no commitment to following up and plan implementation is usually not included. Often such planners offer investment management services for asset-based (AUM) fees, and unless you pay the AUM fees for investment management, the planner will not initiate the follow up when the engagement is over.
The alternative is a flat-fee retainer or a flat fee monthly subscription, which can include all of the above advice as well as investment management – there is never a need to pay any AUM fees for investment management advice. Instead of getting a 100 page plan (which in many cases is mostly padding – a printout from a computer program that contains 30-year projections that are quite meaningless), you’ll actually pay for what really matters – ongoing proactive advice and implementation help.
I’ve heard so many complaints that CPAs charge a lot, yet do not provide any ongoing/proactive advice, and rarely do tax planning. But the CPAs are not to blame – they charge a one-time flat fee, and to get advice you’ll need to engage them yourself (and pay another fee). This approach does not solve the problem of getting timely, proactive on-demand advice, so to solve this dilemma, a flat retainer is the only way to go.
Let’s face it – things always change and a plan will become obsolete almost as soon as it is created. Also, without the planner staying engaged in your finances, it is impossible to get timely, on-demand advice. There is a lot of value in doing proactive planning, especially for small business owners where things are in constant flux. This advice does not have to be expensive. Depending on the complexity, basic planning can be offered for as low as $150 a month, with more complex advice (including investment management) might be closer to $400 a month. Because the fees are not taken out of your IRA, they are also tax deductible as a business expense (or as misc. expenses
This is an very unfair post! This kills for fun of graduating from residency program. I was so looking forward to new BMW and Rolex 🙁
Pun aside, a Great post. Most residents graduating done even know these things to look/think for, let alone understand their implications. My sister is graduating in few months and we went over all of these and she was surprised but glad we did. Congrats to you for the post.
Thanks for the post and the blog for that matter, long time reader, first time poster
I was so inspired by your blog and book that I really planned to do a lot of this planning on my own. Ran into a couple roadblocks in the past week that has me rethinking that strategy
1) I am about to graduate and enter an employed physician position. It looks like employees aren’t eligible to participate in the 401k until after 12 months. I plan on setting up a stealth IRA (hsa) and a backdoor Roth IRA but are those my only options then until I can access the 401k? The rest goes into a taxable account?
2) had a look at my benefits plan and it is terrible. Life insurance payout maxes out at under 200K annually, disability maxes out at under 2000 monthly. I’m thinking I should look into getting my own life and disability insurance plans on top of what my employer provides (not sure about the legality of carrying 2 life insurance policies and 2 disability policies). Not sure how long I’m staying at this employed position so I figure getting my own personal plans makes more sense than paying to upgrade the plans my employer provides
No reason to rethink your strategy, but you do need to keep learning as you go if you’re going to do your own financial planning. Keep in mind there is also no reason you can’t get a little help along the way. It isn’t an either/or approach when it comes to DIY vs using a planner to do everything.
1) Unless you have some independent contractor/1099 income, you’re stuck with what your employer offers. However, that first year out is a great time to pay down student loans and save up a down payment if you haven’t done those things yet, you can focus more on that than maxing out retirement accounts. There’s also nothing wrong with using a taxable account. It isn’t the end of the world and has a number of tax advantages.
2) Almost no physician should rely solely on the life and disability insurance offered by the employer. You’ll almost surely need your own individual policies.
Dear WCI,
Thanks for all of your amazing advice! I have learned so much from your website!
I am now 1.5 years out of EM residency and am married to an ophthalmologist currently still in residency and about to do a 1 year fellowship. Thus, we will eventually both be dual earners and have a nice ~$400,000 of student loan debt between the two of us.
Thanks to your blog, I feel pretty comfortable with:
1) have found insurance plans
2) maxing out 401k and Roth IRAs; did my own asset allocation from your blog/books and I actually really enjoy and find very easy and simple to do on my own
3) saving for house downpayment for when we stop moving
4) will be refinancing our loans
5) constantly reassessing debt reduction as painful as it is; as much as I want to pay down loans in one lump sum, I feel saving for retirement and home downpayment must come first; that will leave us paying $4000/mo in loans for 10 years which is a pretty heavy ball and chain! (which interferes with the love for travel and not working!)
6-7) no kids or assets yet to protect but will reassess
So my question is this. In transitioning from residency to attending, my biggest struggle has just been trying to figure out estimated taxes and what’s tax deductible, etc. I’m slowly learning. I tried a few CPAs, one who just plugged in info I already figured out but no advice, another who I racked up a $500 bill for talking to him over the phone (which I did not realize) and then I proceeded to use taxAct instead, and another who offered all inclusive with advice but seemed too busy to actually help me! Obviously now we have no tax advantages as we make a lot, rent and have no kids
So now that I’ve finally figured out how to file on my own with a K-1, I feel I will still need advice in the future when we are both full earners. There are plenty of people on the site hawking their services to make money off investments which I don’t need or want. Where and how do I find someone to advise on business practice issues for taxes, is it possible to employ our parents to take care of our kids and that be a business expense?, to incorporate or not, etc? What is a fair price for this type of advice? Is there a good book to read?
Sorry, this got rather long…thanks for your help
I think you want someone like Glenn Frank. I’ll email you both to get you together. He used to advertise with me, but I don’t think he continued the ad as I don’t think he got much business from it.