Financial Planning For Physicians
February 8th, 2020
Healthcare professionals understand that the treatment programs they deliver are based on a thorough analysis of their patients’ symptoms, pre-existing conditions, and health risk factors. Yet, their long-term financial wellness is often put on the line. Lack of time, in addition to the unique financial challenges faced by physicians, warrant a visit to a specialist.
Many physicians start their careers with significant educational debt. According to the Association of American Medical Colleges, among medical school graduates, the average student loan debt was over $190,000 in 2018. Added to other obligations such as car loans, mortgage payments, and credit cards, physicians can find themselves with ten or more years of aggregated monthly payments of thousands of dollars.
Conducting a cash flow analysis that can generate a budget can help you allocate income to everyday expenses, debt payments, and long-term savings. By doing so, you might also discover methods to prioritize debt payments, for example, accelerating payments for loans with higher interest rates.
All physicians have malpractice insurance, which can cost tens of thousands of dollars every year. But your employer likely does not provide assistance in helping you choose providers and coverage levels.
While some financial planners will have a license to sell malpractice insurance and be skilled at recommending insurance carriers that meet their coverage needs and budget, be wary of recommendations if the planner is getting compensated for the products they recommend.
Saving and Investing
Financial planners can recommend an investment plan that aligns with your risk tolerance and specific financial goals, such as saving for retirement, your child’s higher education, or the purchase of a new home. From this information, they can recommend an asset allocation strategy to create a diversified portfolio of stocks, bonds, and cash that aligns with the physician’s investment objectives.
Many financial planners are also investment professionals who can execute the plan by recommending specific securities or mutual funds and then managing all or part of a portfolio, monitoring and reporting performance over time and making changes as necessary, with an eye on tax-efficiency.
As physicians reach their peak earning levels, they often find themselves in higher tax brackets. If they work for hospitals they may receive stock or stock options. Or, if they establish a private practice with other physicians, they may receive an ownership stake in the form of private shares.
When it comes time to liquidate these positions, it is critical to find a specialist that can develop plans to sell these shares in a tax-efficient manner. Additionally, you can maximize your taxable income by reevaluating annual contributions to 401(k) plans and IRAs and identifying strategies for making the most of available tax deductions.
Protecting Personal Assets
Insurance alone might not provide enough protection in the case of a multi-million dollar malpractice judgment. Plaintiffs may also try to go after a physician’s personal assets, such as their savings and investment assets or their homes. For these reasons, seek a specialist who can recommend strategies for shielding assets from both litigants and creditors, such as placing investment assets into a trust. Physicians with estate plans can ensure that their assets are passed on to their heirs in an efficient manner.
Physicians who are entering residencies are often overwhelmed by both uncertainties over their future and the financial responsibilities that come with starting their careers. Since they’re still in the first stage of their medical career, many are not making as much money as they will be when they’ve established their practice. Yet, they still have educational and other debts to pay off, as well as premiums for malpractice insurance. A financial planner can help residents develop a plan for managing inflows and outflows, putting money aside to save for retirement or their children’s higher education, and selecting appropriate levels of life and malpractice insurance.
“Board-qualified” Financial Planners
If anyone knows the value of extensive certification, it’s physicians. A quality financial plan can help reduce the financial uncertainties that can become a headache and prevent you from focusing on your passion.
Just as patients only want to be treated by qualified and highly trained physicians, healthcare professionals should also carefully evaluate the credentials of any financial advisor they are considering. Limiting your search to a financial planner who has been certified as a CFP® professional by the Certified Financial Planner Board of Standards (CFP Board) can help. These financial planners earn their certifications by being experienced financial professionals who have passed a rigorous financial planning examination. Being a CFP acts as a great filter for knowledge base; nonetheless, they may not all be fee-only and fiduciary!
The same way that studying a book and passing a test is not enough for a physician to become a surgeon, I believe advisors should have gone through a great “residency” experience so they can develop great processes.
25 Years of Tax & Financial Experience. Joseph Vecchio is a Certified Public Accountant (CPA) and CERTIFIED FINANCIAL PLANNER™ (CFP®) and has dedicated his professional life to the finance and accounting professions.
Joe believes that people are being exploited by financial salespeople who are merely motivated by quotas, product sales and commission-based income! Shore Financial Planning was founded to provide peace of mind through conflict-free, value-added advice.
Shore Financial is a fee-only, tax-focused financial planning firm located in Monmouth Beach, NJ.