Tag: retirement

Doctors need to transform their careers into hobbies

Doctors need to transform their careers into hobbies

I have some friends who love cars.  It’s not like they’ve had any formal schooling on cars, but they seem to know a disturbing wealth of minutiae about them. Engine manufacturing nuances. Why the crossover line of a particular make looks like an anthropomorphic version of its brethren. To them, possessing knowledge of a topic that likely serves no benefit to meeting their basic life needs creates enjoyment in life. What is amazing is that this passion can sometimes develop into something more substantial and actually serve as a means to pay one’s rent. Who doesn’t want to be the next telecommunications major (some parents would consider this a “party” degree) who lands his own television show because he was able to carve out a niche out of millions of others wanting to do the same thing?

Somehow I doubt that my friend’s affinity to Lamborghinis will ever materialize into anything beyond a way to spend his money.

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Doctors, on the other hand, are in an interesting predicament. Our careers are very empowering, and have potential to confer incredibly high levels of satisfaction through healing others.  Our skills can also command relatively high financial compensation. It really does sound too good to be true.  What’s not to like about career satisfaction and money?

Medicine is a flawed profession

Some of my more cynical colleagues will ask, “What’s there to like about medicine?” We all have our stories about how healthcare can go wrong, and why we don’t like it. Some of us tolerate these flaws more than others, but none of us truly enjoy dealing with them.  I frankly can’t figure out if healthcare systems outside of the U.S. actually have it better. Do doctors in Canada bask in a universal care system while relegating themselves to lower income? I find that difficult to believe since I know plenty of specialists in Canada who quadruple their governmental incomes through privatized means of medical practice. Those of you in the know, please sound out in the comments!

It always looks fun until it becomes your daily job.

Example Case

One of my coworkers spent his entire career dedicated to medicine. He worked long hours, missed many of his children’s milestones, and went on trips to provide healthcare to much needed parts of the world. He was very successful during his early career, and essentially practiced medicine the last decade of his career solely because for the enjoyment of caring for others. At the time of his retirement, he still was very proficient in his clinical abilities but he loathed the ancillary aspects of daily practice.  Salary cuts, paperwork, meetings—all of this began to drain his vigor in medicine.  Fortunately he planned his financial future well, and hung up his hat in style.

Interestingly enough, within several months of his retirement he secured a volunteer position giving care to the indigent, and ramped up his charitable work with medical mission trips that constitutes nearly full-time “work”. That’s right, no monetary compensation for doing nearly the same job that he was doing while in clinical practice.

He is living proof that medicine is a profession/calling that can produce happiness if some variables can be eliminated. By doing so, the practice of medicine essentially was transformed into his hobby.

Medicine as a calling rather than a job

There are several characteristics of medical practice that need to be met in order for it to be considered a hobby:

  • Ability to walk away from it without any financial or lifestyle impact
  • Ability to return to practice without much impediment
  • Freedom to choose how to diagnose and treat our patients with minimal restriction by governing entities
  • Practice that challenges our mind

As in the case with the retired doctor, medical volunteer work typically fits the bill. Volunteers often have limited resources but also are not restricted by regulations that govern typical medical practice. The work is challenging as it applies our medical knowledge to unfamiliar situations.  Our time with volunteering is finite, so there is a clear time where we can walk away from it all.

How do we untie the shackles of our medical career? Everyone is in a different situation, and you have to figure out how how to make the best out of your situation.

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For all of us, the first challenge is to reduce your dependency on your medical career for your lifestyle. It is not the mindset that most doctors expected to have, but we are in an ideal position that allows us to do so. This isn’t a calling to get out of medicine! You don’t have to give up your decade of training to run a food truck! Remember that medical practice still gives you great financial firepower. The key is to use that to your advantage to become more financially independent. Once that becomes realized, you will realize much more flexibility in your life.

Go ahead. Take that step, and find your formula to transform your career into a hobby.

