It happens in late fall and accelerates into spring: Graduating residents start to stress about the move into practice. Not the medical or professional transition; that is relatively easy. The stress starts with the EMRA Job & Fellowship Fair, progresses through opportunity and contract negotiation, and continues through the transition into practice. How much house can we afford? How much should we contribute to retirement? Do we need this supplemental insurance? What do all of these retirement booklets mean? You need a framework for making informed, effective, and confident decisions.
There is a logical progression of decisions that need to be made, and they start with confirming your new practice. Until you know what that looks like in terms of location, type of practice, compensation, and benefits, it is difficult to plan the transition. Here are some guidelines for mapping this out, particularly for those attending ACEP15 and the EMRA Job & Fellowship Fair:
- Independent Contractor (IC). As an IC, you will have significant flexibility, as well as the responsibility of being self-employed. You need to understand self-employment income, be able to structure your business and personal expenses so that they can easily be identified, set up an additional account to maintain tax payments, and plan a forward-looking budget. Based on your hourly rate and expected shifts, determine your gross monthly income; develop a ratio that includes three things: 1. Taxes; 2. Retirement Contributions; 3. Excess. This will enable you to be well-organized and to make prudent use of your earnings. It is often more effective to hire someone to provide this guidance.
- Private or Democratic Group. Consider that you will commonly work 1-3 years as an employee before making partner and becoming self-employed. During the employee period, you will likely have fixed income, minimal business expenses, a limited ability to contribute to retirement, and you will not have to think like a businessperson. Your budget should be well-defined. As you transition into a partner role, it is often beneficial to have an accountant, attorney, and other financial advisers guide you in navigating the changes in taxation, retirement eligibility, medical benefit limitations, and other concerns.
- Hospital Employee. A W-2 employment position with a hospital provides financial stability, diverse resources, and often competitive scheduling. In exchange for security in these areas, employees typically do not earn as much as private practitioners, and they have less flexibility in designating money to retirement and other important programs. For many, a significant advantage of hospital work is the ability to do research, train residents, and be involved in the collaborative, educational side of medicine.
It is important to articulate what you want to accomplish and when. A common set of goals are:
- Buy a new home within the next 12 months
- Pay down student loans aggressively
- Develop sufficient retirement income beginning at a defined age
- Put your children through four years of undergraduate education
- Minimize income taxes
- Eat, live, and enjoy a reasonable standard of living
With a set of goals and some numbers, it comes down to developing an actual plan. This is equivalent to putting together a financial puzzle: setting up bank accounts, obtaining insurance, starting investment programs, developing a portfolio, etc. These are all pieces that need to be identified and fit into your plan, based on your timeline and objectives.
The rubber meets the road when you confirm your objectives and have specific next steps to take. The greatest plans fall victim to inaction when they are in the hands of the wrong people. Identify the goals, agree on the steps to get there, and delegate the implementation to someone who can and will get it done.
The Confident Transition Plan
Literally thousands of residents have benefited from financial direction at the transition between training and practice. Appropriate direction can enable you to reduce debt faster, build wealth more rapidly, have confidence, and enjoy the freedom and flexibility that you have worked so incredibly hard to attain.
Shayne Ruffing, CLU, ChFC, AEP is the creator of the Confident Transition Plan™ for medical residents, the Physician Disability Income Analyzer™ and the Physician's Financial Navigator™. Shayne is the Managing Director of Integrated WealthCare, Collaborative Wealth Management for the medical community. He can be reached at 866.694.6292, or via e-mail at firstname.lastname@example.org or www.iwcglobal.net.
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