3 modern financial tips for new attending physicians

Congratulations on becoming a new attending. To jump-start your career, you'll find innovative ways to save on student loan payments, protect yourself with essential insurance products and supercharge your retirement savings. Let's start with the fact that 81% of physicians in their 30s are still paying back student loans, according to a recent report by the American Medical Association (AMA).

How to save $36,000

Refinancing from government to private lender is a modern way to tackle loans. Using the average debt of about $180,000 as an example, this will save you $36,000. That is basically the cost of a new luxury car. What’s the catch? Employment and income shouldn’t be too difficult for most physicians. Having a good credit score and minimizing other debt could be more challenging when you start applying.

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Research main lenders like SoFi, DRB, LinkCapital, CommonBond, LendKey and Citizens Bank online. Watch those 6.8% rates melt into 2-3%. The more money you owe, the more you’ll save once you refinance. A good rule of thumb is to use the variable option (over a fixed loan) especially if the loan is less than 10 years, since variable rates are lower than fixed rates.

Want to know exactly how much you could save? Head over to “https://studentloanhero.com/calculators/student-loan-refinancing-calculator/”

How to protect $5 million or more

If you work a 25-year career as a family practitioner, internist or cardiologist, the projected earnings are $5.2 million, $5.6 million and $10.2 million respectively. However, you’ve seen enough patients to realize bad things happen to good people at any age and no one can predict the future. Luckily, there are three types of insurance to protect the most valuable financial asset you have-your future income potential.

Next: Unlocking stealth savings accounts

First, disability insurance guarantees an income should you become disabled. It is wise to get an individual plan in addition to your employer plan. In fact, an individual disability plan is held by over 70% of physicians according to the AMA Annual Physician Financial Preparedness Survey. You aren’t getting any younger nor healthier, so now would be a good time to lock in a rate.

Ask for a quote from any of the “Big 6” insurance websites-Guardian, Standard, Metlife, Ameritas, Principal and Mass Mutual-or search for an independent agent who is able to provide multiple quotes. This agent doesn’t have to be local. Look for add-on provisions that include: “own occupation,” “future increase option,” “cost of living adjustment” and “residual benefits.” The “own occupation” rider is arguably the most important. Let's say you make most of your income doing a procedural skill. If you do not have “own occupation,” the insurance company could argue you are not technically disabled if you hurt your hand since you could still teach, see patients in-clinic and perform physicals.

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Second, life insurance guarantees income for those around you. Ask yourself, if you were to die how would your current/future spouse or kids be able to continue the lifestyle you helped create? How would the mortgage, retirement and education be paid? Term life insurance will do this. Explore your options on sites like term4sale.com and pick a $1 million, $2 million or $3 million policy for 20-30 years. Go for the lowest cost term (not whole) life insurance policy.

And finally, umbrella insurance is for catastrophic coverage. This is the one you are least likely to use because it protects against the highly unlikely but financially devastating events. It kicks in after your home and auto insurance policies are maxed out. Think about a car accident you caused or a neighbor who slipped on your property. We live in a litigious society. Fortunately, umbrella insurance reserves the right for a special attorney to defend you as well as pay for those harmed. Consider coverage ranging from $1 million to $5 million.

Supercharging retirement funds and unlocking stealth savings accounts

Is a dollar saved really a dollar earned? No. In California, for example, a dollar saved is $1.64 earned. That means every dollar you save is worth that much more.

Next: The most advanced way to supercharge retirement savings

Start by maxing out your 401(k)/403(b) by contributing $18,500 per year. If you do this, you’ll join the 59% of physicians in their 30s who are able to max out these accounts. Pay yourself first and have it automatically deducted from your paycheck into a passive, not active, index fund with a low expense ratio.

Do you think it matters if you pay $0.11 or $0.84 for every $100 you invest? Over 25 years, those pennies get compounded in a special way. Hard to believe, but over time, less than 1% difference ends up being a difference of 18%. So, if you picked a passive index fund, you would have $106,000 more versus an active fund.

You could then build a portfolio with the adage of holding your age in bonds, for example. A 35-year-old would hold 35% in bonds, for example. Or look for “Retirement Fund 20XX” which is a plan where one picks a rough retirement year and then the plan automatically decreases risky investments and increases more stable investments over time. Remember, the enemy of a good plan is a perfect plan.

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The next two ways to save for retirement are based on even more recent innovations. First is the Mega Backdoor Roth. Usually, physicians do not have access to a Roth IRA because income is too high. However, there is a legal way for high income earners to get around this and save $5,500 per year. The Roth IRA has unique advantages and additional flexibility compared to a traditional IRA. For example, in retirement you are never forced to remove the money nor pay taxes. And if you need to use it before you retire, there are no penalties to remove the contributions. To start the Mega Backdoor Roth process, contact any large brokerage firm, such as Vanguard or Fidelity.

Finally, the most advanced way to supercharge retirement savings is with a Health Savings Account (HSA). It offers something truly unique-a triple tax benefit. That means no taxes going in, no taxes as it grows and no taxes if you remove it (there are some exceptions in Alabama, California and New Jersey.) However, you must have a high deductible insurance plan to qualify. When you reach age 65, you’ll have two choices: withdraw and pay for medical expenses tax free, or two, withdraw as a general retirement fund and have it taxed as a very favorable traditional IRA. To take advantage of an HSA visit Saturan Capital, HSA Bank, Alliant Credit Union or Benefit Wallet where you can invest $3,400 (or $6,750 for a family) to start.  

Daniel Orlovich, MD, PharmD, is a resident physician in the Stanford University Department of Anesthesiology, Perioperative and Pain Medicine. Follow him @DrOrlovich.