Physician Retirement Planning

Why Everyone Should Have A Roth IRA

Traditional wisdom holds that you should only contribute to a Roth IRA if your income tax rate in retirement will be higher than your current income tax rate. I would argue that everyone should have a Roth IRA as part of a diversified retirement portfolio.

What is a Roth IRA?

With a Roth IRA, you pay income taxes on money you earn today and then put that money in the Roth IRA. That money then grows without you having to pay interest, dividend, or capital gains taxes each year. When you retire, you take that money out to spend in retirement and you do not pay any taxes on the withdrawals. If your taxable income in 2021 is less than $125,000 (filing single) or less than $198,000 (filing jointly), you can contribute money you earned directly to a Roth IRA after paying 2021 taxes on that income. If your taxable income is higher than those limits, you can still contribute to a Roth IRA but you cannot do it directly. Instead, you have to do a “conversion” where you first contribute to a traditional IRA and then convert the money in that traditional IRA into a Roth IRA. This is sometimes called a backdoor Roth IRA. There is a limit to the amount that you can contribute each year: $6,000 if you are under age 50 years old or $7,000 if you are over 50.

Roth IRAs have one additional advantage for retirees – there are no required minimum distributions. For traditional IRAs and other deferred compensations investments, when you reach age 72, you are required to withdraw a certain amount of money from your deferred compensation plan accounts. The percentage of the total of all of your deferred compensation plan accounts that you are required to withdraw will be based on your life expectancy. As an example, a 72-year-old retired married couple with $500,000 in their combined deferred compensation plan accounts would be required to withdraw 4.0% of the value of these accounts ($20,000) in 2021.  On the other hand, an 82-year-old married couple would be required to withdraw 4.3% ($21,500) in 2021. Roth IRAs are exempt from required minimum distributions so those funds can be left alone each year if desired. This can be an advantage if you: (1) want to leave money to your heirs, (2) are saving for a planned large expense in a future year, or (3) believe that you are going to live longer than the IRA life expectancy tables would predict.

The four retirement income buckets

OK, in reality there are a lot more than 4 sources of money that most retirees can draw from, but for most people, retirement income can be divided into four general categories:

  1. Fixed income. This includes annual Social Security benefits, pension income, and annuity income. This is a predictable amount that does not change from one year to the next (although it may increase slightly for annual cost-of-living adjustments). This income will be taxed at your ordinary income tax rate.
  2. Deferred compensation. This includes a long list of retirement savings options including 401(k)s, 403(b)s, 457s, SEPs, RCPs, and 415(m)s. A traditional IRA can also be included in this group if you are able to contribute pre-tax income directly to the IRA – this is the case if you are not covered by another retirement plan at work. You can also contribute to a traditional IRA with pre-tax income if you are covered by another retirement plan at work and your income is < $66,000 (filing single) or < $105,000 (filing jointly). Deferred compensation grows tax-free, so you do not pay any taxes on interest, dividends, or capital gains. When you withdraw money in retirement, the withdrawals will be taxed at your ordinary income tax rate.
  3. Post-tax investments. Although this can include everything from investment real estate properties to investment artwork, for most people, this will be stocks, bonds, and mutual funds. These are investments that you buy with your disposable income after you have paid income tax that year. Each year, you will pay taxes on interest and dividends from these investments (at your ordinary income tax rate that year) and when you sell these investments, you will pay taxes on the difference between the purchase price and the selling price (at your capital gains tax rate).
  4. Roth accounts. Although the most common of these is the Roth IRA, there are also Roth 401(k)s, Roth 403(b)s, and Roth 457s. All of these Roth accounts are similar in that you pay regular income tax on the money the year that you contribute to the account and then pay no taxes on the withdrawals.

Why you need a Roth IRA

There are two ways that a Roth IRA can save you money on taxes. First, if you have disposable income after paying this year’s income tax and you want to invest for retirement, you can either put it in a post-tax investment (for example, by buying shares of a mutual fund) or you can put it in a Roth IRA (either directly or by doing a Roth IRA conversion, depending on your taxable income). If you put it in a post-tax investment, then you are going to be taxed every year on the interest and dividends and then when you withdraw the money in retirement, you are going to be taxed on the capital gains – over the years, that will add up to a lot of taxes. On the other hand, if you put that same money in a Roth IRA, you will never pay any taxes on interest, dividends, or capital gains. Therefore, everyone should maximize contributions to a Roth IRA before putting money in a post-tax investment for retirement purposes.

The second way a Roth IRA can save you money on taxes is by taking advantage of periodic changes in federal income tax rates. As I described in a previous post, income tax brackets are one of the most misunderstood parts of the American tax system. What is important is your effective income tax rate and not your tax bracket. The effective income tax rate will vary widely depending on how the U.S. Congress sets taxes. It is a certainty that tax rates will change every few years, largely depending on which political party is in power. Having a Roth IRA allows you to maintain a consistent annual disposable income in retirement while weathering the ups and downs of income tax rates. To demonstrate this, let’s look at the effective tax rates in 2016 versus 2020.


In 2016, the effective federal income tax rate on an a taxable income of $250,000 was 21% or $53,500. In 2020, the same income of $250,000 was taxed at 16% or $40,000. In other words, you would have $13,500 more in disposable income after taxes in 2020 than you did in 2016. In fact, in 2020, you would have to have a disposable income of $430,000 to be taxed at 21% which was the effective tax rate on $250,000 in 2016. Similarly, if your taxable income was $160,000 in 2016, your federal income tax would be 17.5% ($28,000) but in 2020 your federal income tax would be 13% ($20,800), a $7,200 difference in disposable income.

In retirement, during years when the effective income tax rate goes up, you want to draw relatively more money from a Roth IRA and in years when the effective income tax rate goes down, you want to leave the Roth IRA alone and draw more money from your deferred income accounts. By using this strategy, you can maintain a constant disposable income while minimizing income taxes.

It is inevitable that federal income tax rates will go up in some years and down in others during a person’s retirement years. American taxpayers want low taxes but they also want federal services such as Social Security, Medicare, a strong military, investment in transportation & infrastructure, and perhaps in the future even national healthcare. Our political party system results in a see saw effect every few years with pressure to decrease taxes followed several years later by pressure to increase federal services. I would argue that for most people, it is impossible to predict whether their federal income tax rate will be higher or lower in any given year during retirement than it is during the years that they are working. The reality is that over the duration of their retirement years, it will likely be both. Having a Roth IRA allows you to take advantage of these inescapable swings in the effective income tax rate in order to maximize your disposable income.

April 18, 2021


An Unintended Casualty Of COVID: Tuberculosis

Currently, 2 billion people are infected with tuberculosis, about one-quarter of the world’s population. It lies dormant in most people but every year, it causes active disease in 10 million people and 1.6 million die of it. It is the number one cause of infectious disease-related death in the world. In the United States, healthcare providers are required by law to report cases of TB to health departments and the health departments in turn do contact tracing to identify and test others who could potentially have been infected. Because of this reporting requirement, we have very good epidemiological data about tuberculosis in the U.S.

Tuberculosis control in the United States has generally been a success. The number of new cases of TB per year has dropped from 84,304 in 1953 to 8,916 in 2019, a nearly 10-fold drop in cases. Because the United States total population has grown during this time period, the reduction in new cases per 100,000 population has dropped even more dramatically from 52.6 in 1953 to only 2.7 in 2019, a nearly 20-fold drop in case rates. This is a testament to the effectiveness of public health measures. Indeed, quarantining and the wearing of masks is nothing new – they have been our primary tool for controlling the spread of TB for more than a century.

The reduction in TB cases has not been linear. There was a spike in cases in 1975 that was largely related to a different surveillance case definition instituted that year and not due to an actual increase in TB in the United States. There was also an increase in cases in 1989-1992 that was primarily due to a surge in the number of people with AIDS in the U.S. But for the past decade, there has been a steady reduction in cases of TB in the U.S. by about 2-3% per year between 2010-2019. But then an unexpected thing happened in 2020. There was a 20% reduction in tuberculosis.


It turns out that COVID-19 has been our most powerful weapon yet in combating tuberculosis. The COVID-19 pandemic brought with it mandates of social distancing and face mask-wearing in public. These are reasonably effective means of controlling the spread of the coronavirus but they are even more effective in controlling the spread of other respiratory infections, including tuberculosis. Prior to 2020, the main indication for healthcare workers wearing N-95 masks was when caring for patients with known or suspected tuberculosis. Hospitals throughout the U.S. maintained a small number of “negative airflow” patient rooms, primarily to house patients suspected of having TB. But TB had become relatively rare to the point that most medical students do not encounter a patient with tuberculosis during their training; in 2019, there were only 150 cases of TB in the entire state of Ohio.

Most cases of tuberculosis in the U.S. occur in people who immigrated to the United States. For the past decade, foreign-born people have accounted for about 71% of the cases of TB in the United States whereas U.S.-born people have accounted for about 29% of cases. These percentages did not change in 2020 and therefore, the drop in new cases of TB cannot be attributed to reduced immigration to the United States related to COVID-19 travel bans. Furthermore, 90% of foreign-born people do not develop active TB until they have been in the United States for > 1 year, meaning they enter the U.S. with dormant (latent) TB and only go on to develop active disease years later.

