A Prescription for Success: Financial Planning for Physicians

The career path for a physician is often characterized as a tireless pursuit that begins with years of education, long days and nights during residency, and for many, increasing student loans.

And yet, physicians willingly take on this journey so they can improve the lives of those around them with their medical expertise and receive the added benefit of high compensation for the knowledge and skills they possess. In fact, salaries for physicians have steadily increased over the past several years.

The high earning potential of physicians creates a significant need for tailored financial planning advice and a team of trusted advisors to help build, preserve and protect their wealth.

Among several that could be listed, below are just three core components that form the prescription necessary for a physician’s financial planning success.

Establish Priorities

Start by being intentional and purposeful regarding how your income and related financial resources are allocated to various areas of spending. While this principle applies to professionals across any industry, it is even more applicable to occupations that have high earning potential and a demanding schedule.

The popular concept “begin with the end in mind” originated from author Stephen Covey in his book “The 7 Habits of Highly Effective People”.  This also has tremendous application to our financial lives, particularly for families with an abundance of options and available resources.  Take time to consider and prioritize what is most important to you and your family and what purpose you want your financial resources to serve.

Be Wise with Insurance

A comprehensive financial plan can help identify and alleviate most of the risks associated with practicing medicine, and a coordinated insurance program is the cornerstone of a sound financial strategy for physicians. Among several areas of risk management that should be addressed, there are two specific areas of insurance that are fundamental to a physician’s personal financial plan: own occupation disability income insurance and life insurance.

  • Own Occupation Disability Income Insurance – The probability of experiencing a period of disability during one’s medical career is higher than premature death yet protecting one’s future earning capability often receives less attention than insuring one’s life against an untimely death.  Particularly for specialists, a thorough understanding of what coverage their policy provides and how it may be coordinated with other programs of coverage often requires the insight and guidance of an insurance professional that focuses on serving the medical profession.
  • Life Insurance – With such a wide range of products and companies vying for your business, life insurance, like other financial services and products, can sometimes become more overwhelming or complex than necessary. Again, by allowing the needs and goals identified through a comprehensive financial planning process to drive the decision, one can more clearly identify the type(s), amounts and features of coverage that best suit your family’s needs at a specific season of life.

It is important to consider how best to coordinate any insurance program with options and opportunities available from your employer or practice.

Accommodate Growing Assets

Once goals and spending priorities have been established and a comprehensive insurance program is in place, one can turn their attention to growing personal and investment assets to provide for near, intermediate and long-term needs and dreams.

With a wide range of investment alternatives available to most investors, which also have various tax implications, it is important to not rely too heavily on tax-deferred accounts.  While there are ways to increase the tax-deferred growth of assets, such as 401k/403b Plans, IRAs and certain annuity contracts, be mindful not to leverage one specific vehicle beyond what it is designed to accomplish for a savings goal. It is important to consider the future tax liability you are creating in most tax-deferred investment accounts. Growing a portion of assets in regular taxable investment accounts offers additional flexibility in controlling the tax impact of future withdrawals for retirement income or similar purposes.

Implementing broad diversification of assets within an investment portfolio is also important and reduces the likelihood that any series of events will cause irreparable harm to one’s financial resources.  Remember that diversification, by definition, implies that not every investment owned will perform as we would hope at all times.  Consider and define how you will measure success of your investment plan as it relates to accomplishing what you have identified as a priority.  While comparing different components of a portfolio to relevant benchmarks is helpful, avoid focusing only on outperforming the rate of return of a particular market or category of investments.  Focus your efforts on staying committed to the plan that was thoughtfully designed to accomplish specific goals important to you and your family.

If you have questions about managing your financial resources as you also manage your medical practice, we welcome the opportunity to sit down and discuss how we at Welch Hornsby approach financial planning and wealth management for physicians. Contact us today.

The information and data contained herein has been obtained from sources believed to be reliable, but is in no way guaranteed by Welch Hornsby as to its accuracy. Opinions and projections are as of the date of their first inclusion herein and are subject to change without notice to the reader. As with any analysis of economic and market data, it is important to remember that past performance is no guarantee of future results. 

Written by Brian Mitchell, CFP®, CPWA®