When my wife became a doctor, she saw doctors and other medical professionals face financial hardship due to heavy workloads, long hours, and the mental stress of the job. Sadly, financial planning is often overlooked by many medical professionals, especially doctors. The purpose of this article is to guide physicians in accessing financial resources and strategies that can help them protect and grow their wealth while minimizing taxes.
1. Navigating student loan repayment
It’s no secret that a career in medicine is expensive, and many medical students take out government and private loans to complete their degrees. During training, doctors usually have limited income, so they pay the bare minimum through student loans. With more income, you can allocate more funds to repaying your loan.
I advise my clients to make additional payments on top of the principal, rather than just paying the interest. Start with high-interest loans and pay off private loans before federal loans.
While the Biden administration’s efforts to forgive federal loan debt may be slow, it has also introduced other loan forgiveness programs that encourage priority repayment of private loans.
2. The need for medical malpractice insurance
Hospitals may offer malpractice insurance, but practitioners often must purchase their own insurance. This is the main reason why many doctors prefer large networks over small private practices.
Malpractice insurance is expensive, and doctors are likely to face lawsuits during their careers. According to the analysis, in 2022, one-third of doctors reported medical lawsuits. american medical association. Two-thirds of these cases are ultimately dismissed, but one-third proceed to trial, where they are decided by verdict. This is also an expensive process, regardless of the outcome. According to the same AMA analysis, surgical specialties have the highest risk of litigation, while internal medicine subspecialties have the lowest risk.
The cost of malpractice insurance varies depending on the doctor’s specialty, but whether it is offered by a hospital or a private practice, it is highly recommended that you obtain adequate insurance.
Additionally, it is important to maintain detailed records of the care provided and document verbal consultations with patients and their families. These notes can be used to defend against potential lawsuits.
3. Avoid occupational hazards with disability insurance
Some hospitals offer disability insurance, while others do not. Read and understand the benefits and limitations of your disability insurance plan and the amount you will be paid in the event of a disability. Some plans may only cover up to 25% of your income.
Many physicians choose to work with an independent advisor to find a disability insurance plan outside of their hospital network. This gives doctors more control over the coverage they want. For example, some doctors may want her to continue supporting the household with 75% or 100% of her income even if she becomes disabled. Keep in mind that the more income-supplementing coverage a doctor wants, the higher the premiums for that policy will be.
4. Negotiation of employment contract after residency
It is important to note that employment contracts are negotiable. Although some privileges may be easier to obtain than others, there is a level of flexibility that both small and large employers can offer. Many facilities have standard contracts for physicians who have recently completed their training.
Many physicians have successfully negotiated signing bonuses, moving allowances, weekly work hours, commuting distances, and insisting on increased vacation and paid time off.
Always have a lawyer review your contract and remember that lawyers are experts in legal terminology, not medical terminology. The doctor may need to help the lawyer understand key language in the contract. Therefore, before a physician signs an employment agreement, it is important that both the physician and the attorney read and understand the contract.
5. Review your life insurance policy
Physicians are often underinsured when it comes to life insurance. That’s bad news, given that they are often the primary breadwinners in their families. There are many ways to calculate how much death benefit you need, but most will use a figure of about 7 to 10 times your gross annual income. For example, a doctor earning $100,000 a year should receive a death benefit worth between $700,000 and her $1 million so that her family can protect her income in the event of her early death. Physicians carry a certain risk due to occupational exposure, which justifies this precaution for their families.
There are two main categories of life insurance: term insurance and whole life insurance. Term insurance is initially inexpensive and provides coverage for a specific period of time. However, it has no cash value and costs increase significantly after the term ends.eternal life
The premium will be higher initially, but it can continue until the insured person dies. This provides the potential for cash value growth and may include long-term care benefits.
Term and whole life insurance can be combined to fit the insured’s budget while ensuring adequate coverage. A common strategy is to combine term and whole life insurance to ensure adequate coverage to fit the insured’s budget.
6. Retirement Savings: 403(b) and 401(k)
Most hospital networks offer retirement plans such as 403(b) and 401(k). To get a 100% return on your investment, donate at least a matching amount to these programs. Within your retirement plan, you can choose to contribute to a pre-tax account or a Roth account. Contributions to a pre-tax account receive an income tax deduction and grow on a tax-deferred basis.
When you reach retirement age and want to withdraw your funds, these withdrawals are taxed at prevailing income tax rates. Consider whether your taxes will go up or down in the future, as this could affect your retirement. Saving on a pre-tax basis and withdrawing from your IRA can lead to higher taxes on your Social Security income and higher Medicare premiums in retirement.
It is generally better to pay taxes on seeds than on harvests from savings. When you contribute to a Roth plan, you don’t get a tax deduction in the year you contribute, but your account grows tax-free over the years. Withdrawals from Roth accounts during retirement are federal income tax free and do not affect future taxes on your Social Security income or increase your Medicare premiums.
7. When is it enough to retire?
We recommend that you save about 15 times your annual income for retirement. If you want to live on $100,000 a year in retirement, you’ll need about $1.5 million in savings to supplement your other sources of retirement income.
Not everyone will be able to achieve this goal, but it means your investments need to perform well to have a stable retirement cash flow. One common retirement strategy is to invest a portion of your portfolio in an annuity, which provides an income similar to that of an annuity. However, it is important to note that annuities may have different fees, risk levels, guarantees, and ratings. When considering a purchase, we strongly recommend that you speak to an independent advisor who specializes in pensions, especially if you are nearing or have retired.
It is important to take the time to meet with financial professionals until you find one who can solve the unique challenges that physicians face. Wealth managers who work for large corporations are considered “captured agents” because they are employed by large corporations. These companies have shareholders and may have conflicts of interest in the services they provide to their customers.
There are also smaller independent companies that operate with higher ethical standards. These advisors prioritize the interests of their clients. Independent advisors may offer more investment options than their competitors. Whichever option you choose, the most important thing is that you have confidence in the experts you are working with and the advice you receive.