Key Takeaways
- Physicians face unique financial challenges due to high income, delayed earning years, litigation exposure, and industry-specific risks.
- Human capital protection through properly structured disability and life insurance is essential, especially coverage tailored to a physician’s specialty.
- Delayed investing can significantly reduce the benefits of compounding, often necessitating higher savings rates or longer working years later in life.
- Physicians are frequent targets for both litigation and financial solicitations, making asset protection and disciplined investment decisions critical.
- Because most physician income is taxed as earned income, tax-efficient retirement planning plays a central role in long-term wealth accumulation.
- Creating a comprehensive financial plan in partnership with a financial professional who specializes in the healthcare industry can help physicians maintain financial wellness.
The financial needs of physicians present several unique challenges. Cultural perceptions of doctors set them apart from other professionals, and many of these individuals are likely to encounter situations and circumstances that are uncommon in industries outside of healthcare.
As both scientists and caregivers, doctors are known for their ability to apply high levels of education and intelligence to provide an essential service to the public. They are also often recognized as economic powerhouses, generating high incomes for their practices and their families. With this level of responsibility and economic success, physicians take on a significant amount of personal and professional risk—something that could attract both litigations as well as financial solicitations from friends and family members.
Physician wealth is also unique from an investment perspective. During their lifetimes, many doctors accumulate a disproportionate amount of their wealth inside tax-deferred investment vehicles such as 401(k)s or Cash Balance Pension plans as compared to other investors. In addition, they are often faced with the temptation to over-leverage on home purchases, vehicles, or other illiquid assets.
By analyzing these unique factors, we have identified what we believe are the top six financial concerns that doctors will often face throughout their lifetimes. By taking the time to understand these common circumstances, physicians can better prepare themselves for continued financial success both now and in the future.
1. High Level of Income/Human Capital
Physicians often reap the benefits of their education and contributions in the form of significant financial success throughout the course of their careers. However, they need to be prepared for the future. The careful selection of disability insurance and life insurance designed to fit their unique needs is essential to protecting the financial future of physicians and their families. For physicians, their disability insurance policy should go beyond insuring their occupation as a medical professional, extending to include their particular specialty to ensure fair compensation. In addition, a physician might need more than one type of life insurance. For instance, they might benefit from a life insurance policy focused on retirement savings and/or another for providing for their families in the event they do not survive to see retirement.
2. Delayed Investment Strategies
Many physicians don’t start investing in their retirement until they are 35 years old—about a decade later than other professionals. Their high level of income makes it tempting to over-leverage for mortgages or student loans, which prevents them from saving in the early years of their career, ultimately diminishing the long-term benefits of compounding investment returns. By delaying saving and investing as compared to their non-physician peers, doctors may be forced to invest twice as much capital later, work ten more years, and be tempted to take on higher-risk investments to catch up.
3. Common Target for Litigation
For physicians, their high-risk profession, high income level, and high perception of wealth makes them a common target for litigation. For these reasons, it’s particularly important for them to have an appropriate asset protection plan in place to protect their wealth from creditors. This protection plan may include tools for claims payments, such as personal liability “umbrella” insurance policies and malpractice insurance policies, as well as tools to shelter assets from claims of creditors, including retirement accounts, 529s and UTMAs, certain trusts (marital, family, and domestic asset protection), life insurance, and limited liability companies.
4. Vulnerability to Financial Solicitation
For the same reasons that make them a target for litigation, physicians are often approached by friends and family members with opportunities to invest in the “next big thing,” or extended invitations to join private equity and hedge funds. Before making such investments, it’s important to ensure they are maintaining a balanced financial portfolio and that further investments won’t impede their ability to contribute to protected retirement accounts, life insurance accounts, and other short and long-term personal demands on cash flow.
5. Higher Taxes Compared to Other High-Earning Professionals
Other high-earning professionals such as real estate developers or small business owners often have more write-offs, which over time significantly decrease their tax payments. Moreover, other professionals often have income sources with varying tax characteristics such as earned income, business income, capital gains, and investment earnings. In contrast, most physicians’ income is taxed as earned income only. This means that physicians have even greater need for robust workplace retirement solutions as an opportunity to shelter income and defer to the future through 401(k) and cash balance plans.
6. Constant Need to Keep Pace With Evolving Industry Standards
Keeping pace with the dynamic and evolving healthcare industry introduces many new financial challenges, including increased student loan debt as physicians seek further education for specialization, increased compliance and regulatory pressures, decreased reimbursements from health insurance companies, and increased burnout.
An effective way to overcome these challenges is creating a financial plan that includes saving money early and often, paying themselves first, maximizing workplace retirement plans and benefits, balancing liquid and illiquid investments and personal use assets, and automating and maximizing disability and life insurance programs.
For physicians, understanding what makes their financial circumstances unique is critical to ongoing financial wellness. By working with financial professionals who specialize in the healthcare industry, doctors can learn to make the most of their income by setting and achieving short and long-term financial goals using thoughtful strategies designed to suit their individual needs.
For more guidance and information on this topic, please reach out a member of the Curi Capital team today.
Frequently Asked Questions (FAQ)
Why do physicians need specialized financial planning?
Physicians often earn high incomes but start investing later, face higher litigation risk, and have fewer tax diversification opportunities than other high earners. These factors require tailored strategies that differ from traditional financial planning.
What type of insurance is most important for physicians?
Disability insurance that covers a physician’s specific medical specialty is critical, along with appropriate life insurance solutions to protect family needs and long-term financial goals. Learn more about disability insurance in our article, Planning for the Unpredictable: What to Know About Disability Insurance.
Why is delayed investing such a concern for doctors?
Many physicians spend their early adult years in training, which limits their ability to save. This delay reduces the power of compounding and can necessitate higher contributions or tempt higher-risk investing later in their careers.
How can physicians protect themselves from lawsuits and creditors?
Asset protection strategies may include umbrella liability insurance, malpractice coverage, protected retirement accounts, certain trusts, life insurance, and properly structured entities such as LLCs.
Why do physicians often pay higher taxes than other high earners?
Unlike business owners or real estate professionals, most physician income is taxed entirely as earned income, limiting deductions and increasing the importance of retirement plans that allow tax deferral.
What is the first step a physician should take toward financial security?
Creating a comprehensive financial plan with professionals who understand the healthcare industry can help physicians align cash flow, investments, insurance, and long-term goals effectively.
Disclaimers
The opinions and analyses expressed in this newsletter are based on Curi Capital, LLC’s (“Curi Capital”) research and professional experience are expressed as of the date of our mailing of this newsletter. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future time periods. Curi makes no warranty or representation, express or implied, nor does Curi accept any liability, with respect to the information and data set forth herein, and Curi specifically disclaims any duty to update any of the information and data contained in this newsletter. The information and data in this newsletter does not constitute legal, tax, accounting, investment or other professional advice. Returns are presented net of fees. An investment cannot be made directly in an index. The index data assumes reinvestment of all income and does not bear fees, taxes, or transaction costs. The investment strategy and types of securities held by the comparison index may be substantially different from the investment strategy and types of securities held by your account.
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Investments & Wealth Institute (The Institute) is the owner of the certification marks “CIMA,” and “Certified Investment Management Analyst.” Use of CIMA, and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professionals.
