[Editor's Note: Today's guest post was submitted by CPT Michael Bork, D.O., a military physician that promotes financial literacy locally and nationally from a military standpoint. The views expressed in this article are those of the author and do not reflect the official policy or position of the Army Medical Corps, Department of the Army, Defense Health Agency, or the US Government. We have no financial relationship but I applaud his efforts to educate his military colleagues.]
One of the things I notice while reading finance materials is that the intended audience is often very broad and misses the narrow field of military physicians. This is one of the points behind the White Coat Investor that is so beneficial; WCI focuses on physicians and professionals. Still, I noticed that military physicians are often relegated to a single chapter that may gloss over the TSP, hint there is a mythical “good time to get out” of service, or don’t mention anything specifically at all for physicians in uniform.
Because of the limited information for my peers, I put together this guest post based upon a presentation I put together on military finance. This is intended as an introductory view that should hopefully springboard you towards furthering your own understanding of finances for a military physician.
Military Doctor Retirement Account Basics
I will share what has been working well for me as I continue to grow my personal retirement since living on a stipend as a medical student, to being a resident, and now past that.
- Maximize TSP (Thrift Savings Plan) match (limit $19,500/year) if you are in the BRS (Blended Retirement System). Allocate at minimum 5% of your income to get the full match. More on this later.
- Maximize Roth IRA (Individual Retirement Account) contribution ($6,000/year if you are single – $12,000/year if you are married). Obtain this account with a firm like Fidelity, Vanguard, Charles Schwab, etc.
- Investments in Taxable accounts (focus on Index Funds). These are your taxable IRA accounts with a firm again like Fidelity, Vanguard, Charles Schwab, etc.
Military Doctor Retirement Savings Plan Targets
The overall goal is to save 20% of your income every year to retire comfortably. The WCI Golden Rule is to live like a resident for 3 years out of training, but that needs to be tweaked for military physicians. We have lower income, but there are other benefits of being a military doctor like lower cost of living and higher benefits. Subjectively it appears we will have to live like a resident for 4-5 years after residency. This can be offset by taking advantage of some of the military benefits. Your last step is to try and minimize your tax burden.
Financial Mistakes to Avoid as a Military Physician
Potential money pits are the same for non-military and military physicians. Essentially people expect you to live like a physician with fancy cars, big houses, expensive hobbies. I argue there is more stress for military physicians who are additionally also supposed to be living like officers. It is a little disheartening to park your 10-year-old car next to the E4’s brand new bright orange Mustang. Just remember that Mustang is likely 30% APR, and your car is paid off. Both of the cars must drive the speed limit and stop at red lights. Many of the benefits of being active duty will limit these types of pressures like BHA (Basic Housing Allowance), on-post living, excellent childcare/schooling.
Military Doctors and Loans
Loans are one thing drastically different for military physicians compared to our civilian peers. The military physician starts off without medical school loans as an HPSP or USU graduate, and is essentially $400,000 ahead of their classmates, not including interest on those loans.
However, we often still have undergrad loans, car loans, credit card loans, etc. There are two main pathways people usually talk about to repay loans. One is the Dave Ramsey Snowball approach. You pay off the largest interest loan first, then take those payments and apply them to the next largest interest, and so on. The other approach is to pay off the smallest value loan first. This decreases the number of loans you have and gives you an emotional win early that you ride to pay off the other loans.
Either way, you should view paying off a loan as a guaranteed return on investment. Paying off a $5,000 loan at 5% interest saves you $250 of interest. Investing $5,000 could possibly make you more than $250, but it could also lose money. The decision to pay off loans or invest the money is a long-debated question that has no one answer.
Refinancing student loans and loan forgiveness exist. These are more important for civilian counterparts and are not something that I have personal experience with. Defer to WCI or other posts on the matter.
Things to Invest in While in the Military
As a military doctor you should consider taking advantage of the unique opportunities of active-duty personnel, most notably the Thrift Savings Plan (TSP).
What Is the Thrift Savings Plan (TSP)?