Not only have the infection control measures used to slow the spread of COVID-19 been effective in reducing tuberculosis, these measures have been even more effective in reducing influenza. The graph above is from the Centers for Disease Control showing that the incidence of influenza this season (red triangles) is by far the lowest of any year in the past decade.

With 2 billion people infected, tuberculosis will not be eliminated in our lifetime. But it appears that COVID-19 has given us an unexpected step forward in our efforts to reduce TB in the United States. Tuberculosis data reporting in the rest of the world is not as robust and in the United States so it will likely be a few years until we see if the same phenomenon seen in the U.S. in 2020 will also be seen in other countries.

Hopefully, another benefit of the COVID-19 pandemic will be the accelerated study of mRNA vaccine technology that could offer hope of future vaccines effective in preventing tuberculosis. Regardless, the reduction in TB last year has been a very thin silver lining in a very large dark cloud of COVID-19.

April 17, 2021

Medical Economics

Anti-Vaxx Is Anti-Business

In the summer of 2020, unemployment in the United States soared. People stayed home and businesses shuttered. Over the course of the COVID-19 pandemic, some businesses were affected more than others. Airlines, hotels, arts & entertainment, restaurants, oil & gas, auto parts & service, and recreational facilities were among the hardest hit.

Some people blamed business closures not the pandemic but instead on their governor’s or mayor’s public health orders. As a consequence, many politicians lobbied to pass laws restricting their governor’s or public health authority’s ability to impose these public health orders. Their argument is that if people did not have to wear masks and practice social distancing, that businesses will open back up and quickly return to normal capacity. But it is not the public health orders that are hurting businesses, it is the pandemic itself.

To get those businesses back open, customers’ fear of acquiring COVID-19 has to be eased. A person who goes out to eat at a restaurant, gets on an airplane, or spends a couple of hours in a movie theater wants to be sure that it won’t cost them their life. Customers want to feel safe and workers want to feel safe. The best way to create that perception of safety is to get everyone vaccinated against COVID-19.

Some U.S. demographic groups are suspicious of vaccination and many within those groups have stated that they will not get vaccinated. As vaccine availability increases, these vaccine hold-outs will likely find themselves at a competitive disadvantage in business. How many people would go to a restaurant if their waiter is wearing a button that says “I’m proud to be a COVID anti-vaxxer”? As a larger percentage of Americans get vaccinated, those people who refuse to get vaccinated will increasingly be viewed as the ones holding back economic recovery.

If a customer gets salmonella or hepatitis A from contaminated food at a restaurant, there is the potential for liability of that restaurant. At the least, customers will avoid it and at worst, there can be civil litigation for damages from the sick customer. So far in the COVID-19 pandemic, businesses really have not faced liability because the infection is literally everywhere. Once the pandemic is better controlled in the United States, outbreaks of COVID-19 will be able to be traced to source locations, similar to outbreaks of salmonella and hepatitis A. Civil litigation may be more likely in that situation, particularly if a business owner went on record as being opposed to vaccination. At that point, it will become very expensive to be an anti-vaxxer.

The fastest way to get business such as restaurants, hotels, movie theaters, and gyms back up to full occupancy is to end the pandemic. We cannot make the pandemic end simply by passing legislation declaring that it to be over – the fastest way to make it end is to vaccinate all eligible people as quickly as possible.

Pro-vaccination = pro-business

April 7, 2021


COVID-19 Vaccine Side Effects (and how to prevent them)

I’ve been working at our medical center’s COVID-19 vaccine clinics for the past couple of months. We vaccinate about 3,500 people per day at our OSU Schottenstein Center site (the basketball arena) and about 275 people per day at our hospital-based vaccine clinic. Because of the potential for allergic reactions, we have either an emergency medicine physician or a critical care physician on site to manage any reactions. After supervising thousands of vaccinations, I’ve learned a lot about the vaccine reactions that people can get.

Younger people have more side effects

COVID-19 infection is much more severe the older we get. For people over age 80, the mortality rate of the infection is about 25% but for people under age 18, the mortality rate is negligible. It is just the opposite for side effects from the COVID-19 vaccines: older people are less likely to have side effect than younger people. I’m always relieved when I look over the list of the day’s vaccination schedule and see mostly people over age 60 because I know that I’m going to have an easy day.

Sore arms

Most people (about 75%) get a sore arm after the vaccination. It doesn’t typically occur for several hours after the injection and goes away within 2 days. I liken it to a bit more soreness than flu shot but less soreness than a tetanus shot. As with most other vaccines, the COVID-19 vaccines are given intramuscularly, into the deltoid muscle in the upper arm. One simple way of minimizing arm discomfort after the vaccination is to be sure that the arm is relaxed as much as possible when the needle goes in. If the deltoid muscle is tense when you get your vaccination, you are more likely to have pain later on. If there is swelling and redness at the injection site, a cold compress can help. If there is significant pain, it is OK to take acetaminophen (Tylenol) or whatever non-steroidal anti-inflammatory drug (eg, ibuprofen or naproxen) you normally take. Do not take any medications preventively and only take them if symptoms develop. Avoid taking corticosteroid medications (eg, prednisone) to treat arm pain or swelling since steroids can reduce the body’s immune response to the vaccine. If you anticipate needing to do a lot of writing or some other activity that involves your dominant hand, then get the vaccine in the non-dominant arm.

Aches, fever, and chills

It is difficult to predict who will get muscle aches, headaches, chills, or fever after the COVID-19 vaccine. The good news is that most people do not get these side effects. In general, younger people are more likely to get them than older people and people are more likely to get them after the second dose than the first dose. People who have had COVID infection in the past are also more likely to get more vaccine side effects, especially with the first dose of a vaccine. Although the timing can vary, it is typically about 18 hours after the vaccination. It is a good idea to have acetaminophen on hand and then take it at the early signs of fever or body aches in order to prevent experiencing more severe symptoms. For most people, these side effects resolve by 36-48 hours after the injection. The important thing to know is that these symptoms are NOT an indication of an infection and are instead an expected reaction of the body’s immune system to the vaccine.


Many people will be tired the day of and after their vaccine. For some, this can be severe enough to stay home from work. Because of this, we tried to stagger the vaccinations for our operating room nurses and the nurses on individual nursing units since we knew that a percentage of them were likely going to call off work the next day. Similarly, if you operate a restaurant or store, try to keep all of your employees from getting vaccinated on the same day or you might find yourself having to close shop the next day. To minimize fatigue, keep hydrated and plan on an extra 1-2 hours of sleep the night after your vaccine. An afternoon nap may be in order, also.


This is the most serious side effect of the COVID-19 vaccines and it is fortunately vary rare. This is a severe allergic reaction that can cause difficulty breathing and shock. It occurs shortly after the vaccination, within the first 30 minutes. It responds very well to epinephrine injection and we keep epinephrine on hand, just in case of anaphylaxis. In my own experience, many of the people who were initially thought to have anaphylaxis didn’t actually have it – vocal cord dysfunction and vagal reaction are common masqueraders of anaphylaxis (and far less serious). The main component of the Pfizer and Moderna vaccines that can cause severe allergy is polyethylene glycol. This is the same ingredient in the laxative, MiraLAX, and the prep used for colonoscopy, Go=lytely. If a person has not had an allergy to these ingredients in the past, then they usually do not have any problem with the COVID-19 vaccine.


Less life-threatening allergic reactions can show up with a rash or itching, rather than anaphylaxis. These reactions are also quite uncommon but can be fairly easily treated with antihistamines (eg, Benadryl). Isolated rash does not warrant a trip to the emergency department but these patients should be watched a little longer than other patients to be completely sure that they do not progress to anaphylaxis.

