By Paul Bullock and Gregory Renn, CFP®

Are you a physician wondering why, despite earning a high income, you’re not building wealth? You’re not alone. Many doctors struggle with accumulating wealth despite their high salaries, and there are several reasons why. From being busy with their work to not knowing whom to trust with their finances, physicians face unique challenges when it comes to retirement planning. In this article, we’ll explore some of the primary reasons why physicians don’t accumulate as much wealth as they should based on their salaries, and provide some tips on how to overcome these obstacles.

Why Are Physicians Accumulating Less Wealth?

For one, doctors are busy with their work and often get a late start in their careers. After completing college and medical school, you spend several years in residency, which means your careers don’t begin until your early 30s. By that time, you’re already several years behind your peers when it comes to retirement savings. 

Not to mention the student loan debt that most doctors must contend with. The greater the expense and length of time it takes to develop a specialty, the longer it takes to reach financial security. In fact, the amount of debt incurred to obtain your medical degree is inversely related to how much wealth you can accumulate. Just take a look at the Physician Net Worth Rule which states that on average, a physician’s net worth must account for $200,000 of student loan debt.

In the midst of these two major hurdles, physicians also have to be cognizant of lifestyle creep and other personal financial planning pitfalls they are not taught about in medical school or residency. Even finding a trusted financial advisor can be difficult for physicians, who are highly educated and may feel pressure to DIY their finances. In doing so, though, they are often too conservative or too risky with their investment selections.

All in all, it seems like the choice is often between being a good doctor, or being financially secure. At Wellington Investment Advisors, we say, “Why not both?”

How to Reverse the Trend

Now that we know a little bit about the reasons why physicians struggle to accumulate as much wealth as they should, let’s take a look at how they can reverse the trend.

1. Understand Your Retirement Investment Options

The first step in accumulating wealth is understanding the investment options available to you and what makes the most sense based on your risk tolerance and long-term goals. It’s essential to consider factors such as risk, returns, diversification, tax efficiency, and behavior when choosing investments and allocating them within your financial portfolio.

You’ll also want to take a close look at your 401(k), IRA, and other qualified plan assets. Are they being managed effectively? Are you maximizing your contributions and taking advantage of any employer matches?

Lastly, it’s important to consider how much time you have to save for retirement. The four variables that drive your retirement number are your income, the percentage of income saved, the investment return rate, and the length of savings years. By optimizing these variables, you can create a retirement plan that aligns with your financial goals and helps you accumulate wealth over time.

2. Determine Your Retirement Income Needs

Before you can develop a plan for your retirement income needs, you need to have a goal and settle on the destination to which your plan will lead. If you aren’t sure how much income you will need in retirement, reflect on your retirement dreams and put together a budget of what it might look like to live the way you desire. Asking yourself the following questions can be a great place to start:

• What age will you retire?
• Will you have post-retirement income sources?
• Does your retirement savings include Social Security benefits?
• What is the probability of success in achieving your retirement goals?
• Will you have post-retirement income sources?

3. Assess Your Mindset

When it comes to accumulating wealth and saving for retirement, physicians must also assess their mindsets and behaviors. This includes understanding how to avoid making poor investment decisions during times of market volatility and economic uncertainty. It’s essential to recognize any biases, values, or attitudes that may impact investment decisions to help avoid common pitfalls (see #4).

While market risk is undoubtedly important, it’s critical to remember that not meeting your retirement goals is a more significant risk. This means that managing your behavior is more critical than optimizing your asset allocation. By adopting a disciplined and patient approach to investing, physicians can avoid making impulsive decisions that can harm their long-term financial goals.

Overall, understanding the psychological aspects of investing and adopting a rational and disciplined approach can help physicians accumulate wealth and find financial stability during retirement.

