Things are a bit distracting in the personal finance space right now. For a little more than a week, most have been focused on the tug-of-war over GameStop, a struggling video game retailer that once populated malls nationwide. Of course, during a pandemic, few are going to the mall and more seem to be downloading their video games. This prompted several hedge funds to short GameStop, and members of the sub-Reddit, r/WallStreetBets, to push back, driving up the value of the stock. Some became wealthy by going all-in on GameStop while at least one hedge fund nearly foundered. Complicating the matter, Robinhood, an app that eases access to equities trading, capped GameStop trades, causing many on r/WallStreetBets and Capitol Hill to cry foul. How this saga will unfold is anyone’s guess, but a) It’s certainly interesting and b) It raises some bigger questions about personal finance. While many are making life-altering sums of money seemingly overnight, the risks are astronomically high, since, let’s face it: GameStop isn’t actually that valuable. Hedge funds are extraordinarily wealthy and powerful, and now they’re angry. What’s stopping Robinhood or congress from taking further action? Just as easily as those fortunes were made, they could be lost in a blink. Physicians are well-versed in risk management. It factors into every professional decision you make. Risk management is probably a part of your financial decisions as well. There is no such thing as risk-free investing. However, you can minimize risk by taking the opposite approach of the GameStop speculators: building wealth slowly over time. Let’s break that down by creating some smart financial goals for each decade of your life. Age 0-10 OK, so this one’s for the parents. Remember how expensive undergraduate and medical education were? They’re only going to get more expensive (though, other medical schools may be forced to follow NYU’s lead if they want to attract the best applicants). Two words for you: 529 Plan. Think of a 529 plan like a 401(K). It’s a tax-advantaged college savings plan that’s tied to the market. If you don’t want your children to be saddled with massive student loans, or if they don’t qualify for scholarships, they’re going to need it. 10-20 Responsibility here is also largely going to fall to the parents as well. This pivotal decade is all about financial education. Essentially, this is the stuff that they don’t teach you in school: Spending and saving Budgeting and cost of living Managing checking and savings accounts Obtaining and building credit Good debt vs. bad debt Debt management Different types of investment accounts Think this is a reach? Think again. Frugal Physician got her 5-year-old into investing. Later in this decade, your kids should be investing in themselves by pursuing higher education. As a physician, you know that degrees translate to higher earning potential later in life. Now, we’re assuming that most likely you want your child to earn at least an undergraduate degree. This can factor into your financial education efforts on good vs. bad debt. 20-30 Once again, this section most likely will apply to those with children. Education is also the order of the day here, except this time, we’re talking about graduate-level studies. The same principles apply: It may be worth pursuing if it increases your earning potential in your chosen profession. This pursuit can be concurrent with wise debt-management strategies. For example, if you’re still paying off medical school, think about how much better off you would be if you paid just the interest, or made full payments, during residency. Family and other competing demands associated with the later decades make pursuing graduate-level education more difficult as we age. Ensure that these responsibilities don’t force them to lose sight of their educational goals. 30-40 OK, now it’s time to start talking about you! You’ve made it out of med school and now it’s time to get rid of that debt. It’s going to make everything that comes after, including buying a home and starting a family (if that’s what you want) that much easier. The first thing to know is that you might not have to pay the entire balance if you qualify for Public Service Loan Forgiveness (PSLF). You may be PSLF-eligible if your employer is a qualifying non-profit. And guess what: Many hospitals are. Finally, if you don’t qualify for PSLF, you may want to consider consolidation (to make things simpler) and/or refinancing (check out this post). Interest rates are at record lows, making refinancing a no-brainer. This is also the decade when you’ll be wrapping up residency. We suggest that after residency you continue to live like a resident, despite getting that first big paycheck. That may mean a more minimalist lifestyle while you maximize things like: Funneling cash into your emergency fund Maxing out your retirement contributions If you have children, funding their 529 plan Eliminating any other high-interest debt, such as