Avoidable side effects

By far, the most common symptoms we see at the time of vaccination are avoidable:

  • Vagal reactions. This is what happens when a person faints and a lot of people faint at the sight of needles, regardless of what is inside of that needle. If a person is going to develop a vagal reaction, then they will develop it even if there was nothing in the syringe. The symptoms are feeling light-headed, clammy, nauseas, and sweaty. One of the best ways to prevent a person from having a vagal reaction to a COVID-19 vaccination is to distract them by talking to them while the nurse is giving the vaccine in order to take their mind off of the vaccine. When someone does develop a vagal reaction, have them lay down, preferably with their feet elevated. If a person tells you that they faint or get dizzy every time they get a vaccine, then put them in a reclining chair before you give them the COVID-19 vaccination. Ensuring that the person is adequately hydrated is important. The most common treatments that I give out in the vaccine clinics are bottle of water.
  • Hyperventilation. Many people are afraid of vaccinations and doubly afraid of the COVID-19 vaccine. Maybe they read something written by an anti-vaxxer or maybe they heard a horror story from their neighbor about how awful the neighbor felt after their vaccination. These patients are prone to panic attacks. The symptoms are dizziness, shortness of breath, and tingling in the fingers and hands. From a physiologic standpoint, these symptoms are caused by an acute respiratory alkalosis causing the pH of the blood to rapidly rise – this is due to breathing too rapidly and too deeply. Patients who get hyperventilation after their COVID-19 vaccination need to be talked down from it – focus on slower and shallower respirations. This can be hard to do since the rapid, deep breathing is being caused by anxiety. Reassurance and having the person breath through their nose (rather than mouth) is usually all it takes. Once patients realize that the symptoms are from hyperventilation, they usually calm down. In the past, this would have been treated by breathing into a paper bag to re-circulate carbon dioxide and prevent the blood carbon dioxide from dropping too low.
  • Hypoglycemia and dehydration. This is by far and away the most common problem that I encounter at our vaccine clinic. It is also a risk factor for vagal reactions. Many people get up in the morning and go straight to the clinic to get their COVID-19 vaccine before they have breakfast. Couple an empty stomach with the fear and excitement of a vaccine and you get a bunch of queazy, dizzy vaccine recipients. Encourage people to have breakfast before their vaccine and keep up with their fluids. This can be an especially big problem when we are vaccinating college students on the weekends who stayed up late the night before drinking beer. Being dehydrated and having an empty stomach is a set-up for getting a vagal reaction
  • Grouchiness. This is another very common symptom we see in the vaccine clinic and is usually caused by hypocaffeination. Just like skipping breakfast before your vaccine is a bad idea, skipping your morning coffee can result in having a headache, feeling tired out, and having a generally bad attitude. If you are a coffee or tea drinker, have a cup before you go to the vaccine clinic.
  • Vocal cord dysfunction. In the pulmonary clinic, vocal cord dysfunction (VCD) is a common mimic of asthma. It occurs when the muscles that control the vocal cords are under excessive tension resulting in the space between the vocal cords being constricted and too narrow. This causes shortness of breath, particularly when trying to breath in (as opposed to breathing out). Some patients will say that they they feel like air is getting stuck at the top of their neck. Anxiety can precipitate vocal cord dysfunction. One of the problems with VCD is that it can not only mimic asthma but can also mimic anaphylaxis and the treatment for anaphylaxis (epinephrine) can often make the VCD worse. In our vaccine clinic, I saw a person who was their for their second dose of the COVID-19 vaccine. With the first dose, she had developed what was thought at the time to be anaphylaxis and was given epinephrine that did not help and in fact seemed to make her breathing worse. The EMS squad was called and took her to the emergency department where a particularly bright physician obtained a blood tryptase level. Anaphylaxis causes the tryptase level to be elevated and hers was normal. For her second dose, we had a nurse sit with her and provided lots of reassurance and distracting conversation. We told her to breath through her nose (which can help reduce the tension on the vocal cords). In the end, she had no problems at all after her second dose. With all that being said, VCD is never a life-threatening problem but anaphylaxis is – when in doubt about whether it is VCD or anaphylaxis, treat the persons as if it is anaphylaxis.
  • Boredom. You can always pick out the people who are in the vaccine clinic for their second dose (as opposed to their first dose). They bring a book, newspaper, or crossword puzzle. Sitting in the clinic for 15 minutes with nothing to do except look at the other people getting vaccinated can be pretty boring and that boredom can be double the amount if you have to wait 30 minutes because of a past history of severe allergies.

The COVID-19 vaccines are safe. Period. Yes, they can sometimes have annoying side effects but no one dies from the COVID vaccine whereas more than a half of a million Americans have died of COVD-19. By getting a COVID-19 vaccination, you are saving a life – if not yours, then one of your family members or someone in your community. A sore arm or fatigue for a day is a small price to pay.

April 3, 2021

Physician Retirement Planning

The Ways Physicians Retire

Recently, an older primary care physician in solo practice called me to ask if our hospital would buy his practice when he retires. I’ve seen a lot of physicians retire over the decades and there are several different ways that physicians do it. This post is all about the retirement paths that physicians can take.

First, I did not offer to purchase the physician’s practice. In the past, retiring physicians often sold their practice which meant selling their patient’s paper charts. But, nobody does that anymore. With the availability of electronic medical records, those paper charts are essentially valueless – the medical information is already on-line. There are situations when a physician will purchase office space and equipment from a retiring physician but since most physicians lease office space, this is also becoming quite rare. Also in the past, junior physicians would have to buy into a practice to become a senior partner with the proceeds often becoming severance pay to the senior physicians at retirement. This practice has also nearly disappeared with a industry wide move to hospital-based employment and large multispecialty practice group employment. As a consequence of these changes, physicians no longer have the option of cashing out at retirement. However, this has also opened the door for many other ways for physicians to retire.

Going Cold Turkey

Some physicians one day just stop practicing altogether. This can be a pretty abrupt change in lifestyle for a doctor who has been working 60 hours a week plus taking call. It is like driving your car all day at 70 miles an hour on the highway and then pulling off onto a 15 mile per hour side road. Many doctors who spent years dreaming of a life of nothing but golf or fishing find themselves suddenly unfulfilled and untethered from a time when their skills were valued and needed. This can result in a sudden identity crisis. Some physicians unexpectedly find that what they miss most when no longer in the hospital or the office is the human contact with other doctors, the other healthcare staff, and the patients. Loneliness and isolation can be unanticipated consequences of sudden and complete retirement. Nevertheless, making a complete break from medicine can avoid the day to day reminders of a past life when the physician was valued and needed as can occur when one  gradually slows down medical practice. For many physicians, going cold-turkey in retirement allows one’s legacy to be remembered for being the doctor that they were when they were still at their best rather than for being remembered for the doctor that they used to be.

The Fade Away

Another retirement option for physicians is to slowly cut back, making retirement a more gradual process. The hospitalist or emergency medicine physician can just take fewer and fewer shifts. The family physician can stop taking new patients and reduce the number of days in the office per week. This results in a much less abrupt lifestyle change than retiring cold turkey and allows the physician to remain socially engaged with patients and other healthcare workers. A downside of dialing back is that the physician can become less relevant than those other physicians who are working fulltime – the physician can feel tolerated but less valued than in the past. You are no longer asked to be on key committees or included in key decision-making. Also, the practice of medicine takes practice, just like it takes practice to be a high-performing athlete or musician. There is a risk of losing one’s skills as one becomes increasingly part-time.

Shedding Unwanted Career Baggage

Over time, every physician builds up career baggage. You are put on a committee that you never get off. You pick up an administrative task that never goes away. Toward the end of a doctor’s career, all of that baggage can really weigh you down. For some physicians, retirement means stopping doing these non-patient care duties that they may not really enjoy doing but continuing to see patients. But with continued patient care comes continued patient phone calls, electronic medical record “inbasket” management, paperwork, etc. that will still require daily physician involvement. Nevertheless, this form of retirement can allow the physician to continue to do what he or she really enjoys while shedding unwanted administrative tasks.

Move To The VA

Columbus, Ohio is one of the largest cities in the U.S. without a Veterans Administration hospital. However, we have a very large outpatient VA clinic. Many physicians in Columbus are drawn to the VA clinic in retirement. It is 9-5 Monday through Friday work with no weekends and no call. The patients appreciate you and there are no pressures from insurance companies. You get a set salary and if you are there for at least 5 years, you are eligible for benefits through the Federal Employees Retirement System (FERS). For physicians who have been in a financially-strapped solo practice and unable to save much for retirement, FERS can be very attractive. An active, unrestricted state medical license allows you to practice at a VA anywhere. It may still be full-time work but full-time at a VA clinic is usually less time than full-time in a private practice. In addition to the Veterans Administration health system, there are many other, similar employment jobs available for physicians who still want to practice medicine but want to get rid of some of the headaches of private practice.

Emeritus Status

For physicians in academic medicine, emeritus status can be a great option. You can continue to attend conferences and grand rounds. You often get free parking at the University and access to the library system. You can continue to do research, write papers, and teach. You may even get to have an office somewhere on campus. Typically, emeritus faculty have a considerably lower salary than regular faculty (or no salary at all) but also have the freedom to “just say no” to pretty much anything they don’t want to do. In many universities, emeritus status physicians can still see patients, but often for a time-limited number of years after retirement. Emeritus programs can be a win-win for both the physician and the university. The physician can remain engaged with teaching, research, mentoring, or clinical care in a part-time basis. The university gets an experienced faculty member to contribute the university’s mission at little or no cost.

Volunteer Medicine

For physicians who retire financially secure, volunteering can allow the physician to continue to utilize their skills for the benefit of society. An advantage of volunteering is that the physician can decide what to volunteer for, when to volunteer, and how much to volunteer. Locally, this can be at various free clinics or on health department boards. It can be on medical missions abroad or at a Red Cross blood center. However, just because you are not getting paid does not mean that you cannot be sued so be sure that you check into medical licensure requirements and the need for medical malpractice insurance.

