The Frugal Physician's financial tips for women in medicine

Male physicians have a greater net worth than female physicians on average, according to a speaker at the Women in Medicine Summit.

In fact, 37% of female physicians are worth less than $500,000 compared with 23% of men, while 13% of male physicians have a net worth greater than $5 million compared with 5% of women, Disha Spath, MD, an internal medicine physician at Dartmouth-Hitchcock Putnam Physicians in New York and founder of The Frugal Physician, said during her presentation.

Both male and female physicians must make calculated financial decisions and investments early on in their careers to maintain their lifestyles and retire at a reasonable age, according to Spath. Women in particular should take steps to secure their financial health since they most often carry the largest financial burden.

“Student loans are a huge burden on women specifically because we have front-loaded the costs of childbearing and there’s a gender wage gap,” Spath said. “So, not surprisingly, women hold two-thirds of American’s student debt, which is now a crisis. So, we have to get wise about it.”

Women hold about $929 billion of the greater than $1.73 trillion in student loan debt in the United States, she added. By taking control of their financial health, physicians can pay off their debt, maintain an emergency fund and invest wisely to develop passive income.

“Money makes it possible for us to gain that flexibility and gain that freedom to design our ideal lives,” Spath said.

During the presentation, she discussed three basic tenets of financial planning: protect, slash debt and invest.

Protect

Spath encouraged physicians to prepare an emergency fund and nest egg to protect themselves and their families.

“Unfortunately, most Americans cannot afford a $1,000 emergency,” she said. “I would say most doctors have a hard time affording a $10,000 emergency.”

She advised against depending on credit cards during an emergency since that can snowball into large credit card debt.

Physicians should keep at least 3 months of expenses in cash or put funds into certificates of deposit or brokerage accounts. Most importantly, this money should be easily accessible in the event of an emergency, according to Spath.

In terms of life insurance, Spath said that an ideal plan “should provide an instant retirement nest egg for your spouse,” pay off a mortgage and some other debts and cover college expenses. This amounts to about 25 times a physician’s yearly expenses, or $1 million to $5 million for most physicians.

Term life insurance is preferred over whole life insurance, according to Spath. Term plans can be laddered in order of 30-year, 20-year and 10-year coverage. These plans are usually more cost-efficient and less necessary as a physician grows older and their passive investments and net worth develops.

Spath also recommended that physicians write a will, designate beneficiaries and form a trust with assets in order to avoid probate court, which can be costly.

In terms of disability, physicians should analyze their short- and long-term disability insurance coverage before they require it.

“The thing you need to know about long-term disability insurance is that while employer-sponsored policies are great and are a nice thing to have, individual disability policies are so much better because they are portable and they have better definitions of disability,” Spath said.

She encouraged physicians to review the disability policy from their employer to determine the definition of disability. Ideally, physicians want an “own occupation” coverage policy to receive a disability payment in full. Disability coverage should be acquired as early as possible while physicians are younger and have fewer preexisting conditions.

“Unfortunately, the cost for female disability insurance is much higher than male [insurance],” Spath said.

Slash debt

Speaking from personal experience, Spath described how taking control of debt can reduce a considerable amount of stress.

Regarding student loans, for individuals currently in medical school, she advised against PLUS loans since they are more expensive than other options. Meanwhile, autopay can reduce interest rates by 0.25%.

“Anything that can reduce your interest rate can make a huge impact,” Spath said.

Individuals who can afford standard repayment options have the benefit of federal protections. During the pandemic, the government was able to immediately stop interest rates on loans, which was something the private sector could not do right away.

Physicians working in the not-for-profit sector have access to what Spath called “the holy grail,” when referring to the Public Service Loan Forgiveness program. Those who meet the specific qualifications for the program can have their remaining student loans forgiven after 10 years of qualifying payments and timely submissions of yearly forms.

For physicians in the for-profit sector, numerous income-driven plans are available, including Income-Based Repayment, Pay As You Earn, Revised Pay As Your Earn and Income-Contingent Repayment.

Invest

Wise investments are key to developing passive income that could one day develop enough capital to cover a physician’s yearly expenses, Spath said.

Basic types of investments include stocks, bonds, mutual funds, index funds and exchange-traded funds. Spath said that a physician’s investment portfolio should involve a percentage of bonds equal to his or her age, with the remaining percentage put into stocks. This ratio ensures that the most risk is taken early on in one’s career, while more conservative investments occur closer to retirement, according to Spath.

Although compounding can hurt financial health when applied to loans, it does the reverse when applied to investing, Spath said.

“The actual balance of your accounts is going up in an exponential fashion, and it is going to continue to do this if you give it enough time,” she said. “That’s why it’s so important to start investing now, because time in the market will show you the exponential nature of investing.”

Choosing the right retirement account based on income is another essential component to reaching financial independence. Spath emphasized that an individual can have multiple retirement accounts.

“For example, an individual younger than 50 years working at a not-for-profit institution with a sole proprietorship on the side can have access to a 403(b), a 401(a) (Money Purchase Pension Plan), 457, a solo 401(k), a backdoor Roth IRA, an HAS and maybe even a mega backdoor Roth,” Spath said.

Before any investment decisions are made, physicians should take a moment to picture their ideal life. This goal will guide all decisions going forward.

“What would your ideal day look like, and your month, and your year? Would you want to have a couple of months to travel? What would be your ideal schedule at work? What else would you want to do with your life?” Spath said. “Financial planning is the key to making your ideal life a reality.”

Reference:

Deeper in debt: women and student loans. https://www.aauw.org/resources/research/deeper-in-debt/. Published 2020. Accessed Sept. 28,2021.

Medscape physician compensation report 2021: the recovery begins. https://www.medscape.com/slideshow/2021-compensation-overview-6013761. Published April 16, 2021. Accessed Sept. 28, 2021.