[Editor's Note: I was invited to submit a guest post on the Sermo blog. So many of the posts on Sermo seem so pessimistic to me sometimes. They are full of whining, complaining, fretting, and venting etc. I don't know if that's the nature of docs, the nature of anonymous internet forums, or whether people are just blowing off steam, but I thought I'd write a post that might help offset some of that pessimism.]
I have a noticed a persistent and pervasive pessimism among physicians when they are talking amongst themselves, whether in a doctor’s lounge or on a virtual forum such as Sermo. One of the best antidotes I have found to feeling pessimistic about the future is the optimization of a doctor’s personal financial situation. When doctors feel their financial lives are under control, it is much easier for them to cut back on their hours or even walk away from a job they don’t like for whatever reason. In short, doctors who work because they want to, not because they have to, are happier, both at work and at home. No study supports this yet, but I suspect financially secure doctors render higher quality, more compassionate care to their patients. There are four ways to optimize the financial lives of physicians:
# 1 Retire Student Loans
I have found physicians who still owe money for their educations to be particularly unhappy about their financial situation. Although many of these physicians are young, a surprising number of those who still have a substantial student loan burden are ten or even twenty years out of residency. There are two basic strategies for eliminating student loans—obtain forgiveness or pay them off. There are a number of programs that will pay off your student loans under certain conditions. The three main programs are run by the federal government. The most significant, Public Service Loan Forgiveness, allows for tax-free forgiveness after ten years of payments for physicians working for a 501(c)3 organization. Two other programs not only help to lower your payments, but also allow for taxable forgiveness after either twenty (Pay As You Earn) or twenty-five (Income Based Repayment) years. Payments made during residency and fellowship count toward these totals.
If you are unable to obtain forgiveness for your loans, it is best to pay them off before you get used to your attending level income. “Live Like A Resident!” is the best advice I can give to a doctor who still has student loans. Keep living expenses low, so a large percentage of your newly acquired high income can be directed toward your student loans. Using this plan, and despite ever-increasing student loan burdens and high-interest rates, most physicians should still be able to pay off their loans within 2-5 years of finishing training. It is now possible to refinance student loans with several private lenders, and these lower interest rates can assist you in paying off those loans even faster.
# 2 Have a Definitive Plan for Retirement
It is important for physicians to have a spending plan (aka budget), an insurance plan, an estate plan, an asset protection plan, and an investing plan. When it comes to making physicians happier, nothing compares to have a realistic plan laid out for retirement. Some physicians have the knowledge, desire, and temperament required to do this themselves, but most will need to enlist the assistance of a competent, low-cost advisor to complete this task. A retirement plan will show you how much you will need each year in retirement, how much you need to save each year until then, and about when you will be able to retire. A good retirement plan will also lay out which investments and retirement accounts you should use. Using the best available options will increase the likelihood of success and decrease the amount of time required to reach financial independence.
# 3 Reduce Financial Costs
In my experience, the typical physician is paying too much in insurance premiums, too much in taxes, too much in mortgage-related costs and too much in financial advisory costs. The sum of these often totals tens of thousands of dollars per year. By redirecting this wasted money toward a retirement portfolio, financial independence can be reached years earlier. For example, consider the difference between a physician paying 0.5% of his portfolio in financial advisory fees each year versus one paying 1.5 percent. If he saves $50,000 per year, the portfolio makes 5 percent after inflation but before advisory fees, and he needs $3 Million to retire, the physician with the lower fees will be able to retire in 29 years. The physician paying higher fees, however, will need to work more than three years longer. Other examples of wasted money include physicians paying Private Mortgage Insurance (PMI) and doctors mistakenly investing in a taxable account instead of funding a backdoor Roth IRA. Special “doctor mortgage loans” essentially eliminate PMI, even for physicians who put down less than 20% on their homes. The Backdoor Roth IRA is a little-known loophole that allows doctors to still contribute to a Roth IRA each year, despite their high income.