The TSP is essentially a military 401(k) in which the government will match 5% of your contributions. Every year you should match a maximum of 5% of your paycheck. TSP contributions max out at $19,500/year but you can contribute up to $56,00/year tax-free with combat zone pay (something residents will be highly unlikely to ever take advantage of).
Challenges with the Thrift Savings Plan
Currently, there is an issue specifically with the Army where they are making Health Professionals Scholarship Program (HPSP) recipients wait 2 years to get their 5% match while other branches are receiving theirs. This is something that many residents have been actively fighting. You can work with your finance department and get back-pay contributions to make up for it. There are ALARACTs that helped to show the steps needed to recover the money that was missing from your TSP contributions. It is a long process, but if you are trying to make the most of your investments, it is work you need to do. I was able to get this to happen for myself and a few other residents at various military treatment facilities.
Savings Deposit Program (SDP)
There is also the Savings Deposit Program. The SDP is where you can deposit $10,000 with 10% guaranteed return while you are deployed and will continue for 3 months after returning to the states (again, unlikely to use during residency). One note on this is that you cannot deposit a $10,000 lump sum on day one of a deployment. The contribution caps at your base pay per month until you reach the $10,000 limit.
Understanding which funds are taxable and which are not is a difficulty in the military. Annually, you will receive a PSMC (Personal Statement of Military Compensation) that will explain your paycheck in full including what is taxable and what is not.
Choosing between Roth or Traditional contributions continues to be a question in the military. In short, while in the military I believe you should be doing Roth contributions 100% of the time. Roth means that you pay taxes at the tax rate you are in at the time you contribute. Traditional means you pay taxes at the tax rate when you withdraw money. A mixture of the two allows you to alter your tax bracket during retirement. However, I recommend waiting for traditional contributions until you are practicing in the private sector. The only reason to use Traditional contributions I can see is if you intend to stay in the military for your entire career and not practice when they finally kick you out.
If your income is greater than $124,000 while still serving in the military, it is time to look into performing the Backdoor Roth. Essentially you can rollover the full $6,000 from a Traditional IRA to a Roth and take advantage of the tax benefits. There are rules to follow like needing to have $0 in any other IRA by 31 Dec of that year to avoid getting taxed. This is due to the Pro-rata rule. There are good guidelines on WCI and other sources on how to go about doing these steps.
The retirement accounts you should have and focus on are your TSP, your personal Roth IRA, and any taxable accounts. If you are married, there is an added layer of which accounts you can contribute to on your spouse’s behalf, how to contribute to their potential 401(k), HSAs, or other accounts. But these are like how other physicians handle spousal or child education accounts.
Military Doctor Retirement Account Planning
Roth IRA Allocations
The first retirement account I had was a Roth IRA and I was confused why, after putting in $1000 and waiting a few months, the amount never changed. I see this skipped over too often, so I wanted to mention that you need to allocate your contributions to funds, and this is where evaluating your risk tolerance comes in.
If you are starting off your career and have time to make money for years, I suggest being more aggressive. This means investing more in stocks where you can make more money over time, but it is more volatile. You may make $10,000 in a short time then lose $6,000 in the following months. You have time to make up the difference, though. I think of it as a PGY1 that should be invested similar to 80% stocks, 20% bonds.
If you are towards the end of your career and will need to live off your retirement fund soon, you don’t want to be losing large chunks of money. Here you should be more conservative and focus on bonds. I think of this as a PGY35 that should be invested in 30% stocks and 70% bonds.
How you allocate is a personal choice. I personally agree with the suggestion that the best way for a physician to gain wealth for retirement is to put the majority of their stock contributions into index funds. That does not preclude you from following some individual stocks. I choose to have about 10% of my portfolio in individual stocks, 20% in bonds, and the remaining 70% go into index funds.