Locum Tenens

As a locum tenens physician, you agree to provide temporary coverage of a practice for a defined amount of time. This often happens when a physician has to leave the practice for a period due to pregnancy, illness, military reserve requirements, etc. Sometimes it is because someone left the practice and that physician’s replacement will not finish residency for several more months. Or for whatever reason, there are more patients than doctors at a location. Locum tenens jobs often come with a per diem allowance for housing and food. They may also pay for your transportation to/from the practice location as well as your malpractice insurance. The downside is that the physician may have to apply for a medical license in a new state and travel may require absence from family and friends at home. It can also be difficult to get oriented to a new electronic medical record, practice model, and medication formulary. However, locum tenens is often a good option for the physician who wants to work for a few weeks or months a year and doesn’t mind having to travel to do it.


This is a pretty broad area and can include working as an advisor to businesses or governments, providing expert opinion to attorneys or insurance companies, surveying hospitals for accreditation organizations, and providing editing or reviewing services for media. The physician can utilize the knowledge and analytic skills that she or he has garnered over the years. It can provide at least a modest stream of income with part-time work and that work can often be done from one’s own home. Even a relatively small amount of consulting income can provide an opportunity for schedule C income tax deduction for expenses such as medical licenses and subscriptions.

Do Something Completely Different

Many physicians sent most of their career dreaming about how they would like to start a winery, or open a restaurant, or create a bed and breakfast. Physicians who have saved well during their medical careers may have a substantial sum saved up that can form the capital investment necessary to start their own business. But many of these ventures can end up being another full-time job with long hours and the pressures of employee management, sales, marketing, and accounting. The harsh realities of being a boutique entrepreneur can turn those dreams into a small business nightmare.

For some financially secure physicians, a carefully planned second career after medicine can provide a way to stay engaged with other people and work days that are free of the weighty demands of managing chronic disease, nights on call, and mountains of paperwork. But the old adage “The grass is always greener on the other side of the fence” can often hold true for physicians starting a second career.

Social Media

Currently, there are 689 million TicTok users, 600 million blogs (including this one!), 340 million Twitter users, and 1.75 million podcasts. Add in webcasts and YouTube accounts and the number of social media users exceeds 1 billion. Launching a social media site can be attractive to the retired physician because content can be recorded whenever there is some free time in the week with no worries about deadlines. And the material can be about anything from medicine to public policy to hobbies.

On average, physicians plan to retire about 5 years later than the average American, at age 68 versus age 63. There are several reasons for this later retirement age, perhaps most importantly that physicians have a long training period and most do not actually enter the medical workforce until after age 30, many years later than the typical American. The retirement choice that each physician makes will depend on one’s physical health and financial health as well as one’s individual wants and needs. But the possibilities can be endless…

March 28, 2021

Medical Education

Lessons From The 2021 Residency Match

The annual residency match is an event like nothing else in the United States. Each year, 4th year medical students spend the fall and winter applying to and interviewing with residency programs. In February, they submit their ranked list of the programs that they would like to attend next year to the National Resident Matching Program. Simultaneously, all of the residency programs submit their ranked list of the medical students they would like to hire next year. The National Resident Matching Program then pairs the medical students with the residency programs using an algorithm that assigns the students to residency programs by matching the two rank lists. Although it sounds a bit impersonal, it actually is the fairest way to ensure that students get into the residency programs that they want while simultaneously ensuring that the residency programs get the students that they want.

The results of the match were released on Match Day, March 19th, and all across the country, 4th year medical students found out which hospital in which city they will be spending the next 3-5 years at starting in late June. If you drill into the Advance Data Table from this year’s match results, there are some interesting take-away points.

Some specialties are more competitive than others

There are 4 groups of students applying to residency: MD students, DO students, U.S. students attending foreign medical schools, and foreign students attending foreign medical schools. The most competitive specialties are those that fill most of their positions with U.S. medical graduates, and in particular, those graduating with MD degrees.

From this graph, it is apparent that surgical subspecialties are the most competitive residencies. Thoracic surgery, plastic surgery, otolaryngology, and neurosurgery all filled greater than 85% of their available positions with graduates from U.S. medical schools (MD). On the other hand, specialties that filled fewer than 50% of their positions with graduates from U.S. medical schools included radiation oncology, internal medicine, family medicine, and pathology.

The number of osteopathic graduates is growing

The number of applicants from U.S. allopathic (MD) medical schools has been rising slowly over the past 5 years. Combining the number of 4th year medical students applying for residency plus the number of applicants applying who previously graduated from allopathic medical schools, the total number has increased from 18,639 in 2017 to 21,538 in 2021, a 16% increase over 5 years. However, the number of applicants from U.S. osteopathic (DO) schools has increased from 3,590 to 7,710 over the same 5-year period, a 115% increase. Applicants from U.S. medical schools (MD) still have the best chance of getting into a residency with 92.8% of senior MD medical students matching. Seniors from osteopathic (DO) schools were a close second with 89.1% matching. U.S. citizens attending foreign medical schools fair less well with only 59.5% matching into a residency program. Foreign citizens attending foreign medical schools continued to be the least successful in getting a residency with only 54.8% matching. Over the past 5 years, despite the significant increase in numbers of senior students from osteopathic schools applying to residency, osteopathic students have been also been increasingly successful in obtaining residency with their match rate increasing from 85% in 2017 to 89.1% in 2021.

Competitive residencies require lots of ranks

In order to get into a residency program, a 4th year medical student must first apply to that program, then get accepted to interview at that program, then travel to the city where that residency is located to interview, then list that residency program on student’s rank list. In order to increase the chances of getting into a residency somewhere, you need to interview at and then rank several programs. In the past, that meant a lot of expensive travel across the country and a lot of time away from medical school to do those on-site interviews. This year, interviewing became a bit easier and less expensive since COVID-19 resulted in all interviews being done virtually, by video. Overall, the average senior student at an allopathic (MD) medical school ranked 9.4 residency programs. However, that number varied considerably. Not surprisingly, the average number of programs ranked per student correlated with how competitive the specialty is.Vascular surgery led with 20.5 programs ranked per applicant, followed by neurosurgery with 18.2, thoracic surgery with 18.1, and otolaryngology with 15.3. At the other end of the spectrum, students applying to pathology residencies ranked the fewest residency programs per student at 4.4, followed by family medicine at 4.9, and internal medicine at 5.7.

More students go into internal medicine

As in the past, the largest number of positions available is in internal medicine. Medical subspecialties such as cardiology, gastroenterology, pulmonary, and oncology first require an internal medicine residency so many of the students applying to internal medicine have long-term aspirations of subspecializing. Nonetheless, there are twice as many residency positions available for internal medicine (3,523) than are available for the next closest specialty, emergency medicine (1,765). Not included in these numbers are students seeking a preliminary or transitional year of internal medicine which is a pre-requisite before specialties such as neurology, dermatology, and ophthalmology. Of note, ophthalmology is unique in that the ophthalmology match occurs earlier in the year and does not participate in the regular residency match.

Your future doctor is less likely to be an MD

In the past, most U.S. physicians were graduates of U.S. allopathic medical schools and had an “M.D.” after their name. That is changing and with the current trends, this may be the last year that U.S. MD graduates comprise the majority of future physicians.

For the past 5 years, the number of available residency positions in the United States has been increasing. In 2017, there were 27,688 residency positions and this grew to 33,353 in 2021. Although the absolute numbers of applicants from each of the four types of students applying to residency has increased, the numbers of students from osteopathic schools, U.S. students attending foreign medical schools, and foreign students attending foreign medical schools has increased faster than the number of students from U.S. medical schools (MD). As a result, the percentage of students matching to residency from U.S. medical schools has fallen from 65.6% in 2017 to 50.7% in 2021. At this rate, the percentage will likely be < 50% next year. A total of 31% of students who matched this year trained at a foreign medical school, either as a U.S. citizen abroad or as a foreign citizen. That is up from 24% in 2017 and at this rate, in the near future, more U.S. physicians will have trained at a foreign medical school than at a U.S. medical school.

What happens to the students who don’t match?

Unmatched applicants included 1,431 U.S. medical school seniors, 866 U.S. medical school previous graduates, 774 osteopathic seniors, 339, osteopathic previous graduates, 2,143 U.S. citizens attending foreign medical schools, and 3,587 foreign citizens attending foreign medical schools. Combined, this is a total of 9,140 students who did not get into a residency. This is a mixed bag of students. Some will land a residency position in the “scramble” when unmatched students call program directors of residency programs that did not fill in hopes of getting a residency position after the match. Some will take a year or two off to get an MBA or other masters degree. Some will decide not to pursue medicine altogether and switch to another career. Some will take a year off to do research or work in another field and then try again next year.

Those unmatched students who apply to the match a second time face lower chances of obtaining a residency position. Of senior medical students applying to residency for the first time, 92.8% matched; however, of graduates of medical schools applying later, only 48.2% matched. The same trend exists for osteopathic students: 89.1% of senior students applying for the first time matched but only 44.3% of graduates applying later matched.