# 4 Spend Your Money on What Makes You Happy
We each value different things in our lives. One doctor may value early financial independence while others may value flashy cars, nice clothing, eating out frequently, or expensive vacations. Each time you consider a purchase, evaluate it in terms of how much happiness it brings you. If you are like most, you may realize you are spending a considerable percentage of your income for goods and services that are not increasing your happiness. Be generally frugal in most things, but selectively extravagant in those areas that bring you the most happiness. If you don’t enjoy a $100 meal twice as much as a $50 meal, quit buying it. Be aware that the psychology literature shows that purchasing experiences, especially those shared with friends and family, seems to bring far more happiness to most people than purchasing consumer items.
By optimizing your personal finances, you can increase the enjoyment of your career, reduce stress at home, and feel more optimistic about the future. The first step is obtaining the financial education you never received in medical school or residency. While this does require some time and effort (though far less than it takes to practice your specialty), it can be obtained very inexpensively online or by reading a handful of high yield books available at low cost or even free through your local library. This “Continuing Financial Education” may end up paying you more in the long run than your medical education.
What do you think? Are doctors too pessimistic? Do you think they would be less pessimistic if they were financially independent? Comment below!
Link’s busted…
http://blog.sermo.com/2015/01/28/financial-planning-doctors-four-ways-improve-financial-life/
First link worked, second was broken. Fixed now.
Number 1 problem is most Americans are financially illiterate
Second problem is that too many professionals live above their means
For those they would be best suited to find an honest fee based advisor
It really is upsetting to see so many physicians upset with their job. I remember back in the 90s when I was looking to Go to med school, doctors told me not to do it. I remember back in the 2000’s and doctors used to say not to do it. I see today, doctors still don’t recommend going into medicine.
I wonder if that means anything.
I think part of it is physicians haven’t tried anything else. Those who have are almost universally happier practicing medicine than those who haven’t. If you hate medicine, go do something else! I’ve tried something else. I work harder at it, feel less satisfied (in some ways, more in others) at it, and make less doing it. Besides, I need to go to work to recover from my vacations.
Just looking at the other side, do you have empathy for pessimistic doctors? I don’t recall ever reading about how you spend “extra time” with charting, phone calls, or administrative duties that are newly required. Have new changes not affected how you practice the last five years? It is possible that you are out of the loop to what others are dealing. Or you are ignoring the changes. Time is money. More time is already being required for the same reimbursement years ago. What happens when that reimbursement goes down?
You don’t think I chart, make phone calls, or do administrative duties? I’m the department chair. I’m pretty sure I’m not ignorant of the “new changes.”
You’ve mentioned that your reimbursement after your recent move went up 4X. Which is it? Is your reimbursement going down or up? It can’t be both!
I was just mentioning that you don’t bring up work pressures. While your post was accurate to the financial senses, it did not touch on the fear associated with changes in the workplace.
I prefaced that I was playing devil’s advocate and was interested in how you feel towards other docs who complain beyond being annoyed with them.
As for us, Medicare reimbursement has a geographical multiplier so that plays a part in the equation. But the future? Who knows? My crystal ball is cloudy.
All jobs that pay $200-300K have work pressures. Medicine is hardly alone in that respect.
I wasn’t practicing in the “good old days” so have no nostalgia for the same. I think at least my current gig is good, and how it compares to the old days matters little to me. Therefore I see no reason to not continue to be optimistic.
My only quibble with the article would be the assertion that most physicians need paid help to manage retirement planning. It’s not rocket science, but perhaps the adviser is needed to make an end run around physicians’ egos leading them down bad paths.
Are you a physician?
If you are I am pretty surprised at your comment, unless you don’t have much interaction with other docs (radiologist?). Most doctors are either a) too conceded/arrogant or b) don’t care about getting their financial house in order. It’s rare that I find a doctor who has any clue about retirement, and most overspend, way beyond their means, because of course they are doctors.
I actually think almost every doctor I know and work with should be using a low cost fee only advisor.
