Physician Finances: Dr. and Dr. Smith’s Financial Journey
Current State of Finances
Dr. John and Dr. Emily Smith are a married couple, both working as physicians in their mid-30s, earning a combined W-2 and 1099 income of $680,000 annually. Despite their substantial earnings, they are feeling the weight of their financial obligations. Mainly they don’t know what to prioritize and how everything should be organized especially with all of the new accounts they have access to (403(b), 401(k), 401(a), 457, old employer and IRA accounts).
They live in a beautiful four-bedroom house in a high-cost of living area, valued at $800,000, with a remaining mortgage of $700,000 at a 4% interest rate. They’d love to own a vacation home in the next 10 years.
The Smiths have two children, aged 5 and 7, for whom they’ve started a college savings plan, currently holding $40,000. Their goal is to fully fund their children’s education, estimated to be $200,000 each by the time they attend college. Additionally, they have outstanding student loans totaling $300,000 at a 6% interest rate. Emily will likely be eligible for PSLF so this will reduce some of the burden in 4 more years.
Their monthly expenses, including mortgage, loans, utilities, insurance, and living costs, amount to approximately $15,000. Money continues to stack up each month and they’ve managed to save $150,000 in a joint savings account and have $200,000 in retirement funds. However, they lack investments outside of retirement and savings accounts and have no clear strategy for debt management, cash deployment, or retirement planning.
Financial Advisor Insights: What are we thinking about?
Tax Efficiency
What accounts do they have access to and how much should they be contributing? Emily will likely have access to a 457 plan while John could work with his private practice on different investment options. In addition, they need to start saving in a brokerage account which increases complexity around saving, but will offer them more liquid savings and opportunities for tax efficiency through asset location strategies.
Strategy
Strategy: The Smiths are falling into the trap of cash just being built up in a checking/savings account because it doesn’t have a job. There is no strategy. Cash without a job gets lazy and prefers either not to move or be spent on things that don’t increase financial security. Implementing a strategic financial plan could significantly improve the Smiths’ financial health and future. We need to break down their financial goals from retirement, renovations, and college funds to an easily manageable strategy i.e. “Save $XXX each month in your brokerage account and allocate it to these 4 funds…”
Protection
Protection: Money is coming in and net worth is growing. Do they have the right amount of life, disability, and liability insurance? How does their estate plan look? Are they implementing steps to protect their personal data and growing wealth?
What’s Next?
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