Financial

Financial planning is something that doesn’t come naturally aligned with the medical profession. It doesn’t imply physicians can’t manage a sound financial management plan. Retirement planning is vital for every profession, for medical professionals even more.

After the current pandemic caused uncertainties of life around the globe, who else can understand the importance of planning better than Physicians?

It’s a certainty that you joined the medical profession to serve humanity. That shouldn’t lead you to the complacency of ill planning about your retirement plan affecting you and your loved ones. You deserve to have a flexible and comfortable life post-retirement. For that you’ll have to plan for your retirement now for the time you think of hanging your white coat.

1. Match Your Lifestyle With Retirement Planning:

What’s enough for you by the time you retire? Yeah, that’s what you need to think now. Everyone lives with a unique lifestyle that comes with different habits. One persona may be content to live within $5,000 a month post-retirement; another perhaps would need $20,000.

• Where would you settle after retirement? Will you relocate to a particular place?
• How much would it cost you to stay in that particular vicinity? How many family members will be supporting by then?
• How much your normal retirement plan contributions will be?

At this stage, you’ll need to consider the importance of long-term financial planning. Your financial success wouldn’t come overnight.

At what age do you plan to retire? Retiring at 60 is different from retiring at 67 altogether in financial terms.

2. Don’t Fall Into A Debt Trap:

Medical students take the heaviest toll when it comes to student loans. Once you secure a job, it becomes easier to finance your student loan installments. As you grow with your annual income, debts start growing too. Is that coincident?

Well, it’s natural to be tempted to go for more with upgrading a vehicle, house, and interior designing and exotic vacation planning. Just keep an eye on your compound interest payments you make every month.

A few simple tips can help you save a large sum in the long run.

• Consider refinancing your expensive student loan with a cheaper option
• Think of debt consolidation with a single personal loan that comes with a lower interest rate
• Avoid excessive credit card usage and late payments
• Keep an eye on your credit score, it directly affects your lending costs i.e. the interest rate charged by banks
• Evaluate your house mortgage options now for the long run to avoid reverse mortgage costs later

3. How Much Should You Save On Your Income?

Talk to any financial advisor, and the savings bar will be set at least 20% of your gross income. That’s the income before your taxes come into play. Your gross income will also get a boost with investments and saving accounts.

As physicians go through a tough educational and career routine, they often find it hard to manage more than one job. Realistically achieving a savings target requires a lot of planning. The most effective tool to achieve savings is to adapt the budgeting habits.

Preparing monthly budgets and analyzing the results against actual expenses will reveal a lot about your spending habits. Budgeting is the best tool to manage monthly expenses.

4. Evaluate The Retirement Plan Contributions:

Your career may grow as a full-time hospital employee, a private practitioner, or a locum tenens. Your retirement plan contribution will differ accordingly too. As a rule of thumb, maximize your retirement planning contribution towards the tax-qualified plans.

Evaluate the different retirement plans, tax benefits, and the maximum contribution that compounds to your net wealth at retirement.

The Traditional Retirement Plans:

As a physician, if you’re a part of a not-for-profit organization 403(b) will be your retirement contribution plan. For most of the physicians, it is 401(k). Both these plans come with tax implications and a maximum limit of the contribution of $19,000. You can contribute up to $26,000 after the age of 50 to these retirement plans.

Both these plans come with pre-tax contributions. Your funds will be taxed when you retire, that’s the crux of the retirement planning.

Consider An IRA Or Roth:

If your total retirement plan contribution is going to be taxed at 30%, you’ll be left with only 70% of whatever you saved over the years. That can change your net wealth drastically. One way of contributing more towards your retirement plans is to opt for an IRA or a Roth plan.

With an individual retirement account (IRA) and a Roth, you can contribute a maximum of $6,000 annually. These private contributions investment plans are taxed annually at 6% by the IRS. The tax advantage with these plans is that these investments are taxed when you make the contribution, and are tax-free at the time of retirement.

5. Consider Alternative Retirement Plans:

Diversification remains a key point in financial planning and successful implementation. As physicians, your contribution towards IRAs and 403(b) plans may fall short of your expectations. Consider a few alternative options for long-term financial benefits of retirement contributions.

