Young physicians: Here’s how to get your finances back on track
Wednesday, November 11, 2015
It's not uncommon for doctors to enter the field with mounds of medical school debt and little savings — after all, they spend extended time in school before starting their practices.
That can put young doctors at a disadvantage compared to their peers in other professions who have been able to start saving up to 10 years earlier, according to a new study by AMA Insurance, a subsidiary of the American Medical Association.
The report, which looked at 1,937 U.S. physicians under age 40, found that young physicians typically begin their first year of practice with an estimated $71,000 lost in potential savings. The years lost in savings are further aggravated by the inability to earn compounded growth from time in the market, according to the study.
"Once the physicians are out of their clinical training, their income is going to build but so do their family responsibilities, and they have medical school debt facing them," said Denise Friday, vice president of sales and marketing for AMA Insurance.
But good news is physicians can take steps to make up the deficit.
"The point to illustrate is the sooner we can start saving, the sooner we can reach our retirement goal," said Jerry Moran, a senior wealth strategist with Millennium Brokerage Group and financial advisor who was involved with the study.
Moran recommends five strategies to help physicians reach financial freedom.
1. Pay yourself first — starting from day one. Accelerate your savings by directing 20 percent of your monthly income to yourself as savings. Consider it an automatic fixed expense, not what's left over at the end of the month. Invest in qualified retirement plans at work as soon as you can.
2. Develop a budget beyond debt repayment. 83 percent of respondents said they were still paying off student loans. But repaying loans can't surpass the need to save for retirement in your first decade of practice. Moran recommends building a realistic budget, which should be recalibrated as income changes.
3. Understand the financial implications of your employment contract. Take time to understand your employment contract and benefits — for example, employer-matching retirement funds, life and disability insurance packages, noncompete clauses, etc.
4. Prepare for the unexpected; protect the people you love. Since most young physicians are their family's breadwinner, it's important to protect your income with the right amount of disability insurance. Make sure you have that financial cushion, because you can't always count on things going as planned.
5. Engage a professional financial adviser. Half of young physicians use a professional adviser to help them navigate their finances. The 50 percent who don't said it costs too much or they haven't found someone they trust.
Moran recommends conducting interviews with adviser referrals from physician colleagues. Ideally, look for an adviser who specializes in high-income clients.
"I typically recommend that you interview three different financial advisers, making sure you're comfortable with the pricing structure, but also the individuals themselves," he said.
Physicians who work with an adviser are more likely to consider themselves on track or ahead of schedule for retirement, have more saved, have a diversified portfolio and are more confident they're making the right decisions for their family, according to the study.
"Working with a financial adviser allows them the opportunity that somebody is working on [their finances], and that's their focus," Moran said. "The young physician is doing what they're good at: working with their patients."
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