4. Avoid Common Mistakes

Along with the unique challenges physicians face when planning for retirement, there are also several common pitfalls to look out for along the way. Here are some of the top mistakes to avoid as you plan for retirement:

• Investing in annuities: These investment products often come with high fees and limited flexibility that make them less desirable for physicians trying to build wealth.
• Avoid becoming debt-numb: Just because you have significant student debt doesn’t mean you should take on other types of debt as well. Be sure to thoroughly consider the pros and cons of taking on additional debt as this can significantly impact long-term wealth accumulation.
• Mistaking a financial product salesman for a financial advisor: You’ll want to make sure you’re working with a qualified financial advisor who can provide objective advice and create a comprehensive financial plan.
• Lifestyle creep: Don’t let your high earning potential entice you into purchasing things before you can truly afford them. Think twice before buying a “doctor house” or a “doctor car” and consider the impact on your long-term retirement goals. 
• Collecting investments: Don’t just buy investments with no rhyme or reason. Whether it’s a stock, a property, or a collectible, every investment should serve a purpose in your larger investment strategy.

5. Prioritize Your Finances

The last step in planning for your retirement income needs is to prioritize your retirement savings. Physicians can accumulate wealth by following some simple yet powerful financial strategies. 

First, take advantage of any 401(k) or 403(b) matching contributions your employer offers. This involves contributing at least the minimum amount required to receive the maximum employer-matching contribution. For example, some employers will offer a 50% match on the first 6% of salary contributed. In this case, you would contribute at least 6% to obtain the full employer match. 

Next, pay off any high-interest debt, such as credit card balances or personal loans. Revolving interest charges are a quick way to derail your long-term wealth accumulation strategies. Once high-interest debt is paid off, focus on maximizing your tax-deferred retirement contributions to plans like 401(k)s, 403(b)s, and IRAs. These types of plans offer significant tax benefits and can help physicians accumulate wealth over time through compounded growth.

Do You Need Help With Your Retirement Planning?

Physicians face unique challenges when it comes to accumulating wealth, but adopting a disciplined approach to investing, being aware of common pitfalls, and working with a qualified financial planner can significantly increase your chances of experiencing long-term financial stability in retirement. It’s never too late to start planning ahead. You may contact us in three ways:

1. Schedule a no-obligation meeting with us 
2. Call us at (812) 333-0874
3. Email us. Paul’s email is paul@wellingtoninvestmentadvisors.com and Greg’s email is greg@wellingtoninvestmentadvisors.com

About Paul

Paul Bullock is CEO of Wellington Investment Advisors, an independent, boutique fiduciary firm serving pre-retirees and university faculty across Indiana. With over 32 years of financial experience, Paul is committed to building long-term relationships through thoughtful, personalized investment advice and guidance. He focuses on a disciplined tactical asset allocation approach to money management through a strong understanding of economic and market conditions and strives to build trust with clients by providing sound guidance. Paul understands the hard work his clients have put in to arrive at where they are today and wants to see them succeed in their goals for the future. Paul graduated from the University of Texas with an MBA, as well as a bachelor’s degree in finance, and has been dedicated to assisting clients with their financial needs ever since. When he is not working, Paul enjoys time with his family and is also an avid equestrian polo player who helps raise money for over 18 different charities through his playing. To learn more about Paul, connect with him on LinkedIn.

About Greg

Gregory Renn is a financial advisor at Wellington Investment Advisors, an independent, boutique fiduciary firm serving pre-retirees and university faculty across Indiana. Greg is a CERTIFIED FINANCIAL PLANNER™ professional, a teaching professor of practice at Indiana University’s Kelley School of Business, co-director of the IU-Kelley School of Business Wealth Management Workshop, and faculty advisor to the Financial Planning Association student chapter. Greg’s 20-plus years of professorial experience in the financial industry includes management consulting, derivatives trading, and global banking accounts leadership. All roles have emphasized Greg’s deep desire to consistently add value to his clients and bring clarity from complexity.  

Greg earned his MBA from Indiana University’s Kelley School of Business and his higher education teaching certification from Harvard University. Greg resides in Bloomington, Indiana, with his wife, Kori, and their daughter, Sophia. When he’s not helping clients and students, Greg enjoys spending time with his family and two English Springer Spaniels, Bella and Bo. While Sophia is the musically inclined (piano and French horn) member of the family, Greg and Kori, when not encouraging Sophia’s creative efforts, are avid fans of Indiana University sports and enjoy outdoor activities like kayaking, hiking, and running. To learn more about Greg, connect with him on LinkedIn.