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Important Financial Considerations for Academic Physicians

Academic physicians play a vital and often underappreciated role in our healthcare system. Not only can they be the driving force in medical advancements through research, but they also teach and mentor young physicians entering the field as well. On top of this, they also educate practicing physicians through conferences, lectures, and publications.

Despite this crucial role, academic physicians typically earn significantly less than their clinic physician counterparts. Obviously, salary shouldn't be the only determining factor when making a career (or career change) decision. It can be hard to put a price tag on the satisfaction that could come from teaching young physicians and being at the leading edge of new medical developments. While it will ultimately be up to you to weigh the financial benefits with the intangible benefits of working in academia, the purpose of this post is to point out some of the additional financial benefits of being an academic physician that can reduce the pay gap. It should be noted that many of these advantages are not unique to academic physicians, but they are still important considerations if you are concerned about working for a “lower” salary.


Student Loan Forgiveness

One of the greatest advantages of being an academic physician is that you are likely eligible for Public Student Loan Forgiveness (PSLF). The PSLF Program provides that the remaining balance on your direct loans will be forgiven after you have made 120 qualifying monthly payments (10 years). However, to be eligible you must work for a U.S. federal, state, local, or tribal government employer or work for a non-profit organization. In addition to the employer qualification, you must also be making payments under a qualifying repayment plan.

Considering the average physician has a student loan balance of about $200,000 by the time they graduate medical school, this could lead to significant savings which would help offset that lower salary. While going for PSLF may not be the right move for everyone, an important ratio to consider is your debt-to-income ratio. The higher this ratio (meaning the more debt you have relative to your annual income) and the longer you stay in training before making an attending salary, the more valuable this program becomes.


Retirement Savings

The next benefit of entering the world of academia as a physician is that you will likely have an attractive employer retirement plan. This will likely be in the form of a 403(b), which is the equivalent of a 401(k) for government or non-profit workers. The most important step is to make sure that you are maximizing your employer match. This is free money that your employer is providing for your retirement and is the only time you will get a 100% return on your money without taking risk, so you don't want to miss out.

You can voluntarily contribute up to $19,500 (2021) to your 403(b) annually, not including any employer contributions. This in turn reduces your taxable income by $19,500. While taxes will be due when you pull the money out during retirement, you will save money by skipping the taxes during your peak earning years and paying during retirement when your income is likely lower and in a reduced tax bracket. This tax-deferred growth can result in a significant retirement savings balance by the time you retire if you make it a priority to make the maximum contribution each year.

In addition to a 403(b) plan, it is common for government and non-profit employees to be offered a 457(b) plan as well. A 457(b) plan is a deferred compensation plan that works similarly to the 403(b). Employees can contribute pre-tax money up to the same $19,500 limit as the 403(b). However, the 457(b) will be made entirely of your contributions and will not have any matching contributions from your employer, like the 403(b) would.

It is important to note that you can make the maximum contribution to both your 403(b) and 457(b) in a single year for a total contribution of $39,000 (2021). This means you can reduce your taxable income by $39,000 each year which can result in significant tax savings over the course of your career.

While uncommon these days, some governmental organizations may also give the option of a defined benefit, or pension plan. The benefits you will receive in retirement from these plans are usually based on your salary and the number of years you worked there. Typically, you must decide whether you want to participate in the defined contribution (403b) or the defined benefit plan. This decision is often determined by how far away you are from retirement and what you expect your needs to be in retirement.

Although you will likely have a lower salary as an academic physician, these retirement savings plans can help make up for that. By contributing to these you are not only lowering your current tax bill, but you are also making retirement a priority. It does not matter if you have a higher-paying job but do not increase your savings to retirement. If all your additional income will be spent rather than saved, you will be no better off financially than you are in the lower-paying job. This is another benefit of these plans. Since they are deducted from your paycheck, you never have the chance to spend the money, so they can be thought of as forced savings.


Health Insurance

Many large universities offer low-cost health insurance to their employees due to their ability to self-insure. This can be a substantial benefit when compared to the more expensive options that are available to independent contractors and sole practitioners.

However, this low-cost coverage comes with a tradeoff. Generally, these plans do not meet the high deductible plan definition, and thus participants are not eligible to utilize a Health Savings Account (HSA). Although you will miss out on the triple-tax advantage of the HSA, these plans can still be very beneficial. For families impacted by chronic conditions, these plans can provide savings of thousands of dollars.

