by Alex Kilian
Over seven years have passed since the Affordable Care Act was officially signed into law. At the time, the healthcare landscape had not experienced such sweeping changes since the creation of Medicare and Medicaid over 50 years ago. Healthcare reform may dramatically change the industry yet again with President Trump now in office. The altruism of a career in medicine is becoming increasingly eroded through commoditization. As a consequence, physicians and the care they provide are at the epicenter of an industry heavily impacted by the decisions made by those who have never stepped foot in the medical arena.
Physician burnout is an ever increasing reality, and the ticket to a more fulfilling career, or a way out, is to aim for Financial Independence and Retire Early (FIRE). The steps outlined below will stoke your FIRE and keep it burning.
Prioritize and eliminate debt.
The most important aspect to achieving financial independence is to gain control of spending. While it may seem like an intuitive concept, lifestyle creep is a prevalent behavior among physicians as they receive pay bumps after residency and again after partnership. As a consequence, student loans and other debt may be ignored in favor of a nicer car, a larger house and exotic vacations. By putting extra money towards savings or paying off debt rather than big ticket items that increase your fixed expenses, you’ll be closer to achieving financial independence and reach retirement sooner.
Maximize your savings.
Contributing the maximum employee deferral to your 401(k) is not enough to achieve FIRE. For 2017, the maximum you can defer into your 401(k) is $18,000, with an additional catch-up contribution of $6,000 when you are over 50 years old. However, your employer can top this off in the form of matching and profit sharing for a maximum combined contribution of $54,000 ($60,000 if you’re over 50). A practice with steady cash flow may add a defined benefit plan to achieve even greater pre-tax savings beyond the 401(k).
In addition, you should be funding a Roth IRA as well as a taxable investment account that won’t be touched until retirement. Not only does saving in more places allow you to put away more dollars, it can also provide for greater tax planning strategies in the future when you begin to draw off of your assets from the different tax buckets.
Invest in yourself.
Physicians in private practice are often presented with the opportunity to buy a fractional interest in the practice, the real estate of the practice, and the surgery center utilized by the group. If the ownership is structured appropriately and the investment is financially sound, who better to invest in than yourself and your colleagues? The consolidation that has occurred in medicine, as well as third-party interest, can make ownership in one’s practice a particularly fruitful investment and further diversify your overall investment portfolio.
Read and understand your disability policy.
Stoking your FIRE is dependent on your ability to earn an income, willingness to reduce your debt-load, and save for the future. However, as anyone in the healthcare field can attest to, life sometimes plays out differently than we have planned. It is imperative you understand both how much your disability policy will pay and the exclusionary language.
First and foremost, it should be an own-occupation policy. This allows for you to collect the disability income stream while continuing to work in another capacity. For surgeons who can no longer operate, this may mean doing independent medical examinations. You should also determine if the payment received is taxable or tax-free. Typically, if your employer pays for the policy, it is taxable to you when received. If you pay out-of-pocket for the coverage, it is tax-free to you when received. It is extremely important to understand what is excluded; many policies may only cover mental and nervous disorders (anxiety and depression) for two years.
Keeping your FIRE stoked will eliminate burnout, allow you to focus on caring for your patients and increase the time you have to dedicate towards your other passions.
Alex is a Wealth Manager at Aldrich Wealth LP, in Portland, Oregon that works exclusively with physicians and medical practices. He guides healthcare practitioners through their complex wealth management needs, including retirement planning, tax planning, estate planning, insurance analysis, and investments. In addition to the services that he provides to individual healthcare practitioners, Alex also sits on the Board of the Friends of Tryon Creek.
Prior to beginning a career in financial planning and investment management, Alex graduated with a Bachelor’s of Science in finance from Portland State University, completed post-baccalaureate premedical coursework at Oregon State University, and a certificate in financial planning through Boston University.