Financial and Legal Planning Basics for Young Physicians

June 17, 2014

Despite the wide range of risk and planning issues for physicians to consider, a certain core group of tools is almost universally applicable to all doctors.

I teach a CME course for a variety of organizations across the country on law, business, and risk management for a diverse audience of physicians. I was recently asked to identify the most basic set of tools that "everyone needs" at the end of one such private lecture to a group of young physicians from a high-profile clinic/hospital in Scottsdale, Arizona by the host, financial adviser Adam Bergen, a former NFL player who advises doctors, pro athletes and other successful individuals. Adam's Bergen's question is a common but important one, and one I regularly hear from the doctors themselves. Here are what I consider the bare essentials:

1. Start saving, even small amounts.

Setting up and funding even a basic savings and investment vehicle, like an IRA, is an important start to building your wealth. There have been a variety of articles written on the importance of saving habits for young professionals and of course they include many good arguments like building habits, the power of compounding interest, and other sound financial strategies. As an asset protection attorney I like them for an additional reason; many of these plans are creditor-protected by law, either immediately or after a reasonable vesting period. Not only will a simple retirement plan allow you to create a savings account with built in asset protection, it will allow you to retain earnings and save on taxes, another key issue for doctors.

2. Get a great, proactive CPA.

Put a little thought and effort into finding a proactive and experienced CPA who can help you plan for both your current income, for instance, as a third-year resident, and what you will be making the next year when you join your group (that could be five to ten times more). A good CPA will meet with you and discuss these issues at the beginning of your relationship, offer suggestions on appropriate tax and savings plans, and help you create a realistic personal business plan; a.k.a. a budget, something a shocking number of young doctors fail to do.

3. Get an estate plan.

In some cases even a basic estate plan like a will or a living trust is a great place to start. I've previously covered both the most common estate planning mistakes  made by doctors and provided a list of issues that may require you to update an existing estate plan. If you have anything of value including a car, bank account, retirement plan, or even employer provided life insurance, regardless of whether you have children or are married, you likely have someone you'd like to receive the fruits of your labors when you die. An estate plan is the simple way to make sure that happens and does not create the additional stress, delay, or expense associated with dying intestate.

4. Insure yourself adequately in three basic areas.

Liability insurance. This means high levels of home and auto liability coverage including an umbrella policy of $1 million or more. It's dollar for dollar the cheapest and most essential asset protection you can buy.

Disability insurance. All of your future personal and financial goals are related to your earning ability as a physician, and for most of you, there is no other job you can do that will compensate you as well. Not insuring this irreparable asset and its expected rewards makes no sense, and puts your solvency and family at substantial risk, even if you are not the sole breadwinner. I find that younger doctors more resistant to disability insurance, perhaps assuming that it is primarily for illnesses and diseases that they are immune to by virtue of their age, however, this ignores injury and accident risk.

Life insurance. If you have any immediate family like a spouse or children, life insurance should be considered an "essential" expense and part of protecting them against the unexpected loss of your income. For most young professionals, absent any significant health issues, the cost of $2 million in simple term insurance can be less than $1,000 a year. There is no other financial strategy I can think of that will provide as much financial security for them or other extended family that you may wish to provide for, including your parents.