A Physician’s Guide to Financial and Retirement Planning

As a physician, you dedicate your life to caring for others, often placing your own financial well-being on the back burner. The path to financial security and a comfortable retirement is different for medical professionals due to the unique challenges you face—including delayed career earnings, substantial student loan debt, and high-income taxation. As a fiduciary financial advisor specializing in partnering with physicians, our team at Tenet understands these complexities and have crafted this guide to help you navigate your financial journey with confidence.  We believe strongly in our role of providing objective, strategic guidance can help you build long-term financial security and achieve your personal and professional goals.

Understanding the Importance of Financial and Retirement Planning for Physicians

Physicians earn high incomes, but that does not automatically translate to wealth. A 2021 Medscape Physician Wealth and Debt Report found that nearly 30% of physicians had a net worth under $500,000 despite their high earning potential. The financial reality for many physicians is impacted by late career starts, heavy debt burdens, liability concerns, and a demanding profession that leaves little time to focus on wealth management.

This highlights the necessity of strategic financial planning—not just to accumulate wealth but to structure financial decisions in a way that aligns with long-term stability, efficient tax strategies, and your personal lifestyle goals.  A comprehensive plan will include cash flow management, risk mitigation, strategic investing, and tax optimization—all tailored to your unique needs.

Common Financial Challenges Faced by Physicians

To build a successful financial strategy, it is essential to acknowledge the obstacles unique to the medical profession:

• Delayed Income Growth: Years of education and residency often result in postponed wealth accumulation.
• High Student Loan Debt: The average medical school debt exceeds $200,000, making early wealth accumulation challenging.
• Complex Tax Situations: As a high-income earner, you are subject to top tax brackets, requiring advanced tax planning strategies.
• Risk Management Needs: Disability, malpractice, and umbrella insurance are essential for protecting your income and assets.
• Lifestyle Inflation: As earnings grow, so do expenses, often delaying savings.
• Limited Time: With a demanding schedule, you may not have the bandwidth to actively manage financial planning, making professional guidance critical.

Recognizing these challenges can allow for more proactive planning and implementing solutions to overcome them.

Key Financial Planning Principles for Physicians

1. Start Early & Establish a Strong Financial Foundation

You should focus on cash flow management, creating a savings strategy that balances debt repayment with long-term saving and investing.  Even if you cannot contribute large amounts at the start of your career, investing early allows compound interest to work in your favor. Small, consistent investments in retirement and brokerage accounts will grow significantly over time.

2. Live Within Your Means

Resist the temptation to substantially increase spending as your income grows. Prioritize saving a significant portion of your salary rather than succumbing to lifestyle inflation. Having a savings rate of 15-20% of your income (ideally above 20%) is a target range to consider. 

3. Prioritize/Optimize Student Loan Repayments & Balance With Savings

Develop a strategic approach to repaying student loans. Depending on your situation, exploring Income-Driven Repayment (IDR) plans and Public Service Loan Forgiveness (PSLF) may be beneficial if you work in a non-profit hospital system. If you’re in private practice, refinancing at a lower rate may be a more optimal strategy to consider. Most importantly create a balanced approach to both paying down your debt while saving for the future.  This balance is different for everyone and not always 50-50, so it is important to regularly review your cash flow to determine the proper amount to put towards debt repayment vs. saving. Creating and monitoring your long-term cash flow plan is another area we can help as part of your overall financial plan.

4. Build an Emergency Fund

Set aside three to six months’ worth of expenses to protect against unexpected financial disruptions.  Utilizing a high-yield savings account can be a great option to not only set aside these funds with FDIC protection but also earn a competitive interest rate.

5. Invest for the Long-term with Diversification in Mind

A well-balanced portfolio consisting of stocks, bonds, and alternative investments like real estate can help you manage risk while growing your wealth. Diversification can also mean utilizing multiple types of investment accounts (i.e., brokerage, trust, IRA, Roth IRA, 401k, Roth 401k), which can allow you to have multiple “buckets” to save towards your long-term goals along with potential tax benefits.

6. Protect Your Assets & Income with Insurance

Your ability to earn an income is your most valuable asset. A strong disability insurance policy tailored to physicians can be essential to protect your financial future. In the early-mid phase of your career, identifying the amount of life insurance you may need to protect your family if something were to happen to you is also critical. Umbrella policies may also be a good consideration for added protection beyond your standard coverages for risks such as bodily injury liability, property damage, or libel/slander/defamation. Considering long-term care insurance may also be prudent if you’re concerned with having enough assets saved to cover these potential costs if they arise in your later years of retirement.

7. Create a Proactive Tax Planning Strategy

Given your high earning potential, proactive tax planning is critical. At Tenet Wealth Partners, we help you optimize tax-efficient investment strategies, such as:

• Tax Bracket Management: Structuring your income to avoid unnecessary tax burdens.
• Backdoor Roth IRAs: Enabling tax-free retirement savings despite income limitations.
• Tax-Loss Harvesting: Offsetting gains with losses to minimize tax liability.
• Tax-advantaged Savings: Maximizing opportunities to save in tax-advantaged vehicles such as HSAs, 401(k)s, or 403(b)s, which can help save on current income taxes while allowing for tax-deferred growth potential.
• Charitable Giving Strategies: Giving directly to charity, or taking advantage of Qualified Charitable Distributions (QCDs) from an IRA as well as using Donor Advised Funds (DAFs) may help in not only supporting the causes you care about but also provide tax savings.

