10 Tips for Orthopedic Surgeons

In this video, we explore the financial journey of orthopedic surgeons, offering ten essential tips for long-term success. Becoming an orthopedic surgeon is a demanding process, so it’s important not to stress about money during med school and residency. Focus on your education and avoid unnecessary debt. Protect your earning capacity with disability insurance, manage student loans wisely through forgiveness programs or refinancing, and maximize employer matching contributions to your 401k or 403b for free money. Consider using a Roth IRA for your emergency fund to benefit from tax-free growth and easy access to your contributions. Renting during residency provides flexibility and reduces the stress of homeownership.

As you transition to an attending physician, learn to negotiate your contracts to optimize your earnings. Keep housing and car expenses within recommended limits for financial stability. Maximize contributions to asset-protected accounts and understand your state’s protections. Working with a financial planner can help balance living a fulfilling life today while planning for a secure future.

Video Transcript

Today’s video, we’re going to talk about ten tips. If you’re an orthopedic surgeon going through all of the stages that you have to, it’s a long journey, but well worth it on the back end. Years ago, we worked with a lot of residents and we found a lot of stresses and a lot of important decisions that can be made to set you up for success. So the first tip I have is don’t stress about money while you’re going through med school, while you’re going through residency, but educate yourself as much as possible because once you make certain decisions like house, cars, et cetera, it’s really hard to go back on those.

 

So the first thing, just to illustrate this, if you have a friend that, let’s just say hypothetically, graduates at the age of not graduates, but really starts making a decent amount of money at age 25 versus you know, you have to go through four years of undergrad just like your friends, and then four years of med school and then five years of residency minimum, and then maybe one or two or three more if you want to specialize, you have to go through a fellowship as well. So let’s just say hypothetically, that minimum you’re starting at age 35 instead of 25. Well, you just missed probably ten years of money you could have been saving if you had gone out of the workforce.

 

As a resident, you’re going to make something, but probably not if you started a family at this point, probably not enough to put a large sum of money away on a monthly basis. So just to illustrate this, the lifestyle that you’ll need to. That you’ll become accustomed to, typically you’ll need a minimum of $6 million in future value, 6 million when you’re 65 will be the same as one and a half to 2 million today with inflation. I’m just saying that just for illustrative purposes, you may need a little bit less than that. You may need way more than that if you’re lifestyle is higher. So if you’re 25, what you need to save till 65 just on a flat basis, assuming you get a 7% rate of return, is 22 86 per month, fast forward 40 years and you’ve got your $6 million.

 

Now for you during, you know, the four years of med school, five years of residency, one year of fellowship, which hypothetically there’s ten years you’re not starting till 35. Well, you need to save 4918 a month at a minimum to get to the same $6 million as your friend. So you need to save almost double now you’re saving for this person, saving for 40 years. You’re saving for 30 years. So even though it’s just you’ve missed 25% of your time because of compounding interest in the way that works, you need to save double what your friends do, even though you’re saving just for 25% less amount of time. So that’s tip number one is don’t stress about missing those ten years because those ten years, you’re not going to be able to get those back.

 

And so you should be focusing on your residency, your training, your family. If you started a family, don’t worry about saving a dollar here or there, but also avoid getting out of debt, getting into debt further than your med school loans. Try to stay out of any kind of credit cards, personal line of credits, etcetera, if you can. But know you will have the earning capacity in the future to catch up rather easily. So that brings us to tip number two. Tip number two is protect your earning capacity. How you do this is very simple as disability insurance. So a lot of times residents can get special deals through companies. If you’re at a hospital doing residency, most likely they have discounts set up. You lock this in at a discount, you’ll carry that discount with you for the rest of your life.

 

Most of the time, you can pick up between like 5000 to 10,000 a month of coverage. That would kick in after 91 days. It would pay you till 65. So, you know, essentially you’re protecting at least minimum of, let’s say three to $6 million. And this is tax free income if you pay for this. So if you’ve made the investment in yourself to go to school for this amount of years, probably picked up amount of school loans. School loans, if they’re federal, are forgiven. If you die, they’re not forgiven if you become disabled. This is how I’d prioritize. Spend the $150 to $250 a month and pick this up. No brainer. If you have a family, also pick up some term life insurance.

