Resident Financial Checklist
- Matt
- 6 hours ago
- 8 min read
This is one of my favorite times of year in the hospital! If you are in academic medicine, you know exactly what I mean. Springtime is the sweet spot when everyone is at the top of their game. Our third-years are at their peak performance — they are almost attendings. The second-years are almost third-years. The first-years are almost second-years. Things just run really, really smoothly. We have been pouring into these residents for up to three years now. They are doing quite well, and they are ready to go out into the world and be first-rate physicians on their own.
There is one area of medical education where we have really missed the boat - we do not focus on it in medical school or in residency. And yet it has a huge impact on the rest of your practice and, frankly, the rest of your life - Finance. And in the area of finance there are three things I like to talk to my residents about before they leave — things I have incorporated in my own life, things that will set them up for success.
Disability Insurance
Before you graduate, buy disability insurance - specifically, own-occupation, specialty-specific disability insurance.
Your income is the best asset you have right now. You have spent four years in medical school and anywhere from three to seven years in residency developing and honing a skill set. That makes you extraordinarily valuable. And when you are on the front end of your career, what you have is a talent that you are now going to convert into financial stability and security for yourself and your family.
Think about it this way. You are going to graduate. You will have a certain salary. That salary will likely fluctuate over the course of your career, but take that rough number and extrapolate it over a thirty-year career, and that is your general lifetime earnings potential.
The problem is, life is not always predictable. Sometimes things happen that impair your earnings potential. You may have a serious injury or illness. Things may transpire that mean you are no longer able to work in the capacity you have been trained to do. And all of a sudden, your financial picture looks dramatically different. What do you have to bring to the table when you are no longer able to perform the skill you spent a decade training for? Disability insurance protects you from that potential income loss. It protects your earnings potential from the things that could prohibit you from doing your+ job long-term.
The reason I specified own-occupation, specialty-specific is this: without that protection, a generic policy might say, "Well, you're a doctor — you could work in some other medical capacity." Something with significantly less earnings potential, or something you are not comfortable or enjoy doing. For me, as an emergency physician, I need a product that protects my earnings potential for practicing emergency medicine. If I become disabled and unable to work in the department, use a laryngoscope, put in chest tubes — the things my job requires — I need to be protected against that loss of income. If I cannot be an emergency physician, the product kicks in.
The earlier you buy these products, the cheaper they are. There are often provisions that let you level up your coverage when you graduate and as your income increases. Your employer may offer a disability insurance benefit. That's a huge plus. But here is the thing, if you leave your employer, that policy may not follow you. And if you leave fifteen or twenty years from now, after some medical conditions have started building up, your insurability may look dramatically different. If you buy a personal policy early when you are young and healthy, you carry that foundation of protection with you regardless of where you practice.
Find an independent insurance broker — someone whose fiduciary responsibility is to you, not to a company trying to sell a product. Figure out how much income you are trying to protect. Then go get it done.
Open a Roth IRA
Open a Roth IRA before you graduate. And while you are at it, open a traditional IRA too.
An IRA is an individual retirement account — basically an account you can put money into, take advantage of certain tax benefits, let it grow, and then draw on in retirement. It supplements your employer sponsored 401(k) or 403(b). The difference - this is an individual account - it is yours.
There are two types of IRAs. A traditional IRA lets you put in money that is tax-deferred - that is you do not pay tax on that money when you put it in (assuming your modified adjusted gross income is below certain thresholds). When you pull it out in retirement, then you pay tax then. The idea is tax arbitrage: you are in a high tax bracket now. Maybe when you are pulling it out in retirement your income is less than in peak earnings years. So your marginal rate is lower.
The Roth IRA works the other way. You pay tax on the money going in. But once the money is in the ROTH IRA, you let it grow for ten, fifteen, twenty, thirty years. When you take it out, it is not taxed. You get tax free growth.
Now, the caveat for physicians: there are income limits on the Roth IRA. Specifically there are income limits that would prohibit you to directly contribute to the ROTH IRA. As a physician, you are going to blow through those income caps. As such, contributions to a ROTH IRA is an option that is not typically available to you as a high-income earner — at least not directly.
