The financial planning principles that make up an employer’s benefits package simply are not a part of the education or training that you have received.
However, these items will be a vital part of your contract and may be discussed in-person by your potential employer. It’s important that you arrive to your interviews or negotiations with a basic understanding of the following terms so you can fully evaluate opportunities from a financial perspective.
Retirement savings plans
When it comes to retirement planning, a young physician’s best ally is time.
As you come out of residency, you may have a 30- to 40-year timeline before retirement, so take advantage of any employer-offered plan and supplement that plan according to your needs or goals.
The most common retirement plans among employers are 401(k)s and 403(b)s. For 2015, an employee can make a maximum contribution of $18,000. Those over age 50 can make an additional catch-up contribution of $6,000.
Find out when you are eligible to participate. If you need to fulfill one year of employment before becoming eligible, you may consider doing some type of retirement planning on your own that first year. Some employers may match your contributions into these plans while others may make no contribution at all.
These are details for which you need answers. If your prospective employer does contribute, ask if a vesting schedule and terms exist for you to see.
Most importantly, be proactive in your retirement planning and take advantage of any employer benefits.
Young physicians should give disability insurance extra scrutiny. Not only does it protect the investment and sacrifices you’ve already made, but it also protects your future income potential.
Many employers will offer some variation of short- and long-term disability. Will your employer pay the premiums? Find out when your coverage starts and what elimination period you must fulfill. Ask what triggers a benefit and the amount paid for a monthly benefit. To what age is the benefit payable? Do they also include “own occupation” language? Many employers offer group policies that may not include this language. Investigate to see if these policies would fulfill your “risk” need. Alone, these policies may not be sufficient, and a supplemental policy may be necessary. Calculate your needs and do what is best for you and your family.
In most cases, term insurance is the best recommendation for young physicians. It is inexpensive and can be purchased for a specific term (such as a 30-year term policy). This makes term insurance ideal for covering debt such as mortgages or business loans. Your employer may offer life insurance that is one or two times your salary, or instead offer a flat amount. More than likely, this may not be adequate coverage for you and your family. Before purchasing supplemental life insurance through your employer, shop rates with other companies for the most cost-efficient policy. Also ensure that beneficiaries can be named for any employer-paid life insurance policy.
If you remain unsure about the packages or policies offered by an employer and whether they meet your needs at this stage of your career, or wonder if you should consider the procurement of additional coverage, seek the opinion of a licensed financial advisor with experience in working with other physicians.
James McNaughton is a partner at Siouxland Investment Group, LLP and Financial Advisor for Premier Physician Agency, LLC, a national consulting firm specializing in physician job search and contracts.
(Disclosure: James McNaughton is a registered representative and registered investment adviser representative of SWS Financial Services, Inc., a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Views and opinions expressed herein are soley the author’s, and SWS Financial Services, a member of FINRA and SIPC and a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH), with headquarters at 1201 Elm St., Ste 3500, Dallas, TX 75270 (214-859-1800). Premier Physician Agency, LLC is not affiliated with SWS Financial Services, Inc.)