Save a million dollars before 50 by retaining more of what you earn
It was me.
Although I was content with my professional life and income, I was not aware that I was giving away money with every paycheck.
And no I did not lose it in a Ponzi scheme, a bad investment, a malpractice suit, or any of the other myriad of bad choices that the financially illiterate make.
I lost it the honest and old-fashioned way, due to my own ignorance. You know how the old expression goes, “ignorance is bliss.”
I admit as an attending physician, I was happily unaware of the income that I was giving away every year. Figuring out what to do with the bottom box in my paycheck seemed complex enough, let alone thinking about what was happening with the money that flowed into the top box.
This mindset is no surprise because when we finally launch our professional careers after residency, we typically find ourselves squeezed by two massive issues. Enlarging and burdensome student loans that now average a mind-boggling over $250,000 per student. And business-financial illiteracy is the natural outcome of a singular focus on our medical education. We intelligently react to these two pressure points by targeting employed positions that offer safe harbors from these onerous forces. Physician employers provide the needed recipe of loan payback bonuses, coupled with fair market value compensation and benefit structures. This is especially appealing when compared to entering private practice with its associated high start-up costs or expensive buy-in processes with partnerships or group practices. It’s no surprise that this is all driving 90% or more of graduating residents to become employees.
The business of medicine just seems too complex, and too risky to jump into as a healthcare corporation. So opting for employment is nearly impossible to pass up for most of us.
But wait, what most physicians are unaware of is that they are uniquely shaped to be a business entity. In essence, you are “Dr. You Inc.” It’s that business power that makes healthcare employers extremely interested in you. Your clinical revenue with face-to-face patient care, along with the downstream revenue associated with your patient’s healthcare utilization makes their ROI and your employment an easy win for them. Not surprisingly, they prefer contract structures that favor them and allow them to maximize their control over their valued employee’s market share. Information asymmetry is at play here.
The hidden option that most physicians don’t know exists, and that most employers don’t want you to know exists, is known as an “Employee Lite” contract or PSA (Professional Services Agreement). This type of arrangement requires a physician to have their own business entity as part of the PSA. Most commonly this would be a PC or Professional Corporation. In this arrangement, the employer contacts “Dr. You, PC” with a similar compensation structure that would have been offered to you as an individual. But, now the paycheck is given to “Dr. You, PC”. Your company “Dr. You, PC” has become your employer and pays you a paycheck, issues your benefits, and affords you highly individualized tax strategies.
After converting my employment contract to a PSA and organizing my income flow through the right business structure as a PC, I realized it led to over a million dollars of retained income in the next 10 years of practice. Wow, that’s huge!
Then it dawned on me, in my prior 10 years of practice, my ignorance about this option, cost me a million dollars. Ouch! That is a massive opportunity cost associated with a standard employment contract.
Would you like to keep a million or more dollars of your hard-earned income?
I understand why you want to be employed, but my simple awareness campaign is that you should consider a PSA–PC architecture, or “employment-lite” as an option.
You are now aware.
In my next post, I will discuss the PSA-PC option a bit more.