 

Under no scenario during residency you should you be sold any kind of permanent life insurance when you’re trying to manage everything else. So if a salesperson comes in, tries to send you, sell you like a permanent life insurance policy, and tells you to put any substantial amount of money into a life insurance client. That’s not term I’d run. Run as fast as you can. The opposite direction. All right, so that brings us to tip number three. If you have school loans, have a philosophy on how you’re going to manage your school loans. So we have basically scenario a and scenario b. Scenario a is, you know, we forget about these. Let’s say you have five years of residency, one year of fellowship, let’s say hypothetically. So if you do a public student loan forgiveness program, you can come out with four years left.

 

And then let’s say you start hitting $500,000 a year of income under the Save program, similar to, you know, what was revised, pays you earn, but improved, you know, if you’re married and you can, you know, take a sniper shot basically on your income, file taxes separately. Not to get too much in the weeds, but let’s just say hypothetically that you have like $400,000 of school loans. You’ll be able to pay, you know, $200 to $400 a month on those during the save program. Get some of the interest forgiveness along the way. Come out, you have four years left. You’re going to pay, you know, let’s say between 2000 to 4000 a month. And at that point, you’ll have almost the majority of your loan balance forgiven if you stay in a non for profit. Now, that’s a huge if.

 

Now, if, even if you don’t go to a non for profit, we have a lot of clients that use this as a negotiating tact. If they’re going to private practice, they listen, I have this school loans. I can accept a $500,000 job at this big academic institution that’s going to be similar to earning 700,000 with you. Because if I stay here four years, my loans get forgiven. If I come to you, my loans don’t get forgiven. So use it as a negotiation tactic. The other option. And so if you kept federal loans, especially last couple years, with all the COVID relief, it was a no brainer. But the other option, there are some service providers. If you know for certain you’re going to private practice, maybe you’re joining your dad or your mom that has a private practice already.

 

You could refinance. There’s a couple options out there where they’ll give you $100 a month or even zero payments during residency and you can lock in a lower interest rate. And then you come out, and then those real payments begin at whatever term that you choose, 510, 15 years, etcetera. But regardless, have a philosophy, have a plan in place with your school loans. Because, you know, I’ve counted up, we’ve had over $50 million of school loans forgiven in the last couple of years with clients that we helped ten years ago set up this public student loan forgiveness stuff, it works well. Put money aside to back it up as well.

 

If the loans don’t get forgiven, you can go to bed at night, sleep well, knowing that what you would have paid, in many ways, you have set aside in a conservative, diversified investment account. At any point, you can take that if you wanted to and knock down the balance that you would have paid anyway. So definitely have a clear game plan around school loans. That includes are you keeping them federal? Are you refinancing? That’s decision one. Number one, decision two, are you making payments during residency and fellowship, or are you not making payments? If you’re not? Make sure that you are going through the steps of going through forbearance so your credit score doesn’t get hit. And then make sure you protect those, obviously, the disability insurance, that was tip number two.

 

And then if you are married or getting married, the tax filing decisions are going to be crucial, which are going to determine what payment structure is best for you if you are on that federal plan, income based plan, such as a saved plan, income based repayment, etcetera. All right, so that’s tip number three is the have a very clear roadmap around school loans. Work with a financial advisor that’s well versed in how to handle school loans during residency, during fellowship, and thereafter. Fourth tip. Fourth tip is if carry your. If money is tight, carry your emergency fund inside of a Roth IRA. So the way the Roth IRA works, you can put in 7000 a year. And assuming you’re single, you’re a resident, you know you’re making, let’s say, $70,000, you’re eligible to directly fund a Roth IRA.

 

Now, if you fund a Roth IRA, let’s just say hypothetically, every year during residency and thereafter, all that money for you is asset protected. In most states, if you get sued, it’s tax free growth. And then once you turn 59, half it’s tax free out. Now, what most people don’t know is you can take your basis out if you need it. So if you put, let’s say, scenario a and scenario b again, scenario a, someone puts $7,000 in a bank account. They use it. Great. Scenario b, someone put $7,000 in a Roth IRA, but this is all they have safe. So the inside the Roth IRA, let’s just say we leave it in a money market account right now, even paying 5%, well, you can always take your basis out tax free and penalty free. There’s no 10% penalty, there’s no taxes.

