The New Year means taking a fresh look at your finances. It’s important that you have the money you need to do the things you want to do, while protecting your income and growing your retirement savings for the future. Physicians have unique financial situations and goals, so reviewing your plans at different points during the year is good practice. Each of the concepts in this post can be reviewed at a different time of year, which can help prevent you from feeling overburdened if changes need to be made.
This post will cover topics that are essential to both doctors just out of residency, all the way to physicians getting closer to retirement. So let’s review your plans, build on last year’s progress, and make this year the best year ever.
First up (and some might say most important) is to take a look at your emergency fund. The general guide to an emergency fund is to have three to six months of bills and living expenses set aside at all times. This is a safety net account to keep you out of debt if something unexpected happens. If you don’t have a solid emergency fund, put together a savings plan for how to build this safety blanket for yourself and your family.
Next up is a review of your disability and life insurance policies. Insurance premiums are always lower the younger and healthier you are. If you suspect you need additional coverage, don’t wait too long to review your options.
Most physicians purchase a disability insurance policy during residency to take advantage of better health, lower premiums, and discounts, but has your coverage been keeping up with your income? Depending on your current income, it’s likely you need between $10,000 and $20,000 in monthly coverage to cover your bills and maintain your lifestyle if you become disabled. Many insurance policies come with a Future Increase Option or Automatic Increase Rider, so review the coverage you already have in place to see if there is a way you can increase your benefits. If you need a new or additional policy, reach out to an insurance agent who works with the top disability insurance carriers to get comparison quotes to find your best option for coverage.
See our related blog post Your Guide To Disability Insurance for Physicians for more info on coverage for doctors.
Many physicians have a small life insurance policy through their employer or practice, but supplement the gaps in this coverage with an additional, individual policy. Term insurance is the most inexpensive form of life insurance, especially for younger and healthier physicians. A physician may need a life insurance policy valued at five to ten times their annual income. Take a chance to review the coverage you have in place and do a needs analysis to determine if it’s enough. Factoring in your short-term needs (medical bills, funeral costs), long-term needs (family expenses, cost of living), and future needs (college costs, leaving a legacy, caring for aging in-laws) can give you an idea of the amount of coverage you should have.
Permanent policies like a Universal Life (UL) or Variable Universal Life (VUL) policy can have coverage that provides a death benefit while growing a cash value. Since every physician’s situation is unique, reviewing these options with a life insurance agent that specializes in policies for physicians can help you determine if permanent coverage is a good option for you
Reviewing the beneficiaries of your policies should also be an annual task to make sure the policy benefits would be paid out in the way you want.
Early spring is a good time for a tax review. Meeting with your CPA or other tax professional can help you prepare for mid-April filing and review your tax strategy for the coming year. Take a chance to review your filing information to make sure you’re taking advantage of all deductions you can. If anything big has changed in the last year, like getting married or having a child, you may need to make adjustments on the way you file.
At the most basic level, check that you are contributing the most you can to your 401k to maximize your employer’s contribution. From here, ask yourself what saving and investment vehicles will get you on the road to planning for your future.
Do you have a traditional or Roth IRA? How much are you contributing this year, and can you contribute up to the max?
What else is there? A Healthcare Savings Account (HSA) is a tax-advantaged savings account that allows you to set aside money pre-tax to pay for healthcare expenses. A 529 plan is a type of savings and investment account that allows your money to grow tax free to pay for future college costs. There are other saving and investment routes that might make sense to you, depending on your lifestyle, family needs, or goals for the future. A financial professional can help you determine what strategy or mix of strategies can get you on your way to meeting your retirement goals.
Overall Financial Education
If you feel uneasy or unsure about any of the topics covered in this post, the new year is a great time to advance your overall financial education. A physician’s schedule is hectic, but setting aside time to better understand your finances is an investment in yourself, your future, and your family. If you’d like more information on how to set yourself up for a successful year and stress-free future, please reach out today.