The results of the National Resident Matching Program tell us a lot about which specialties are hot and which specialties are not. But by looking more closely at the results, we can also forecast who our doctors are going to be in the future.

March 23, 2021

Physician Finances

Marginal Income Tax Brackets Versus Effective Income Tax

Forget about everything that you think you know about income tax brackets… they are one of the most misunderstood parts of the American tax system. How many times have you heard someone say “More income might push me into a higher tax bracket”? Yes, it will but no, you shouldn’t care in the least. The reason is that Federal income tax brackets are marginal tax brackets. Because of this no American pays income taxes at the tax rate of the bracket that they are in. Instead, we pay the effective tax rate which is always lower than the marginal tax bracket. The following table shows the current Federal income tax brackets.

Many people mistakenly think that their income tax rate is the same as whatever the tax bracket that their taxable income falls into. But that is not exactly correct. The marginal tax system results in everyone paying the same tax rate (10%) on the first $19,751 that they make. Then everyone pays the same tax rate (12%) on the next $60,500 that they make and so on up each tax bracket. The graph below illustrates how this works:

The result is that for any given taxable income a person earns, their federal income is a blend of the individual tax rates for each of the brackets that comprise their total income. In addition, each taxpayer can take the standard deduction from their gross income: $12,400 if filing single and $24,800 if married and filing jointly. The standard deduction results in everyone’s taxable income being lower than their total gross income. As a result, even people in the lowest income tax bracket pay a smaller effective tax rate than the marginal tax rate of that bracket. The next graph shows the current marginal tax brackets for Federal income tax in the dotted line and the effective tax rate in the solid line.

From this graph, you can see that the effective tax rate (what you actually pay) is always less than the tax bracket that you are in. It also shows that the effective tax rate does not jump up when your income increases enough to put you into a higher marginal tax bracket. Instead, the effective tax rate goes steadily up at a relatively constant rate for every dollar more you earn. Periodically, congress will set new tax brackets. The graphs below compare the 2016 and 2020 brackets.

As you can see, trying to figure out what those tax bracket changes mean for any one person at any given income is difficult. So, let’s look at how the 2020 brackets affect people at different incomes:

The above graph shows the tax brackets at the end of the Obama administration (blue) versus the tax brackets at the end of the Trump administration. Just looking at a tax bracket table can be hard to interpret – what is important is your effective tax rate and not the marginal tax bracket. The table below shows the effective tax rates during the two administrations:

The effective tax rate that taxpayers of every income dropped during the Trump administration. The reduction in effective tax rates was fairly consistent across all incomes, ranging from a drop of 3.7 to 5.9 percentage points. Some people focus on the top tax bracket (currently $622,051 and 37%). But as was demonstrated earlier in this post, no one pays an effective tax rate as high as their marginal tax bracket. So even a person with an extremely high gross income of $700,000 per year only pays an effective tax rate of 26.7%.

Tax rates go up and down with different administrations. Tax cuts are an enormous crowd-pleaser for voters. However, eventually, deficits catch up with tax cuts – the government cannot spend money on services that voters demand and then tax raises ensue. In general, taxes go up when Democratic presidents are in office and go down when Republican presidents are in office. The graph below shows the marginal tax rate for the highest tax bracket over the past 36 years:

So, don’t fear being in a higher income tax bracket. Indeed, you should try to be in as high of an income tax bracket as you can. But it does make retirement planning complicated. Let’s say you have an option of putting retirement savings in a regular 401(k) or a Roth 401(k) this year. If you put money in the regular 401(k), the money will be invested pre-tax and then you will pay regular income tax on the withdrawals when you take the money out in retirement. If you instead put money in a Roth 401(k), then you will pay income tax on the money now and then you will pay no tax on the withdrawals when you are retired.  The strategy is to pay income taxes when you have the lowest effective tax rate. The problem is that you cannot predict today what the effective tax rates are going to be when you retire.

As an example, assume you are making a taxable income of $150,000/year today. Your effective tax rate in 2021 is 14.1%. Now assume you will have a taxable income of $100,000/year when you retire. If tax rates are the same in your retirement year as they are now, then your effective tax rate will be 11.7% in retirement and so you would be better off putting your money in a regular 401(k) today to minimize your overall tax burden since your retirement income tax rate will be lower than your current income tax rate. However, if whoever is president when you retire goes back to the same tax rates we had in 2016, then that taxable income of $100,000/year in retirement will result in an effective tax rate of 15.6%. This would be higher than your current tax rate on your taxable income of $150,000 today of 14.1%. So, in that situation, you’d be better off putting your retirement investment in the Roth 401(k) since your tax rate will be higher in your retirement year.

No one has a crystal ball to predict the tax rates of the future. More than likely, they will go up some years and go down other years. So, should you put your retirement investment in a regular 401(k) or a Roth 401(k)? The best option is to do both and split your investment with half in a regular 401(k) and half in a Roth 401(k). When you are retired, if the effective tax rates go up one year, then take money out of your Roth 401(k) that year. On the other hand, if the effective tax rates go down the next year of your retirement, then take money out of the regular 401(k) that year. Your best defense against variable tax rates in your retirement years is a diversified portfolio that includes both the regular 401(k) and the Roth 401(k). If you work for a non-profit company, then the same goes for a regular 403(b) and a Roth 403(b). If your company does not offer the Roth 401(k)/403(b), then put some money in the regular 401(k)/403(b) and some money in a Roth IRA (depending on your income level, you may need to initially put money in a traditional IRA and then do a Roth IRA conversion to avoid penalties).

In a letter to Jean-Baptiste Le Roy, Benjamin Franklin famously wrote: “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” I would add to that that the only thing certain about taxes is that the rates will be different in the future.

March 15, 2021

Hospital Finances

How Should Hospitals Subsidize Physicians?

Hospitals and the physicians that practice in them have a conflicted relationship. They are mutually interdependent but often are often adversaries when it comes to finances. Across the country, this is the time of year that academic medical centers are preparing budgets for the next year. Most academic hospitals are on a July-June fiscal year to coincide with the June graduation of medical schools and the July start of new residents in the hospital. So, February and March is the prime season for physician practices to submit budget request for subsidies for the upcoming fiscal year. And every year, at every hospital in the country, more resources are requested than the hospitals have to give.

2019 was a turning point, when for the first time, more physicians were employed by hospitals than were self-employed. In academic medicine, the percentage of hospital-employed physicians is even higher. As with most things in life, the primary driver of this employment model is economics. By joining physicians and hospitals together, lower malpractice premiums can be negotiated and higher rates from commercial health insurance companies can be negotiated. The hospitals and doctors can better align their services and administrative efficiencies of larger size can often be realized. The hospital can be assured of referrals from hospital-employed physicians and the physicians can have a greater say in the services that the hospital provides.

But it is becoming increasingly difficult for physicians to earn enough to cover their entire salary + benefits. This is particularly true for specialties such as hospital medicine and palliative medicine where the time required to provide optimal care exceeds the professional fee reimbursement. But hospital-employed physicians generally do not use revenue from professional services as the medium of exchange; instead, it is the RVU that is used as the measure of physician productivity.  And when physicians do not meet RVU targets, they look for other ways to maintain their salaries. Here are some of the ways that hospital-employed physicians can be subsidized.

Everyone wants a nurse practitioner, physician assistant, or social worker

One of the easiest ways physicians can increase their RVU numbers is by having someone else generate them. A nurse practitioner or physician assistant is ideal because both NPs and PAs can write orders and can bill for services. If the hospital hires an NP or PA to assist a physician, that NP or PA can do all of the “scut” activities that would otherwise occupy the physician’s time without generating many RVUs. This could include doing phone calls, writing prescriptions, entering progress notes and orders into the electronic medical record, and filling out forms.

Surgeons can particularly benefit by this type of arrangement because the surgeon will be paid a set amount for doing a surgery and that amount is supposed to include post-operative follow up care. If the surgeon has a PA or NP doing the post-operative visits, either in the hospital or in the office, then that frees up the surgeon to be able to do more surgeries. Additionally, if that surgeon has an experienced PA assisting in the operating room, the surgeon will be more efficient and can do more surgeries per day. So, frequently, having the hospital pay for an NP or PA can be a win-win: the surgeon can do more surgeries leading to more RVUs for the surgeon and more procedural revenue for the hospital.

Because NPs and PAs cost considerably less than a physician, they can also be used to reduce costs in certain areas within the hospital. For example, if an emergency department is too busy for a single physician but not busy enough to justify 2 physicians, then a physician plus a nurse practitioner may make sense. Similarly, if an ICU is too busy for a single physician but not busy enough to justify 2 physicians, then a physician plus a physician assistant may be more cost-effective.

However, there are 2 situations when this type of subsidy can go wrong. First, if the NP or PA is used to subsidize an otherwise underperforming physician then the hospital is paying to support an inefficient physician (or one that just does not want to work very hard). Second, if the physician demands their own full-time PA or NP but the workload only justifies a partial FTE, then there is money wasted on the NP or PA who is not busy enough to justify their cost. The solution to the first situation is to be sure that the surgeon’s productivity is being benchmarked to others in that specialty. The solution to the second situation is to have an NP or PA who is shared by multiple surgeons.