 

The money you put in on after tax basis. If an emergency occurs, you can take it right back out without repercussion. Not the case if you’re finding a backdoor Roth Ira. If you’re married to a high income earning spouse that’s already out of training and as attending. But why not keep your emergency fund, a Roth IRA? That way, if you don’t need it every year, it’s a one time limit. And if you miss that for life. So if you can, anything, you hold an emergency fund. My recommendation, keep that in a Roth IRA. If you are of an emergency fund, then obviously fund the Roth IRA and invest it in diversified index funds. Okay, so that’s tip number four, tip number five. And these are not in order of importance now. Cause I would put tip number five before.

 

Tip number four is make sure you get the free money inside of your 401k or 403 b. So most hospitals as a residency, you know, if you put in, let’s just say 6%, they’ll put in 3%. If you put in 5%, they’ll put in 4%. This is free money. It’s tax deferred money. You can also elect what you put in a Roth 401K. What, they’ll match you as a pre tax 401k. This is free money. So literally, even if an emergency happens and you need to take the money out after your training is over and pay a tax and a 10% penalty, you’re doing that and you lose half that money, it’s still half of the money that they gave you is still free money. So you’re not going to get a better rate of return anywhere. Your school loans are 7%.

 

I don’t care. This is a lot of times a 50% or even 100% return on your money just by getting the free match. Don’t leave that on the table. Fund it at all cost. Yeah. Enough said. Okay, so, tip number six. During residency or fellowship, I recommend rent. Don’t buy. And there’s, I’ve created many resources on this, the break evens. Obviously, you could get lucky. And buying a hotspot, there are going to be closing costs when you sell your house. There is not a lot of equity you’re going to build in that house. Initially on, early on, you’re paying interest, taxes, et cetera, and the market could turn as well. Also, with the house, you’re going to be working 78 hours, weeks.

 

If something goes wrong, that’s not a sufficient, that’s not an efficient use of your time is, you know, educating yourself, going through all the mentors, all the, you know, the journal clubs you have, networking, etcetera, figuring out how your contracts are going to work financially, educating yourself, fixing a wall or something that happens with a plumbing is not a good use of your time during residency when you’re making 50, 60, 70,000 because you’re going to be making five or $600,000 after a little bit of equity. Even if you get lucky and buying a hotspot and you come out with a 2025, even 100 grand of equity in their lifetime returns is going to be irrelevant to you.

 

So protect your time and allow all of your mental energy to focus on your career path that you’ve chosen, which is one of the most stressful but rewarding career paths. And I would rent where all those worries are off the table. So if you have a family, if your dogs, if you can’t rent, I get it. Sometimes you have to buy. Just make sure no matter what you do, you follow two rules. One is don’t spend more than 30% of your net income in rent or in total housing costs. So if you buy, that would be your mortgage, principal, interest, taxes, insurance, plus utilities. So if your paycheck is 3000 a month, your spouse’s paycheck is 3000 a month, together, that’s six. You know, try to keep it. 1800 a month would be the number. Obviously, in a lot of cities that’s not possible.

 

So you have to be very aware of this because this is why. The number one reason you’re going to feel poor in residency and fellowship or even after as an attending, is if you go above those numbers. And again, I realize in some cities, more than half or even 60 or 70% of your paychecks and have to go to a rent. If you’re in New York City, I get it, there’s no way around that. But in general, we do recommend renting during residency to provide the flexibility. Typically, it’s a minimum of a seven year break even anyways, if you buy and you’re not going to be there unless you take a job after, there is an attending to see that break even. Alright, so that’s tip number six. Tip number seven.

 

As a when you’re transitioning from a fellow resident or fellow to an attending, you have to learn how to negotiate your contract. Here, I have data. This data is for orthopedic surgery, just general for three to seven years out. Average comp to RVU is $86 per RVU. The bottom 25% is 63, 75th percentile is 87 and the 90 percentile is 107. To get in the 90th percentile, you need to be doing almost 17,000 rvus. Median rv use is 80 518. So pulling off this MGMA data, median ortho after three years is doing 8500 rvus and the median comp per RV is 70. So what does this mean?

