Christopher Jarvis


Since October, we’ve been discussing the burden that comes with physicians’ above-average financial status. As we’ve pointed out, most personal financial advice offered in mass media is directed at, well, the masses. Because this advice is tailored to the “average” person, and because you’re anything but, you need advice that makes sense for you. 

Physician families have substantially higher tax burdens and greater liability risk than the average American family. In this, the fourth and final installment of our series, we’ll examine the risk associated with taking a piece of advice that is widely accepted yet inappropriate for high-net-worth individuals. (Did you miss the first three articles, "

Retirement Planning for the Above-Average

Risk: Wasting money on taxes and term insurance premiums.

 Many financial advisers suggest buying term insurance, instead of permanent, and investing the difference in premiums in mutual funds and the like. This is excellent advice for the average American family, earning $42,000 per year, paying 12 percent in federal income taxes, and bearing no liability or estate-tax risk whatsoever. Such a family pays very little tax on investment income. Possibly, its tax on investment gains ranges from 10 percent to 15 percent. The average family does not worry about having their assets taken from them through a lawsuit. Further, such families purchase insurance solely for temporary income protection against the premature death of the breadwinner. The average family also has no interest in long-term liquidity for estate-planning purposes because it will never have an estate large enough to be subject to any estate tax. Does this sound like you? We didn’t think so. 

Suggestion: Buy cash-value life insurance as a supplemental investment tool that will offer permanent life insurance protection as well.

 You may be skeptical, but we’re confident that our analysis here is correct. To spare you the pain of a long mathematical proof, look at the following simplified breakdown:

Mutual funds growing at 8 percent (taxable) are worth 5 percent to 6 percent (after taxes) to high-income taxpayers like you and 7 percent or more to average Americans.

Investment gains within cash-value life insurance policies are not taxed.

For relatively young and healthy insureds, the annualized cost of all internal expenses is 1 percent to 2 percent.

For families in high marginal tax brackets, the cost of an insurance policy is less than the cost of taxes on the same investment gains within mutual funds. 

Without even factoring in the cost of the term insurance (which would reduce the total amount in the mutual fund portfolio), the cash-value insurance investment outperforms buying term insurance and investing the difference. Yet another benefit is that life insurance is protected from creditors - even from bankruptcy creditors, in many states. This is a benefit that may interest a physician family but be seen as worthless to average American families. 

Consider a 50-year-old healthy male who wants to invest $25,000 per year for 15 years before retirement and then withdraw funds from age 61 to 90. Assume this individual’s tax rate on investments is 31 percent. Assume the pretax return of both investments is 8 percent per year. Under that scenario:

The individual who invests in mutual funds withdraws $37,000 per year after taxes (without purchasing any term life insurance).

The individual who invests in cash-value life insurance withdraws $42,500 per year (paying no taxes on policy withdrawals and loans) and has $1 million worth of life insurance protection. 

In this situation, it is pretty hard to see how buying term and investing the difference in taxable investments makes more sense than investing in tax-efficient life insurance for the highly compensated physician who is in a high tax bracket. 

is a lecturer and author of “Wealth Protection, MD.” He is also a cofounder of The Wealth Protection Alliance, a nationwide network of elite independent financial advisory firms whose goal is to help clients build and preserve their wealth.

is a certified wealth consultant with the Heritage Institute and provides sophisticated business planning to physicians around the country. Jarvis and KinCannon can be reached at 800 554 7233 or via 

This article originally appeared in the February 2007 issue of Physicians Practice.

Articles

Your Money: Bad Advice Debunked


We’ve been discussing in recent months the many reasons that physicians, with their higher-than-typical incomes - and therefore greater-than-typical liability and taxation risks - should consider unconventional financial planning techniques, rather than slavishly heeding the kind of advice that’s developed for “average” Americans. 

 American. That may seem like a blessing, but it is actually a burden when it comes to finding legal, financial, and tax advice. The common advice, appropriate for 90 percent of Americans, can be damaging for physician families, who, quite frankly, can’t just “buy off the rack” when it comes to professional services. In the November-December issue of 

unconventional retirement-planning strategies

This month, we’ll reveal a major tax benefit that many physicians aren’t taking advantage of. 

Risk: Failing to utilize a major tax incentive that could save you thousands.

If we told you that the federal government is willing to pay half the cost of something you need, you’d be interested, right? Of course you would. That’s why we’re surprised at the number of people who don’t realize that the Internal Revenue Service will allow you to deduct the cost of long-term-care insurance; that amounts to a 50 percent savings if your combined federal, state, and local tax marginal rate is close to 50 percent. 

Suggestion: Buy long-term-care insurance through your practice, and let the government pay half.