Another common request by physicians is a social worker who works only for that physician to help with patient counseling and care coordination. Some physicians will ask for a scribe (particularly those who grew up before the era of the computer keyboard and can’t type). Other physicians will request a nurse to take care of phone calls and scheduling. In some situations, each of these requests may be valid and valuable. But each of these requests must have a careful cost:benefit analysis.

Call pay

You can’t cover the cost of a physician being on call with professional fee revenue. The hospitalist covering the inpatient service at night will generate a small number of RVUs from nighttime admissions but does not generate any RVUs from the calls from the floor nurses. The pediatrician taking home call at night can bill only a tiny number of RVUs for every phone call from an anxious parent of a child with a fever at 2 o’clock in the morning. The surgeon on trauma call who has to be within 20 minutes of the hospital at all times may not generate any RVUs if there are no motor vehicle accidents or gunshot victims that night.

In the past, for self-employed physicians, taking call was just part of the job. But increasingly, hospital-employed physicians are expecting addition pay to be on call. Similarly, physicians are often requiring a supplement for working on holidays.

Call pay is a necessity in many situations. Your hospital cannot manage myocardial infarctions, be a designated stroke center, or be a trauma center without an interventional cardiologist, stroke neurologist, or trauma surgeon available 24-hours a day. But what about specialists for less time-sensitive diseases or for conditions that less frequently result in calls to the hospital at night? Should the hospital provide call pay to the otolaryngologist, the endocrinologist, the psychiatrist? Which specialties warrant call pay will vary from hospital to hospital depending on the size of the hospital and the scope of emergency services provided.

Direct subsidies

These are often listed as “physician support” or “hospital investment” and are funds transferred from the hospital directly to the physicians to subsidize their income. Frequently, these are justifiable means to ensure availability of physician services. For example, hospitalists almost never bill enough to cover their salaries. Hospitals with a high percentage of uninsured patients or patients with Medicaid will have a difficult time attracting specialists who will be paid nothing or next to nothing in profession fees. In these situations, subsidies are necessary for the physicians to make a competitive take-home income.

But sometimes these direct subsidies are used as ransom by physicians when the hospital has no alternatives to provide that particular service or procedure. If all three of your hospital’s gastroenterologists demand an extra $50,000 per year or they are going to leave to go work at a hospital across town, you may have no option but to pay them. Ransom subsidies can be be as maliciously infectious as the plague… as soon as other physicians find out that the hospital is paying one group of physicians just to keep them, then every group of physicians will have their hand out.

Direct subsidies are particularly common in academic medical centers. These medical centers must produce research and education but the amount of money that physicians get paid directly from research grants or teaching appointments is so much less than they get paid for clinical activities, that in order to keep those physician researchers and educators, the hospital has to support their salaries. Furthermore, the success of a department chair or division director is measured by that department’s or division’s research and educational output and so that chair or director is incentivized to bring on as many researchers and educators as possible, requiring the additional costs of those researchers and educators to be passed on to the hospital. Although some subsidy is necessary, there is a limit to the number of researchers that the hospital can support, particularly if those researchers do not have grant funding. The hospital must have a regular accounting of the value that every subsidized researcher and educator brings.

It can be challenging when the clinical volume of the hospital is insufficient to justify a 100% FTE physician. For example, if the inpatient cardiology consult census only averages 5 patients per day, then that only equates to 2-3 hours of inpatient work per day. If the cardiology group wants to put one physician in the hospital all day for consult coverage, then they are going to require an enormous subsidy. It may require some negotiation with the cardiology group in that situation to have that consult cardiologist also assigned to interpret EKGs, read outpatient cardiac echos, or do outpatient telemedicine visits when the consult service is slow. Usually creative thinking and flexibility can solve the dilemma.

Medical directorships

In the past, this was a common way of disguising subsidies to physicians, with medical directorships paying a lot more than the actual physician time required to perform a given administrative role. However, more recently, CMS is requiring that fair market value be paid for medical directorships and this generally means ensuring that medical directors keep time logs and ensuring that medical director compensation be in line with national averages.

However, this is an important way for the hospital to get the administrative and quality oversight that it needs so that the operating room runs efficiently, the emergency department is meeting regulatory standards, and the intensive care unit has protocols in place. If the uncompensated administrative time required for a service provided in the hospital is 2-3 hours per week, then a 5% FTE directorship is appropriate. For administrative jobs that require only a few hours per year, sometimes an unpaid medical directorship that comes with a title (but no money) is sufficient for many physicians.

Think beyond this month’s financial statement

Every year, I get requests for more nurse practitioners & physician assistants than the hospital can afford and each year, I get a requests for enough direct subsidies to put the hospital in deficit. Deciding who and how to subsidize requires careful analysis of upfront costs and benefits as well as downstream costs and benefits. Sometimes the requests that seem most outlandishly over-expensive on the surface can either dramatically increase revenue or decrease expenses in the long-term. But sometimes, the requests that are most outlandishly over-expensive on the surface are really just outlandishly over-expensive.

March 14, 2021

Physician Finances Physician Retirement Planning

The 15 Commandments of Physician Financial Health

For physicians completing residency or fellowship, managing finances can be bewildering when that first paycheck as a practicing physician comes in. There was no class in personal finance in medical school. So, here is a short course on the basics of financial health: 15 rules to live by.

1. Have an emergency fund

This is the very first thing that a newly practicing physician (or anyone, for that matter) needs to do to ensure financial safety. No event in generations has made this more clear than the COVID-19 pandemic which brought unemployment rates higher than any time since the Great Depression.

But unemployment comes in cycles and it is certain that there will be 2-3 additional spikes in U.S. unemployment during your working career. Although physicians were relatively immune to the 2020 COVID-associated unemployment spike, it is common to suddenly find oneself out of a job if the hospital terminates the contract with your practice group, the hospital closes, or a hurricane destroys your hospital. Although physicians can usually find a new job somewhere, it can take several months to process a hospital application or obtain a medical license in a different state. You need a minimum of 3 months-worth of expenses and preferably 6 months-worth in a safe investment (checking account, savings account, or money market account).

2. Eliminate excessive debt

A newly trained physician has a lot of pent up consumption. The roommate that you graduated from college with 7-8 years ago drives a new BMW, vacations in the Turks and Caicos, and just joined a country club. Meanwhile, you’ve been driving a 15-year-old Chevy that was handed down from your aunt, your only vacation last year was to visit your in-laws in New Jersey, and fine dining involves a Domino’s pizza. You want to catch up and that first paycheck is going to be more than you made in the past 4 months of residency. You will be tempted to max out your credit cards in anticipation of that paycheck and you’ll be tempted to put that first paycheck towards a new house/car/vacation. There will come a time for expensive purchases but have patience and do not take on excess debt, especially early in your career. If you cannot pay off your credit cards every month, then you are buying too much stuff. Too high of a monthly mortgage payment or car loan will financially suffocate you for years to come.

3. Buy insurance judiciously

Everyone needs health insurance and most people need some other type of insurance. When you are first starting out in your career, you will have lots of people trying to sell you things, especially insurance policies. But be careful and only buy the insurance that you actually need:

  • Life insurance. This comes in 2 main types: term and whole life. When you buy life insurance, you are making a bet with the insurance company – you’re betting that you are going to die when you are young and the insurance company is betting that you are going to die when you are old. Term life insurance is relatively inexpensive and straight forward: you pay the insurance company a set amount each month and the insurance company pays your beneficiaries if you die while your policy is active. Whole life is a lot more complicated and considerably more expensive – it is the marriage between term life insurance and a savings account and that marriage cost you much more than the individual cost of the insurance plan and the savings plan individually. The insurance agent will try to sell you on whole life in order to put his or her children through college. My advice is that term life insurance is necessary when you have young children or a spouse who does not work – once you are close to retirement, you no longer really need it. Avoid whole life insurance.
  • Disability insurance. Every physician should have disability insurance until they retire. Unlike life insurance which is there to support your dependents if you die prematurely, disability insurance is there to support both you and your dependents if you become disabled. After you retire, you no longer need it.
  • Umbrella insurance. Once you become a practicing physician, you will have a big red bull’s eye on your back that every plaintiff attorney in the country can see. They know that you don’t bother to sue a person at fault who is broke, you sue the person who has money… and physicians have money. If you or a family member are involved in a motor vehicle accident with injuries or if a pedestrian falls and breaks their neck on your sidewalk, you need excess coverage. Buy a $1 million policy.
  • Annuities. These are the opposite of life insurance and can be considered as death insurance: You are placing a bet with the insurance company that you are going to live a long time and the insurance company is betting that you are going to die soon. However, this is really what a pension is – a way to insure that you still have an annual income if you live longer than you expected to. So, buying a simple annuity is a lot like purchasing a pension. The problem is that annuities can be extremely expensive and insurance companies often dress them up with all kinds of extra features that you don’t really need (and most people don’t understand). Insurance agents make a bunch of money on annuities, so they will push them very hard. They still might be worth it for people with a relatively lower income. For high-income physicians, avoid them – your regular investments will be substantial enough to buffer your retirement and will be much less expensive than an annuity.