But there is a legal workaround. As a high income earner, you are eligible to contribute to your traditional IRA. if your MAGI is above the income threshold, that contribution will be post-tax. But you contribute none-the-less. Then you roll your balance into into a ROTH IRA. This iscalled the Backdoor Roth IRA. It is a great way for physicians to continue building retirement savings they can take out tax-free! There is one important detail to note: at the end of every year, you need to zero out the balance in that traditional IRA otherwise you start doing some complicated calculations on your tax forms.
Why does this matter so much? If you do things right as a physician, the required minimum distributions (RMD) from your 401(k) and 403(b) in retirement are likely going to keep you in a top-tier tax bracket. RMDs exist for tax deferred retirement vehicles to ensure that you withdraw a certain amount of money from your accounts in retirement so that you don't avoid paying tax. As a post-tax contribution vehicle, a ROTH IRA does not have a required minimum distribution. And having money available that you can pull tax-free is a significant advantage.
The time to establish these accounts is now as a resident before your income exceeds the direct ROTH contribution threshold. ROTH and traditional IRAs are available through major brokerage houses — Schwab, Fidelity, Vanguard, etc. So go open your accounts and put your money in a low cost, target date fund. You do not have to put a lot of money in right now. The point is getting the infrastructure in place so that when you graduate and have a little more financial freedom, you can hit the ground running.
Continue to Live Like a Resident
I learned this phrase from Dr. Jim Dahle of The White Coat Investor — so full credit to him.
The idea I have seen play out in career after career, including my own is this - once you graduate and that first attending paycheck comes in, you are suddenly awash with money. Until this point you have been living on a very low salary in medical school and residency. Money has been tight and options are limited. There are all sorts of things you have been putting off. Now the numbers are dramatically different.
Here is the thing about physicians: we are great at deferring gratification. Think about what it actually takes to become a physician. You want to do this thing, and the thing is twelve years from now. You delay everything over the course of that twelve-year proposition for the sake of that goal.
Once we achieve the goal, once we land the high salary, we want to say, "I made it! Now I get to enjoy the fruit of my labor." That's when lifestyle creep catches up. And it catches up to your paycheck very rapidly. First thing you want to do is get a nice car, then buy a house, and then get some nice things. You start eating out more. And all of a sudden you find that your paycheck evaporates just as quickly as it did when you were a resident.
There is a concept in investing called sequence of returns risk. It refers to what happens at the start of retirement. The condition of the market will have a dramatic impact on the longevity of your portfolio. If you experience a major market downturn in your first few years of retirement, it will permanently affect how long your money lasts. The early years carry disproportionate weight.
The same principle applies at the beginning of your career. These first years as an attending are a window of financial leverage you will never have again. You do not have a ton of expenses yet. Lifestyle creep has not happened. And you suddenly have a lot of money. This is the time to identify your short-term, mid-term, and long-term financial goals and begin a disciplined effort to build toward them.
Do you want to buy a house? Great! Keep living in a low-cost place and save so you have a large down payment — or maybe the entire payment.
Do you have loans? Get those out of the way early. Eliminating that debt frees up financial bandwidth for everything that comes later — kids, school, all the other expenses that build up over a career.
Do you want that attending car? Continue to drive the beater and save for it so you can pay cash. A little patience will save you 4-7% APY stretched out over the life of a car loan.
A little discipline now will put you miles ahead of your peers. Trust me — I am mid-career now. I have a house I do not regret. I have vehicles, but they need to be repaired. I have six children who need to be fed and put through school. And that margin that I had early on gets tighter and tighter. It becomes harder and harder to accomplish other financial goals. Use this window while you have it. You will never have a time of financial leverage quite like you do right now.
Conclusion
There it is - three things I like to talk to my residents about every year before they graduate. These are three things I have done in my own life, with varying degrees of success, that I believe will set you up for a career of financial freedom and stability. Protect your income. Build the tax-advantaged infrastructure now. And live like a resident a little longer than feels comfortable.
Personal finance is not something that is formally taught in medical school and residency. For me, I have done a great deal of reading and self study. Here are several resources that I have found helpful.
Books:
Disclosures:
Text for Excellent Physician blog posts is original, creative content generated by the author except where specifically indicated. This post was adapted from the video transcript using AI tools. Ideas are original to the author but text for this post was based off of AI transcription, text generation.
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