 More than six out of 10 American households will require some sort of long-term care. Perhaps this assistance will be limited and relatively inexpensive. Perhaps you or a loved one will require many years of intense, expensive care. In either case, without long-term-care insurance, you will have to pay for this help from your savings. You may purchase long-term-care insurance through your practice - for both yourself and your spouse (even if your spouse is not a physician) - without having to offer it as an employee benefit. And you pick up a tax deduction for 100 percent of the premiums if they are paid by your practice. 

We understand that you will not practice medicine forever. No problem. You can pay your entire lifetime’s worth of premiums over a 10- or 20-year period so that all premiums come from your operating practice - and are 100 percent tax deductible. This way, when you retire, your premiums have been paid in full and the government has subsidized every payment. 

There are also nontraditional, nonqualified retirement plans that allow you to make contributions of $100,000 to $1 million per year and access the funds before age 59.5 if you wish. Again, you can set this up through your practice without having to offer it as an option for all your employees. Further, these plans can be set up to be very important pieces of a family’s estate plan without sacrificing tax deductions or control of the assets. 

We’ll conclude this series in February with a discussion of some seriously flawed assumptions about finance and investing that have cost investors thousands of dollars per year. If you would like to learn how to retain more of your investments (after taxes and fees) and reach the level of financial freedom you deserve, please make sure you read the next issue of 

, is a certified wealth consultant with the Heritage Institute and provides sophisticated business planning to physicians around the country. Jarvis and KinCannon can be reached at 800 554 7233 or via 

This article originally appeared in the January 2007 issue of

The government is offering to cover up to half the cost for something you need. Who are you to say no?

Your Money: Half Price: Long-Term-Care Insurance


In October, we reminded you that physician families have substantially greater income than the average American family - and a greater liability risk - in the first of our four-part series explaining why being a physician makes you different in ways that traditional financial advisers often overlook. In this issue, we'll focus on taxation- and retirement-related threats that physicians face more than most people. 

Risk: Wasting time and money on retirement plans that will be inadequate to you and worth only 20 cents on the dollar to your children.

 This is perhaps the single most important area of financial planning for doctors to address once they understand that they are 

average. Typical retirement plans are great for rank-and-file employees. They are forced to put away funds for retirement. Their employers may match some percentage of those funds. The money grows for them and then is available after they reach age 59.5. When they die, there even may be a very modest amount remaining for their heirs. 

As an employer, you are responsible for those matching contributions (if your practice offers a company-match program, that is). These can be very significant if you have a large employee base. You are also the person who will be responsible (in other words, liable) if employees do not receive the proper allocations or contributions from your practice. Even if the plan administrator makes a mistake, you ultimately may feel the wrath of the U.S. Labor Department if your employees are treated unfairly by the plan. 

Further, the payout to you for your own retirement program may not set you up as well as you think. Suppose you contribute $40,000 per year, starting at age 35. At 7 percent annual interest, your nest egg will be worth only $2 million by the time you hit age 60. If that's when you want to retire, you may have to live on a monthly pretax income of $12,000 to $15,000. If you factor in inflation, that may be worth only $6,000 to $8,000 pretax in today's dollars. Then you'll fork over an additional 40 percent or so in taxes. 

We sometimes ask 35-year-old doctors if they think they can retire on $3,000 to $6,000 a month after taxes. Didn't think so. You need supplemental planning to reach the retirement level you desire. 

And there's another problem. Let's say that you accumulate significant nonpension assets and these assets are enough to support your quality of life in retirement. It's not unusual for a physician to accumulate $1 million to $2 million in retirement plan assets that neither he nor his spouse will spend during their lifetimes. When you die, these assets are taxable at income- and estate-tax rates. It's possible in some states for this "double tax" to total 70 percent to 80 percent. In other words, if your family doesn't spend this money, the government will. This is yet another problem with traditional retirement planning that doesn't affect "average" Americans, but it certainly does affect you. 

Suggestion: Do not rely on traditional retirement planning.

 Nontraditional, nonqualified retirement planning can offer higher-income individuals opportunities to put away more money annually. In addition, these plans can be much more discriminatory than traditional qualified plans. Whether you are using an executive benefit plan for doctors only or a captive insurance company, you could possibly deduct $100,000 to $1.2 million annually. You won't be under any Labor Department scrutiny because these plans are not subject to such regulations. Further, you will have access to your funds before age 59.5 if you like, you will not be forced to take withdrawals at age 70.5 if you don't want to, and these plans will not be taxed at rates up to 70 percent or 80 percent when you die. 

