Are you a physician living paycheck to paycheck?

Physicians leave training with expectations of earning a generous income and dreams of an extravagant lifestyle. They go from years as a struggling resident to a working individual with a stable income. Once they become attendings, their salaries skyrocket, in some cases from $55,000 annually to $550,000 annually.

A $550,000 income requires extensive financial planning, of which the average physician has no experience or exposure. They are building a practice or working marathon hospital shifts, leaving them little time for planning their financial future.

Long years of medical school leaves physicians several steps behind their non-physician peers who have been saving for retirement since their early 20s. For example, consider my college roommate and me. We’re the same age with two kids making similar incomes; yet, my net worth is significantly higher. It’s not his fault! I’ve been saving since I was 21. He’s a cardiologist who didn’t finish his fellowship until he was nearly 35. That’s a 14-year head start.

When physicians finally complete their training, society pressures them to catch up, leaving doctors susceptible to financial difficulties based on the old adage: “you spend what you make.” There’s student debt, credit card debt, car debt, massive home debt, and keeping-up-with-Dr.-Jones debt. I once had a client who bought a $75,000 car while six months away from finishing residency. The monthly payment was $1,500, which he couldn’t afford on his $55,000 salary. Still, he felt like he deserved it. Like my client, many physicians are unable to prioritize their financial pursuits, causing them to live paycheck-to-paycheck; the same as most working Americans.

Certainly, the average medical school debt of $189,000 doesn’t help. Add in undergrad and other grad programs, and you’ve got my clients, the “Smiths.” They are both physicians and have a combined $990,000 of student debt. In addition to having debt from undergrad, he’s an MD/MPH and she’s an MD/PharmD, and they borrowed to pay for it all. They make about $600,000 a year yet can’t afford the lavish stereotypical physician lifestyle. Let’s take a look at their monthly budget:

  • $50,000 monthly gross income
  • $15,000 taxes
  • $11,000 student loans (10 years at 5.5 percent)
  • $10,000 retirement (work for 30 years (ages 35-65) but need money to age 100)
  • $5,000 mortgage payment ($500,000 home, 30 years at 5 percent, no money down)
  • $3,000 daycare for two kids
  • $1,000 savings for college
  • $1,000 car payments
  • $1,000 disability insurance for two physicians
  • $500 health insurance
  • $500 life insurance
  • $2,000 left over to cover:
    • utilities
    • groceries
    • eating out
    • car repairs/gas
    • vacations

As you can see, even a dual physician family making $600,000 per year struggles to reach their goals when they have acquired so much debt. Although $10,000 per month for retirement may seem like a lot, it’s necessary for this couple if they’d like to maintain their standard of living to age 100. I’ve recommended that this couple live like residents until their loans are paid off, at which point, they will have an extra $11,000 per month of discretionary income that they can spend guilt-free because retirement contributions are already built into the budget.

Many physicians think retirement should only be funded once loans have been paid off, but I disagree. Using the example above, yes, taking the $10,000 per month for retirement and using it towards loans would pay them off in four-and-a-half years. But to reach the same retirement nest egg, this couple would now need to put away $15,000 per month for 25 years. It will also depend on the rate of the loans. Also, if they’re not maxing out retirement contributions, they’re losing out on valuable tax deductions. Additionally, saving money is more than just numbers. It’s also about discipline and behavioral management. Studies have shown that people who start retirement savings early in their career are more prone to stick with it over the years.

Doctors need financial planning now more than ever. At the same time, they are far too busy. A professional financial planner offers the best option because they can provide turnkey services. In other words, the burden falls on the planner to create and help implement a sound financial plan. Planners should be a true accountability partner. If a client has a goal, it’s the planner’s job to make sure it comes to fruition.

Furthermore, a financial planner can help clients optimize their situation and be a good steward of their money through budgeting, debt management, insurance planning, tax diversification and education on risk-adjusted investment returns. I often get asked by my clients, “Ben, how much rate of return can you get me?” My rebuttal? That’s an incomplete question … rather, it should be, “How much rate of return do you seek for the amount of risk you are willing to take.” If a smaller rate of return can take my client to their destination safely, why be reckless and drive dangerously? Sure, a high rate of return might get them there faster, but it could also get them speeding tickets, accidents or, worse case, drive them off a cliff.

In terms of finding a good planner, it’s all about fit. Just as physicians specialize, so do financial planners. Find someone who is fee-based and works specifically with physicians. Good planners know they’re not the hero of the story — you are.

Benjamin Yin is founder and principal, Generational Financial Partners.

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