I love it when people write personal finance and investing books aimed at physicians. I love it even more when they are written BY physicians FOR physicians. I am far more forgiving of differences of opinion or even outright errors when it is obvious the author's heart is in the right place. Jeffrey Steiner, DO, recently submitted a guest post to this blog, and in doing so noted he had written just such a book. I asked him to send me a copy for review, since I knew readers would be interested in it, and sure enough, a couple of days later it showed up in the mail.
The Physician's Guide To Personal Finance is A Review Book
The Physician's Guide To Personal Finance is subtitled “The Review Book For The Class You Never Had In Medical School.” The formatting of the book brought back some good memories. It is written in the same format as “High-Yield Histology” and “Pathology: Board Review Series” or “First Aid For The USMLE.” Okay, maybe bad memories. At any rate, by writing in this format, Jeff is able to pack an incredible amount of useful information into a very short space. He instructs the reader to “skip what you know, skim over what you want to review, and read the stuff you don't know.” However, the book is only 98 pages and there is plenty of white space there, so it won't take you long to read every word.
The Format of The Physician's Guide To Personal Finance
The book has three main sections. The first is a 33 page whirlwind review of personal finance and investing. In a physician-specific way it tackles subjects such as budgeting, an emergency fund, insurance, taxes, mortgages, debt and credit management, investing, and college and retirement savings. The second section is 36 pages on financial issues in the residency years. This includes details I would have never thought to include in a book like this, including the paperwork you'll need for residency and the business of resident moonlighting, along with the subjects you'd expect such as student loan issues, retirement savings, and personal finance issues. The final 25 pages are aimed at the new attending, and include all the expect subjects including loans, mortgages, retirement planning, asset protection, and investing. There wasn't much on estate planning, but considering that young attendings don't have much of an estate, I don't see that as such as big deal.
Strengths Of The Book
The two biggest strengths of the book are that it is squarely aimed right at physicians (and those physicians who most need the advice), and that it is so quick and easy to read. Dr. Steiner has clearly been influenced by Dave Ramsey, the Bogleheads, and perhaps even this website (as he refers to it in several places,) all of which I see as positive influences. Several chapters are really quite well-done and deserve special mention. Each of the three sections has a well-done chapter on “treating”, rather than simply managing student loan debt. The “Paperwork Needed For Residency” chapter, “Financial Implications of the Medical School To Resident Transition” chapter, and the two chapters on moonlighting were also excellent. In the final section, the “Philosophy of Young Staff Personal Finance”, “Basic Young Staff Finance”, and “Managing Your Educational Fund” were also excellent.
Weaknesses Of The Book
Jeffrey Steiner, DO
The first weakness of the book is that it is heavily influenced by the author's personal situation. He is an academic physician, and so it is quite weak in areas that would be stronger had a self-employed physician written it, such as business and practice issues and self-employed retirement accounts. He clearly knows a lot about several subjects (such as resident moonlighting issues) and treats those very well.
The second weakness is that there are chapters that are too brief to be useful at all. He does state up-front that he recognizes this, but I think the book would have been better had he fleshed both chapters out some more. The first of these is the chapter on investing, which would have added a lot to the book if he had made it longer or even written two or three chapters on the subject. I also found the asset protection chapter didn't really provide what I consider standard asset protection advice (such as mentioning the fact that in many states IRAs and 401Ks are protected from creditors), or even the important fact that asset protection issues are extremely state specific.
The third weakness of the book was that there are several areas where I simply disagree with Jeff and feel he could have done his readers a much better service by being a little more opinionated on several items. For example, when discussing life insurance he lists term and whole life (without mention of variable or universal life) and makes a bland recommendation to “Start with Term Life.” I found it odd that someone who spends time with both Dave Ramsey and the Bogleheads didn't make a stronger recommendation against “the payday lender of the middle class.” I also disagreed with his recommendation to buy long term care insurance as I don't feel like it is ready for prime-time yet.
He briefly mentions passive investing, but doesn't make any recommendation or statement about the fact that actively managed mutual funds are for suckers. A more impressive statement about passive investing (or even just being accurate about the difference between the average expense ratio in Vanguard index funds and the average actively-managed mutual fund might have been sufficient) would have added a lot of value to the book in my opinion. Investing expenses matter a great deal, but you'd never know it reading this book. He also recommends that residents and even new staff physicians rent for several years. While I have no problem with people renting, especially in residency and for a few months to a year out of residency, I think Jeff should have recognized the undeniable house hunger that graduating medical students and their significant others experience. A few cautions against it would be sufficient. The book would have also been better with more explanation of the pluses and minuses of “doctor mortgage loans.” The book also briefly alludes to the Backdoor Roth IRA and Health Savings Accounts, but these are such key retirement accounts for physicians they each really deserved their own chapter in his book.