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Physician Savings Rates are Atrocious

I recently read a summary on a study on physician savings published by Fidelity.  One of the conclusions was that 45% of physician felt they were unable to maximize their workplace savings plans! This includes the typical 401k and 403b accounts. There was no mention whether any of these accounts included the profit sharing components.

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Assuming that these do not include profit-sharing, how almost half of doctors don’t/can’t contribute $18,000 per year in pre-tax earnings is beyond me. The Fidelity survey states that the mean salary for the doctors surveyed was $300,000. That’s actually more than what many internists, pediatricians, family practitioners make. This is also almost three times what many early retirement bloggers made each year before they retired at age 35! Surely by maximizing your 401k, you’ve already saved 6% of your income.

Fidelity states that the doctors they surveyed saved an average of 9% of their income! Again, this is shocking to guys like Mr. Tako Escapes, MMM, or [insert your favorite finance blogger]. Where does this money go? I’ll tell you where it goes:

  1. House mortgage or rent. Times two. Doctors have to live in nice houses. Period. Nice houses are usually not cheap. Many doctors I know actually have two mortgages since they’ve moved onto a second job without being able to sell their first home. Ouch. In these situations, one whole paycheck could go towards two mortgages easily.
  2. Food consumption. A busier lifestyle with meetings can translate into more restaurant meals. I have several coworkers who drop at least $1,000 a month on alcohol, bar tabs, and various restaurant expenditures. Many of my coworkers (and spouses) end up shopping at Whole Foods for their groceries. Organic health foods are not cheap.
  3. Discretionary spending. This category is huge. Think about car leases, impulse purchases, subscription services, and repairs. The busier your main job is, the more likely you are going to drop money to solve your problems.
  4. Student loans. I came out of my training with a solid six-figure debt. There are doctors who come out with $300,000 in debt. Many of us just pay the minimum amounts due, whether by choice or if you’re going after PSLF. If you are paying only the minimum amount, I hope that you either have a low interest rate or are waiting for Uncle Sam to write off your debt.
  5. Divorce and alimony. While the dreaded D isn’t as common as multi-home mortgages, it can set you back financially a very long time (sometimes payments can last up to half the duration that you were married).

It is depressing to see many in my profession not save enough for retirement.  It should never happen. Becoming a rich doctor is not a mystery, but you must have discipline. Grow your value, stay healthy, and hustle.

What percentage of your income are you saving?

Decreasing Physician Reimbursements Dictate Your Financial Plans

Part of our financial strategy should be to create a plan to reach retirement, even if it is decades away. A written plan helps us realize what our expenditures are, and how much we hope to have by the time we finish our careers. If our time horizon for retirement is in the far distance, we have more time to adjust to our strategy so that we won’t be left asking our heirs to help us out.

One of the dangers for physician retirement planning is that our incomes are generally high compared to the average population, our expenses are generally high compared to the average professional, and many of us are oblivious (or choose to ignore) the fact that our income is unlikely to remain as high in the future.

I mentioned previously that physician income is tied to insurance reimbursement. Current Medicare reimbursement levels do not even keep up with the rate of inflation! The only way that you will ever earn more money in the future is if you see more patients or if you have ancillary income streams outside of medicine. Since most doctors don’t have enough time to even take care of themselves, it’s unlikely that they are able to invest prudently in alternative income streams.

What Can I Do To Break Out Of The Usual Doctor Habits?

  1. Income arbitrage. Like every financial blogger has written, what goes out must be less than what goes in. Doctors deal with higher numbers than the average person, but the principles are unchanged. You are already a decade behind the average person out there, so you need to count your pennies (or Benjamins!) more carefully early in your career.
  2. Be wary of easy money strategies. This includes investing in gold, rare metals, insurance policies, or shifty real estate deals. There is no easy money. You worked your butt off for a decade in order to guarantee a six-figure salary. Nothing comes easily in life.
  3. Accelerate your savings early in your career. The amount you will be reimbursed for performing an appendectomy will be cut in half between the time you start your career and the time you end your career. Maybe a quarter. You’ll never know. Live like a resident for the first few years of your career, even if you have a family to feed. You don’t need a Mercedes [yet].