Nontraditional, nonqualified plans vary significantly in their design, scope, and applicability. Some plans work great for smaller practices with one or two partners. Others work best in practices with three to 20 partners. Still others may work best for even larger practices. Our colleague David Mandell wrote about them at length in the September issue of Physicians Practice. (See 

Next month, we'll examine how to make the most of tax deductions. 

is a lecturer and author of "Wealth Protection, MD." He is also a cofounder of The Wealth Protection Alliance, a nationwide network of elite independent financial advisory firms whose goal is to help clients build and preserve their wealth.

This article originally appeared in the November/December 2006 issue of Physicians Practice

Average Americans can do quite well with conventional tax and retirement strategies. But you're not an average American.

Your Money: Retirement Planning for the Above-Average


Most people tend to think of themselves as “average” in many ways, and physicians are no exception. But consider the financial position of the average American, and see how you stack up.

According to the U.S. Census Bureau, the average American family earns less than $45,000 a year. That translates to an income tax liability of less than 12 percent. The average American family will never be worth more than $1 million. In fact, fewer than 2 percent of all families will ever incur an estate-tax liability.

In addition, the average American is an employee, not an employer. As a result, most Americans will never be sued for their work-related activities. Therefore, there is no need to address protection from creditors and lawsuits.

Does the situation above describe your circumstances? Of course not.

As writers of books and articles on financial topics, we regularly interact with publishers and hosts of radio and television programs. Along the way, we’ve learned something very troubling: Radio and television stations, book and magazine publishers, and Internet content editors are looking for material suitable for their “average” audience members. They tell us they fear alienating these audience members by including content that might be appropriate only for those with higher incomes.

It means the financial and legal advice you get from television, radio, newspapers, and the Internet does not apply to your situation.

By heeding such advice, you are like the patient who trusts his own self-diagnosis from a 10-minute search on WebMD. Though the information he finds there may be appropriate for many situations, it is surely no substitute for seeing a licensed physician.

Indeed, for certain situations, it isn’t enough to see even the finest primary-care physician - the patient should see a specialist for the best possible advice. If you recommend that patients see a specialist for their health problems, why don’t you take your own advice when it comes to your specialized financial and legal concerns?

With this column, we begin a four-part series, running in each issue of 

 through February 2007, explaining some of the high-end financial planning techniques that are probably not appropriate for the average American - but are appropriate for higher-net-worth individuals such as yourself. We’ll discuss major risks that physicians in particular face - and suggestions on how to address them.

Don’t expect your friends or colleagues - or even your financial advisers, in many cases - to be very well versed in the techniques in our articles. They are appropriate for less than 1 percent of the population. It’s OK if they sound strange to you at first. They should. Once you embrace that you are different and you require different planning from most of your neighbors, you’ll be on your way to financial freedom.


In addition to the medical malpractice risks that should be covered in part by insurance, you carry other risks that were never addressed in your medical training. These are what we call “business risks.” You are not only a practicing physician; you may also be an employer, a leaseholder, or a landlord as well. You must deal with state and federal rules and regulations (like Medicare and HIPAA). You have employees whose actions can lead to lawsuits. You have partners who can file lawsuits that can wipe out your business assets. This makes you different.

 Do not listen to any adviser who tells you it isn’t necessary to incorporate your business. Though the corporation does not protect your personal assets from medical malpractice actions, it does protect you from the legal entanglements, both medical and nonmedical, of your partners or employees. Is it worth approximately $1,000 to $2,000 per year in additional state fees and tax preparation to remove that risk? That’s up to you to decide, but it seems an easy call to us. Further, there are tax benefits available through a corporation that cannot be realized by a sole proprietor or general partnership.

Never own assets in your own name or jointly with your spouse.

 We know that this is the most common ownership structure for real estate and bank accounts. This is OK for 90 percent of Americans. But not for you. You carry potential lawsuit risk, probate fee liability, and estate-tax risk. If you don’t want to lose your assets to lawsuits or leave your children with unnecessary probate fees or estate-tax liabilities, you need to consider alternative ownership structures. There are many ways to protect your wealth while maintaining control over and access to your assets and eliminating probate fees and reducing estate taxes. We discuss these at length in “Wealth Protection, MD: The Ultimate Financial Guide for 21st Century Physicians.” 

In the November/December issue, we’ll discuss why you should steer clear of retirement plans that are perfectly appropriate for average Americans.

 is a certified wealth consultant with the Heritage Institute and provides sophisticated business planning to physicians around the country. They can be reached at 800 554 7233 or via 


This article originally appeared in the October 2006 issue of Physicians Practice

Most financial advice dispensed on television and in newspaper columns is intended for those with average incomes - which means it’s inappropriate for you.