Written by: Derek Melvin
Congratulations on your residency match! That is a major accomplishment as you can begin putting the hard work of medical school behind you and take the next step to becoming a doctor. Aside from the excitement of your career progression, there is also quite a bit of excitement as you can now begin earning an income, likely for the first time in a while, if not ever, for many of you. This also comes with a set of items that will be important to be aware of financially.
The goal of this article is to put together a quick checklist of the 5 financial items you need to be aware of as you head to residency.
1. Plan for Your Student Loans
Game planning student loan repayment is one of the first financial items you should be thinking about shortly after your residency match. Now that you will be out of medical school and in the work force, your loan deferment on federal loans will end and you will be required to begin making payments.
The answer to how to pay off student loan debt most efficiently is different for everyone. If you have federal loans, it is likely that getting on an income-driven repayment plan is the first step that you should take.
An income-driven repayment plan allows you to have a minimum payment calculated for your federal loans based on the amount of income that you earn. This is typically based on your prior year income information. With that said, as you are starting residency this summer, if you apply for income-driven repayment and you had $0 in income in 2023, your payments will be $0 / month under an income-driven repayment plan. You must update your income information each year, but at a resident salary, your payments will still be manageable throughout your training years.
There are multiple different income-driven repayment plans that you can choose from. For many, the Saving for A Valuable Education (SAVE) repayment plan will be the most beneficial for you. The SAVE Plan eliminates 100% of remaining monthly interest for both subsidized and unsubsidized loans after you make a scheduled payment. This means that if you make your monthly payment, your loan balance won’t grow due to unpaid interest that accrued since your last payment. As I said above, your payment may very well be $0 for the first year after applying for the SAVE plan. Therefore, you will have a $0 minimum monthly payment and all interest accruing each month will be forgiven – pretty cool!
Another item to note is that as long as you are on one of the federal income-driven repayment plan, your monthly payments while made in residence will count towards Public Service Loan Forgiveness (PSLF). Just another reason why income-driven repayment plans make a lot of sense for many in residency or fellowship.
For individuals that are married, getting married, have non-federal loans, your repayment strategy will be very case-by-case.
For help on navigating your student loan repayment, reach out to one of our advisors and we would be glad to provide our thoughts on the best way to proceed.
2. Understand Your Employer Benefits
For many, your resident position will be the first time that you have been a full-time salaried employee. That means, you are now eligible for employer provided benefits.
First, it is good to sit down and understand what options for medical or other supplemental benefits are available through your employer plans. On the health side of things, we always defer to our clients on selecting the health plan that works best for their situation. Some residency plans offer a high-deductible plan with a Health Savings Account (HSA), which can be attractive for some individuals.
For most young and healthy adults, it makes sense to take advantage of all employer benefits paid for by your employer and pass on purchasing any additional supplemental insurance offered.
For example, many employees offer basic, employer paid life insurance with the option to purchase additional coverage. Depending on your financial situation, you may not have much need for additional life insurance at this time. Even if you do, a young and healthy individual can likely find cheaper coverage on the open market as compared to purchasing this through their employer plan. Since group plans typically cannot discriminate in pricing between the older or unhealthy employees versus the younger or healthier employees, you are paying an average price since everyone is quoted the same.
This is the same concept for group long-term disability insurance (more to come later), accidental health and dismemberment coverage, etc.
3. Understand Your Employer Retirement Plan
Along with health and other benefits offered through your employer, you likely will have access to an employer retirement plan.
Employer retirement plans can vary widely between institutions. Likely, you will have access to a 401(k) or 403(b) as your primary retirement savings account. You may also have more unique savings plans available, such as defined-contribution plans, pension plans, 457b’s, etc.
To learn more about each individual plan, contribution limits, and other details on the ins and outs of each, visit our blog breaking down retirement plans for doctors. For this article, we will keep it simple.
First, not everyone should contribute to a retirement plan right away. If you have high-interest rate debt or little to no cash savings, it may make sense to hold off on contributing to a retirement plan until you are in a more comfortable situation.
If you are in a position to contribute to a retirement plan, you will want to be aware if there is any matching provided by your employer. If so, you will want to contribute enough so that you receive the full employer matching dollars.
Overall, quite a few items that you need to be aware of as you start thinking about contributing to a retirement plan. To help navigate these decisions, please reach out to us and one of our financial advisors would be glad to get an initial consultation scheduled.
4. Consider Securing Own-Occupation Disability Insurance
As you enter residency, this is a good time to be thinking about disability insurance for doctors. Disability insurance protects your greatest asset: your ability to earn a nice income. Especially as a specialized professional, like yourselves.
If you are unable to perform your duties as a physician due to injury or illness and your income is not protected, you can be losing millions of potential income earnings throughout your career.
When it comes to disability insurance, the most important in my opinion is long-term disability insurance coverage. This protects you in the event that you can no longer perform the material duties of your job due to injury or illness. If the injury or illness prevents you from working indefinitely, a well-structured long-term disability insurance policy will supplement your income up into retirement, allowing you to still reach your financial goals, despite your inability to work.
Knowing the specialized nature of your career and your income earning potential, obtaining a disability insurance policy as a physician is a no brainer. Most people can agree with that statement. The next question I usually get is, “When do I purchase coverage?”. My answer is always, “Now”.
You will likely have a little bit of coverage from your employer provided benefits while in residency or fellowship. That said, this usually only covers a portion of your income. It also is usually not as strong as an individual disability insurance policy when it comes to the contract language and what constitutes an eligible claim. Lastly, group plans are not portable, so once you leave your employer, you are no longer covered by that plan. Therefore, you will want to obtain an individual policy to fill the gaps of group coverage. If your employer has no group coverage, it will be solely on you to cover your income with an individual policy.
With disability insurance, or almost any insurance for that matter, rates are based off age and health. The younger you are, the cheaper the coverage. Also, most people don’t get older and healthier, so it is a good chance that you are the healthiest you will ever be right now.
Most individual disability insurance carriers offer discounts for medical residents and fellows who obtain coverage while still in training. These policies also allow you to structure them with a small benefit while you are in training and increase the benefit as your income rises without having to answer additional health questions.
There are 5 companies that offer own-occupation disability insurance for doctors. Own-occupation coverage means that if you cannot perform the material duties of your job, you are considered disabled and you will receive a benefit. This also allows you to work in any other gainful occupation and receive both the benefit from your policy and the income from your new position, should you want to work in another occupation.
As you consider individual disability insurance, it is important to work with an independent agent that allows you to shop your application amongst the different own-occupation carriers for doctors. We would be glad to discuss your options in obtaining coverage and see who the best fit for you may be.
5. Open a High-Interest Savings Account
The last one is an easy one. As you start to earn an income and saving a few dollars as you can, high-interest savings accounts can be a very productive place to keep extra cash for emergencies, upcoming purchases, or anything else you are saving for.
These accounts are online accounts that offer quite a bit more interest than brick-and-mortar banks. Typically, we want to avoid any banks that have minimum balance requirements or annual fees. These online savings accounts will link directly to your primary checking or savings account to transfer funds back and forth.
The website Bankrate.com is a good resource to look at the different high-interest bank account options available.
Summary
As mentioned, major congratulations to you on your residency match! There will be a lot of financial changes coming up in the months to follow so if you need some help navigating those, please contact us and we would be glad to get an initial financial planning meeting set.
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Disclosures:
Investments involve the risk of loss, including total loss of principal. Consult with your tax professional for specific tax advice pertaining to your particular situation.