What aspects of your career do you consider in financial planning?

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Your 401k Plan Sucks As A Retirement Account

One of my more financially interested colleagues recently asked me how it is even possible to retire even after maximizing his 401k his entire working career. This is definitely a valid questions. If he were to contribute  every year for 35 years (starting contributions at age 30 right after he finishes residency), he’d only have $18,000 x 35 = $630,000 in today’s dollars, not assuming any growth from his investments.

That’s not a huge amount of money, especially by doctor standards.

In contrast, a poll by Financial Samurai shows that 25% of his readers have between $201,000-$500,000 in their 401k’s and 17.5% have over $500,000! To add insult to injury, 76% of his readers are between the ages of 26 and 45!

Financial Samurai’s poll is both enlightening and motivating. Clearly the majority of his audience are not doctors—if you look at my friend’s situation, in the absence of investment windfall there is no way he’d have as much in his 401k as his non-medical professional counterparts. This is simply due to the fact that doctors are usually at least 10 years behind their peers in retirement contributions. The maximum limits for 401k contributions are set universally; sometimes you can shove more in with profit-sharing plans, but duration of working life plays the largest role in building your 401k size.

It’s also sobering to think that despite earning solid six-figure incomes, doctors are still typically in the lower end of high net worth individuals. Those that fill the top can include real estate moguls, small business owners who picked the right niche for their industries, and the community college dropout who started a business selling parts for construction cranes.

If You Want To Get Rich, You Have To Work For It.

Just as we spent weeks mastering our basic medical science knowledge to pass the USMLE Step 1, we have to spend time and brainpower in order to get rich. I’ve discussed ways doctors can become rich previously, but the fundamental principle in doing so is still blood, sweat, and tears. As doctors, we can work harder than probably 90% of others around us (exceptions that come to my mind include the marines, military workers, and a handful of other grueling labor-intensive occupations), so I have no doubt that we can become rich if we want it badly enough.

We’d have to want money badly enough to become rich because time is limited. Success requires many trials, failures, reassessments, perseverance, and luck.  It’s difficult to experience all of that simultaneously. To win, something in our lifestyle has to be sacrificed.

Great surgeons I’ve known became great from talent and the years they spent operating emergency cases while being away from their families.  Prolific scientists dedicate their time on their research and publications—this is time not spent on any of their ancillary hobbies. I’ve also known a handful of successfully rich doctors who are twice divorced with alimony from L.A. to Washington D.C.!

If A 401K Not The Solution To Retirement, What Is?

Even though there is a limited amount that can be squirreled away in a 401k, it still is one of the only means for a doctor to save in a tax-deferred manner. You still have to max it out. But know that contributing to a 401k in not enough. You will have to build your retirement by saving through other means. This means that you have to make an active plan to put away a percentage of your income towards retirement. This money should be put to work, either through interest growth from CD’s or savings, dividends in equities, or capital growth. If you believe in banking on yourself while having a defined amount of your net worth allocated for your heirs, buy some whole life insurance. Whatever you do, save some before you buy a fancy car.

I told my colleague that he still needs to maximize his 401k every year, and even consider front loading the entire amount during the first quarter of the year to maximize the amount of time his money is in the market working for him. Whether or not his employer decides to match or offer a profit sharing plan within the 401k is irrelevant.  As a moderately high income employee, he should have no problem contributing the maximum allowed amount. Additionally, he should aim to save 20% of his post-tax income for additional investments with the intention of increasing that percentage until the amount left over after each paycheck is sufficient only for living expenses. As living expenses change, so will that percentage of income that you save. The earlier he can contribute his earnings into workhorses for the market, the higher chance these workhorses will grow. Remember, he is financially a decade behind his non-medical peers.

If he is motivated, he can project out his savings rate and rate of return on his investments to predict the amount that he will have in 1, 5, or even 10 years.

How else are you contributing your earnings towards retirement?

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Do you have the traits of a financially prepared physician?

