In the minds of many, doctors are considered to be some of the most financially stable workers out there. The high income, years of education and experience make this job seem bullet-proof. And yet despite the perks and stability of being good at what you do in the medical field, there are mistakes that can hurt your retirement plans and finances in general.
Like any full-time profession, doctors need to make their own considerations when it comes to finances and how they can plan for a happy retirement. The first thing that comes to mind is the mismanagement of debt. This can start early, even before medical school and feeds into bad habits as the money pit is dug deeper.
Steps to Consider:
Medical students, whether due to their environment, expectations or both can end up living beyond their means. Eventually, paying off student loans, car insurance, credit card loans, and dealing with poorly designed mortgages can come back to bite you. Having to pay more than you should be through compounding interest will have a major drag on your finances, and is better dealt with sooner than later.
This also means living within your means in order to avoid this debt, or at least limit it, in the first place. Although it can be tempting to spend a little more than your should after the long hours and stress, saving this money or investing it to pay down debts and building net worth will ultimately make things easier. The general rule is to save around 10% of what your make for retirement, but this could even be an underestimate depending on what it will cost in the future and when you actually want to retire.
Realistically, you’ll only get to work about 30 years before retiring around 65, so bumping your retirement savings alone up to 20-25% is only going to help in the long run. Even if you’re at a $200k salary, a 5% savings rate for your 401k may fall a bit short when it actually comes time to retire. So besides the overspending and undersaving, the factors at play come down to your own discipline and will to live frugally.
Finances and The Medical Lifestyle
Many physicians can face pressure to live a lifestyle in alignment with their income, either from friends, families, and even neighbors. Remember, it’s not about money so much as it’s about the life you make for yourself and loved ones. It’s probably not as necessary to buy that new vehicle or home theater as it is saving for a child’s college funds.
Something else that physicians can lose money on is a cycle of inappropriate tax management. Although there are investments you can make, you want to be smart about it with more intention than just lowering your tax bill. To start, you’ll be better off maxing out your 401k and IRA than making investments elsewhere. Options like a Backdoor Roth IRA or Stealth IRA are available to physicians and can help you make the most of your retirement savings.
Overall, just save what you can and invest in yourself with living outside your means. It’s sort of a perennial piece of advice, but it’s because we all need a little reminder sometimes before that next retail therapy session or haphazard investment. You work to keep the world healthy and that has got to include your own finances.