While I agree it isn’t rocket science, and am obviously my own financial planner/investment manager, I have to agree that most doctors would benefit from having a high quality adviser offering his services at a fair price. Those who can find their way here? Not so much. I wrote about it a few years ago:
https://www.whitecoatinvestor.com/can-you-do-it-without-an-adviser/
Yes, I’m a radiologist. I interact with other physicians in tumor boards and the like, but I mainly interact with other radiologists. At least within my section we have our financial heads screwed on straight.
I just wanted to correct your ignorance. I am a radiologist and spend more time talking and guiding clinicians then you will ever know or understand unless you lived in my shoes. The days of radiologists hiding in a dark room have died. Good radiologists and clinicians work as a team. I feel sorry for you that you think doctors are conceded or ignorant.
big egos lead some to think they are smarter than wall st
the financially astute investor knows better and invests passively
Although administrative duties, charting and useless BS keep encroaching in our work, it is our choices that make our happiness. We expect to have this great physician lifestyle with nice cars, big house, sexy spouse, kids in private school and we work a lot to try and achieve those goals. The more you expect in your lifestyle, the harder you have to work. So when burocracy comes in and make you work harder to keep the same pay, you do it because you keep trying to maintaine this elite expected lifestyle. WCI is correct that money is actually the source of our negativity. Our desires in life force us to work harder to keep up with that lifestyle. On the contrary if we expected less, we could work less, get paid less and enjoy our life more.
A great example is a pulmonologist friend of mine recently hired someone to follow him around and do all his charting and computer duties. He just signs everything afterwards. Yes that physician makes less money because he pays someone, but really enjoys his work so much more. He has more time with his patients which increase his patient satisfaction as well as his own. He has a buddy to chat with all day that follows him around as well as get coffee and snacks. The loss in reimbursement he says sucked, but the increased pleasure he has in work was well worth it.
Absolutely, I agree.
I love that idea. Sometimes I think that by seeing another patient or two each day I could offset the cost of someone to do my notes for me. It would take some training in the beginning, but I love the idea.
That’s becoming quite common in Emergency Medicine. I don’t think I could work without a scribe anymore. At the very least, I’d be significantly less satisfied and more burnt out. It’s definitely worth the $10-12/hour.
Essentially what this article is saying is that medicine as a career can become more fulfilling once we separate the dollar bills attached to it. Perhaps that’s true for a lot of careers but for myself and a few other friends we went into medicine because we loved the sciences and we loved being able to help others. So this article reinforces the point that the more solid my personal finances become the more I will enjoy my career. Now to pay off that student loan 🙂
Thanks for the post.
its wonderful to practice dentistry with zero financial stress
sold practice 4yrs ago and work pt in a poor Hispanic area basically charity as the fees are crap but its rewarding
EVERY pt shows respect and thanks
if money was not an issue our professions would be much more rewarding
in an ortho office today-my md had to explain to the insco that they could have one mri done or if that was not approved two would be needed at higher costs to the insco. he told them do as you please
how do you guys deal with all that crap
As has been pointed out over and over, most people don’t like their job and most think they’re underpaid; doctors don’t have any unique trait here, although we/I certainly like to complain about it.
My mood improved when I paid off my student loans. Knowing that I now have some FU money has definitely made life happier–fewer nights, less general angst to pick up more shifts/see more patients/stay longer at work, easier to justify spending on “frivolous” things like vacation or toys.
I expect to be downright euphoric after I pay off the mortgage in a couple years. The plan is to cut back to part-time, but who knows–I might be too giddy to consider it.
The pessimism that almost everyone I talk to about finance has is so pervasive. Many people act as though their financial situation is not determined by them. I have Z social stance and thus I am obligated to drive giganto SUV X or premium sports car Y. I must shop at Whole Foods several days per week and purchase premium coffee A. I must live in house with no less that 4000 square feet such that I am unfamiliar with at least 70% of my house which mostly collect all of the useless crap that I buy when I am socially obligated to stroll through the highest end mall in my city. Once I have done all of the above activities I can let my trusted financial advisors (who knows how to get me the best return at only a 2% management fee) invest 5-10% of my income. How can I afford to retire? It is just impossible!
