As your career hits its stride, taking these 8 steps is key to keeping your financial goals on track
If you’re a doctor who’s starting your career or approaching retirement, the amount of financial advice that’s aimed at you is overwhelming. But the mid-career physician – mainly in their 40s to early 50s – is largely ignored by the reams of financial articles on the Internet.
The average mid-career medical professional has been an attending for about a decade and plans to work for at least a decade more. But despite their high income, their delayed entry into the workforce probably gave them a late start at saving and investing. They are also likely paying down enormous student loan debt while covering typical mid-life household expenses and trying to save enough for retirement.
Mid-career is the perfect time for doctors to organize their finances, prioritize their goals, and solidify the financial strategies they want to follow. Here are eight tips for creating a financial roadmap that keeps these physicians on the path toward a comfortable retirement:
- Fix your financial mistakes. Let’s face it: it’s pretty certain that you’ve made at least one major financial mistake by the middle of your career. Maybe you took bad advice from a shady financial advisor more interested in their commissions than what’s best for you. Maybe you underestimated your need for disability or life insurance, or you’re choosing to invest in taxable accounts before maximizing tax-advantaged retirement accounts.
Whatever you did wrong, now’s the time to make it right. If financial planning isn’t your strength, that may mean finding an advisor you can trust to sniff out and correct the mistakes in your portfolio.
- Make a push to pay off your mortgage. It’s wise to head into retirement with your mortgage paid off – and the sooner you can achieve that, the better. When you look at it on paper, who wouldn’t choose squirreling cash into investment accounts with high returns instead of paying interest on what you borrowed from a bank?
But even those with incomes high enough to pay off their mortgages long before they retire have a hard time resisting spending their extra cash instead of investing it in their future. By mid-career, you’ve probably been in your house a few years and can anticipate your future earnings, so it’s easy to set a goal for paying off your house. Once your mortgage is gone, you can boost your retirement savings, allocate cash toward college, and even have more to spend on luxury items like vacations.
- Keep your expenses in check. If you’re not putting at least 20 percent of your gross income toward retirement by mid-career, it’s wise to make some changes. A detailed budget brings clarity to where your money is being spent so you can make progress toward your financial goals.
Take a hard look at where you’re spending money and make sure it aligns with your priorities. For instance, if seeing the world matters most to you, splurge on amazing vacations, not all the latest gadgets.
It always stings a little to reign in your lifestyle. But many doctors are surprised to realize how easily careful budgeting can reduce or eliminate personal expenses they don’t really care about, freeing up significant chunks of cash to pay down medical school debt, purchase a building for their practice, buy into a practice, or save for college and retirement.
And here’s one more word to the wise: pay off your credit card debt every month to avoid high-interest charges. If you’re finding that you can’t, stop charging.
- Squirrel away cash for college. While you’ve hopefully been putting some money toward this goal since your kids were born, now’s the time to step up your game. The College Board’s 2018 Trends in Higher Education reports that the all-in cost of a single year at an in-state four-year public college average $20,770 – and private schools average a whopping $46,950. Doctors planning to send two kids to a private college will need $750,000 pre-tax to foot that bill – and that’s not including graduate school.
Most practicing doctors boast earned income and assets that prevent their children from qualifying for need-based financial aid. The best vehicle for saving for college is generally a 529 Plan, which offers tax and financial benefits. But you’ll need to do some financial planning to determine how you will split the cost between 529 savings and cash flow from your current earnings.
Keep this in mind as well: saving for college is a sort of like a test run of your ability to save for retirement. If you find yourself woefully unprepared when your children graduate high school, it’s a major wake-up call that drastic changes are needed before you retire.
- Evaluate where you are. If you’ve done a great job with your finances by mid-career, the world is your oyster: you can consider early retirement, working less, taking a job you’ll enjoy that pays less or eliminating exhausting on-call shifts. But if you haven’t, it’s important to find ways to get your savings on track: perhaps moving to an area with a lower cost of living and income tax burden, asking a stay-at-home spouse to work, or exploring passive income sources such as real estate investments.
By mid-career, many doctors are starting to feel burned out. Try to make changes that can help you enjoy your practice. After all, working longer is the best way to rectify poor financial decisions in the past – giving you many more years to save, more time for your investments to compound, and fewer years to save for.
- Solidify your retirement plan. It may be hard to believe that retirement planning can be tough for doctors – after all, the medical profession is one of the most lucrative careers you can choose. But despite their high income, many doctors fail to max out their retirement plans and save enough for the future.
Mid-career is the point where you should have a realistic retirement goal and solidify your plan for making it happen. That includes understanding the pros and cons of your retirement savings choices, having a clear picture of how much you need to sock away each month, and putting a solid strategy in place for building the funds you need to enjoy your golden years.
- Update your estate plan. The Tax Cuts & Jobs Act of 2017 brought some good news to high-income doctors, increasing the federal estate tax exemption to $11.2 million per person and $22.4 million for married couples. That makes federal estate tax planning a breeze for all but the richest doctors, although those who live in states that impose their own estate tax, death tax, or inheritance taxes still need to take extra care as they put together their wills and trusts.
A well-crafted estate plan saves time, avoids probate, reduces or eliminates estate taxes, and eases any financial burdens for surviving family members. But the 2018 Report on U.S. Physicians’ Financial Preparedness found that nearly 40 percent of doctors are very or somewhat concerned that they don’t have the right estate plan in place.
By this point, you should at least create the minimum pieces – a will and end-of-life and medical directives – and make sure they stay up-to-date with changes in your life. If you have minor children, you should also name a guardian to care for them and a custodian to look after their money and property. That way, events unfold exactly as you want them and the assets you worked so hard to accumulate remain with your family instead of Uncle Sam.
- Make sure you’re with the right advisors. There are many reasons doctors may find themselves in a tough financial situation, but getting bad financial advice or paying too much for good advice is an easy problem to fix. If you’re happy with your current situation, there may be no reason to make a change. But as your portfolio grows and the accompanying fees grow with it, it’s important to make sure you’re getting the right help at a fair price.
Only 12 percent of doctors planning to retire consider themselves “ahead of schedule” in their retirement financial plans, according to the Physicians’ Financial Preparedness report. Working with an exceptional certified public accountant/advisor will develop a tax plan that lets you enjoy the lifestyle you’ve earned while helping put you in the best position for retirement.
Mid-career is the perfect time for doctors to check in to ensure that they’re making steady progress toward their financial goals. Fix mistakes, create a plan to pay off your mortgage, save for college, and make sure your expenses, retirement plan, and estate plans are in order. By re-evaluating your financial picture while you’re still enjoying a high income, you can make any adjustments you need to ensure financial success now and throughout your golden years.
Provident CPA & Business Advisors serves successful professionals, entrepreneurs, and investors who want to get more out of their business and work less, so they can make a positive impact on their lives and communities. Typically, our clients reduce their taxes by 20 percent or more and create tax-free wealth for life. Contact us for expert advice on tax planning, and to find out how we can help your business exceed your expectations.