Doctors are among the highest-paid professionals in the country, but that money needs a plan to become true wealth. Here are 5 physician financial challenges to watch out for, and how to keep them from undermining your wealth potential:
Physician Financial Challenges: Lifestyle Inflation
Doctors are well aware of the sacrifices it takes to make it in medicine: Years of expensive education, the punishing hours and low pay of residency, and pushing off personal life for a later date. Once it all calms down and you’re solidly in your career, it can be tempting to indulge.
A sudden pay increase opens a world of new opportunities. But if you’re not careful, you can squander your income on material items that don’t pay off in the long run. If you’re still in residency, make a plan now for that income jump to keep you on track. And if you’re well into your career, make an effort to check in with your spending.
Make sure it aligns with your overall goals.
Retirement Savings Time Crunch
Doctors spend more time than average in school, so your peak earning years are more condensed. That means you have less time to take advantage of compound interest in your retirement savings. When you also factor in any medical schools you’re still paying off, a higher income doesn’t automatically guarantee healthy retirement savings. The best way to combat that time loss is to start saving as soon as you’re earning.
Also consider that many doctors want to use their earning power to save for an early retirement. This presents a different set of saving and investing hurdles, but it is possible if you have a clear, focused plan to get there.
Tax and Portfolio Complications
More money, more problems? When it comes to your portfolio, a higher income can be a double-edged sword. After residency, your income may have spiked, catapulting you to a much higher tax bracket. That means you’re taking home a smaller percentage of your income, so that needs to be considered in your financial planning.
Investments can be another of the big physician financial challenges. They can become more complicated when you have more money to work with. Physicians are likelier to look for investments like backdoor Roth IRAs, multiple 401(k)s and taxable brokerage accounts to grow their wealth.
Managing those investments takes education and time, which can be a challenge for a doctor with a hectic schedule. Many doctors opt to hire a financial advisor they trust to manage their finances. Use my guide to determine how to find an advisor that will work for you.
According to the American Medical Association, more than 60% of doctors over age 55 had been sued for malpractice. It’s common and likely that you might have to face a lawsuit at some point in your career. Most of those cases are dropped, but they are still expensive. It pays to invest in protection.
Common insurance policies doctors need include life insurance, disability insurance and malpractice insurance. Read more about insurance for physicians here.
One of the biggest threats to your income is putting in years of education, training and money – and then deciding to leave your career. But more and more doctors are leaving their jobs because of burnout. There are external factors threatening doctors’ job satisfaction, which I detailed in one of my recent blog posts. But there are personal adjustments you can make to keep the joy in your work.
Take your vacation days, make time to attend conferences, get the rest and exercise in that you can. Make your well-being a priority. Motivation and passion for your career are key to a long, fulfilling career in medicine – and the salary that accompanies it.