As we near the turn of the calendar, we focus this column on how vitreoretinal fellows or recent fellowship graduates can avoid financial pitfalls and achieve fiscal fitness early in their careers. To this end, the Fellows’ Focus section editors put together a forum of vitreoretinal surgeons from varied geographic, financial, and educational backgrounds to offer insights on important topics.

Although retina surgeons are highly trained in repairing macular holes and delivering anti-VEGF injections, they are not necessarily experts in finance. Luckily, the mentors who trained us in the OR have experienced the issues we face with student loans and personal finance. It is as prudent to learn from their experiences in personal finance as it is to accept their pearls on membrane peeling, and they are eager to ensure that the next generation of retina doctors finds financial security.

We are pleased to present the first part of this conversation; Part 2 will appear in the 2016 January/February issue.

— Jayanth Sridhar, MD

SAVINGS AND DEBT

How do I manage student loan debt?

Chirag Shah, MD, MPH: Student loan debt is, generally, good debt to have, as it is usually low-interest. If your net investment return can beat your student loan interest rates, then there is no need to rush to pay off your student loans. The same goes for any kind of debt, such as a mortgage.

Ryan Isom, MD: At today’s student loan rates, you are likely better off paying down debt than investing. Given the guaranteed return, I would consider paying off any debt with interest rates above 4% or 5%. I advise paying off debt before saving a substantial emergency fund, but once it is paid off, saving 3 to 6 months of living expenses in a liquid savings account is typical.

At a Glance

• The decision whether to pay off student loans or to invest and save must be calculated based on return on investment versus the cost of maintaining the loan.
• Each type of retirement investment account has benefits, but, in general, investing pretax dollars maximizes financial security.
• Illiquid investments such as real estate should be considered only after the investor decides on long-term lifestyle and career choices.

James Vander, MD: This is a math problem that depends on loan rates. If the loan rate is low, then create savings sooner. Remember that student loans are essentially never forgiven and, even if investments tank, you still have to pay off your loans. If the loan rate is high, then pay it off as quickly as possible.

How much in savings should I keep as a fellow or junior attending?

Dr. Vander: This is a highly variable number that depends on many factors. The compounding effect of time works very much in the favor of a fellow, and one should try to start saving as much as possible. The temptation of nice trips, cars, and other luxuries, however, competes with the need to save. Life is about the balance between choices and sacrifice, right?

Dr. Shah: Choosing a lifestyle is very much an individual decision, and it affects how much or little you choose to save during every stage of your career. Some live extravagantly, paycheck to paycheck, with little savings or financial planning. Others live well below their means, saving and investing every penny with a disciplined financial plan.

Dr. Isom: The most important time period for financial success is the first few years of a junior attending’s career. If you continue to live like a resident for a few years, you can do it all. You can even double your lifestyle and live off of $80 000 a year instead of $40 000, but do not quadruple your lifestyle. Do not buy a fancy car, a boat, and take out an interest-only mortgage on a $1.5 million home. Once you increase your standard of living, it is difficult to decrease it, and you will find yourself a 60-year-old physician with very little in your retirement accounts and a mortgage on a vacation home that you cannot use because you must work too much to pay it off.

INVESTMENTS

When should I start investing for growth?

Dr. Vander: As soon as you have enough money to pay the rent, pay your student loans, and cover your practice buy-in, you must begin investing for growth. Start with something immediately, even if you invest a modest sum. Gets things started and it will get you in the habit.

Dr. Shah: Ideally, investing is something you have done your whole adult life, albeit on a smaller scale while you are an attending. Start investing and collecting compounding interest as early as you can.

Dr. Isom: You should start investing as early as possible, but, more important, you should learn about investing as early as possible. The website of James M. Dahle, MD, is an excellent resource (www.whitecoatinvestor.com) and his book The White Coat Investor is an excellent introduction to investing and avoiding the pitfalls into which many doctors tumble.

You should invest in a Roth IRA as soon as you are able. There are income restrictions to investing in Roth IRAs that you will likely hit as an attending. Roth IRAs are the ideal vehicle for a young saver because they grow tax-free and you can take the money out tax-free in retirement.

How should I approach investing?

Dr. Shah: The most important thing to remember is that the biggest mistake wealthy people make is losing their wealth. That said, consider starting with a simple, diversified stock portfolio using low-cost index funds. You can contemplate and decide how much you wish to allocate to domestic and foreign stocks and bonds. Consider dollar cost averaging, meaning every week (or month or quarter) you invest the same amount in the same proportions into your funds. Also consider rebalancing every so often to maintain your proportions. An excellent resource is The Elements of Investing by Burton Malkiel and Charles Ellis. It is a quick read and has many helpful pearls for investors.

