By Raymond D. Mignone
Unfortunately many individuals erroneously believe that all physicians are very affluent with a financially secure retirement. This is often not the case. In my family, and in our firm, we work with many retired and practicing physicians and I would like to explain some ways physicians and others can better prepare for a more secure financial future. First let's understand the situation physicians currently face.Physicians enter the workforce about a decade later than their non-medical contemporaries, leaving fewer productive years of earning income. They also usually start their careers with enormous medical school debt levels that many others don't have.In addition, they tend to marry and have children later in life, often postponing saving for their children's educational funding and their own retirement. Those who open their own office have significant initial outlays for equipment and furnishings. We are all aware of the high medical malpractice insurance costs that must be paid and the low fees and mountains of paperwork from the medical insurance payers that all erode a physician's profits.All of these issues cause most physicians to put in long hours and due to lack of time they neglect their own financial and retirement planning. To get help on a sound financial path, the first thing that should be done is to make an objective review of your current financial situation. The following are some issues to consider.Create a personal net worth statement showing all assets and liabilities. Look closely at the liabilities and see if there is a lower cost alternative to fund this debt. Especially review if you can use tax-deductible debt from a home equity loan to pay off higher paying loans that may not be fully deductible or the deduction limited by the AMT.Be sure that you are making the most productive use of your assets. Since many physicians are well educated and accustomed to doing their own research, they also tend to have a hard time making good investment decisions due to a disease I call “analysis paralysis.”This occurs because they feel the need to understand everything about an investment before making the decision, so the decision gets put on the back burner. It is important to realize that sound investment decisions and portfolio management is part science, part art mixed in with experience, knowledge, gut feel and wisdom.Ensure that you have enough insurance, both in your business and your personal life, to protect your family if you have young children or your estate if you have a large taxable estate. While having the proper insurance is important, too many physicians get sold on complicated insurance products that mix investments with insurance. Many of these products end up benefiting the insurance salesperson more than anyone else. Be smart, shop around and understand the costs and expenses of the products being pitched. There is often a better alternative.Understand the tax implications of everything you do. Since many physicians are in very high tax brackets, being tax smart can add significantly to your overall net wealth over time. Be sure to take full advantage of all the retirement plans that are available.In some cases, if you are near retirement, you may be eligible to shelter over $150,000 a year before taxes toward your own retirement plan. Look into all available plans and the recent tax law changes for retirement plans.While it would not be possible to cover all of the many unique financial issues facing physicians in this article, I think it is important to understand that a good overall strategy should be put in place to help ensure a sound financial future for your family.I am honored to announce that a national magazine has once again acknowledged our firm. The November issue of Medical Economics magazine featured its exclusive list of the “150 best financial advisors for doctors” in the country. We were one of only six financial advisors named in New York and the only one named in Queens.Raymond D. Mignone is a fee-only certified financial planner and president of Ray Mignone & Co., Inc. specializing in retirement planning and investment management. He can be reached in Little Neck at 718-229-2514 or visit www.RayMignone.com.