Employer Contributed Plans:

Your employer can make contributions to your retirement plans with traditional 401(k)s or a 457 one. These matching contribution plans increase your total annual contribution. For example, the joint contribution limit with a 401(k) plan is $56,000 annually.

Do remember the forfeit risk that comes with matching plans though. If you leave the job or your employer goes broke, you’ll have to forfeit a substantial amount of contribution.

Spousal IRA Plans:

This plan will best match your plans if your spouse is non-working or you both apply as joint file taxes. Your spousal IRA plan comes with an additional annual contribution of $6000 before the age of 50 and %7,000 after 50 years of age.

Another way of maximizing the retirement benefits is to privately invest as an individual. You can make an investment plan for regular monthly income to cover some extra expenses. The best way to match and enhance your retirement contribution is to invest in a long-term financial investment plan.

6. Investment for the Long Run Success:

As a practicing physician, it’s highly unlikely that you’ll need some passive income to meet the monthly expenses. If that happens the likely cause of it may be the excessive debt payments. Consider investments paying regular monthly interest with a low risk profile such as a certificate of deposits and special saving accounts with the bank.

Likely you can afford to plan for the long-term investments with capital gains. Consider evaluating your risk profile first. The amount you can risk and how much loss can you bear at this stage of your life.

Some investments that can yield capital gains in long run for you may include:

• Make an investment in the Bonds market with stable fixed coupons or long term capital gains
• Consider investing in blue-chip stocks or stock index funds such as an S&P 500 
• Make a long term investment with real estate yielding capital appreciation

Your investment choice between individual stocks and index funds may vary. It depends on your risk appetite and your financial goals. However, your savings plans and private investments should complement your retirement plans.

7. Manage Life Risk:

Well, we should be the ones asking for this expert advice from you. Purely based on financial prospects, it’s called hedging the risk.

You may already have an auto insurance plan as it’s a compulsory one. Consider some extra insurance plans that can save you and your loved ones on contingencies.

• Seek a comprehensive family insurance plan covering all the individual family members
• Protect your properties and house with Property insurance and estate planning
• Secure health and life insurance plans
• Consider other insurance plans like Disability insurance, Vision insurance, malpractice insurance, intellectual property insurance, and so on

You may already know the key differences between the term life insurance and whole life insurance. Plan the most suited one for you and your loved ones.

8. Do Estate Planning right Now:

Consider formulating a formidable estate plan right now. It will involve nominating your beneficiaries and writing a formal will. You may opt to appoint an estate agent or an attorney to look for your estate planning.

Remember to include a few important points that may affect your long-term financial plans:

• Write a formal will or form a trust
• Consider burial and funeral insurance plans
• Nominate your beneficiaries through a will or by establishing a trust
• Consider the tax implications on your wealth distribution
• Evaluate the debt consolidation in case of your demise

9. Do Tax Planning Properly:

Your tax implications will differ with your income streams and the nature of income. Some of your income will be taxed at source such as your salary, and some wealth will be taxed on capital gains such as a retirement contribution fund.

Taxes are subject to change, there are numerous ways tax policies affect your net wealth. A simple choice between a traditional IRA and Roth can make tax implications different. 

10. Revise and Monitor your Retirement plans:

As they say, “change is the only constant in this world”. Your retirement plans will also change frequently. All you have to do is to revise and monitor your financial planning regularly. Inflation and tax rates are the direct cost drivers of your living expenses. You may be changing a plan to move into another city, each locale comes with different living expenses. As your lifestyle changes, your retirement plans will need an adjustment.

Retirement planning for physicians’ working day in and day out remains a critical challenge. It’s a life-long goal and it will take a life-long effort. Starting with a sound and comprehensive retirement plan is only the first step in bringing you the peace of mind you deserve.

Contact an expert advisor today for more information on retirement planning for physicians. Sometimes a fresh perspective from a trusted source is all you need. Feel free to call us at 561-705-2005 or email us at Michael@AskWealthCare.com

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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results.  Death benefit payouts are based upon the claims-paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.