Suggested Improvements for The Physician's Guide To Personal Finance
This book is so good that I actually decided to list everything in it that I didn't like. That means I fully endorse at least 98% of what's in it. Reading the book together with the short list of criticisms below will turn a very good book into an exceptionally good book.
Chapter 3 (Insurance)
1) Recommends 8-10 times your annual income for insurance. This a lousy recommendation for doctors. Residents generally need more than this (although they admittedly may not be able to afford it) and staff generally need less. Some discussion of how to decide how much to buy would have been appropriate.
2) States that if you pay disability insurance premiums with pre-tax dollars, your payments would be pre-tax. While true, an important caveat is that you can't buy an individual disability policy with pre-tax dollars. Only group policies paid for by employers fall into that category
3) States non-cancelable means only you can cancel it. While that is true, the more important issue with a non-cancelable disability policy is that the insurance company cannot change the policy in any other way (such as by raising premiums on everyone in your insured class, a risk with a policy that is only guaranteed renewable).
4) States that waiver of premium riders for disability are sold for disability insurance policies. Those riders are sold on life insurance policies. You certainly don't have to continue making disability insurance premium payments while collecting disability benefits, at least on any policy I've seen.
5) Calls the Future Purchase Option rider a “cost of benefit increase” for some reason.
Chapter 4 Taxes
1) The list of tax tips focuses on small stuff, rather than large stuff. It doesn't mention the single biggest tax break most physicians enjoy- their retirement account contributions, nor the fact that for many people, mortgage interest isn't deductible at all or is only partially deductible. It also doesn't talk about bunching deductions, which can be very useful for young physicians.
Chapter 5 Home Mortgages
1) Suggests looking at the appraisal district websites to get an idea of property taxes for a given area. That data is much more easily seen on the MLS for anyone seriously shopping for a home.
Chapter 8 Investing
1) Suggests money market accounts have higher interest rates than savings accounts. That hasn't been true for several years. Vanguard's prime money market account yields 0.02%. Ally Bank's savings account yields 0.84%. They both suck, but one of them is 42 times greater than the other.
2) Suggests mutual funds only invest in stocks with no mention of bond or other asset class mutual funds.
3) Suggests the main benefit of real estate investment is appreciation of the property, rather than income.
4) Suggests that stocks, mutual funds, and CDs that can be easily sold within a day are “illiquid investments.” Sure, it's not the same as a stack of $20s in your hand, but I would reserve the description “illiquid” for real estate, hedge funds, and similar private investments that either take some time to sell, or have lock-up periods.
Chapter 9 Saving For Higher Education
1) Doesn't list the good state 529s, nor any method to choose between your home state's 529 and that of a good one.
Chapter 11 Retirement Savings
1) Doesn't seem to understand how required minimum distributions work, suggesting you have to withdraw all 401K/IRA contributions between age 59 1/2 and age 70 1/2.
2) Doesn't realize that traditional IRAs can be stretched just as easily as Roth IRAs.
3) Doesn't distinguish between a governmental and a non-governmental 457B plan and the distribution options inherent in that difference.
4) Doesn't mention that if you don't have a retirement plan at work that you can deduct a traditional IRA contribution no matter what your income.
5) Fails to mention Solo 401Ks, recommending the inferior SEP-IRA instead.
6) Recommends that beginning investors use an S&P 500 index fund until they learn how to do asset allocation. I'm not sure a 100% stock allocation is really that great of an idea for a beginner. I think they'd be better off with a balanced fund such as target retirement fund. But if I were going to recommend a single 100% stock fund, it would be a total stock market index fund (or even better a total world stock market index fund) rather than one that only owned 500 stocks.
7) Suggests you will need 85% of your current income in retirement. 25-50% is far more likely for a typical physician.
8) Does a poor job explaining the 4% rule for safe withdrawal rates. Four percent is NOT used because most gurus assume the portfolio will be growing at 8-10% and that the money will still grow despite the withdrawals. 4% is used to combat the sequence of returns issue.
Chapter 15 Financial Implications of the Medical School to Resident Transition
1) Suggests you can still put medical school loans into deferment during residency. Realistically, this is no longer an option for the vast majority, and is generally a bad option compared to making IBR payments (which to be fair, Dr. Steiner does recommend.)
Chapter 19 Managing Vs Treating Medical School Loans
1) Uses the older 15% figure in the IBR payment calculation, rather than the current 10% figure.
2) Suggests you can consolidate non-federal loans into a direct loan and then have them forgiven via the PSLF program. While that would be awesome, I don't think it's true.
Chapter 20 Retirement Savings For Residents
1) Suggests you should max out your employee retirement account prior to a Roth IRA. Once you've obtained the entire match, if any, you're generally better off with the lower costs and better investments available in a Roth IRA.
