Maximize Your Physician Income: Smart Financial Strategies After Residency

By Ashley Folkes

Your Financial Prescription: A Guide to Post-Residency Success

Transitioning from the rigorous world of residency to the autonomy of a practicing physician marks a significant milestone. Finally, the years of dedication are poised to translate into tangible financial rewards. However, this transition also introduces a new layer of complexity: managing newfound income, navigating substantial debt and securing a long-term financial future. It’s time to shift from financial survival to strategic prosperity.

The First Steps: Job Selection and Contract Review

Before diving into financial planning, the foundation lies in a well-chosen job. Don’t simply chase the highest salary. Consider the location’s cost of living, tax implications and potential for partnership buy-in. A comprehensive contract review by a health care employment attorney is paramount. Scrutinize compensation structures, non-compete clauses and termination provisions. Understand the intricacies of base salary, bonuses and benefit packages. Negotiate reasonable restrictions to safeguard your future career options. A thorough review of your physician contract by a specialized attorney is an invaluable investment.

Long-Term Financial Goals: Building Wealth and Security

Always take some time to think through what wealth and money mean to you through the lens of your values. Evaluate the timing of homeownership based on career stability and financial readiness. Develop a strategy for saving a down payment while maintaining other financial priorities. Consider 529 college savings plans for tax-advantaged education funding. Establish long-term goals like financial independence and early retirement. Create a structured investment and savings plan to achieve these milestones. Build an estate plan, including will, power of attorney, health care proxy and trust to protect assets and beneficiaries.

Budgeting and Cash Flow: Laying the Groundwork

Even though your income has changed, creating and sticking to a detailed budget can be essential. Track expenses meticulously using budgeting tools or financial planning apps. Build an emergency fund covering three to six months of essential expenses to provide a safety net against unforeseen events. Resist the temptation of “lifestyle inflation.” Instead, adopt a humble lifestyle that prioritizes saving and investment. A goal of saving at least 15% of your income for retirement is highly recommended. Raise your savings rate as your income increases.

Debt Management: A Strategic Approach

Student loan debt, often a six-figure burden, can be overwhelming and requires a meticulous strategy. Assess federal repayment options like Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF). Evaluate refinancing private loans for lower interest rates but remember this eliminates federal loan protections. Prioritize high-interest debt to minimize long-term financial strain. Explore loan repayment programs offered by hospitals in underserved areas, government initiatives like the National Health Service Corps (NHSC) or military programs. Understand the tax implications of these programs, as they might be considered taxable income.

Retirement and Investment: Securing the Future

Maximize contributions to employer-sponsored retirement plans like 401(k) or 403(b), especially if there’s an employer match. Utilize Roth IRAs for tax-free growth or traditional IRAs for potential tax deductions according to the rules of eligibility. As income increases, consider backdoor Roth IRA strategies. Begin investing early to leverage compound interest, diversifying across asset classes to manage risk. Avoid speculative investments and work with a fiduciary adviser for a long-term financial plan.

Insurance: Protecting Your Earning Potential

Obtain “own-occupation” disability insurance to protect your income in case of illness or injury. Secure adequate life insurance to protect your spouse and dependents. Understand and secure appropriate malpractice insurance tailored to your specialty and employment setting. Select a comprehensive health insurance plan that balances cost and coverage needs.

Tax Planning: Navigating Complexity

Physicians face higher tax brackets and require proactive tax planning. Understand tax deductions related to student loans, retirement savings and business expenses. Work with a CFP and CPA to optimize tax efficiency and explore strategies like health savings accounts (HSAs) and other pre-tax and tax-deferred accounts.

Professional Guidance: Building Your Team

Partner with a fiduciary financial planner specializing in physicians to ensure a comprehensive financial strategy tailored to your income, debt and long-term goals. Make sure they have a defined process, so nothing is missed and that they are proactively providing you with the accountability you need to stick to the plan. Consult with a tax adviser to navigate complex tax situations. Build a team of professionals who understand the unique challenges and opportunities faced by physicians.

Prioritizing Success

It is important to acknowledge that the hierarchy of these financial priorities will vary based on individual circumstances.

To start with, building an emergency fund covering 3-6 months of living expenses should be the initial priority for physicians navigating post-residency finances, providing a crucial financial safety net against unexpected setbacks.

Simultaneously, securing essential insurance coverage, including disability, malpractice, health and life insurance, is crucial for protecting income and assets.

Following this, addressing non-secured high-interest debt, such as credit cards, becomes paramount, minimizing long-term financial burdens.

Next, a strategic student loan repayment plan should be implemented, considering options like income-driven repayment or refinancing.

Maximizing employer-matched retirement contributions is essential for leveraging free money and building long-term wealth.

Subsequently, the focus should shift to tax planning and strategic investments, optimizing tax liabilities and developing a diversified investment portfolio aligned with long-term goals.

Finally, ongoing long-term financial planning and responsible lifestyle management, including regular plan reviews and resisting overspending on non-essential luxuries, are essential for maintaining financial stability and achieving a prosperous future.

About the author: Ashley Folkes, CFP, AEP, CPWA, CEPA, RICP, CRPC

​​Ashley, a CFP®, AEP®, CPWA®, CEPA®, RICP®, and CRPC®, specializes in guiding business owners and individuals through significant financial transitions with a holistic approach. Focusing on clients facing pivotal life changes—whether it’s exiting a business, preparing for retirement, or embracing a new career phase—Ashley helps them build strategies to protect their wealth, maximize value, and ensure lasting security for themselves and their families.