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ArticleHow Can You Use Lifecycle Planning to Maximize Your Financial Potential as a Physician?



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By Andrew Altfest, CFP®, MBA, President & Principal Advisor

Altfest Personal Wealth Management

If you’re a physician, you have unique personal financial planning needs unlike other professions. It’s like the practice of medicine—there’s a difference in treating professional athletes who are in peak physical condition vs the average person due to the unique needs of each patient and the advanced skill set needed to treat them.

At Altfest Personal Wealth Management, we have developed a specialization working with physicians and keenly understand the financial needs that medical professionals have across their entire lifetime. These can include, for example, spending plans, risk management—perhaps in the form of insurance planning or lawsuit protection planning—or tax- reduction strategies, either through hospital benefit plans or private-practice tax planning.

What we hear often from clients is that they want help with a wide range of aspects of their finances, whether it’s retirement planning, tax strategies or estate planning that may involve making sure that costs and assets are being transferred to the right people at the end of life. When we think about physicians, each one is in a unique situation. When considering your own financial needs, it may help to take a lifecycle approach. Here’s one example of this strategy I’d like to share.


A Financial Lifecycle Story

A client I’ve worked closely with for 20 years is a physician who has his own practice, also teaches at a hospital and is assisted by his wife who manages the medical practice. In their case, we recently met and actually told them that they were overprepared for retirement and that they should spend more money! That, of course, was a great conversation to have. But what led to their unusual situation was a great deal of planning that started very early in their financial lifecycle.

Once they sell the practice, they’ll venture into retirement, but to get to this point, there were a lot of financial planning strategies that they implemented over time. We’ve helped them maximize their wealth, starting with setting up the right tax-qualified retirement plan for their practice, managing their investments, helping them with their estate planning and making the most out of the benefits that are offered through the hospital. Not long ago, when there was a patient lawsuit scare, we spent time discussing lawsuit protection strategies so that they were educated and had peace of mind. Now, we’re helping them with the sale of their medical practice, to get the most out of it.


Early in the Financial Lifecycle

As you can see, a physician’s financial lifecycle could start as early as residency, when you’re putting an initial financial plan together, thinking about the short-term goals like paying down medical school debt and possibly saving toward a home purchase, while balancing that with long-term goals like retirement planning.

In the early days of your career, you also should be thinking about the risks that, if they were to materialize, would be devastating. We help clients consider how, at a low cost, those risks can be reduced, using tools such as insurance planning. In doing so, it’s important to understand that we don’t get paid based on financial product sales. As a side note, Altfest is a fee-only firm that gets compensated solely through a transparent flat fee from our clients, so when we mention something like insurance, keep in mind we don’t sell any products or earn commissions.


New Attending Physicians

At the next part of the lifecycle, someone could be an earlier-career attending physician planning for a young family, or one who’s looking at the benefit options available through their workplace and making sure they’re taking full advantage of opportunities for tax reduction, investment and insurance. This can be a point in life when you’re starting to seriously invest money. We’re looking at the ways to reduce taxes, plan cash flow and make sure that money is being saved toward your goals.

You should be thinking about the retirement savings vehicles that are available, like 401(k) or 403(b) plans, and whether it makes sense to contribute to a Roth account — both through an employer, if that’s available, or through an IRA. You should also be learning about and looking into a backdoor Roth or even a mega-backdoor Roth, if available through your employer. Is a health savings plan, or HSA, available to you? They can be a great way to save money in a very tax-friendly way.


Mid-Career Considerations

As your medical career progresses, it’s time to start thinking about estate planning. Perhaps for a young family, which might mean making sure that children come into money at an appropriate age. Determining that guardians are in place, should they be needed, and that life insurance coverage is adequate are also critical.

In addition, preparing for the unthinkable—the loss of a breadwinner, either the physician or their spouse. Anticipating what to do if earnings cease includes making sure that life insurance is sufficient and that the investment portfolio is growing. At this time, we start to introduce more sophisticated investment vehicles like alternatives, which can make sense when the portfolio is larger.

We also can examine clients’ expenses if they’re having trouble saving at this stage. In one case, we found that married mid-career doctor clients had been sold an expensive life insurance policy that really didn’t meet their family’s needs. So, to free up cash flow, we advised them to get rid of that policy and to replace it with insurance coverage at a lower cost. That allowed them to get on more solid footing and put away more money to reach their goals.


Retirement on the Horizon? 

The next part of the lifecycle is where you start seeing your retirement ahead. That could mean reducing your work hours and increasing time for hobbies. But you have to be very serious at this point about retirement planning. Perhaps you’re thinking about moving to Florida, or you’re imagining a phased approach to leaving work.

In that case, your income is going to decline, but you’re still going to be working and having some income. This is exactly the type of detail that we get into when we’re doing probability analyses in which we vary client life expectancy and potential investment returns, along with inflation assumptions.

Have you thought about strategies that take advantage of someone in a higher income-tax bracket moving to a lower tax bracket in a short period of time when they retire? This can happen through grouping charitable contributions or moving to make larger pretax retirement plan contributions.

Another thing to think about is long-term care planning. This is the time that you’ll want to consider how long-term care costs are going to be covered in retirement and whether those should be insured. All of these topics are things that we’re regularly helping our physician clients with in the pre-retirement years.


New Chapter: Retirement

Finally, there’s retirement. It can be, of course, a very big change. Physician clients start to live off what they’ve made. The major question arises: Where should I take my money to live off of from, from which accounts? Should you tap retirement accounts? Should you take income from a taxable brokerage account? Which type of retirement account should you draw from first?

A lot of our physician clients have accumulated their wealth through their retirement plans. And at age 75, they’re going to have to start taking that money out and paying taxes on it. But before they do that, if retired, they can shift to a lower tax bracket and start to take more income while they’re in that lower tax bracket by doing things like converting to a Roth IRA, which requires you to pay taxes on the amount converted today, but you won’t have to take the money out of the account right away which means you can let it grow tax free and withdraw the now larger sum years later tax free.

Another benefit would be that you won’t have to take required minimum distributions starting at age 75, since Roth accounts aren’t subject to RMD rules. That could prove to be a significant wealth enhancement strategy. At the same time, we’re helping retired physician clients work through estate planning details and when to start taking Social Security benefits.


The Takeaway

Financial Planning works best when you combine a long term perspective with consistent action. Wherever you are in your career stage, there are appropriate actions you can take to ensure your financial health & wellness is optimized. As you have likely told your patients, prevention is cheaper than the cure! In our experience onboarding new clients in their 50s and 60s, we very often find issues that cost them tens, if not hundreds of thousands of dollars. Sometimes, that number can climb into the millions!

I hope this quick sketch gives you some idea of how we help physicians across their financial lifecycles, and the benefits that are available to you, if you want to try this approach to fulfilling your own goals.


Complimentary Financial Health & Wellness Assessment

We hope you’ve enjoyed this article. Please remember that everyone’s situation is unique and our team is here to help you evaluate strategies to realize the full potential of your financial plan. If you want to discuss how any of these ideas may apply to your situation, or simply want a “financial physical” to assess your financial health, feel free to schedule a complimentary Financial Health & Wellness Assessment with our team.

Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

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