The Financial Landscape of Physicians: A Distinctive Profile
Physicians, as a group, possess a unique set of characteristics that set them apart from the average U.S. investor. These differences have significant implications for their financial planning and wealth management strategies. In this article, we will delve into the distinctive features of the financial landscape of physicians and explore how these characteristics impact their investment decisions.
Income and Tax Liability
One of the most striking differences between physicians and the average U.S. investor is their income level. According to the Census Bureau, the median household income in the United States in 2021 was $70,784. In contrast, the median compensation for a primary care physician was $243,000, while specialists earned an average of $346,000. The top eight earning specialties had incomes exceeding $400,000. This enormous income difference has far-reaching consequences for physicians when it comes to tax planning. The average U.S. taxpayer faces an effective federal income tax rate of 12.1 percent, whereas physicians often find themselves in the top federal tax rate bracket (37 percent in 2024). The addition of the net investment income tax of 3.8 percent and potentially state and local taxes further emphasizes the importance of tax-efficient investment strategies for physicians.
Key Points to Consider
• Outside of the April tax season, the financial media generally ignore the subject of taxes, yet it is top-of-mind for most physicians throughout the year. • Performance data for investment funds typically show pre-tax returns, which are less relevant to physicians who face higher tax rates. • Many financial products are designed for investors with lower tax liabilities, which may not be suitable for physicians.
Net Worth
Physicians’ net worth is another critical differentiator. Target date funds, robo advisors, and online financial planning software may be sufficient for the average investor, but these tools lack the sophistication to handle the complex circumstances of high-net-worth physicians. Physicians may own interests in real estate, such as surgery centers or office buildings, or have secondary income streams from speaking engagements or consulting.
Key Points to Consider
• Physicians may own non-traditional assets, such as real estate or businesses, which require specialized investment strategies. • Traditional financial planning tools and products may not be equipped to handle the complexities of a physician’s situation. • A comprehensive financial plan should integrate the physician’s non-traditional situation into a risk-managed investment strategy.
Amount of Free Time
Physicians’ time is a scarce resource. The Bureau of Labor Statistics reports that the average nonfarm workweek in the United States was 34.4 hours. In contrast, the American Medical Association found that fewer than 15 percent of physicians worked less than 40 hours per week.
Key Points to Consider
• Physicians have limited time to devote to financial planning and investment management. • The time required to manage investments, research, and tax planning can be substantial. • Physicians must prioritize their time effectively to ensure they are allocating it to the most critical tasks.
The Highest and Best Use of Time
For physicians with limited time, the question arises whether investing is a worthwhile use of their time. While some physicians may enjoy researching investments, the most critical question is whether they should devote their time to investing at all.
Key Points to Consider
• Physicians should assess whether their time would be better spent on other activities, such as treating patients or building their practice. • The opportunity cost of investing time in managing investments can be substantial. • Physicians should consider outsourcing investment management to a professional advisor.
Takeaway
In conclusion, physicians’ financial landscape is characterized by distinct differences in income, tax liability, net worth, and time availability. These differences have significant implications for their investment decisions and require a tailored approach to financial planning and wealth management. By understanding these differences, physicians can make informed decisions about their financial future and work with their team of financial advisors to achieve their goals.
Expert Insights
David B. Mandell, attorney, wealth manager, author, and principal at OJM Group, LLC, shares his expertise on the financial landscape of physicians.
About David B. Mandell
David B. Mandell is an experienced wealth manager with a deep understanding of the financial needs of physicians. He is a principal at OJM Group, LLC, and the founder of The Law Office of David B. Mandell, PC. David has spoken at major national medical meetings and holds a degree from Harvard University, as well as an MBA from UCLA Anderson.
Conclusion
In conclusion, the financial landscape of physicians is a complex and distinctive profile that requires a tailored approach to financial planning and wealth management. By understanding the differences in income, tax liability, net worth, and time availability, physicians can make informed decisions about their financial future and work with their team of financial advisors to achieve their goals.