4. Start saving for retirement early

The secret to building a sizable retirement fund is compound interest. It is true investment magic. Over the past 50 years, the U.S. stock market has averaged an annual 10.9% rate of return. So, lets assume that after expenses, you get a 10% annual return. If you invest $36,000 into your retirement fund today, how much will you have in 35 years when you retire?

Compound interest is the secret to turning $36,000 into $1,012,000 for your retirement. Therefore, the earlier you can start saving for investment, the less burdensome investing will be – even a small amount of investment early in one’s career can make a huge difference. But most people do not just contribute to their retirement account in 1 year, most people contribute something to their 401(k), 403(b), 457, IRA, or SEP every year. Once again, compound interest is magic:

5. Use 529 plans for your kid’s college savings

College is expensive and it keeps getting more expensive, faster than normal inflation. For most families, college will be the largest expense they will have after their house. One of the challenges is that unlike retirement, where you have 35 years for compound interest to create wealth, you only have 18 years from the birth of your child until that child has college expenses. Therefore, it is essential that you start saving as early as possible, preferably the year the child is born. There are a number of investment options to save for your child’s education but none are better than the 529 plans. Their advantage? The investment grows tax-free and then when you take the money out for educational expenses, you don’t have to pay any taxes on the withdrawals. Furthermore, you can usually deduct contributions from your state income tax – in Ohio, you can deduct up to $4,000 per year of contributions into each child’s 529 plan. No other college savings investment comes close to these tax advantages of the 529 plans.

When our first child was born in 1988, our goal was to have enough saved up to pay for 4 years of a public university in Ohio by the time that child was a senior in college. So, we put $5,000 into a college fund the year she was born and then had $100 automatically transferred from my checking account into the college fund each month. For our children born later, we increased the monthly transfer a bit to allow for inflation. By the time each of them was in college, their college funds had enough to pay for a public university.

But 1988 was 33 years ago and college will cost a lot more 18 years from now. So, to pay tuition, room, and board for a public university in Ohio in 18 years (estimated at $255,000), you would have to start with $15,000 initial investment and additionally save $250 per month. If your goal is for your child to go to a private university, for example, the University of Notre Dame, you’re going to need $764,000. That means that you’ll need to start off with $15,000 initial contribution and add $1,000 per month.

6. Don’t pay someone else to invest your money

Physicians finishing residency or fellowship are inundated with letters from financial advisors who want you to become their client. They will invite you to free financial planning seminars, they will take you out to nice dinners, they drive nice cars, and they have really nice offices. They make a living off of other people’s money. I will argue that physicians are smart enough to do their own investing, at least early in their careers and you are better off putting a little more money into your retirement account than into a financial advisor’s fees. But this is contingent on taking enough time to learn about investing and financial intelligence. 10 hours of homework can save you thousands of dollars in the long run.

7. Choose retirement investments strategically

Your choice of what type of retirement accounts to invest in today should be guided by what you believe your effective tax rate will be in retirement. In general, income tax rates will be lowest during residency and fellowship, will gradually increase over the course of a physician’s practice career, and then will fall again after retirement. The strategy is to pay income taxes at a time in your career when you have the lowest effective income tax rate. Therefore you need to know which taxes you pay in the distribution year (when you withdraw the money) versus the contribution year (when you earned the money).

When a physician is a resident or fellow (and thus having a relatively low income tax rate), a Roth IRA is the most tax-advantaged retirement investment. This can be as direct contribution to a Roth IRA if one’s income is below the Roth contribution threshold set by the IRS. Alternatively, it can be as a post-tax contribution to a traditional IRA that is then converted to a Roth IRA if one’s income exceeds the Roth contribution threshold (the “backdoor Roth”). The income tax-advantaged time to contribute pre-tax investments (403(b), 401(k), 457, and SEP) is during a physician’s practice years when their income tax rate is relatively high. During these earning years, the following is my recommendation for prioritizing retirement contributions:

  1. Matched 401(k) or matched 403(b). Never turn down free money and if your employer is going to match your contributions with free money, take it!
  2. 457. This type of retirement account is offered through government agencies/institutions. The advantage of the 457 over the 403(b) and 401(k) is that if you retire before age 59 1/2, you cannot take money out of the 403(b) or 401(k) but you can take money out of the 457.
  3. Non-matched 401(k) or 403(b). The 401(k) is offered by for-profit companies and the 403(b) is by non-profit companies.
  4. Simplified employee pension plan (SEP). Use this if you have self-employment income, for example, honoraria and expert witness income.
  5. “Backdoor” Roth IRA. Use this after you have maximized contributions to the above retirement options.
  6. Regular investments. You will pay regular income tax on the annual interest and dividends. You will pay capital gains tax when you sell stocks, bonds, or mutual funds on the accrued value of those investments (selling price minus purchase price). Most physicians will be in the same capital gains tax bracket when working and when retired (15%) So there is no tax advantage of selling these when working versus when retired.
  7. AVOID TRADITIONAL IRAs. Except during residency and fellowship, nearly all physicians will have a taxable income that will exceed the threshold set by the IRS for pre-tax contribution to a traditional IRA. Therefore, traditional IRA contributions will be post-tax contributions. The problem is that when you take money out of a traditional IRA in retirement, you will pay regular income tax and that tax rate will be higher than the capital gains rate that you would be paying if you had instead put that money in a regular investment.

8. Your first mutual fund should be a no-load index fund

Your most powerful tool in investing is the magic of compound interest. However, annual expenses of a mutual fund can erode those benefits of compound interest. For example, lets assume you invest $100,000 for 20 years with an 8% annual return. Fund A has an expense ratio of 0.21% and fund B has an expense ratio of 1.15%. At the end of those 20 years, the total cost of fund A will be $19,190 and the cost of fund B will be $96,260. That is a $77,070 difference! Index funds have annual expenses that average about one-eighth those of actively managed funds. In addition, if you have to pay a front-load (commission) when you purchase the mutual fund, then you not only pay the cost of that commission but you also lose all of the compound interest wealth that you could have obtained had that money stayed in your account. Some people would argue that it is acceptable to pay a commission or a higher annual expense for an actively managed mutual fund because the professional fund manager can pick stocks and bonds that are more likely to increase in value. The problem is that more often than not, this just is not true – index funds actually out-perform actively managed funds. The following graph shows the annual return over the past decade for U.S. index funds versus actively managed funds. The only area where actively managed funds out-performed index funds was in corporate bond funds. Data from the previous decade looked exactly the same.

9. Don’t buy individual stocks

If professional stock analysts who run actively managed mutual funds do not perform as well as the index, why would an amateur expect to pick stocks any better? In an analysis of the Russell 3000 index between 1983-2008, only 36% of individual stocks performed better than the Russell 3000. By purchasing an index fund, you are purchasing a small piece of dozens, hundreds, or thousands of individual stocks thus spreading out your risk. Only purchase individual stocks for entertainment purposes with money left over after you contribute to your investment accounts.

10. Timing the market doesn’t work

There is an old adage that “Time in the market beats timing the market”. If the professional mutual fund managers do not have a crystal ball to predict when the stock market is going to rise and fall, then neither do you. Lets say you invested $10,000 in a broad stock index fund in 1990. If you did not touch that money and left it alone, by 2020, you would have $172,730. However, if you were taking money in and out of your investment trying to optimally time the market and you happened to miss out on the 10 single best days in the stock market over that 30-year period, you would only have $86,203. No one can predict that the next day is going to be one of the best (or worst) days of the stock market. Day trading is for entertainment but not for investment. That being said, I do have one character flaw when it comes to investing: when the stock market falls by 5%, I invest a little in stock index funds; when it falls by 10%, I invest a bit more; and when it falls by 20%, I invest as much as I can afford.

11. If you don’t understand it, don’t buy it

This applies to any type of investment. If you don’t know what a company manufactures, don’t buy stock in that company. If you can’t figure out how an annuity works, don’t buy it. And if you have heard of Bitcoin but don’t really understand how it works or how it is made, don’t buy it.

12. Know your investment horizon

Over time, stocks outperform bonds. However, in the short-run, stock prices are much more labile than bond prices. So, if you anticipate that you will need money in 3 years, say for a down payment on a house, don’t put that money in stocks. Instead put that money in a less volatile investment such as a bond fund or a certificate of deposit. On the other hand, you are saving for your planned retirement in 30 years, your money should be primarily in stocks because you can ride-out the year-to-year volatility of the stock market over a 30-year time period in order to achieve the higher long-term yields.