If you are in private practice, retirement plans like cash balance pensions provide significant tax deferral opportunities while accelerating your retirement savings.

As always, it is advisable to consult with your tax professional for specific guidance related to any tax strategies.

8. Don’t Forget to Have Sound Estate Plan

Even if you are early in your career, creating the basic estate planning documents is essential, which includes a Will, Financial Power of Attorney, and Healthcare Power of Attorney. This will better ensure that your assets and property are distributed according to your wishes if something happens to you. As you build your wealth, crafting a Revocable Living Trust can add a higher level of asset protection and help you avoid probate where a Will cannot.  Incorporating different types of irrevocable trusts may also be considered depending on your situation and your wishes to transfer wealth to the next generation(s) efficiently. Last but not least, be sure to name your beneficiaries (both primary and contingent) on all of your retirement accounts as well as any life insurance policies.

Retirement Planning Options for Physicians

Physicians have several retirement savings options, including:

• Employer-Sponsored Plans: 401(k)s and 403(b)s provide tax-advantaged growth, especially with employer matching contributions.
• IRAs: Traditional and Roth IRAs offer additional tax benefits for retirement savings.
• SEP IRAs and Defined Benefit Plans: Excellent options for self-employed physicians or private practice owners.
• Health Savings Accounts (HSAs): A triple-tax-advantaged tool that can supplement retirement savings.

In addition to the above, other unique options to consider given your high income and tax liability include:

• Backdoor Roth IRA Contributions – Since you likely cannot contribute directly to a Roth IRA due to high income, you can use a “back door” method to still add funds to a Roth. Using this strategy, you would make a non-deductible contribution to a Traditional IRA (up to $7,000 max or $8,000 if age 50+), leave those funds uninvested in cash, and then convert that balance to a Roth IRA shortly after.  Be mindful of the pro-rata rule if you already have a pre-tax Traditional IRA balance.
• Cash Balance Pension Plans – These plans can be more complex but are ideal for high-income physicians to save aggressively while reducing taxable income.  They are also best for private practice physicians that own their business.

Investment Considerations Tailored for Physicians

Physicians have unique investment needs due to late career starts and high earning potential. Key strategies include:

• Early Career: A more aggressive approach with a higher allocation to equities.
• Mid-Career: Balanced diversification with exposure to stocks, bonds, and real estate.
• Late Career: Shifting toward wealth preservation and lower-risk investments.
• Tax-Efficient Investing: Utilizing tax-advantaged accounts and tax-loss harvesting strategies can reduce overall tax burdens.  Direct indexing is another strategy to maximize tax-efficiency, where you own a subset of individual stocks that track an index (essentially creating your own personal index fund). This is a strategy we specialize in at Tenet.
• Alternative Investments: To further enhance diversification, utilizing asset classes such as Real Estate, Private Credit, Commodities, or Private Equity may be considered.  Of course, these asset types may come with different risks and tax considerations compared to public stocks and bonds, so it is critical to work with an experienced advisor like our team at Tenet who understands how to incorporate these into your overall strategy.

 

The Role of a Fiduciary Advisor for Physicians

Given the complexity of your financial life, working with a fiduciary financial advisor ensures that your needs and goals are put first and above all else. Our high-touch service model ensures that you receive the individualized attention needed to navigate the financial challenges of your medical career while building long-term wealth.

At Tenet Wealth Partners, we specialize in serving physicians by providing:

• Personalized financial planning that evolves with your career.
• Dedicated investment management tailored to your risk tolerance and goals, including the use of advanced strategies that incorporate tax-efficient investing tools.
• Proactive tax planning strategies to maximize your after-tax wealth both today and down the road.
• Comprehensive wealth management services, including retirement planning, estate planning, charitable giving, and practice succession strategies.
• More Time & Pace of Mind: Above all, we believe in the power of peace of mind, worrying less about your finances and having more time to focus on your personal and professional life.

 

 

Conclusion: Securing a Stable Financial Future as a Physician

A solid financial plan ensures that you can enjoy your career, build wealth, and retire comfortably. By starting early, making informed decisions, and seeking expert guidance, you can take control of your financial future.

Whether it’s maximizing retirement savings, securing proper insurance, or creating an investment plan, every step you take today moves you closer to financial freedom. As your financial planner, my goal is to help you achieve peace of mind so that you can focus on what you do best—caring for your patients.

If you are a physician needing more personalized guidance and solutions to your financial challenges, reach out to us today or schedule a meeting with our team!

 

Investment Advisor Representative of Sanctuary Advisors, LLC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

The information provided in this communication was sourced by Tenet Wealth Partners through public information and public channels and is in no way proprietary to Tenet Wealth Partners, nor is the information provided Tenet Wealth Partner’s position, recommendation or investment advice.

This material is provided for informational/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Investments are subject to risk, including but not limited to market and interest rate fluctuations

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