Your TSP account also needs more steps than just contributing to it. There are funds within the TSP that you can allocate a certain percentage of your contributions towards. They are listed below. There are published data for each fund with their historical returns. If you want a completely hands-free approach, you can contribute 100% to the L fund, select a targeted retirement date, and they will adjust your funds within the TSP to help you reach your goal. I explain to my peers while introducing them to personal finance they should think of each of the funds in the way they help protect their money. Take the G fund for example, it is government securities that will protect your money by competing with inflation risks. I have put the terms I use to demonstrate in brackets.
- G Fund – Government Securities [inflation risk]
G Fund is managed by Federal Retirement Thrift Investment Board
- F Fund – Government bond index [low-mod risk]
- C Fund – Large stock index [mod risk]
- S Fund – Small stock index [mod-high risk]
- I Fund – International stock index [mod-high risk]
F, C, S, and I Funds are managed by BlackRock Institutional Trust Company
- L Funds – Automatically distributes among G, F, C, S, I Funds. This is managed professionally for a Lifetime goal. You set your retirement to a multiple of 5 years (2025, 2030, 2035, etc.) and it will be managed to maximize your account.
Allocation Descriptions for the New Physician Investor
Here are a few brief definitions for beginning investors to better understand financial terms such as stocks, mutual funds, index funds, and bonds.
- You buy a share of a company
- These have minute-to-minute variation in their worth
- Your investment worth is tied to the worth of the company
- A group of stocks managed by a company
- Your investment follows the mutual fund, minus the maintenance fees taken by the person who manages the account
- The benefits are that you share the risks with a group of people
- A large group of stocks, up to the entire stock market
- Managed by a team
- Your investment follows the index minus the small fees
- You loan your money to the government
- The government pays you back years later with the least interest
- You loan your money to a city
- The city pays you back years later with medium interest
- You loan your money to a company
- The company pays you back years later with the highest interest
Should I Stay or Go?
One of the most common questions to have and the most difficult to answer is the financial ramifications of staying in the military or going out to the private sector to practice.
Staying in the military has a few points I have talked about with my peers. Staying in the military for 20 years allows you to retire, which is 24 years total since one signed their HPSP contract. For Military Academy, ROTC, USU physicians, their payback is likely long enough they will likely be required to stay in for close to 20 years. The entire time you are in the military, you are likely receiving less pay than your civilian “twin” who has the same job and life as you except is a civilian physician.
However, you do receive a full pension that is hard to come by nowadays. The military pension calculators online can show you exactly how much money this will be. The current rule of thumb is you receive 50% of your highest base pay, monthly, as your pension. Retirement also includes Tricare for Life, the G.I. bill which can be given to your spouse or children, and other military retiree benefits like shopping on post. You can use rough numbers to see if the finances make sense for you to stay in personally.
Getting out of the military takes as many years as you owe. For HPSP who went straight through, it is likely that you owe 4-6 years after residency. Fellowships do add time, as well. But once you come up on your chance to get out, what do you do? You will receive higher pay that can quickly offset a pension, plus you’ll receive private retirement opportunities that will likely again have favorable comparisons to the military pension. You can run the numbers and see if it makes financial sense. Some of the primary care physicians may make more in the military once they reach an O5 or higher rank, so that is something to pay attention to.
For most people I have talked with, it seems that if they reach 15-16 years active duty, that is the breakeven point to stay in to get the retirement benefits. If you can get out before then, it likely makes financial sense to get out and make the higher salary in the civilian world. The breakeven point where comparing the HPSP and a civilian “twin” swings to favor the civilian by the financial numbers is about 3 years out of residency, which is coincidentally around the time civilian physicians can stop “living like a resident” and still reach a timely retirement.
There is obviously a lot more than finances that go into staying or leaving the military. Most everyone who signs up to be a military physician did not do it for financial gain alone. They wanted to serve and enjoyed at least some of their time in uniform. But ignoring the financial ramifications of staying in the military is as silly as signing up for the financial benefits. If you have gotten to the point where you can make a choice to get out of the military or stay, you have already given back to the country, no one can fault you for leaving and taking care of yourself and your family. Ultimately, it is your choice. The only wrong way to choose is to do so without evaluating all your options.
Are you a military physician? What other financial advice have you gleaned from your active duty? Comment below!