The AMA recently released a paper (more like a survey result) of the top 6 traits of a financially prepared female physician. It probably would be the same list regardless of gender…

I do agree with most of the survey results, but I think that we can really do better. Point number 4 states that two out of three “financially prepared” doctors have a financial advisor. I also believe the converse—you do not have to have a financial advisor in order to be “financially prepared”. It certainly gives us piece of mind to have a “professional” helping us, but Jim Dahle, an ER physician who runs White Coat Investor, has been a strong DIY advocate. I am probably more on the neutral side, although I can think of a few reasons why a financial advisor might work for you:

  • You work 88 hours a week as a vascular surgeon, and frankly have no time to figure out the basics of your finances.
  • You want to build a nest egg, but really do not have any desire to spend any time with financials and only want to be informed of good choices you can make.
  • You put all your money in a Robo-investor firm, but need someone to help guide the planning and protection aspects of your finances (insurance, trusts…etc)

The subject of financial advisors is long and can belong in a series of books, but feel free to comment if you have questions or ideas.

The fundamental tenant of being financially prepared is to have a good idea of your annual living expenses, your current income and income potential, and action plan to have adequate finances to support your future living expenses after retirement plus something extra to leave to heirs if you wish. Yes, this is a loaded condition, but I have confidence that it can be achieved (and certainly has been by others).

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If you have questions, please comment below! – Smart Money MD

41% of all doctors have less than $500,000 in savings

You would think that the majority of doctors are financially well off, but in fact, they are not. According to the AMA 2013 Physician Financial Preparedness Survey, only 41% of all physicians average less than $500,000 in retirement savings. In fact, of the physicians surveyed, the majority (56%) of those under age 40 had an average retirement savings under $100,000! That is disturbing. In comparison, Whitecoatinvestor had a net worth that exceeded $1,000,000 before he reached age 40!

Given that the average doctor should earn more than $100,000 annually, it is natural to assume that she would have more than that amount after a decade of working (assuming starting at age 30). The fact that there still is such a discrepancy become income, net worth, and retirement savings signifies that doctors are not probably not saving enough for retirement. Actually, the top financial concern of all physicians was whether they had enough to retire.

In actuality, financial stability is achievable for all physicians—you don’t even have to spend every waking second of your time managing your finances. BUT, you do have to pay attention to your expenses and allocate your earnings appropriately.


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Tax-Deferred retirement accounts shelter your present income from present taxes

Shelter your income from taxes

Most employers provide their employees with retirement accounts such as 401k, 403b (non-profit), or Simple IRAs to allow sheltering of income to present taxes. If you are an independent contractor, you can open similar accounts for yourself.

The fundamental premise of these retirement accounts allow you to defer present income taxes until you withdraw these funds during retirement. These vehicles are advantageous with two assumptions:

  • Your present marginal income tax rate is higher than your overall tax bracket in retirement.
  • You have options to invest the funds within the account tax-deferred until withdrawal.


If these conditions aren’t fully met, the tax advantages of retirement accounts are lost.

For instance, as a hot-shot cardiothoracic surgeon salaried at $500,000, your federal marginal tax rate as a married filer is 39.6%. This means that the amount you make above the next highest bracket ($457,601) is taxed by Uncle Sam at 39.6%. If you invested $18,000 of that to a 403b account, your effective income is decreased by that amount and you don’t have to pay taxes on that $18,000 (yet). At a 39.6% federal rate, you “avoided” paying $7128 in federal taxes on that amount.

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In retirement when you withdraw your $18,000, you start filling the tax bracket at the 0, 10, 15% brackets. You will hopefully pay less than $7128 in taxes in the future than now simply because you aren’t making a $500,000 salary. Obviously if the income tax brackets are reconfigured such that you get taxed at a rate higher than your present marginal rate, you’re screwed.

Condition #2 means that you are growing that $18,000 at some respectable rate (hopefully beating inflation) that allows it to be equally or more meaningful when you use it during retirement.

Lastly, tax-deferred doesn’t mean tax-free. You will still have to pay taxes on your earnings when you take the money out!

Questions? Sound out below!