Financial Strategies for Doctors, Dentists and Surgeons
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People often consider the medical profession a very stable and high-paying career. The average physician salary in the United States is listed at $277,000 in 2024. Specialized practitioners, such as cardiologists, orthopedic surgeons, and even plastic surgeons, can make upwards of $500,000 annually, especially for those owning their own practice. While those may seem like massive salaries, just like with any professional, properly managing the money that comes in to ensure financial stability can oftentimes be difficult. The more money one has to spend, the more ways one can spend it. This is why it is vital for high-earning medical professionals, such as doctors, dentists, and surgeons, to build conducive financial plans that properly prepare them for retirement.
Why are financial plans important for medical professionals?
Doctors, dentists, and surgeons have some of the highest salaries in the country, but without a proper financial plan in place, managing these earnings effectively can be challenging and difficult. Typically, the more money one takes in each month, the more money one may spend or invest. A financial plan and well-built-out strategies in budgeting, saving, and investing can ensure long-term financial stability and health no matter what one’s income may be.
A major factor that works against medical professionals is the significant amount of student loan debt they face. Spending four years of study in an undergraduate field, four years in medical school or dental school, and another three to seven years in a residency program, depending on the specialization, can leave mountains of student loan debt that needs to be paid off.
What’s worse is that residency salaries are typically alot lower than physician salaries. With upwards of $200,000 in average student loan debt costs for medical students, this liability needs to get paid off fast. Unfortunately, medical careers only begin to be profitable in physicians’ early 30s, so significant time will be put aside in a doctor’s early career paying off their student loans before they can enjoy the high incomes of their specialty work.
Below are some financial strategies that explore ways to tackle these student loans as well as budget and save effectively to plan for a comfortable retirement after one’s career progresses.
The Early Years: (Ages 30-45)
In order to start properly saving for retirement, student loans must be taken care of first. However, paying off student loans should not be the only priority. 34% of doctors post-retirement wish they had begun saving earlier in their careers. This includes maximizing their contributions for their retirement investment plans, whether it be a 401(k) or a Roth IRA.
So, while saving for retirement can be a major challenge when paying off large student loan payments, it is recommended for doctors, dentists, and surgeons to contribute 15-20% of their income into retirement savings, even with the debt payments. Because of the delay in earnings in the early years, as the loan payments are being paid off, one can increase their contribution percentage over time to compensate for low retirement savings if a catchup is needed.
Plenty of options are available for retirement plans for doctors who are part of a larger medical group or hospital. 401(k), 403(b), and 457 plans are all standard parts of a benefits package that a hospital may provide to choose from. For smaller practices and independent medical practitioners, the choices may be a little more limited. For those running their own practice, care must be taken to implement a plan that allows for sufficient savings for retirement. Doctors, dentists, and surgeons can work with financial planners early in their careers to reduce their student loan debt, evaluate the right retirement plan for their practice, and take advantage of compound investing for retirement.
The Middle Years: (Ages 45-60)
For medical professionals who are in their peak earning years, the ages of 45 to 60 is the prime time to shift away from debt reduction and to focus more attention on retirement savings and succession planning. All student loan debt should be close to, if not fully, paid off. All extra income should be funneled into retirement.
This is the perfect time to begin thinking about life after retirement. Asking questions such as: What would you like for your retirement to look like, how much is needed to maintain your current lifestyle, and where you would like to settle down are all important questions to figure out exactly how to plan the last few years of employment. Having a retirement financial plan in place helps doctors, dentists, and surgeons achieve their goals while also giving them peace of mind and the freedom to consider other alternative scenarios.
Succession planning is also vital for those owning their practice. It is recommended to have a candidate in place roughly 5-10 years before the designated retirement, as it can be hard to find a recruit depending on the location of the practice. The proper paperwork and structure (S-Corp, Partnership, etc.) should be in place, and any minor details should be worked out over time. 5-10 years gives one ample amount of time to figure out the logistics of the transition period.
If one is planning to sell their practice, transition periods should be taken into consideration as there may be some overlap in performed duties. The seller of the practice may need to continue working for the clinic as ownership is transferred, which may range from 1 to 5 years after a deal is struck.
The Later Years: (Ages 60-70)
Now that it is time to retire, there are some options to consider. Typically, the average age for doctors to retire is 68, or five years longer than the generation population retirement age of 63. This is often because as the doctor, dentist, or surgeon transitions their practice to new ownership, they choose to continue working part-time to support the clinic. This allows for two major advantages. First, it may facilitate the transition in the succession of the new owner, which gives the clinic some structure during this period of uncertainty. Second, it allows the retiring medical professional to adapt to their new life and develop interests and hobbies that ease the transition away from work and provide meaning to the new chapter in their life.
Bottomline
By following these steps, medical professionals can ensure financial stability and peace of mind throughout their careers and into retirement. Engaging with financial planners and leveraging tailored retirement plans can help doctors, dentists, and surgeons navigate the complexities of retirement. With proper financial planning, budgeting, saving, and investing, medical professionals fully enjoy the rewards of their hard-earned success and secure a comfortable future in retirement.
FAQs
The first step is to build an emergency fund as a physician to ensure that surprise expenses don’t interfere with day-to-day operations. Next, you would want to eliminate all student loan debt so that it isn’t an expense you have to deal with later on. Lastly, you would want to maximize your employer benefits at your clinic and save 15-20% of your income.
The average salary for dentists is $236,728 per year, which is slightly less than the national average salary of $248,010 per year. The salary averages depend on factors such as geographic location, years of experience, employer, and specialization.
Financial management in healthcare involves focusing on the 4 C’s. These are cost, cash, capital, and control. The typical elements within financial management healthcare include financial evaluation and planning, budgeting, revenue forecasting, detecting fraud, mitigating risk, and complying with regulations.
The main reason why it costs so much to have a career in dentistry is because of the incredibly high costs of equipment and facilities. These demand a significant capital investment as the career is far more entrepreneurial in nature compared to other medical professions.
- https://www.forbes.com/advisor/student-loans/average-medical-school-debt/
- https://www.forbes.com/advisor/student-loans/how-to-pay-off-medical-school-debt/
- https://wealthkeel.com/blog/retirement-savings-accounts-for-physicians/
- https://wealthkeel.com/blog/how-much-do-i-need-to-retire-as-a-physician/
- https://www.jacksonphysiciansearch.com/insights/8-steps-to-create-a-physician-succession-plan/
- https://askwealthcare.com/learn/retirement-planning/physician-retirement-age-by-specialty-in-2023#:~:text=and%20personal%20preference.-,According%20to%20a%202021%20survey%20by%20Medscape%2C%20the%20average%20age,career%20satisfaction%2C%20and%20health%20status.
This material contains opinions of the author, but not necessarily those of Arrowroot Family Office LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Arrowroot Family Office, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.
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