The unpaid time between training and practice is probably the one area of planning that catches most residents and fellows off guard. Transition planning involves preparing for the financial and lifestyle changes as you transition from training to practice.
Many new decisions will need to be made during this time, such as:
- Determining which benefits you can and should continue from your former employer.
- Electing benefits offered by your new employer.
- Typically, there is a time period without income as you transition from training to practice. Therefore, it’s essential to accumulate savings to make it through this time without getting further into debt.
- There may be a period of time in which you have no health insurance and will need to prepare for the best strategy for you and your family.
How can you set yourself up for transition success? First, let’s explore the questions you should ask before the transition and how much you should budget during this period.
There are three questions you should ask before leaving your training program. With entering into new transition territory, you may have a few things that you need to get clarity on beforehand.
Will there be a lapse in your health insurance as you transition?
The answer is typically yes. Be sure to have a plan for insuring yourself and your family during that time, know when your new health insurance will start, and whether or not to consider your employer’s COBRA options or an alternative solution.
Note: It is crucial to know COBRA start and end dates and confirm them and the start date for your new employer’s health insurance.
What will you do with your retirement plan from your previous employer?
After a few years of training and potentially additional years in fellowship, you may have amassed multiple retirement accounts from your various employers. With old retirement accounts, you have various options: leave the funds with your previous employer(s); take a cash distribution for the balance of your account; consolidate the balance(s) to your new employer plan; consolidate the balance(s) to an Individual Retirement Account (IRA); or convert the pre-tax balance(s) to a Roth IRA.
Each option stated above has pros and cons because each option has different investment options, tax consequences, cost and expense structures, and the accessibility of professional versus standardized advice. So be sure to evaluate all of these factors to determine what option may be the best for you.
How will you prepare to relocate, get credentialed, and acclimate to your new surroundings?
Also, will you be buying or renting a home? The bottom line is that all of these considerations require cash. Without planning for your transition period, the default could be to run up credit card debt or take out a loan. Sometimes, this is the only option.
If this is the first time you’ve considered saving for your transition period, and it’s coming up in a month, it may not be possible to save up enough cash to last through that time without using your credit card. If this is the case, make sure part of your new budget accounts for paying off your credit card debt and establishing an emergency fund as soon as possible.
Also, consider how much to save for the transition period. Many physicians get married, move, or take vacations during this timeframe. Your buffer of savings may be needed to cover some or all of the following expenses:
Moving costs: These may include a security deposit or a down payment on a home, furniture and appliances, and transporting your belongings.
Lifestyle: This may include a vacation or a honeymoon and wedding (yours or friends).
Living expenses: These may include utilities, rent or mortgage, and car payments and taxes.
The list of expenses above does not include miscellaneous daily costs of living while in transition. Furthermore, while moving costs are sometimes reimbursed, typically, you must initially pay out-of-pocket.
Physicians may need anywhere from $5,000 to $40,000 for a comfortable transition. This number can vary depending on external factors.
For example, a typical transition period buffer of $5,000 to $15,000 could include not relocating, being single or married without children, going one to two months max without pay, and being able to stick with a budget.
A typical transition period scenario
Congratulations! Suppose you have just taken a job at a private practice in Charleston. Your new position starts on August 1. You finish training on June 20 and have enough savings to stay afloat for the end of June and the month of July. Unfortunately, your new practice pays monthly, so you won’t receive your first paycheck until September 1. You are left using your credit card or borrowing money from your family until you get paid, even though you’ve already begun working. The earlier you can start planning for your transition period, the less negative impact it will have on your financial health.
A less typical transition period buffer of $15,000 to $40,000+ could include an engagement ring, wedding, honeymoon, vacation, relocating, and more than two months without pay.
While you may not know exactly what your transition period will look like ahead of time, you can do your best to prepare for this change. By having a plan in place, you can make sure you are ready for the time between training and your new career so that you have financial stability in this uncertain transitional period.
Shane Tenny is managing partner, Spaugh Dameron Tenny, LLC, and host of The Prosperous Doc podcast. He is a registered representative of and offers securities, investment advisory, and financial planning services through MML Investors Services, LLC. Member SIPC (www.sipc.org). 4350 Congress St., Suite 300, Charlotte, NC 28209. Spaugh Dameron Tenny is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. CRN202201-258887.
Image credit: Shutterstock.com