Practical Advice About Money in Residency
Background: I went straight through with my education and while I’ve learned about science, humanities, and medicine; one topic that was rarely addressed for its importance was finance.
We are trained to be physicians, but we do not often get training in financial wellness.
This is especially true for the question of how to achieve financial wellness when you have close to nothing to begin with or if you are starting with a large net negative as most interns are.
In my experience, I felt like a lot of the information available is about “wealth management” which is not where most interns start—and let’s face it, money matters.
I’ve compiled a list of suggestions for saving money as a resident and “setting yourself up” for financial success. These are based on my personal experience, lectures I’ve attended, independent reading/research, and conversations with financial specialists. While these are my recommendations, everyone's situation is unique. Balance what your gut is telling you with sound financial advice and go from there. I sincerely hope this will be useful to you as you begin your career as a physician.
Full disclosure: I am still a resident as I write this. I’ve written this piece in very simple terms for those who are new to the concepts and cringe at finance vocabulary like I used to. My suggestions are mostly specific to unmarried female residents, and I acknowledge that I am not including family support or children as part of my advice. This topic would be a great addition in the future.
1. DISABILITY INSURANCE:
Short Term Disability: Your residency program or hospital will likely offer affordable short-term disability insurance that can be deducted from your paycheck. This can be used if you have some kind of illness or surgery that takes you out of work for a brief period of time. These policies do not cover you if you have a long-term medical issue or disability that arises. If provided at no or truly minimal cost by your institution, then it might be reasonable to consider (ballpark cost: $20 or less per month). In general, insurance is meant to protect you in the case of major/catastrophic losses. Short term disability coverage is not for one of those situations and usually is not cost-effective for purchase on an individual basis. Your personal emergency fund should provide the necessary buffer in these situations.
Long Term Disability: Long-term disability insurance is critical and you should consider independently applying for and purchasing a plan even if your program has some small policy or coverage.
There’s no surprise in knowing that there is an inequality in pricing for male versus female physicians, favoring males.
Mass Mutual is the last insurer to offer unisex (“equal-gender”) pricing. Mass Mutual was planning on ending unisex pricing by the end of the calendar year 2019. However, as of mid-2020, there are still a few states (NY and some others) that have required a continuation of equal-gender pricing, at least for now. This can save you thousands of dollars over time if you can secure your policy while equal-gender pricing is still available.
You may be young and healthy now, but that is why this is the perfect time to get started and get a good rate. Please note that many insurers will have physical or health reviews as part of your application. The last thing you want to do is try to apply for insurance after you have had a setback, serious or not. I’ve heard stories about residents who have suffered injuries outside of work that prevent them from being able to perform within their specialty and others who have developed debilitating chronic conditions and have had to forgo the remainder of their medical careers. Unfortunately, no one is immune to change.
In the interview/application process you will need to provide your current monthly income and answer questions about risk-taking habits and medical history. Any prescriptions you have received in the last couple of years are visible to the company and might be speculated about.
Of note, mental health diagnoses are factored into this and unfortunately, there may be riders placed on your contracts excluding coverage of your disability policy due to mental illness in some cases. This is yet another reason to obtain a policy early. Residency is stressful and you deserve the ability to speak to a mental health professional if you need it without fear of this harming your future career safety nets.
Your disability insurance should be specific to your specialty and exactly what you do. For example, as an Obstetrics & Gynecology resident I had to specifically include the obstetrics and the gynecologic surgery components of my job so that if I were unable to operate or perform that specific role due to a medical condition in the future, the earnings of that part of my career could in part be covered. You also have to define if disability to you means being unable to work full-time versus part-time, etc. It may sound trivial, but this is important because without those specifics, theoretically, an insurer could deem you might be able to ‘practice medicine’ to a different extent (e.g. general practice or office-only practice), which may result in you receiving only the difference between the reduced earning potential and your previous salary. The cost of coverage varies per specialty for a number of factors.
Critically important are the concepts that when you purchase a disability policy on your own, you own that policy individually, it is portable and you take it with you to any future jobs, and you do not have to re-qualify medically in the future to continue the policy. In addition, when the disability benefits come from a policy that is provided by your institution, any policy benefits are considered as income and are subject to personal income tax. On the other hand, if you buy/own the policy individually, any disability benefits you might receive are tax-free.
Usually, a combination of employer-provided long term disability and a self-purchased individual policy at a low amount ($4,000-5,000 benefit/month) is the optimal plan for training residents. The amount can be increased in the future as income and needs rise, but if you can lock in this policy early in training, you are virtually guaranteed to have this policy for as long as you need it in your career. It would then not be subject to premium changes or cancellation based on subsequent medical issues that might arise.
Some insurance brokers may be approved as reputable groups by the GME offices at your institution and could reach out to you, saving you from having to search for one. If the GME office does not offer a list, you can always inquire with more senior residents who may have explored local options. Please note though, that these individuals might not have your best interest in mind. You should only purchase this kind of insurance from an independent agent who has access to multiple products from multiple sources.
A perk of this process is that often these companies will host dinners at local restaurants to educate trainees about the process and their services (obviously they want your business). Enjoy the night out on the town and take notes.
If you wait to get this later in residency or as an attending you may face a more expensive rate for the same plan. Ballpark cost per month could be somewhere between $100-200 for an Ob/Gyn intern.
Here is a great summary for more details about purchasing disability insurance (https://www.kevinmd.com/blog/2019/06/9-things-i-learned-when-purchasing-disability-insurance.html).
Take home point: Long term disability insurance is the most critical insurance to protect your most important asset, which is your ability to generate future earnings. It seems particularly expensive during your training, and will likely cost in the ballpark of $1500-$2500 per year. However, I view this as one of the most important concepts to get right and to get right early on, in an appropriate financial plan.
