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Beyond Pie Charts: Three Vital Year-End Financial Planning Questions for Doctors


These simple questions, whether examined on your own or with your financial advisor, provide good insight into some issues beyond just asset-allocation choices.

The complexity of the current business environment and economy can easily feel overwhelming to many medical professionals. As we’ve discussed in previous articles, asset protection and wealth preservation planning for doctors is not just about litigation and must include a holistic balance of legal, financial, tax, and insurance planning.

My work with some of the best financial advisors in the country has provided me valuable insight into some basic issues that those who are surviving and even prospering in the current environment have examined. These simple questions, whether examined on your own or with your financial advisor, provide good insight into some issues beyond just asset-allocation choices.

1. What portions of your investments are protected by law and what portion is exposed?

You are likely aware that certain portions of your portfolio are protected by law as is generally held to be true in the case of “qualified” investments like 401K and IRA plans.

Given your current income and investment performance it’s important to understand exactly what you have at risk and if small changes in allocation, balanced with your liquidity needs, may provide an opportunity for some extra security. Include the value of your home equity that is protected in your state (commonly referred to as “homestead”) in this calculation if that value is part of your projected investment goal. We see that many physicians with luxury homes assume that the equity value of a luxury home will be there to draw on in the future but fail to take steps to protect it.

Many investment portfolios include an allocation to a high cash value life insurance policy, including through a structured “plan” of some sort that you’ll have access to in the future, typically through policy loans. Make sure you know your state’s creditor protection rules and limits on the cash value of life insurance policies.
If that number is adequate, determine whether or not your policy’s owners and beneficiaries meet the letter of what the law requires to provide that protection. There are states that provide unlimited protection on these assets if structured properly and others that provide virtually none.

2. Has your portfolio been crash tested or remodeled?

Many of the medical professionals we work with experienced huge losses on their securities portfolios. Some have partially recovered from those losses after a long and stressful ride that still fluctuates on a daily basis. What’s surprising is that many of them who have moved closer back to being even, which means they only lost years of growth, have not had their portfolios restructured against the same kind of exposure happening again. If you are in this category it’s time to see what other options are out there and perhaps examine the investments that did not lose up to five years of growth. It’s simple math, a 50 percent loss means you have to double your money to be even; how long did it take you to double your money last time?

3. Are you allocating enough to your retirement planning to cover your extended life?

We are living longer thanks to advances in the care you yourself may provide. Unfortunately many of us are still working with the old math in a number of other areas. The old model of retiring at 65 and needing only 20 years of income is outdated. Top advisors are looking long term, looking at requiring 30 years plus of retirement income in an environment of reduced or non-existent social security income and reduced Medicare and Medicaid benefits. Projected increases in the cost of healthcare are almost universally under-planned for, and as we discussed last week we are seeing an increasing exposure for the expenses of children and even your own parents, whose planning may not have adequately accounted for the economy, loses in net worth through investments, and home equity reduction and longevity expenses.

These three questions are merely a start, but provide the basis for simple self-examination and questions to ask of your financial planner. As you go into your year-end or new year reviews, look beyond just the annual performance numbers and allocation recommendations into these foundational issues.

My thanks to Jeff Christenson, president of Christenson Wealth Management, for his ongoing guidance on financial issues and patient discussion of these subjects. It’s important to have a team involved in your planning, see this previous article in Physicians Practice for more detail.

Find out more about Ike Devji and our other Practice Notes bloggers.

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