Physicians have many unique financial situations that other professionals do not experience and subsequentially they require financial planning guidance that is tailored to their personal circumstance.

One of the major differences is the various options available them to save in a tax efficient manner for retirement.

Retirement Plan Options

457b Plans for Non-Profits

Many physicians work for hospitals that are non-profits.  The hospitals usually offer 403(b) plans where the physicians can save up to $32,500 if they are 50 and older and with the employer contributions that amount increases to $80,000 in total.   [SM1] 

These hospitals frequently offer 457b plans that allow physicians to save an additional $32,500 as an employee.   Combining these two plans together can be a great way to save in a tax efficient manner for retirement.

There are a couple of important restrictions that need to be known with 457b plans.   

1. Assets in these plans are not protected by ERISA law and subject to bankruptcy filing by the hospital and creditor lawsuits.
2. These funds cannot be rolled into an IRA when the physician leaves the hospital.  They must be distributed from the plan as a taxable event.  This distribution can be delayed until age 73 and the distribution period can be stretched over 10 years.

SEP IRAs for Outside Businesses

Frequently, physicians have outside consulting working in addition to their main job.  In these situations, the individual can contribute to a 403(b)/401(k), 457 plan and they can also contribute 20% of their net income into a SEP IRA. These accounts allow up to $70,000 to be contributed annually.  SEP IRAs can be both Roth or pretax.

Cash balance / Defined Benefit plans with a 401(k) plan

We also work with physicians who own their own business where they are the only employee.  For these individuals, it is recommended they fund an individual 401(k) account with up to $80,000 in employee and employer contributions.  If they have considerable cash flow, they can also add a cash balance defined benefit plan.  This option allows the physician to save up to an additional 250,000 tax free annually into this plan.  These funds can eventually be rolled into an IRA.

Debt Management and Budgeting

Most physicians leave medical school with six figures of college debt.  This schooling and debt have allowed them to gain the knowledge and certifications they needed to follow their passions helping people and earning substantial income.  This debt can also be a burden to them if it’s not paid off in a timely manner.  To make things more complicated, many physicians start their career after 10 years of making very little and feel they should be able to spend money without any restrictions.  It is very important that physicians implement a budget early in their career to make sure they are lowering their debt levels and not adding consumer debt to their balance sheet which will negatively impact them long-term.

Keeping a Simplified Approach to Investments

Physicians tend to be some of the smartest individuals I work with as clients.   This intelligence benefits them and their patients in many ways, but I have also seen it create investors who overestimate their skills and venture into non-liquid private investments. I’m a big believer in the KISS statement – Keep It Simple Stupid[SM2] .  Before entering into private investments that can be non-liquid, complicated and with high fees it’s best to consider the alternative options of a low cost, transparent, highly liquid ETF portfolios that will most likely outperform the private investment options.

Sale of a Practice

Physicians often build and own their practice by themselves or with partners.  In most cases the goal is to eventually sell the practice either internally or to an external buyer.  In these situations, it is important for the owners to start preparing for the transaction at least five years from when they would like it to occur.  This includes making sure the financials are well structured and organized, the processes in the practice should be well established and all records should be set up electronically.   Implementing these steps can help maximize the value of the practice when they sell it.

Risk Management

This area is extremely important for physicians and primarily falls into three categories:

Malpractice Insurance

Medical malpractice insurance (or medical professional liability insurance) is a critical professional requirement for physicians that covers legal fees, settlements, and court awards arising from allegations of negligence

Choosing between these two formats is a fundamental decision for any practicing physician:

• Claims-Made Policies: These are the most common for private practice.  They only cover claims if both the incident and the filing of the claim occur while the policy is active.
  • Tail Coverage: If you leave a claims-made policy, you must purchase “tail” coverage to remain protected for incidents that happened during the policy term but haven’t been reported yet.
  • Nose Coverage: Alternatively, you can buy “prior acts” (nose) coverage from your new insurer to cover your history from a previous job.
• Occurrence Policies: These cover any incident that occurs during the policy period, regardless of when the claim is filed in the future. They are more expensive but do not require separate tail coverage. 

The average annual premium for U.S. physicians is approximately $7,500, though this varies wildly by specialty and location: 

Key Policy Features

• Policy Limits: Standard limits are often $1M/$3M, meaning up to $1 million per claim and a $3 million annual aggregate.
• Consent to Settle: A “pure” consent clause prevents an insurer from settling a case without your written approval, which is vital because settlements are reported to the National Practitioner Data Bank.
• Defense Costs: Ensure legal fees are paid in addition to your policy limits so that high legal costs don’t eat into the funds available for a potential judgment. 

Term Life Insurance

Given the sizable student debt and high potential lifetime income it is important to have significant term life insurance to cover these liabilities. One of the most important items to remember is to only purchase term life insurance which will provide the needed coverage as low cost as possible.  Young physicians are one of the prime targets of insurance sales agents who push whole and universal coverage which are substantially more expensive.

It is usually recommended that physicians get life insurance after they graduate to cover their outstanding loan balances.  If they get married and start having children that amount should be increased to cover the loss of their future income and cover costs such as paying off mortgages and covering college costs.  For most doctors this requires coverage between $2 million and $5 million for 30 years.

Disability Insurance

For most high-income earners, having the maximum amount of disability insurance is extremely important as the likelihood of their being disabled is much higher than them dying. 

The Basics

• “Own-Occupation” Definition: This is the gold standard for doctors. It means you are considered disabled if you cannot perform the specific duties of your medical specialty, even if you are healthy enough to work in another field (e.g., teaching or consulting).
• Tax Treatment: If you pay for an individual policy with post-tax dollars, the benefits you receive are generally tax-free. In contrast, benefits from employer-paid group policies are usually taxable. 

Recommended Riders & Features

• Future Purchase Option: Allows you to increase your coverage as your income grows (e.g., transitioning from resident to attending) without a new medical exam.
• Residual/Partial Disability: Pays a portion of the benefit if you can still work but your income drops by at least 15-20% due to illness or injury.
• Cost of Living Adjustment (COLA): Increases your monthly benefit annually to keep pace with inflation once you are on claim.
• Student Loan Rider: Provides extra funds specifically to cover medical school loan payments during a disability.
• Non-Cancelable & Guaranteed Renewable: Ensures the insurance company cannot cancel your policy or raise your premiums as long as you pay them. 

Costs typically range from 1% to 4% of annual gross income. For a monthly benefit of $10,000, expect to pay between $200 and $600 per month depending on age, gender, and specialty.

Summary

The financial lives of physicians are complex and require a thoughtful, tailored approach. Having an advisor who can act as a true fiduciary and understands these nuances is critical.

In many cases, the biggest risk is not a lack of advice, it is following the wrong advice.

At Bouchey Financial Group, we specialize in working with physicians and professionals in the medical field, helping them navigate these decisions with clarity and confidence.

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