Residents and fellows develop expertise in the most sophisticated aspects of their specialty and in the general practice of medicine, but they may feel more adrift when it comes to issues like financial planning and investments. And though physicians in training likely aren’t making the income they can expect after they transition to practice, it’s not too early to plan.
“Starting out doing it right makes all the difference,” said William Zelenik, CEO of Millennium Brokerage Group, a member of AMA Insurance Agency Inc.’s Physician Financial Partners program. AMA Insurance is a subsidiary of the AMA.
Zelenik urged doctors to avoid stress about financial planning to your plate in residency or fellowship training. Simple adjustments, thoughtful decisions and small investments can pave the way for a more successful financial future.
With that in mind, Zelenik took the time recently to detail four misconceptions that residents and fellows may have about physician financial planning.
Misconception 1: Investments are a slam dunk
Physician residents and fellows might assume that they must set money aside for retirement investments, but Zelenik said that may not be realistic for many physicians in training.
“When they're a resident and a fellow, their incomes are such that most of them aren't in a position to be able to put much aside,” he said, adding that even if it is possible, it may not be the best choice. “There are a lot of things that come into play there. … Sticking it in a retirement plan may not be the option that's best for each individual.”
The key is determining where the money will bring you the most return. For example, he said, if a resident has $10,000 and could invest that money in a certificate of deposit (CD) with a 3% interest rate or pay down a student loan with a 6% interest rate, “you'd be better off paying the student loan down.”
If you’re thinking about refinancing your educational loans, or want to explore a personal or business loan, residents and fellows have options.
KeyBank is one of the nation’s largest full-service banks, offering banking, lending and student loan solutions for physicians at every stage of their careers. When considering your financial plan for residency and beyond, KeyBank offers special AMA member rates on student-loan refinancing, home loans and practice financing. AMA membership also allows physicians to get a free 30-minute consultation with a student loan expert.
Misconception 2: Physicians only need professional liability insurance
It’s true that physicians will need to secure professional liability insurance—or have it provided by an employer or training program—to practice medicine, but Zelenik said physicians should strongly consider life and disability coverage as well.
“For a young physician, the first things they should be thinking about in their financial planning is risk mitigation, because a majority of their income, especially early on, is strictly related to being able to work,” he said. “Every resident and fellow should have a term [life] insurance contract.”
Term-life insurance, typically the most affordable type of life insurance, provides coverage for a specific period of time—hence the “term”—and can protect a physician’s family with income replacement or mortgage payments. When the term concludes or when a physician begins earning more income, some policies offer the option to convert to permanent life insurance plans, which typically have higher premiums but offer additional benefits. Some term plans even will offer a conversion option that does not require a new medical examination.
Physician training institutions can offer some type of disability insurance for residents and fellows, but the coverage may be limited and it is often not portable. You may want to consider purchasing additional coverage, particularly if you have family dependent on your income.
Through AMA Insurance, AMA members can access physician-focused insurance at competitive rates from top carriers and look into resident-specific options. Learn more about your options.
Misconception 3: You need sophisticated financial planning in residency
Residents and fellows don’t need to overcomplicate things, Zelenik said. For those who have enough income to invest, an individual retirement account (IRA), divided among a small handful of different indices, can be all you need.
“If you've got some excess money, it's probably a good idea to put some of it into an IRA because you're going to get some tax benefit off of that also, but I think it is an individual decision,” he said, adding that it’s more important to focus on protecting yourself and family, and weigh out where your spending is most helpful.
“Financial planning in residency, you should have somebody to talk to about disability insurance or term insurance, if you have a spouse and children,” he said. “Then, when you start making more money, you need to have an advisor who has a team and people who can talk to you about your taxes and leverage them.”
Misconception 4: Fear “lifestyle creep”
Residents and fellows likely have heard warnings about “lifestyle creep”—the phenomenon in which a person’s spending stretches to fit any increase in income—and are worried about its impact after their transition to practice. But Zelenik said some increase in spending is only natural for physicians, who likely have sacrificed a great deal in their education and training.
“Most people didn't work that hard just to see a bank account grow,” he said.
Therefore, it’s neither reasonable nor desirable to entirely avoid all “lifestyle creep,” which may especially happen for physicians with growing families. Simply ensure that any salary increase comes with a commensurate increase in savings. For example, he said, if you decide to automatically invest 15% of your income—whatever that income may be, then any compensation increase should also come with an increase in your investments.
“It’s the small disciplines that make all the difference,” Zelenik said. “If they [the physicians] make it too complex about the creep, it never gets executed.”
To find a financial professional in your area, contact the AMA Insurance Physicians Financial Partners Program.
