Physicians’ biggest financial mistakes

February 11, 2020
Julianne F. Andrews, MBA, CFP®, AIF®
Julianne F. Andrews, MBA, CFP®, AIF®

Financial Advisor to high net worth individuals including physicians and those at or nearing retirement.

Retirement plans, anticipating industry changes, and more.

As a physician, you’ve sacrificed years of your life, significant monetary resources, and countless hours of sleep to achieve the success you have today. Through your education and extensive training, you’ve accumulated the knowledge and skills needed to make critical, life-saving decisions on a day-to-day basis; however, when it comes to finances, evaluating important money-related choices might not come as easily. 

For high-income earning individuals like physicians, proper financial management is imperative for maintaining a high quality of life throughout (and beyond) the trajectory of a lucrative career. With this in mind, we’ve compiled a list of the top 3 financial mistakes physicians tend to make so you can avoid making these same missteps in your own financial life.

1. Not Accounting for a Reduced “Work Life Span”

If a physician graduates from medical school four years after college and completes the shortest of the internship and residency programs, which is three years long, then that physician won’t enter the workforce until nearly thirty years of age! In the meantime, professionals of the same age have already purchased homes, started families, and begun funding their 401(k) plans. 

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Once the rigorous training is over, many physicians are eager to do the same-purchase a home and start a family. Certainly, with a large paycheck suddenly coming in, these dreams can’t be so unreasonable. The majority of physicians will also have significant student loans to tackle, which can translate into a postponement of retirement contributions until roughly age 40. After all, who wants to divert their paycheck to retirement when they’ve just finally broken into the workforce? The competing priorities of family life and student loan payments tend to take precedence over retirement savings in the early working years of a physician’s life. 

But herein lies the problem: if an individual doesn’t start saving for retirement until they are nearly forty years of age, and they’d like to retire around the average retirement age of 60-65, they’re going to be grossly behind in savings. This is especially true of high-income earners who will likely want to live a comparable (if not improved) lifestyle in retirement. Essentially, physicians have fewer years to accumulate more resources.

What is the result of postponing retirement savings? More and more physicians are struggling to retire. Many are still working fifty to sixty hours a week well into their seventies or deciding to retire earlier with less than they expected, lamenting not having started thinking about retirement sooner.

The Solution

Do not delay retirement savings despite your other financial obligations. 

As soon as you begin receiving a paycheck, “pay yourself first” so you don’t fall behind on retirement savings or have to live a diminished lifestyle later in life. Investments are only as effective as the time you allow them to work for you, so starting early will give you the highest probability of success. 

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Consult with a financial advisor who specializes in working with physicians. The right advisor will help you sift through debt repayment, home purchases, saving for your children’s college educations, planning for retirement, and much more. It’s all feasible, but the key is to start as soon as possible.

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2. Not Considering Industry Changes That Impact Finances

Day in and day out, physicians like to practice medicine. While some physicians are able to stay abreast of industry and regulatory changes, many are so consumed with the day-to-day challenges of the profession that these other concerns fall by the wayside. 

The healthcare industry is constantly changing and evolving in ways that providers have little control over. Will we go to “Medicare for All”? Will our current healthcare system remain the same? How will the impending problems of Medicare and Medicaid insolvency affect reimbursements?  What should physicians do now to try to protect against all of this?

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These questions have prompted a shift in the industry. We have worked with more and more physicians who are moving away from solo practices and towards large practices, often affiliated with hospitals, that have professional management teams in place or work with medical consulting firms to keep all the affiliated physicians aware of the ever-changing landscape. 

If your heart is set on opening a solo firm, you may benefit from working with a consulting firm to help evaluate everything that goes into running a practice. Or, perhaps you are more comfortable relying on the infrastructure in place at a larger practice or hospital. The choice will vary from doctor to doctor, but the shifts in the medical landscape should not be ignored. Just being a good doctor is not enough anymore-you also have to be a strategic planner or affiliated with a group or firm that can provide that service.

3. Not Having an Up-to-Date Estate Plan in Place for Risk Management

More often than not, we find that physicians either do not have the proper estate documents in place or have oversimplified ones. Many physicians place assets in their spouse’s name and hope this will be enough to protect them from potential legal claims; however, it is our first-hand experience that this approach is not always enough. Trusts, LLCs, and other legal tools set up with the assistance of a well-versed estate planning attorney in conjunction with a financial advisor can help physicians effectively shield their hard-earned assets from potential legal action.

Keep in mind that claims against assets can vary. The proper estate plan will not only seek to protect a physician’s assets from medical malpractice suits, but from common, everyday legal actions that could result from something as simple as an individual slipping and falling on the physician’s sidewalk. 

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Overall, the objective is to keep the physician’s financial situation as simple as possible while still shielding assets successfully. Wouldn’t the couple of hours spent with an estate planning attorney and a trusted financial advisor be worth the peace of mind these tools can provide?  As physicians know all too well, life can change in the blink of an eye. It’s important to prepare for these life-changing possibilities as best we can.

Julianne F. Andrews, MBA, CFP, AIF is a principal and co-founder of Atlanta Financial Associates. She specializes in working with physicians and executives in the healthcare industry. Her passion for working with physicians comes from being a pediatrician’s spouse for more than three decades. Julie has been featured on Forbes’ list of America’s Top Women Wealth Advisors since 2017 as well as Forbes’ Best-in-State Wealth Advisors since 2018. Julie can be reached at jandrews@atlantafinancial.com.