Dr. Vander: Make investing part of your monthly or quarterly routine and invest as much as you can. It is not negotiable (with yourself). Make it like paying an electric bill: You have no choice. I am a big fan of index funds and exchange-traded funds, as they provide a low-cost method of producing reasonable returns without bleeding from fees. Also, maximize your investment of pretax dollars. Use 401(k) accounts to their limits. Then use Roth IRAs, which will use after-tax dollars but will grow without additional tax payments. If your practice has a cash balance plan, that is a great option too.

Dr. Isom: The single most important factor in investment return is cost of investing. Invest in low-cost index funds. The order that many investors follow is to first invest in an available 401(k) up to the match, if your employer matches. The match is free money. After that, max out your Roth IRA, then max out the rest of your 401(k). The maximum for 2015 is $5500 for a Roth and $18 000 for a 401(k).

After that, consider a health savings account (HSA), which currently has a $6500 maximum investment option available to those with high-deductible health insurance plans that meet certain requirements. Funds can be applied to HSAs before taxes, further limiting tax liability, but their use is slightly more complicated if used as a retirement savings vehicle. Keep track of health care expenses over your lifetime and pay for them with after-tax dollars, then finally “pay” for all of those when you retire with money that grew tax free in your HSA. Beyond that, you can further limit tax liability with profit-sharing 401(k) plans (limit of $18 000 in 2015), defined benefit plans, and finally, taxable accounts.

Do you change your investment strategy as you progress in your career? What about hiring financial advisors?

Dr. Shah: As your wealth accumulates, you may wish to get more sophisticated and consider real estate or
private equity investments. If you are not comfortable managing your own finances, many financial advisors would love your business.

Dr. Isom: Doctors are a favorite target of investment advisors because they are often financially illiterate, have substantial income, and are “too busy” to bother with the details of investing. Investment advisors make money from their 1% to 2% advisory fee and from fees they get for steering you into mutual funds with higher expense ratios. Investing with a low-cost company such as Vanguard will cost you 0.2% annually for broadly diversified index funds versus 1% advisory fee plus 1% average expense ratio for mutual funds. If average returns are around 7% to 8%, you are already cutting that down to 5% to 6% a year with a high-cost advisor and high-cost expense ratio mutual funds. Many physicians will still not want to do it on their own and wish to hire a financial advisor. That is fine, just do not pay too much for the advice. Consider a “fee only” advisor or an hourly advisor instead of an “asset under management” fee advisor.

Dr. Vander: Many people seek guidance from financial advisors, which is not unreasonable. Fees, however, often are unreasonable. New doctors will be inundated with offers of advice and recommendations promising great rewards, most of which fall short.

When should I start thinking about college funding and retirement?

Dr. Vander: For college, 529 plans help, and their impact is greatest if started at the birth of each child.

REAL ESTATE

When should I make my first real estate
purchase?

Dr. Isom: We all know that about 50% of doctors leave their first job within 2 years. Renting is usually wise for the first 1 or 2 years.

Dr. Vander: Real estate is a relatively illiquid asset and therefore not ideal unless one is very savvy. Ask anyone who bought a house when they started a job in 2006 and then wanted to leave town in 2009. In general, be sure that you will be staying in the community before putting down roots and a down payment.

How do noncompete clauses in contracts factor in?

Dr. Shah: Given that many contracts have noncompete clauses, you should expect that if you leave your job you will likely have to leave your region. Although it is nice owning your own house, it may be wiser to rent for a while until you are sure about your job, and also so you can save money for a down payment. n

Ryan Isom, MD, is an associate at Retina and Vitreous Surgeons of Utah in Salt Lake City, Utah. Chirag Shah, MD, MPH, is a vitreoretinal surgeon at Ophthalmic Consultants of Boston, in Boston, Mass. James Vander, MD, is president of Mid Atlantic Retina and a clinical professor of ophthalmology at Thomas Jefferson University in Philadelphia, Pa.

Bryan Kun Hong, MD; M. Ali Khan, MD; and Jayanth Sridhar, MD, are second-year retina fellows at Wills Eye Hospital in Philadelphia, Pa. They are members of the Retina Today editorial board. Dr. Hong may be reached at bhong@midatlanticretina.com. Dr. Khan may be reached at akhan@midatlanticretina.com. Dr. Sridhar may be reached at jsridhar@midatlanticretina.com.