November 2024 President’s Message

Financial advice for physicians at each career stage

by Howard Chang, MD —

In every stage of your career, financial planning is crucial to securing your future. Financial well-being is not adequately taught in medical school and residency. You graduate from residency, start making a six-figure salary, and then they kick you out while wishing you the best of luck.

To help MSSC physicians navigate these financial complexities, I picked the brain of Chris Renner, a financial adviser with over 30 years of experience working with physicians. I’m placing a plug in for his free blog, “Observations on Investing et al.” It’s a phenomenal read that I subscribe to. In this regrettably brief interview, he addresses some of my most important financial questions that may arise for physicians.

Early Career Physicians (Age <45)

Question: What is the single most impactful decision early career physicians can make to secure a sound financial future?

Renner: The biggest financial decision is determining where you will practice. Though very personal, the state you work in has significant long-term financial consequences. The average physician in the U.S. earns $363,000 annually, but state income tax rates and housing costs can drastically affect how much of that you keep. For example, working in Texas versus California could save you $2.8 million over 30 years in taxes and mortgage interest and allow you to retire much sooner. Kansas (5.58% tax rate, $259,000 home) has the 22nd lowest income tax rate and ninth lowest median home prices and would save tax and interest over most other states. While not everyone can move to a different state, it’s a powerful example of how geographic location impacts your long-term financial health.

Question: What other important financial considerations should early career physicians focus on?

Renner: It’s crucial to tackle student loans strategically and simultaneously begin saving for retirement. Roth 401(k)s are ideal during this time. Risk management, including adequate insurance coverage, is also essential. Tax planning ó such as deciding between incorporation or other tax structures ó should be done early to maximize savings over your career.

Mid-Career Physicians (Age 45-55)

Renner: Mid-career is when your wealth-building efforts really accelerate. The most important thing you can do is set clear financial and personal goals. Sit down once a year with your partner and write down your financial goals for the next year, five years and 10 years. For each goal, determine its cost and the time frame in which you’d like to achieve it. This can range from paying for your child’s college tuition, to buying a pair of jet skis, to retiring at age 60. By creating concrete plans, you can calculate how much to save annually to meet each goal, helping you stay disciplined with your finances.

Question: What other financial strategies should mid-career physicians consider?

Renner: At this stage, balancing savings for your children’s education, retirement and ongoing life expenses becomes critical. Reassessing your retirement investment strategy and optimizing your tax situation should also be priorities. Some may also be considering whether to open or expand a medical practice, which brings its own set of financial questions.

Late-Career Physicians (Age 55-65)

Question: As physicians approach retirement, what is the most important financial step to take?

Renner: Preparing a comprehensive estate plan is vital in late career. You should at the very least have a will, but for physicians with significant assets, I recommend setting up a trust. A trust ensures that your assets are distributed according to your wishes, while avoiding probate court. It also allows for tax advantages and protection of your wealth in the event of incapacitation. Consult with an estate planning attorney to make sure your plan is tailored to your needs.

Question: What other financial considerations should late-career physicians keep in mind?

Renner: Determining the right time to retire is complex and depends on factors like healthcare costs, long-term care insurance, the age your parents died and when to start drawing from retirement accounts. If you own a medical practice, now is also the time to consider its transition.

My thoughts

I wish we had more exposure to financial planning during our medical training. I understand that it’s not exactly part of the medical curriculum, but I’d argue that it’s just as important for physicians. I ran into a real estate investor the other day who told me, “Physicians make great real estate partners … so long as they focus … on just practicing medicine.” He was basically trying to kindly (maybe not so kindly) imply that we are “dummies” when it comes to finances and investment knowledge, and he’s happy to use our money but we need to just stay in our lane.

I hope that, at the very least, this month’s column ignites a fire for you to start learning more and make sure you’re adequately preparing for your financial future.

Chris Renner is a freelance financial planning writer with 32 years of experience in physician financial planning. For more insights, visit his Substack blog at http://rennerc.substack.com.