Expert Tips for Physicians: Financial Planning During a Pandemic

Chris Renner

Benefits Director

Published June 10, 2020

The economic impact of the coronavirus pandemic has been devastating. What do you do if you’re an attending physician planning for retirement, or a senior resident facing loan repayment while searching for your first job? It’s hard to know what choices to make during these volatile times, so we spoke with Chris Renner, Director of Benefits at Vituity, for his expert advice.

Q: You’ve endured many financial crises during your nearly three decades of experience. What have you learned from past economic challenges that can be applied today?

Life After Residency

Chris Renner: The sad reality is that the United States endures an economic crisis every ten years or so. The upside is that we pull out of it eventually, so the first rule is not to panic. The next rule is to structure your investments so that when the eventual turmoil effects the markets, you’re positioned to withstand the assault and then recover

A good rule of thumb is to match your fixed income investments (bonds and money market funds) to your age and diversity your equity investments across multiple asset styles. For example: if you’re 45 years of age, invest 45% in short and intermediate term bonds and 55% in stocks (growth, value, international, small cap, large cap). And remember, this is a journey, not a race.

Q: If you were a physician in the current market, what are the three things you would do right now to protect your finances?

CR: These might sound simple, but they’re not always easy to do.

Avoid spending right now. You can probably do without that new car for the time being, and you probably don’t really need that Peloton bike no matter how much you want it. There may come a time when those dollars that you spent will be greatly needed. Patient traffic is unpredictable, so it’s better to save for the unknown and wait for more stability. The hierarchy of savings applies during this time, so brush up on this strategy and apply when and where you can.
Speak with your accountant. Believe it or not, there are opportunities that can arise during economic crises. Find out if you fall into a lower tax bracket due to reduced income. Is this the year you look at a Roth Conversion to take advantage of lower tax rates?
Watch and wait. The economy is volatile. Patient volume looks like it’s on the way to recovery, but that could take a long time. The future of medicine is changing. World government response has added trillions to our debt load and eventually the credit quality for some countries may dictate higher interest rates and more volatility. With all this change in the air, we all need for things to settle before we decide on the next move. In the meantime, see #1.

Q: Is there a trending question you’re answering for physicians these days?

CR: Most physician questions concern Small Business Administration (SBA) loans, 401k distributions, and 401k loans. Many physicians are applying for the Paycheck Protection Program (PPP) SBA loans, and most are gathering information on the 401k options. Incorporation and disincorporation are also popular inquiries. Overall, most physicians I speak with are gathering data and weighing options.

For senior residents who are not only looking at paying down debt from school loans, considering a move for their new job, buying a home, and saving for the future – where should they be placing their financial focus?

CR: When the CARES Act was signed into law on March 27, 2020, it offered some flexibility to those with federal student loan debt, including immediate payment deferral from March 13 through the end of 2020 without interest penalty. Privately financed student loans do not qualify for this deferral so understand your own loans before assuming you can defer into 2021.

If you have a public loan you're interested in refinancing, wait until 2021. For those with private loans paying interest rates above 4%, check out some of Vituty’s partners. We currently work with a number of financial institutions who offer preferred student loan refinance rates for Vituity physician partners and employees. We have one program that offers refinancing for as little as 1.95%.

Q: What would you advise for physicians who have been saving for a home?

CR: Looking ahead, while housing prices will stay solid through the summer, economic conditions and the world debt load will eventually adversely affect interest rates. Current economic conditions will likely keep interest rates low and housing prices relatively stable for the remainder of the year. However, my prediction is that with unemployment benefits reducing in July (unless Congress acts) and lapsing later in January, continued weakness in the economy will begin to affect credit quality and housing prices adversely soon after.

Near term, it’s a good time to save money for future purchases since housing prices will likely come under pressure when interest rates begin rising. So, continue to save, then watch and wait.

Q: With stability of practice groups being a major concern, can you help me understand how a physician partnership like Vituity has weathered the current financial storm of COVID-19?

CR: Vituity is unique in that is carries virtually no debt, and all profits flow to the physician partners annually. Operating without debt frees the group to make immediate decisions, to nimbly take advantage of growth opportunities, and to implement solutions in quick and innovative ways that are responsive to the current healthcare needs.

The COVID crisis has affected our short-term revenue, as it has nearly all healthcare organizations. But our financial position is solid, and we’ll emerge stronger in many areas of healthcare delivery thanks to a number of rapid innovations. Other healthcare groups are suffering, really suffering, from the strain of a high debt load, thereby diverting financial resources away from things like paying clinicians for years ahead.

“The partnership model creates more control for physicians over their taxable income. So individually, they can expense a lot more than their corporate counterparts.”

Chris Renner, MD
Director of Benefits

Q: Why is it financially beneficial for an individual to be working for a partnership model right now rather than an employment model?

CR: In addition to our relatively strong financial stability, the partnership model creates more control for physicians over their taxable income. So individually, they can expense a lot more than their corporate counterparts.

The Tax Reform Act created opportunities for perhaps 80% of our physicians to save $9-$10 per hour in tax deduction income each year. Corporate employees can’t benefit from that. Vituity, because it is a partnership, allows for physicians partners to save more in their retirement plans, increasing their long term savings and allowing physicians the luxury of cutting back their hours as early as age fifty, and retiring comfortably by age sixty.

If you consider the likelihood of future tax increases, the new Secure Act permits physician partners to really reduce their tax savings during retirement with MegaRoth 401ks. Beyond those opportunities, partnerships permit highly paid partners to incorporate and implement additional tax savings options. Partnerships are where it’s at!

Q: How will we know when the economy is recovering?

CR: There won’t be a golden moment when it’s clear that we’re on the path to recovery. We’ve never willingly shut down an economy before. What’s most important is that the patients that have been avoiding care due to COVID-19 infection fears will return to emergency rooms and hospitals to get the care they need. Until then, thank you for your service on the front lines as we all watch and wait.

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