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It's a good time to check in on your retirement planning. Here are some do's and don'ts for physicians.
Graduating from medical school is a great accomplishment, particularly when you consider that physicians often finish school later than others and with considerably more debt. As a new physician likely wanting to get going with life - earning a paycheck, paying down debt, and possibly getting married - you probably don't want to think about planning for the end of your career when you've only just begun.
But while retirement may feel far away, getting started with proper planning, as soon as possible, will set you on the right track and reduce the complications of retirement planning â whether retirement is 10 years or 30 years from now. So where do you begin? Below are several important things to keep in mind as you think about your retirement plan.
As with most things in life, the sooner you get started with retirement planning the better prepared you'll be to deal with unforeseen circumstances, or little bumps along the road. Once a physician finishes school any number of life changes can occur at the same time, including marriage, kids, purchasing a house, vacations, and more, making it all the more important to get started down the right path from the beginning.
You should meet with a financial adviser and start discussing your long-term goals. Does it include retiring by age 50? Or maybe age 63? Consider whether you want to contribute money to your children's education fund, donate to a charity, or expect to take care of an aging parent. All these items can and should be discussed with a trusted adviser. And, if you aren't quite sure what your long-term goals should be, don't be afraid to meet with your adviser anyway. He can help you identify realistic goals and determine the best path to achieve them.
Create a comprehensive financial plan
The best retirement plan is a comprehensive one that addresses all necessary questions and helps you achieve your long-term financial goals. It may include any number of product-based financial opportunities, such as annuities, real estate, or insurance â but these investments, while not necessarily bad, are definitely not one size fits all and should be carefully evaluated to determine if they're the best fit for your needs and retirement goals.
Below are some questions you should ask yourself and discuss with a financial adviser:
• Timing. When do you want to retire and how much income will you want and need during retirement?
• Life and disability insurance. Does your financial plan accommodate future insurance costs for yourself, your partner or spouse, and any dependents?
• Healthcare needs. Will you be taken care of if poor health forces you to retire sooner than planned? Are you prepared for unanticipated medical expenses?
• Estate plans and income taxes. How will income taxes affect your take-home pay throughout your career and influence your ability to save for the future? As you build wealth and your estate grows, how will you protect it?
• Investment portfolio. How much are your investments worth? Is your investment style passive or aggressive? Are you taking the proper amount of risk necessary to help achieve your goals?
• Family needs. Are you planning to leave education funds for your children? Will you be taking care of elderly family members or other dependents?
• Post-retirement lifestyle. What's your vision for retirement? Is it compatible with your spouse or partner's vision?
Now that you've asked these questions of yourself and discussed them with your financial adviser, what do you do next?
Reevaluate your plans regularly
One of the biggest pitfalls we see with retirement planning comes when clients don't reevaluate their plans periodically and adjust financial strategies accordingly. One important lesson the recent recession taught us is that it's wrong to assume "everything will just work out." Investors used to be able to deposit money into a 401(k), watch it grow, and have it available when they decided to retire. But this is not the case today. It's important to take into consideration the fast-moving world we live in. The stock market has been experiencing significant fluctuations; tax regulations are changing; and, as always, it's not prudent to make emotionally-based investment decisions. For example, investors who withdrew their money after the stock market crash of 2008 did so based on emotion. But, investors who managed their investments from a business perspective are reaping the results of the market's rebound, with some of the highest investment returns we've seen.
Another reason to reevaluate your plan regularly is the fact that your personal life will change as time goes by. People get married, divorced, remarried, and have children. Each new chapter in a physician's life can lead to changes in long-term retirement goals.
Communicate with other involved parties
For many physicians, succession planning is important to the longevity of their practice, and, depending on the size of the practice, it may not be prudent for more than one physician to retire at the same time. Proper planning helps identify priorities and issues during transitory stages. And communicating clearly, well in advance, helps ensure business survival. This communication should include written goals for succession, a schedule for each physician's retirement, plans for frequent reevaluation, and the names of successors.
Similarly, include your spouse, partner, kids, and anyone else that may be potentially affected by your retirement planning scenarios. Will they also be retiring at the same time? Are your ideas of retirement the same? It's important to have common goals so that your financial plans accommodate the expectations of all parties who will be affected.
Don't get caught in product-based investment schemes
Physicians are often targeted and heavily marketed to by product-based investment salespeople. Whether it's annuities, investments, insurances, or something else, you should personally evaluate any product-based plans to ensure they map back to your overall goals. We've seen many instances of physicians enrolling in plans just because their colleagues did, and for many, the plans aren't necessarily the best choices for their financial future. For physicians interested in supplementing their comprehensive financial plans with a product-based solution, we recommend speaking with a financial adviser for guidance before moving forward.
The investment world is changing rapidly. Whether you're all set with your retirement plans, behind the ball, or not sure of next steps, the best course of action is to remove the emotions - that is, reacting quickly to market and regulatory changes by investing or divesting without thoughtful consideration - and schedule a visit to your financial adviser.
The bottom line
Retirement is the frosting on the cake of all the hard work physicians have put into their careers, and planning for that should be an enjoyable process, full of anticipation of the future. While it's never too late to get started, the earlier you start, the more likely you will achieve the desired outcome for you and your family.
Darci Boyle is a partner and national practice leader for medical groups and physicians, for certified public accounting and business consulting firm, Moss Adams LLP. E-mail her here.
Dan Gaffney is a partner and national practice leader for wealth services, for certified public accounting and business consulting firm, Moss Adams LLP. E-mail him here.
This article originally appeared in the January 2014 issue of Physicians Practice.