You are in the early stages of your journey as a medical professional, and planning for life after work is probably the last thing on your mind. But consider this:
Over the coming years, your income will likely increase significantly, and you’ll become accustomed to a certain lifestyle. At some point, you will decide to stop work, and we want to ensure that stopping work doesn’t mean stopping your preferred lifestyle.
Throughout your career, you’ll generate significant ‘active income’, but it’s essential to ensure that during this time, you create enough assets to produce an appropriate level of ‘passive income’ for life after work.
When you consider that your income in real terms is likely to increase four or fivefold over your career, it will take a substantial amount of assets to replace it.
Now, you might be thinking that you have superannuation and that it will be enough to support you. Super is a fantastic tool for wealth creation and will be a critical part of your strategy – but there are two big problems with super:
- Caps: There are caps (or limits) on how much you can contribute to super and how much you can hold in super. Even if you and a partner both maximise your super, the combined balances are unlikely to be enough to provide the passive income required to maintain your lifestyle after work.
- Preservation: Currently, you can’t access your super savings until you retire after age 60. Not long ago, the preservation age was 55. Who knows what it will be in 20-plus years? The bottom line is that you’ll want to stop working – or at least reduce your workload – when you want to, not when the government says you can.
This means that building assets to generate passive income outside the superannuation environment will be necessary.
There are four key variables in successful wealth creation:
- Starting Capital: How much do you have today to begin with?
- Ongoing Savings: How much can you regularly add to your savings?
- Risk: What level of investment risk are you prepared to accept?
- Time: Time is split into two: a. When do you start? b. How long do you invest for?
Of these variables, time is the most important. The earlier you start, and the longer you invest, the greater the chance of achieving your passive income objectives.
The first few years are all about setting the correct foundations. This involves putting in place structures that can be built on in later years and helping you avoid common mistakes that people often fall into early in their careers.
You’ve chosen an incredible career. It will involve a lot of hard work, but it will be rewarding both professionally and financially. At Wealthmed, we want to work with you to ensure you benefit from all your hard work and that, when the time comes, you can continue to enjoy an amazing lifestyle as you transition from active income to passive income. Seeking specialist financial planning for doctors will be crucial in making the right decisions along the way.
