Retirement planning involves three long-term keys to success
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The number one financial goal for most physicians is, by far, getting to a comfortable retirement on their own timeline and with the lifestyle they want.
This is borne out by independent physician studies, David’s experience of working with more than 1,500 physicians in his career and Sanjeev’s many conversations with friends and colleagues. In this article, we will discuss three important long-term strategies to achieve this goal. In another article, we will address shorter-term tactics to consider when retirement is closer.
Treat retirement like a patient
Certainly, an orthopedist’s secure financial health is important enough to be treated with the care he or she would dedicate to a patient’s physical health. A secure retirement requires a dynamic, flexible blueprint that outlines the steps physicians will take to reach their goals. Their plan should help them make sensible decisions about their money to achieve their life goals. It should not be a set-it-and-forget-it static plan or be just about buying financial products.
Our vision of the best possible plan is one that provides physicians with evolving, well-coordinated wealth management that fits their needs. The plan should have an advocate/leader or financial quarterback — the person who will field the orthopedist’s first call when he or she has a question concerning any financial matter.
Make a comprehensive plan
The elements of a physician’s plan may differ from those in someone else’s plan. A physician’s circumstances (age, income, goals, etc.) often dictate which elements should be emphasized. A sound plan involves more than saving, investing and rebalancing. If an orthopedist wants a comprehensive plan, he or she will need to consider additional sophisticated strategies as they begin to accumulate wealth.
Generally, a sound wealth management plan should include the following elements:
- investment planning;
- asset protection planning;
- tax planning;
- insurance planning;
- education planning;
- financial modeling/retirement projections; and
- estate planning.
In working with a wealth manager, physicians should strive to include these elements in their plan. At certain times, one or two of these elements will be of much more significant concern than others.
Wealth management planning will help physicians:
- rank their long-term goals (what is achievable and what looks difficult);
- map their cash flow and existing assets to their financial objectives;
- make a statement of their net worth;
- evaluate the adequacy of their insurance;
- guide their investment portfolio according to their tolerance for risk;
- shield their assets from potential lawsuits;
- reduce taxes where possible today and for the future;
- employ tax diversification techniques; and
- build a fund for their retirement.
Build a flexible plan
So much of life works out differently than we expect. Therefore, flexibility in a wealth management plan is fundamental. Many things that affect orthopedists’ ability to achieve their financial goals are beyond their control, so their planning should be flexible enough to roll with the punches.
Changes in income (or cash flow), changes in tax rates, market changes, potential changes in liability and changes in health can all hinder physicians from reaching their goals. The plan, therefore, should incorporate flexibility considering each of these factors. Here, we will address two important factors: income/cash flow and health.
Income and cash flow changes are important to consider in any wealth management plan. Most physicians cannot accurately predict their future income, so flexibility is essential.
Physicians can incorporate income/cash flow flexibility into a plan by living below their means and prioritizing saving every month, quarter and year. This alone may position them to weather any temporary or long-term hits to income or cash flow.
Another tactic is the implementation of a savings vehicle that allows for uneven funding/investments. An example in the qualified retirement plan arena is defined contribution plans that will enable flexibility in contributions each year: profit-sharing plans or 401(k)s, as opposed to defined benefit plans, which can require a certain level of funding or cause underfunding penalties (cash balance plans or pensions). Even more relevant would be to use nonqualified plans that allow much higher contributions than defined contribution plans when income is high but enable contributions to be skipped entirely in years when income wanes.
Another example is in the asset class of permanent or “cash value” life insurance. As we have discussed in other articles, such products can enjoy tax-free growth and access, when managed properly, and are asset-protected at the highest level in many states. In terms of funding flexibility, one would favor a universal life policy, for which funding is flexible year-to-year, over a whole life policy, which requires funding every year.
Health is the most important element of all. At one extreme, being in good health is a blessing and allows orthopedists to continue to practice their specialty and create more wealth, as well as to share it, enjoy it and even give it away. At the other extreme, poor health can keep physicians from practicing and even lead to premature death, which can have a devastating economic impact on a family. For these reasons, it is fundamental for a conservative wealth plan to build flexibility around changes in health by securing the proper insurance to shield a physician’s ability to earn income—specifically, disability insurance and life insurance. Long-term care insurance (or riders that provide such coverage in life insurance policies) can also be an essential part of a wealth management plan, even for parents or in-laws.
Conclusion
The number one financial goal for most physicians, by far, is getting to a comfortable retirement on their own timeline and with their chosen lifestyle. To achieve this goal, three long-term strategies are essential: implement a wealth management plan and monitor it, make sure the plan is comprehensive and build flexibility into the plan.
- Reference:
- Wealth Planning for the Modern Physician and Wealth Management Made Simple are available free in print or by ebook download by texting HEALIO to 844-418-1212 or at www.ojmbookstore.com. Enter code HEALIO at checkout.
- For more information:
- Sanjeev Bhatia, MD, is an orthopedic sports medicine surgeon practicing at Northwestern Medicine in Warrenville, IL. He can be reached at sanjeevbhatia1@gmail.com or @DrBhatiaOrtho.
- David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group. He can be reached at 877-656-4362 or mandell@ojmgroup.com.
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