The Physician Philosopher Podcast
How Much Money Should Doctors Save?
One thing we can agree on about today’s topic is this: doctors historically are under-savers.
But when it comes to physician money management, exactly how much doctors should be saving is hotly contested. Lisha and I spent 15 minutes debating our perspectives before we even hit record! So we know you’re going to land with a variety of opinions.
Of course, how much and how you save are going to depend on your own financial goals and your current situation – the status of your student loans, whether you’re married or have kids or plan to start a family, when you want to retire, etc.
So by the end of this episode, we’ll give you two different options for figuring out how much money you should save – regardless of your situation.
Thinking about physician money management in two ways
Most doctors want the ability to retire before the age of 60. And in the traditional space, the idea of saving 10-15% of your gross income isn’t effective in terms of getting to your financial goals by even the age of 65.
For our purposes here, let’s assume doctors are starting out with a saving strategy at the age of 30. That way we allow for the difficulty of saving during training from ages 20 to 30. And let’s say we’re shooting for a goal of retirement at age 55.
We each have a different formula we use as guides for physician money management. There are always some caveats because again, no two situations are exactly alike, but generally speaking, these rules are what we each advise.
Lisha’s rule is that physicians should invest 20% of their gross income. If you’re in primary care or internal medicine, and/or your starting gross income is in the $240k range, 20% is the starting point. Invest 20% while making sure you’re covering your other responsibilities like mortgage, student loans, and saving for your kids’ college fund.
My rule is to use 30% of your income to work on your wealth accumulation rate (WAR), which includes your student loans. If you’re in anesthesia like I am and making a $300-$400k annual salary, 30% should go to paying off debts to increase your net worth.
What we can agree on about physician money management
We agree on the basics that a physician should invest money. We agree that that number should at least be 20%. And you may have noticed that we both didn’t include saving for your kids’ college fund in either of our formulas.
The reason we prioritize retirement over saving for college is because, for example, my kids’ college education in North Carolina increases by about 8% per year. By the time they’re of college age, tuition will be something like $300,000 – $400,000 per child. I’m not saving $1.2M for my three kids, particularly considering the 18 years of school they need before that.
You end up in a situation where you fund your kids’ college and depend on them for your retirement when the truth of the matter is that they can borrow for their education. You can’t borrow for your retirement.
If you don’t prioritize how you retire, how will you live when you’re retired?
Inheritance now versus later
There’s a new concept called ‘dying with zero’ which is essentially saving just enough to break even at the end of your life.
Instead of trying to spend the prime years of your life at the grind just to invest a surplus of money and depleting yourself of life’s joy, the goal is to save just enough to die with zero.
The argument that usually springs from that is, “But I don’t want to die with zero. I want to die with a lot of money to leave to my kids as an inheritance.”
And our rebuttal for that is: “Your kids can use the money when they’re younger.”
Many of us are likely to see our eighties or nineties, which means our kids will probably be in their sixties when we pass away.
If you give your kids money at a younger age, they have more uses for it. By their late twenties, they’re mature enough to handle the money correctly, and they’re facing the most expenses – preparing to get married, have their own kids, fund their education, or put a down payment on a home. Leaving them an inheritance now versus later will have so much more of an impact on the direction of their lives.
And hey, let’s not overlook the ‘inheritance’ of a proper education about money in the first place. If you teach your kids to save young, to fill up a Roth IRA from the age of 18 or 22, they’re going to be so financially far ahead in life that the inheritance that you wanted to give them will probably pale in comparison to what they’ll actually have themselves.
When it comes to investing, sometimes it’s best to keep it simple – and sometimes a little bit of work pays off.
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