13. Diversify

Just like diversifying your stock portfolio by buying an index fund provides greater financial stability than buying individual stocks, diversifying your entire investment portfolio creates greater investment stability. Early in your career, this means having a retirement portfolio that is composed mostly of stock index funds and then later in your career, increasing the percentage of bond and real estate funds. In an ideal world, a diversified retirement portfolio would include a pension, a 401(k)/403(b)/457, a Roth IRA, and individual investments.

14. Pay off student loans strategically

The average U.S. medical student graduates owing $200,000 for medical school and an additional $25,000 from undergraduate college. The monthly loan repayment is around $350/month during residency and then balloons up to around $2,000/month after residency. So how should a newly trained physician approach having a staggering $225,000 debt on the first day of their career? First and foremost, always pay off monthly loan payments on time – the penalties for late payment are severe. However, if you have money left over at the end of the year, should you try to pay off the student loan early or put the money into a pre-tax retirement investment? Although it is laudable to strive to be debt-free, it is better to be debt-smart. The first $2,500 of student loan interest is tax-deductible which has the net effect of reducing the net interest rate that you actually pay each year. If you do the math, you come out ahead if you put that extra money in a 401(k)/403(b)/457/SEP rather than try to pay off the loan early. The bottom line is don’t postpone retirement investment by trying to pay off the student loan too quickly.

15. You are your finances best friend and worst enemy

When it comes to investment, a little knowledge is dangerous but a lot of knowledge provides security. I’ve seen many smart physicians who spent thousands of hours training to care for the health of their patients but less than 2 hours training to care for their own financial health. I’ve seen physicians put all of their retirement investments in money market funds rather than stock funds because they were afraid of risk, even when retirement was 25 years in the future. I’ve seen physicians invest heavily in an individual stock based on a “tip” from a golf buddy, stock broker, or family member. I’ve seen world famous physicians having to live frugally in retirement because they couldn’t conceive of a day that they would not be practicing medicine during their careers and so they never saved for retirement. I’ve seen physicians sell off most of their investments in 2009 when the great recession hit and then do it again in March 2020 when the COVID-19 pandemic hit because they thought that the end of the financial world was coming.

Investment, and particularly investment for retirement, is a marathon and not a series of sprints. Develop a plan for the long-term and then stick with that plan during short-term rises and falls in the marketplaces. It is OK to periodically re-balance your portfolio and to modify your investment plan as you get older and as your financial situation changes but those modifications should be based on long-term goals and not short-term fears. There is a difference between gambling and investments. Gambling is a series of short-term expenditures but you know that over the long-term, the house is always going to beat you. Investment is a series of short-term expenditures but you know that over the long-term, you are always going to come out ahead.

March 11, 2021


Who Should Be Prioritized To Receive COVID Vaccinations?

One sure way to elicit an “OK boomer” comment from anyone under age 50 is to quote the comic strip, Pogo. In the War of 1812, naval commander Oliver Hazard Perry defeated the British navy in the Battle of Lake Erie and messaged the military leadership “We have met the enemy and they are ours”. In 1970, Pogo creator, Walt Kelly, satirically paraphrased Perry’s message in an Earth Day commentary about pollution by having his character say “We have met the enemy and he is us”. A half century later, Pogo’s statement could also be applied to prioritizing COVID-19 vaccinations: “We have met the COVID special interest groups and they is us”.

When it comes to the COVID vaccine, there are two types of people, those who are not going to get it because they fear it and those who want it as well as believe that they should get it before anyone else.

When the vaccines were first authorized for use by the FDA in December 2020, each state was directed to make its own criteria for which groups of people would receive the vaccine first. The CDC and the FDA provided general recommendations but this was really a “state’s rights” issue. Most states initially approved vaccinating healthcare workers, followed by different at-risk groups.

On the surface, vaccinating healthcare workers made perfect sense – these are the people who were risking their health and their life exposing themselves by caring for patients infected with COVID. Furthermore, we need healthy healthcare workers to take care of patients hospitalized with COVID. But should all healthcare workers be prioritized ahead of the rest of the population? Across the country, hospitals developed a process for ranking their employees for who should get the vaccines in what order. Some categories of healthcare workers were easy, for example, emergency department and intensive care unit nurses. But after that, things get a bit controversial.

What about the nursing unit clerk who does not have direct contact with COVID patients but is working at a desk down the hall from sick patients? What about the primary care physician who does not care for patients in the hospital but might encounter a patient with undiagnosed COVID coming into the office with sinusitis symptoms? What about the facilities worker who might be called to do a repair in a hospital room with a COVID patient in it? What about the billing office staff who are working from home but who are essential to keeping the hospital open and running? What about healthcare professions students who are not permitted by their school administration to care for COVID patients but could encounter a patient with asymptomatic COVID infection during a clinical rotation??

Throughout the country, each of these groups of healthcare workers started lobbying that they should receive the vaccine or that they should be moved up on the prioritization list. In January, media coverage exposed hospital board members, hospital staff working from home, and health profession students who were not providing direct patient care to COVID patients. This resulted in outrage by state legislators and governors across the nation who directed that vaccine prioritization move to non-healthcare worker groups.

Many states next prioritized nursing home residents and workers. This made a lot of sense because these patients were not only at high risk of being hospitalized or dying if they got infected but because they live in confined areas close to a lot of other nursing home residents, they were more likely to get infected than people who lived independently in their own home and could isolate themselves. But what about people who live in other congregate settings such as college dorms, homeless shelters, and prisons? At the beginning of the pandemic, many prisons in the United States experienced outbreaks of COVID with large numbers of inmates and guards becoming infected. In several states, these outbreaks among prisoners were of sufficient magnitude to overwhelm hospitals to the point that it became difficult to provide care to regular citizens. In response to this experience, some states prioritized prisoners and the homeless for getting vaccinated resulting in outrage by regular tax-paying citizens.

Some states prioritized people with various diseases. This immediately created lobbying by people with one disease to be prioritized over people with other diseases. Should people with asthma be prioritized before people with COPD? Should people with type I diabetes be prioritized before people with type II diabetes? Should people with cystic fibrosis be prioritized before people with pulmonary fibrosis? In Ohio, asthma, type I diabetes, and cystic fibrosis were prioritized over the other conditions. The whole idea of lobbying is to convince governments to give something to one group instead of another group. As with all lobbying, the decisions made by states about which diseases should be prioritized first werenot often not made based on the science of epidemiology but rather based on which group could most eloquently and effectively lobby to get vaccinated first. Moreover, how do you prove that a person has a particular disease? Do they need to have a note from their doctor or do they just need to say that they have one of the diseases when they show up at the vaccination site?

Another group of citizens to be prioritized  were “essential workers”. Depending on your vantage point, more than half of employed people in the U.S. are “essential”. Where do you draw the line between grocery workers, restaurant workers, members of the military, farmers, teachers, government workers, and manufacturing workers?

The least controversial prioritization grouping was by age. The probability of being hospitalized or dying if a person becomes infected with COVID is directly related to that persons age. People < 18 years old have an exceedingly low COVID hospitalization rate and mortality rate. People > 80 years old have a 25% COVID mortality rate. By using age as a criteria, lobbying is eliminated – a lobbying group for people 60-65 years old is not going to demand that their constituency be vaccinated before people 70-75 years old. It is easy to provide proof of eligibility – all you need to do is show your driver’s license or other identification, you don’t need a letter from your doctor stating that you are 68 years old.

From a societal standpoint, vaccine prioritization should be guided by:

  1. Which people are at highest risk of death or disability if they get infected 
  2. Which people are at highest risk of creating a lot of expense if they get infected
  3. Which people cause the greatest societal disruption if they get infected
  4. Which people are most likely to get infected
  5. Which people are likely to spread the infection to others if they get infected.

The first two groups of people are the same – those who create the greatest expense are those who get hospitalized and these are the people who are most likely to die. Age is clearly a leading predictor of death and hospitalization. People older than age 85 years infected with COVID are 80 times more likely to be hospitalized and nearly 8,000 times more likely to die than people under age 18 infected with COVID.The table below from the Centers for Disease Control shows the risk of hospitalization and death from COVID infection by age.

Other strong risk factors for hospitalization and death from COVID-19 are obesity, chronic kidney disease, diabetes, and hypertension. Because there are varying degrees of obesity, hypertension, kidney disease, and diabetes, it becomes very difficult to decide where to draw the line by BMI, systolic blood pressure, creatinine level, and hemoglobin A1C.

The second and third of these groups require even more value judgement. For example, does a firefighter who has to go out on sick leave result in more social disruption than a grocery worker who has to go out on sick leave? We know that certain racial groups are more likely to become infected than others so should people belonging to one race get vaccinated before people belonging to other races?

Ultimately, nearly all of us are in a COVID vaccine special interest group and can think of some reason or another for why we should be vaccinated before the rest of the population. In many ways, this is better than the alternative of no one wanting to get vaccinated. Fortunately, the number of new cases of COVID is falling and the amount of vaccine is increasing, so soon, everyone who wants a vaccine will be able to get one. Until then, maybe we should just keep things simple and use age alone as the criteria for prioritizing vaccination.

February 25, 2021