2. LIFE INSURANCE: Life insurance is critically important only if you have others who depend upon your income. If you are single and without dependents, you simply do not need life insurance at this time. If you have someone else who depends upon your income for their livelihood or for their future, then life insurance is critically important.
Fortunately, life insurance is relatively inexpensive. Almost without exception, term life insurance is the only life-insurance you should consider. Anyone who tries to sell you a universal life insurance policy or whole life policy should be avoided. As with disability insurance, you should only purchase term life insurance from an independent agent, one who has access to multiple products from multiple sources.
Take-Home Point: You only need life insurance right now if you have dependents.
3. RETIREMENT: It is hard to think about retirement when you’re still in training and just starting to earn a reliable income for the first time in many cases. Consider retirement savings each month as a gift from your ‘current-self’ to your ‘future-self’ and pat yourself on the back. You’ll thank yourself later.
Retirement seems far off, but the younger you are when you start to contribute toward it, the more you will be able to gain in the long-run.
“Compound Interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”― Albert Einstein. Compounding interest was a new concept for me as an MS4. Basically, it means you put in x-dollars and it will likely make x-percent each year. Over time, this grows exponentially because you are making x-percent on the whole of what is in the account each year (including the past interest or earnings you’ve made from having the account). Here is a link explaining this visually: https://www.fool.com/knowledge-center/compound-interest.aspx. Start saving for retirement ASAP. You will be able to put in less and get out more if you have money in the account earlier.
Start a 401K or 403B through your hospital or employer. These plans are painstakingly monitored by career financial professionals hired by your employer and you can trust their knowledge to grow your account. Try to contribute what you reasonably can— again, compounding interest. I started residency by putting away $250 from my paycheck directly to my retirement account per month. It gained just over 20% in my 3rd year of residency!
Retirement Matching: Many employers will match your contributions up to a particular amount or percentage of your contribution. Unfortunately, a significant number of residency programs don’t. At a minimum, you should contribute an amount sufficient to capture the maximal match from your employer. This is free money and you should always try to max out this benefit. It may take some work to find out if and how much your employer matches, but it is worth it.
Open a Roth IRA as soon as possible and max out your contributions for as many years as possible in residency. Basically this is non-tax deductible money that you put into a retirement account where your earnings grow tax-free and can be accessed at the young age of 59 ½ years, tax-free.
Roth IRAs are a secure way to grow this money and the benefit is only available to you for a short time because there is a limit on how much you can earn each year in order to be eligible for a Roth.
You won’t be able to contribute to this as an attending given that your salary will most likely exceed the eligibility criteria.
You can set it up on your own fairly easily. I did it through Vanguard in a few minutes and have it directly transfer a set sum from my checking account each month after I get paid. Of course, there are other companies that offer Roth IRAs. Also check to see if it is offered in conjunction with your employer’s account.
Side note: Phone apps are easily accessible tools to keep track of these accounts, auto-pay recurring bills, and make transfers. You can check in on your phone while waiting for a case to start or riding the elevator. That said, if you don’t notice the money, you won’t miss it.
Take-Home Point: You’re just starting your career as a physician, but start taking care of your future-self. She will thank you! There are tax-free and taxed ways to do this. Some will only be available to you as a trainee.
4. STUDENT LOANS: These are one of the biggest pain-points for physicians at all stages of their training and careers. While you are in training, apply for income-based loan repayment wherever you can (private lenders are unlikely to offer this, but the federal loans will). Some may argue to live restrictively and pay off your educational debt as fast as possible in order to avoid collecting interest.
This part really depends on your financial situation. If you’re starting from the bottom, like I did, I would recommend paying as little as you can now, so you can start putting money away for retirement. This will get you more bang for your buck in the long-run due to the magic of compounding interest and have you take advantage of the Roth. Yes, your educational debt will collect interest, but it will be easier to smash away at it after residency.
Remember that there are great loan repayment options like the National Health Service Corps and some employers help too! It’ll be easier to pay this king of a bill later in big chunks- residency is hard enough.
More about income-based repayment: https://studentaid.gov/manage-loans/repayment/plans/income-driven
Take-Home Point: Take advantage of income-based repayment options while in training. Consider loan-repayment or negotiate for it when seeking your first job.
5. INVESTING/STOCKS: When I was in medical school, my amazing dentist used to lecture me during every appointment about the stock market and introduced me to following the market. What can I say, I was a captive audience in the chair! His lessons were invaluable and while he explained everything very well, it still seemed daunting because of how quickly things ebb and flow. Also, as a resident, I barely have the bandwidth to keep up with my personal life most of the time, nevermind the ever changing business world. I am still not an expert in stocks/investing, but I’ve dabbled in some of the basics.
A great place to begin is an app like Acorns or Robinhood. You can start small, cut out the physical middleman and formalities/calls/emails, and DIY. You can follow small investments to get a feel for things before contributing greater sums. For quick returns on investment, consider starting an Acorns account to help make some side money to pay for travel or necessities.
Take-Home Point: You likely can afford small stocks to make money and use a simple app to get started.
6. TREAT YO’SELF: It’s okay to spend money on your comfort and some ‘wants’. Residency is hard! A massage every once in a while, those Lululemon tights you loved, an online gym membership, or occasional dinner out are totally reasonable; just in moderation.
There are also ways to save money on these things that otherwise might be a splurge.
Exercise: There are great free apps for exercise ideas, such as FitOn (https://fitonapp.com/). PopSugar (https://www.popsugar.com/Workouts) and YouTube also have tons of options. Make a playlist before you delve into residency so you can quickly reference workouts you like and have the tools for.