Physicians help patients improve their long-term health by identifying risks, encouraging preventive care, and developing treatment plans. The same principles apply to financial health. Yet physicians often follow an unusual path to building wealth. Medical
school, residency, and fellowship can delay meaningful earnings and savings well into their 30s. Student loans may be substantial, schedules are demanding, and the transition into practice can bring dramatic increases in both income and spending.
A strong income helps, but income and wealth are not the same. A physician with high income can still struggle if spending rises, expensive debt remains unpaid, and saving is limited to what remains at year-end. Conversely, one who plans early, manages
debt carefully, and saves consistently can build financial independence. The difference often comes down to having a plan, saving systematically, and controlling expensive debt.
1. Start With a Financial Plan
A financial plan does not need to be a complicated document filled with charts and projections. At its core, it should answer three questions: Where are you today? Where do you want to go? What needs to happen between now and then?
Consider a physician who wants to reduce clinical hours by the time they’re 55 and retire at 62. How much should be saved annually? How quickly should debt be eliminated? How much should go into retirement accounts versus accessible savings? What level
of spending will preserve those goals? Without a plan, these decisions are often made independently. A larger home may seem affordable based on monthly income, a car payment modest relative to salary, and maximizing a workplace retirement plan sufficient.
As with prescription drugs, each decision may look reasonable alone, yet collectively lead somewhere very different from where the physician intended. A useful financial plan therefore begins with lifestyle rather than investments. Decide what you
want your money to accomplish and then work backward.
2. Turn a High Income into Lasting Wealth
A physician’s greatest financial opportunities could also be a major risk: the income increase after training. After years of sacrifice, wanting to enjoy that income is understandable. A nicer home, better car, travel, or private school may suddenly seem
affordable. The problem is not enjoying success but allowing every raise to permanently increase lifestyle costs. Decide early how much income will build wealth and automate those savings.
Once high-interest debt has been addressed and adequate cash reserves established, a physician needs to establish an appropriate savings rate. This amount depends on age, family circumstances, and retirement objectives. The guiding principle for building
wealth is to save intentionally, not merely what is left over. For someone earning $400,000, a 20% savings rate equals $80,000 annually. Sustained over many years, those contributions and investment growth can provide substantial independence.
One factor that’s often overlooked is that wealth needs to be accessed net of taxes. Because of this, savings should not be limited to retirement plans. Physicians may contribute diligently to a 401(k) or 403(b) while accumulating little outside those
accounts. While there are tax benefits that come with contributing to retirement accounts, most withdrawals will be taxed at higher ordinary income levels later in life. Accessible savings outside of a qualified plan provide flexibility to fund education,
reduce clinical hours, change careers, or retire before drawing heavily from retirement assets. The goal is not simply a large retirement account but being able to access the most money net of the taxes you’ll have to pay.
3. Don’t Let Expensive Debt Work Against You
Physicians often begin their careers with significant debt, but not all debt should be treated equally. A mortgage may fit within a long-term plan; high-interest consumer debt is different. A $30,000 credit card balance above 20% can generate more than
$6,000 in annual interest. This is money that’s not building future independence.
The right strategy depends on rates, available cash, employer benefits, taxes, and other goals. We suggest listing each debt’s balance, rate, and required payment. Direct additional payments toward the highest-interest debt while maintaining minimums
elsewhere. Student loans require more nuance. Paying off a low-rate loan before saving may not be best. Likewise, carrying high-rate private loans as spending rises deserves scrutiny. Coordinate debt repayment with the broader financial plan.
Summary
Physicians know preventive care is easier than addressing a serious problem after it develops. Financial health works the same way. Having an advisor in your corner, working in a similar capacity as a primary care physician in health care, can help identify
financial issues or opportunities that may otherwise be overlooked.
By establishing a plan of action as early as possible and applying that consistent discipline to your finances, you can help ensure your career provides something more valuable than a high income: the freedom to decide what comes next.
To explore these topics further, the MMS is partnering with GW&K for a webinar entitled “Turning Physician Income into Financial Freedom” on Friday, November 6, 12:05-12:50 PM. Registration is free.
Members can learn more about Actuate Insurance or schedule an insurance review with one of its advisors.
Disclosures
This represents the views and opinions of GW&K Investment Management and does not constitute investment advice, nor should it be considered predictive of any future market performance. Opinions expressed are subject to change. GW&K is not authorized to
provide tax, legal, or accounting advice. The information provided is for general informational purposes only and is not written or intended as an individualized recommendation or substitute for specific legal or tax advice, within the meaning of
IRS Circular 230 or otherwise. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Individuals are encouraged to consult with a professional tax, legal, or accounting advisor regarding their
specific legal or tax situation.