Despite not being eligible to utilize HSAs, many plans still offer access to Flexible Savings Accounts (FSA). Contributions to FSAs are still tax-deductible, and withdrawals are tax-free if used for eligible medical expenses. The key difference between FSAs and HSAs is that the funds in an FSA do not roll over year-to-year, and contributions are therefore "use it or lose it."

Another often overlooked benefit of being an academic physician is childcare. Many universities offer nearby childcare. These university-affiliated facilities often have longer hours than private daycares. These facilities are usually significantly cheaper as well. This can result in huge savings if you have or plan to have a larger family.

Another consideration for childcare is that dependent care FSAs can be used to pay for these expenses. This is a great way to cover a portion of your childcare expenses while also lowering your tax bill since the contributions to the FSA are tax deductible. Since the cost of childcare is typically much more expensive than the contribution limits to FSAs, you will not have to worry about not spending it all.


Family and Medical Leave Act

The Family and Medical Leave Act (FMLA) allows employees of covered employers to take unpaid leave from work for specified family and medical reasons. Under this act the employee's job will be protected and their group health insurance coverage will continue as if the leave was never taken. A leave of up to twelve workweeks can be taken during a 12-month period.

While the benefits of this act are not unique to physicians or academic physicians, many academic physician employers provide an additional benefit in conjunction with this act. Oftentimes large universities will allow you to build up unused sick pay to be used as paid time off during your leave under the FMLA.

This can be a huge financial relief if you are starting a family, since childbirth is one of the eligible family reasons you can take a leave under FMLA. Having your income continue during your leave not only eliminates the financial burden of taking time off work, but it also provides greater flexibility in terms of deciding when the right time to start a family for you is.


Continuing Medical Education Allowance

Many teaching institutions include a Continuing Medical Education (CME) allowance in their benefits package. This can save you thousands of dollars every year as you work to meet your state- and board-specific CME credits. Even if you do not have a CME requirement you must meet, a CME allowance gives you a great opportunity to improve your skills through free training.

An added bonus is that the allowance can be used to travel to live, in-person conferences. This gives you a chance to pick a cool destination you would like to travel to while also learning in the process! This perk should not be overlooked as it's free money you can use to improve your skills and help further your career.


Speaking at Lectures

By being an expert in your field, you will likely be asked (and paid) to speak at lectures. In addition to speaking at lectures in your field of expertise, you may also have opportunities to speak at pharmaceutical events. You may even be paid to be an expert witness at some point. All of these are great ways to give your income a boost and help close the income gap of being an academic physician.

Pro-Tip: Don’t forget about that Solo 401k when the 1099 income arrives!

Not only can you travel to cool destinations to learn at conferences using your CME allowance, but you may also have opportunities to travel across the world to teach. This is a great chance to travel to places you would love to see and get paid to do it at the same time!

An additional benefit of speaking at these lectures is that you will get to collaborate and network with other researchers and physicians in your field. These connections could lead to new opportunities for growth in your career as well!


Peace of Mind

Working at an academic institution can provide a more consistent salary than if you were to open your own practice. This can reduce the stress of having to be maximally productive to meet your salary goals. Having the stable salary through the academic institution also allows you to place your focus in areas outside of patient care. By not having to rely on seeing patients to maintain your income, you can pursue your interest in education and research.

With exposure to clinical work, teaching, and conducting research, academic physicians can find what area of medicine they are truly passionate about. Once you find that area of passion, you can make that your focus. If you find that you prefer patient care without much interest in the research or teaching avenues, then it will likely make sense to leave your academic position. But if you enjoy wearing all three hats, being an academic physician can help reduce the burnout that might come from focusing on one role only.

At the end of the day, there are many factors to consider when thinking about becoming an academic physician. While money should not be the only factor you consider, it can certainly play a large role. Despite having a lower salary, academic physicians have many additional financial perks that may not be as obvious. If you maximize your retirement benefits, apply for student loan forgiveness, take advantage of the generous health care options, and use your expertise to create additional income through lectures, you will likely be able to reduce the gap in salary for your alternative options.

Looking for a more thorough all-in-one spot for your financial life? Check out of free eBook: A Doctor’s Prescription to Comprehensive Financial Wellness [Yes, it will ask for your email 😉]


Disclosures:
Financial planning and advisory services offered through Vicus Capital, Inc., a federally registered investment advisor. 
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