credit cards Finally, if you haven’t done so, now is the time to get serious about your insurance coverage. Work likely has you covered with malpractice and possibly life and disability insurance, but you may want to acquire additional insurance coverage, such as a personal liability umbrella policy, AKA PLUP. 40-50 Hello gray (or no) hair. Also, hello peak earnings. Now is a good time to put that money toward optimal use by getting crystal clear about your retirement goals. Know when you want to retire and where you want to retire to, keeping in mind that certain locations are more affordable than others. If you’re a homeowner, now is a great time to start making extra mortgage payments, if you haven’t already. Retirement isn’t as far away as you might think and a wise retirement strategy involves minimizing expenses while receiving a fixed income. Not having a mortgage payment during this time is a major boon. Additionally, the sale value of your home may help offset the cost of healthcare later. 50-60 Planning, planning, planning. If retirement is a priority for you, then the end of your medical career is within sight. Now is the time to finalize your plan. First, know when you (and your partner, if you have one) want to retire. Next, determine how much you have saved (and how much you should have saved), and how much more you expect to amass as you near your retirement dates. Then, you’ll want to determine what your income will be in retirement. This should account for retirement account withdrawals, social security benefits, and part-time work, if you choose to stay busy. If you’ve done everything right, you should have enough to cover expenses in retirement. If you haven’t, don’t panic, but you need to respond. Some possibilities: What expenses might you be able to cut? How might a few more years of work and catch-up contributions to your retirement accounts help, for example? This year 401(K) contributions are capped at $19,500. But those turning 50 or older can track another $6,500 onto that. Might relocating help offset cost of living? 60-70 Hello, social security! At 62, you can add social security to your list of income sources, but you won’t be receiving the full benefit until you turn 67 (if you were born in or after 1960). Realistically, though, you’re a doctor accustomed to a doctor’s lifestyle, and social security benefits just aren’t going to cover that. That means mostly you’ll be relying on your retirement accounts to get you through your golden years. To make that income last, now is the time to prioritize eliminating any outstanding debts before retirement. Finish paying off that mortgage, if you haven’t already. The same goes for car payments and any outstanding credit card debts. You also might want to revisit your work plans. We’ve known more than a few doctors over the years who thought they would love retirement only to discover that they were bored. Perhaps you might enjoy working part time, or barring that, volunteering. You could also do locums work, treating months-long stints in new locations as working vacations. Locums might give you the opportunity to tour the country while piling up more retirement savings in the process. Finally, if you haven’t done so already, make sure that you have an estate plan. Chances are, you’ve used your extensive medical knowledge to take care of yourself. But on the off chance that something unexpected happens, it’s preferable to take the guesswork out of determining where you wanted your money to go. 70+ It’s time to get serious — serious about enjoying life. You’ve worked for 30 years in medicine, giving selflessly, and now it’s time to get down to the business of having fun. If you’ve done everything right, you won’t have to live like a miser, either. You know that you’ve got 30 years of expenses covered. A worthy financial goal at this stage in your life is to keep your money growing. At this point, your investment strategy likely will be the most risk-averse it’s ever been. Of course, as we explained at the top of this post, markets change from moment to moment. This is where working with a financial advisor may be beneficial, if you haven’t worked with one already. It’s true that you might have the financial know-how to respond to an ever-changing market, but do you really want to be worrying about it at this point in your life? Perhaps you do. Your answer likely depends on your personality. Regardless of who handles your money, you’ll want to make sure your required minimum distributions (RMDs) from your retirement accounts are squared away. You also might want to work with an accountant here, because RMDs have tax implications. Finally, if you’ve had a lucrative career in medicine, now may be the time to consider legacy planning. You can’t take it all with you, after all, and perhaps you’d like your impact to extend beyond your immediate family. You’ve worked a lifetime, and the impact of that work has the potential to ripple far into the future. Source