 

So this means if you’re evaluating two job offers, job offer a, let’s say hypothetically, is offering you $500,000 base, 50 based upon $50 per RVU, and then they’re going to pay you $40 per RVU after that. Versus scenario b, they offer you a $400,000 base with 80 per RVU and then 80 per RVU if you hit that target. I’ve seen a lot of people would say it’s a no brainer when we take the 500,000. That’s extra hundred thousand dollars. But the reality is, if you become very productive here, at a minimum, you have to hit 10,000 rvus, which is above the industry data, to be very hard for you to do that your first year here, you only have to work half, so 5000 rvus to hit your target.

 

And then if you do hit 10,000, you’re going to bonus on anything above the five. So an extra five times 80 would equal an extra $400,000. So if you do the same productivity as scenario a to scenario b, you make $800,000 instead of $500,000. So don’t go after the high base. Make sure you understand how you’re compensated. Is RVU based? If it is, make sure you get the numbers right. This could be millions of dollars in your pocket versus the hospital pocket. Tip number eight, you become the average of the five people you surround yourself with. Most likely you’re still going to be working 60, 70, 80 hours a week in your first couple years as an attending. So you have to be extra careful with lifestyle decisions. House, let’s say you’re making $600,000. After taxes, you’re making about $27,000 a month.

 

Your housing payment cannot be above 30% of that, so that means 8100 a month. Well, with today’s interest rate environments, depending on your down payment, that probably means a million dollar house. All your friends probably have a $2 million house. Don’t do it. You could afford it if you want all your money going there. But if you want to retire, become financially independent, say, for your kids college, have flexibility to travel, have low stress on a month to month basis, stay within 30% of your take home or the two x rule. Don’t go above two x of your income. So don’t buy a house more than 1.2 million. Bigger the house, the higher the taxes are. The bigger the house, the higher the insurance costs are. Bigger the house, the higher the maintenance costs are as well. So these are scalable rules.

 

If you make a million dollars a year gross, don’t buy above 2 million. If you make half a million dollar gross, don’t buy above 1 million, etcetera. Don’t spend more than 10% of your net take home pay in car payments. That means in this example, you’re taking them 27 a month or 27,000 a month. You and your spouse should not have car payments more than $2700 a month. Could you afford more? Yes. Could you afford more and have low stress? No. You are taking away from the balance of making sure you’re financially independent and living your best life today. This is a balancing act. These rules are not rigid. Save everything for the future. They are. Hey, you are ten years late to the game and saving. You want to fund your kids college, you want to have financial independence.

 

Follow these rules and you will feel low stress. You’ll feel like you actually have a lifestyle today and you’re also respecting your future. It’s a good rule of thumb if you want a balanced financial plan and a balanced life. Tip number nine, asset protection based state by state, max out all your accounts that are asset protected. 401k. You can put up to 69,000 per year in 2024 and what’s called a 415 c limit. Most people think they can just put in their elective deferral. You can go way above that with after tax. Mega backdoor Roth will understand that all 69,000 a year between you, the after tax and the employer match. It’s all asset protected. Iras in most states are protected. Backdoor Roth iras are asset protected. If you have a state that recognizes joint tenancy by entirety.

 

If you’re married, that’s generally asset protected. 529s are asset protected. If you’re married, you can do what’s called a spousal life access trust. That’ll after the look back period of a couple years, three years, that will also be asset protected. So just make sure that you’re storing money in a place that’s asset protected. Unless you’re in Texas, most states don’t have that big of a protection on your primary home, so that’s something to be careful as well. Tip number ten have if you work with a financial planner do it for the right reason? Yes, there’s index and chilling. That’s easy. What I can find is that in general, physicians have lots of regret looking back in life.

 

They either under accumulate because they live a high lifestyle now, which forces them to work forever because they have to literally to support the lifestyle and then other selves. I still had to do it. Yourselfers literally save everything. Maybe they could retire at 50, but then all they know their entire identity is in their work and then they continue working. They’re accumulating. For what reasons? They can’t tell me the answer. Having a good financial planner is just a good let’s avoid decision fatigue. Let’s. Let’s save time. 90% of the time you have with your kids are going to be gone by the time you’re 18. Let’s make decisions that we can live a stress free life today. Let’s make decisions that looking back ten years from now, 20 years now, 30 years from now, we have no regret.

 

Don’t wait to knock out your bucket list items, but also make sure you are on track for the future. This is all much more complicated than just picking indexing one and saving the right amount. It’s about having intentional financial plan, having someone to affirm the big decisions and lower stress and protect your time. Thanks for watching you.

 

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