2) Suggests investing in an “index growth stock mutual fund.” Doesn't mention that value stocks have better long-term returns than growth stocks, not to mention the fact that the suggested S&P 500 index fund isn't actually a “growth stock mutual fund.” It's considered a blended fund.
Chapter 21 Checklist for Resident Personal Finance
1) Recommends residents buy as much disability insurance as their budget can allow. A better recommendation would be as much as the company is willing to sell you, and then buy more upon residency graduation. While an attending doesn't necessarily need as much disability insurance as he can get, a resident certainly does.
Chapter 29 Staff Physician Retirement Planning
1) Again mistakenly recommends a SEP-IRA over a Solo 401K.
2) Suggests a non-deductible traditional IRA is a good idea. It can be, but only if you plan to do a backdoor Roth IRA soon.
3) The law allowing backdoor Roth IRAs was implemented in 2010. Some readers might think it is new in 2013 from the wording in the book.
Should You Read The Physician's Guide To Personal Finance?
Overall, I applaud Dr. Steiner's book. It succeeds where so many have failed before it. It is physician-focused, it at least touches on nearly all financial issues relevant to residents and new attendings, and most importantly, it is short enough that no doctor has an excuse not to read it. Buy your copy today from Amazon, then come back here and tell us what you thought of it in the comments section.
Sounds good. Still waiting for your book however and when you finally write it I will recommend it to every resident and new physician I know…
I’m working on the last chapter of a book now. I’m just trying to decide if I really want this one to be my first book.
As a soon to be medical student that has learned a lot from your website I seriously look forward to it.
I’m not sure I follow your statement that “nor the fact that for many people, mortgage interest isn’t deductible at all or is only partially deductible.”
You obviously need to itemize to get this deduction and can’t hold mortgages in excess of $1 million. However, my personal experience is that the interest on a mortgage almost always trumps the standard deduction (at least when in the beginning of repayment) and subsequently makes itemization the natural choice.
Any clarification?
I think you get it, but just haven’t thought it through all the way. Take a look at my mortgage on a home that is well above average for expense in my area and I’m less than a year into it. I pay about $700 a month in interest. $700*12= $8400. That is less than the married standard deduction. If that were my only deduction, that interest is essentially non-deductible. Even if I had another $5K in itemized deductions, the mortgage interest wouldn’t be completely deductible. While this doesn’t apply to most attendings, it does apply to most residents and most middle class Americans. It’s important that people actually look at their own situation before just assuming there is some huge tax break for owning a home, because there might not be.
Thank you. The clarification is appreciated.
Disability insurance premiums could be deductible to an Independent Contractor. The pays outs would then not be tax-free.
Unless the payout exceeds 70-80k, the tax brackets would be so low as to be meaningless.
One interesting variant to consider would be make the premiums deductible until the year when you actually use the insurance. In that year don’t deduct the premiums.
Always exploit the 10 and 15% tax brackets. Pay your kids, gift appreciated assets…anything legal to move money out of your higher bracket.
I used to think you could deduct disability insurance premiums as well, but the IRS is pretty clear about it:
http://www.irs.gov/publications/p535/ch06.html#en_US_2012_publink1000208842
In pub 35, section 6, under deductible premiums it lists all the insurance premiums that can be deducted as a business expense. Disability insurance is not listed. Also under section 6, is a list of insurance premiums which MAY NOT be deducted. # 2 on this list is disability insurance. Check it out:
“Nondeductible Premiums
You cannot deduct premiums on the following kinds of insurance.
1.Self-insurance reserve funds. You cannot deduct amounts credited to a reserve set up for self-insurance. This applies even if you cannot get business insurance coverage for certain business risks. However, your actual losses may be deductible. See Publication 547.
2. Loss of earnings. You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. However, see the discussion on overhead insurance, item (8), under Deductible Premiums, earlier.”
It seems awfully clear to me that you CANNOT deduct disability insurance premiums, even as an independent contractor. It might be possible as a C corp, but I don’t think it is worth incorporating just for that.
As stated previously, while premiums paid for an individually purchased disability income insurance policy (by an individual, sole proprietor, partnership and S-Corporation) are not deductible, the benefits received are income tax-free.
Non-deductbile, IRC Sec. 213(d)(1)(c) 162, 262 and 265 (a)(1); Non-taxable, IRC Sec. 104 (a)(3) Rev. Rul 66-262 1966-2 C.B. 105; Rugby Productions, Inc. v. Commissioner, 100 TC 531 (1993).
For federal income tax purposes, limited liability companies are treated as partnerships. S Corporation shareholder – employees who own more than 2% of the outstanding stock of the corporation will be treated like partners.