Financial planner Steve Podnos, MD, CFP, has some good advice about budgeting and investing for physicians who are looking to improve their financial security in these tough economic times.
The balance of power between physicians and institutions has shifted remarkably to your disadvantage over the last 5 to 10 years. In many communities, hospitals and other institutions employ the majority of physicians, especially those who control patient flow such as hospitalists, ER physicians, and primary care doctors.
It is not unusual to hear of doctors being fired for a variety of issues, and job insecurity is a new issue for many physicians for the first time in their careers. In addition, even if they have some job stability, many employed physicians now find their incomes subject to the whims of the institutions. Physicians not employed by institutions have to worry about their referral sources and the future health of their practices, as well. So, unless you have the good fortune to already have a large chunk of funds saved for your future needs, I have some strong advice.
First and most important is to save money—more than you used to. Live well below your income limits. Having a nice pool of savings later on will make a major difference in the quality of decision making.
Traditionally, physicians could begin saving up to 15% of their annual income in retirement plans and in after-tax accounts and be relatively confident of financial security when it was needed. Those days are gone.
Now, I’d suggest any physician who does not already have a large pool of investment savings should consider living on 50% to 70% of their income and saving the rest. We are not talking about living in rags here. The average physician can still live a nice upper-middle-class lifestyle on a smaller proportion of his or her income.
Think about every expense carefully. Do you really need to drive a top-of-the-line luxury car? Can you fly coach instead of first class? Is a private college for your children really better than the public alternative? Every dollar you don’t spend today reduces your “need” to make more money, and helps to build security for the future.
Review your other large expenses. Are you paying for large, expensive disability and life insurance policies that were purchased when times were easier? Have them reviewed by a fee-only financial advisor to see what your options are. I’ve helped many physicians replace old whole life policies with adequate (or better) term coverage using existing cash values. Many disability policies have expensive “bells and whistles” riders that aren’t necessary (such as return of premium). Rebid your property and casualty policies, as you might be pleasantly surprised.
Are you investing your savings prudently? Here, 2 aspects are important. First, the cost of investing should be scrutinized. As a fee-only planner, I am clearly biased, but I regularly see brokerages charging well over 2% a year when all the hidden fees are uncovered. Your cost of investing, even with an advisor, should not be much over 1% a year, and the more you have, the less it should cost. The second factor here is making sure you have a disciplined and diversified approach toward your portfolio. Few physicians have the time or expertise to do this well, so consider having help.
The first step is to start thinking about these issues. Not doing so will leave you vulnerable to having to make some unpalatable choices in your medical practice in future years. Again, I’m not trying to cause gloom, but to suggest that proactive thinking and choices will go a long way toward making your medical career long and fulfilling.
Steven Podnos MD, MBA, CFP, is the principal of Wealth Care, LLC, a Registered Investment Advisor (SEC). Dr. Podnos was awarded his Bachelor of Science and his Medical Degree at the University of Florida. His post-graduate training included a 5-year residency and fellowship at the University of Texas Southwestern Medical School (currently boarded in Internal Medicine, Pulmonary Medicine and Critical Care Medicine). Along with a 20-year private practice of Pulmonary Medicine, Regis University awarded him a Masters in Business Administration (MBA) in 2003. Dr. Podnos is a CFP certificant and a member of NAPFA. Dr. Podnos has overseen investment accounts for over 2 decades. Dr. Podnos is also a Lieutenant Colonel and Flight Surgeon in the US Air Force Reserve Medical Corps.