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?