This is ignoring discussions of the horrors of Obamacare and how the pay is surely going to go down. If I spend 90% of my income now I will have to work 20% more hours to keep up my savings rate.
Life is so much better when you understand what you actually want, why you are working so hard, and spend accordingly. Great post! I hope lots and lots of people read it!
I think there are a few things that lead to the dissatisfaction.
I think there’ is a sense that there is this “doctor lifestyle”. However, when you get down to it we’re just like everyone else when it comes to our nonprofessional lives. We have some nicer stuff and some more enhanced experiences, and a little more financial security. However, it’s not like we’re jetsetting like the doctors on TV would have us believe.
I would urge you all to read this: http://www2.ucsc.edu/whorulesamerica/power/investment_manager.html
and the follow up article.
Basically it divides the 1% into the top 0.5% who make their money passively on investments while the bottom 0.5% of the top 1% are doctors, lawyers, etc who basically have a job that they are paid well to do.
I would also add that those of us in the east coast feel this in particular since salaries are lower and costs of living are higher.
Personally, I can’t complain, but I think this is where the sentiment comes from.
#1 really is true and worth emphasizing.
Even though student loans are refinanceable to a much lower rate, and it’s arguably a better financial move to keep paying debt at 2, 3 or 4 percent and invest the rest, it is a huge psychological burden to see a significant amount of money disappear from every paycheck, or once a month, which goes seemingly nowhere to seemingly nobody.
A home loan or even a car loan goes toward something you enjoy and experience everyday. Of course you use many of the skills you learned in school everyday, but those classes were long ago and the value associated is long forgotten. Further, if you have to, you can sell the house, sell the car and payoff the loans. You can’t hang up your stethoscope, your M.D. or your licenses and walk away from student loans. Even though you probably won’t move out of your house or downsize your car, there is comfort in knowing that you have a choice and only continue to be in debt because you volunteer to do so.
The doctors I talk to who have been practicing for years who still have student loans typically come across as having negative emotions concerning their personal finances, being either helpless, hopeless or perhaps sometimes clueless, despite making plenty of money and living nice lifestyles.
I’m fortunate to have a little less than 100k at 3%. However, I finished residency now 7 years ago and really haven’t made much of a dent. But after some thinking and reading this post in particular I’m convinced I need to pay this loan off. As a family doc I take home less than 150k but I think I will feel more satisfied paying the loan off promptly. There is always that part of me that feels “guilty” if I don’t put the money towards investments. And there is always the argument out there that a low interest loan like this is best paid off with minimum payments over the longest time possible.
Our financial plan for 2015 is to stay the course.
We need to continue saving and investing a high % of our incomes and remain focused on the long-term. Tracking our expenses, maxing out our 402Ks (to the new $19K limit), and living on frugal autopilot are all part of our plan.
DO NOT PAY OFF LOANS IF YOU HAVE NOT FULLY FUNDED YOUR RET PLAN
Jim,
I echo your comments regarding Sermo. I was really into it for a few months but I found myself feeling angry and almost bad about life after visiting the website. Subsequently I only log on Sermo now for medical advice.
take care
Coming from a background where I didnt know doctors nor was expected to become anything, I always thought that physicians and especially during residency just tend to bitch a lot. I think it has to do with being tired, underpaid, stressed, and that all kind of takes the reigns off your filter. While I of course engaged in it as well, I have always tried to just see it as venting, and warned people that seemed to internalize and ruminate on it. You can literally make any aspect of your life overwhelming and the focus of all your discontent if you just focus on it and allow it to be, and the converse for something positive. People really discount how much control they have over their outlook on life in general.
That said, I often feel crushed and would rather not be in medicine whatsoever….but, I also feel like that has more to do with a burdensome debt load that does not allow me to be in control of where, who, and what Im doing. I have some hold out faith that once that yoke is gone I will enjoy medicine, hopefully on my own terms.