principles of financial success for medical providers · these include managing your own retirement...
TRANSCRIPT
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James M. Dahle, MD, FACEPOgden Surgical-Medical Society
May 16, 2019
Principles of Financial Success for Medical
Providers
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Disclosures and Disclaimers
• I own a for-profit website
– Free to you, but I sell ads on it– All financial conflicts of interest disclosed
• Book sales pay me royalties
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Disclosures and Disclaimers
• I am a practicing emergency physician• I am not a licensed accountant, attorney, or
financial advisor• This presentation is for entertainment and
informational purposes only, and IS NOT accounting, legal, or financial advice.
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Important Caveats
• Money (mostly) doesn’t bring happiness• You didn’t go into medicine primarily for the
money and neither did I• Bad financial decisions are ruining physician
careers and families and affecting patient care– Many doctors cannot afford to serve where they
are most needed• Ignore money at your own peril
– It’s okay to talk about it
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Goals for Today
• Decrease your burnout• Motivate you to learn more about personal
finance and investing• Provide at least one change you can make this
week to improve your financial situation• Keep you awake and avoid wasting your time• 50 minute presentation, 10 minute Q&A
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What We’ll Cover
1. Financial Planning Decreases Burnout2. Student Loan Management3. Is Your Financial Advisor Ripping You Off?4. How to Pay For College5. How Much You Need To Retire6. Your Biggest Tax Break7. Basics of Estate Planning in Utah8. Basics of Asset Protection in Utah
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# 1Preventing Burnout Through
Financial Planning
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Burnout Definitions
• “An experience of physical, emotional, and mental exhaustion, caused by long-term involvement in situations that are emotionally demanding”
• “An apparent daily trudge of a dull, monotonous and tedious routine”
• “Sheer exhaustion from years of struggling through demands and change”
• Three components– Physical and emotional exhaustion– Depersonalization– Lack of personal accomplishment
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Causes of Burnout
• Lack of control• Unclear job expectations• Dysfunctional workplace dynamics• Difference between personal values and
workplace values• Job doesn’t fit a person’s interest and skills• Job that is either always monotonous or always
chaotic• Lack of social support at work or away from work• Work-life imbalance
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Who has burnout most often?
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AMA/Mayo Study of ~7,000 physicians
The Trend Is Not Your Friend
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Whose burnout is worst?
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Fixing Burnout
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Fixing Burnout
• Abusive job– Too much volume, not enough support, malignant
personalities, unrealistic expectations– Fix job, get new one
• Professional stresses– MOC, EMRs, pre-approvals, malpractice,
interacting with sick people– System-wide changes, career changes
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Fixing Burnout
• Lack of resiliency– Depression, pessimism, negativism, workaholism– Medical care, therapy, diet, exercise, yoga,
meditation, less call, role models/mentors, fewer evenings/nights/weekends/holidays, fewer shifts
• Financial issues– Student loans, other debt, inadequate insurance,
lack of savings, overspending– Financial planning
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How Financial Planning Helps Burnout
• Getting your financial ducks helps with all four causes– Abusive job- job transition– Professional stresses- ability to leave career– Resiliency- ability to cut back– Financial issues- eliminates them
• A financial plan helps align your values with your time and money• Makes you financially independent earlier
– Medicine is much more fun when you don’t have to practice it• Helps you decrease your fixed expenses, so you can live on less• Gives you “walkaway” money• Allows you to consider lifestyle improving options
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Survey the Room
• If I handed you a $10 Million check today…– Would you go to work tomorrow?– Would you still be working a year from now?– Would you work the same number of days per
week?– Would you still take the same amount of call?
• Unless you answered “Yes” to all 4 questions, you are working, at least partially, just for the money.
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MedScape 2016 Net Worth Survey
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MedScape 2016 Net Worth Survey
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MedScape 2016 Net Worth Survey
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MedScape 2016 Net Worth Survey
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MedScape 2016 Net Worth Survey
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# 2Student Loan Management
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Student Loan Management
• Complicated for residents, but simple for attendings
• Forgiveness or Payback• If working for a 501(c)3, go for PSLF
– Potential for hundreds of thousands to be forgiven– Directly employed– 120 qualifying payments (IBR, PAYE, REPAYE, Standard)– Tiny residency payments count– Forgiveness is tax-free– Use a side account just in case
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Student Loan Management
• Not working at a 501(c)3? Then refinance and pay them off quickly.
• 10+ lenders• Loan terms of 5-20 years• Variable and Fixed Rates• Generally lower than the 6-8% most resident loans are
at• As low as 2% variable and 3.5% fixed for 5 year terms
with good credit and a good debt to income ratio• You must qualify
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Student Loan Management
• Other options– Drag them out (for very low rate loans)– Exchange for home equity
• None of these “tricks” eliminate your loans• The most important four words in this talk:
Live Like A Resident(for 2-5 years after residency)
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Live Like A Resident
• The Easiest Way to Get Rich As A Doctor• Typical resident salary: $50,000• Typical attending salary: $300,000• Use the difference to build wealth- pay off
student loans, save up a down payment, catch up on retirement savings
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Live Like A Resident
• Live on $60,000• Pay $80,000 in taxes• Use the extra $160,000 to build wealth
– $50,000 toward retirement, $90,000 toward student loans, $20,000 toward a down payment
• In 4 years, your $200K student loan is gone, you have $200K+ in retirement, and you have a nice down payment for a nice house.
• Now grow slowly into your attending income.
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# 3Is Your Financial Advisor
Ripping You Off?
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Financial Advisors
• Financial advisors are not kindergarten teachers– Remember that personal statement?
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Bernstein on the Financial Industry
"You are engaged in a life-and-death struggle with the financial services
industry. ... If you act on the assumption that every broker,
insurance salesman ... and financial advisor you encounter is a hardened
criminal, you will do just fine.“- William Bernstein, MD
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The Cost of Financial Advice• If you pay just 2% of your portfolio each
year in fees, commissions, and expenses, how much less would you end up with?– 30 years, 8% pre-fee returns, saving $50K a
year.– $6.12M vs $4.19M– Is that advisor really worth nearly $2M to
you?• 5+ years of your gross salary? • $80K/year in retirement?
– Even after-inflation it’s still > $1M • ($3.49M vs $2.45M)
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Investing – Financial Advisors
• 1) Commitment to profession– CFA, CFP, ChFC, CPA/PFS
• 2) More experience than you• 3) No commissions (Fee-only)• 4) Fiduciary Duty• 5) Knowledge of investing literature• 6) Experience with physician-specific issues
– Taxes– Student loan issues– Retirement account issues
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Investing – Financial Advisors• 1) Commissions
– loaded mutual funds– commissions on insurance-based investing products – (3-8% load, high expenses, bad products)
• 2) Asset Under Management Fee – (0.15%-2%) ($1500-20,000 on a $1M portfolio)
• 3) Annual retainer – ($1000-5000) or set fee for plan ($500-2000)
• 4) Hourly rate – (typically $150-400/hour)
• All have conflicts of interest, but look at the bottom line –how much per year for how much work
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The Tyranny of Compounding Fees
Neufeld et al, Journal of Financial Planning, 2014
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# 4How to Pay For College
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4 Pillars of Paying for College
1. School Selection2. Student’s Contribution3. Parental Savings4. Parental Cash Flow
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College Selection Is The Most Important Factor In Paying For College
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College Selection
• Huge variation in tuition costs• Huge variation in cost of living• In-state state universities offer best balance• Remember grad/professional school• Try to avoid undergraduate debt completely• Most 17 year olds need significant parental
input to choose a college in an intelligent manner
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The FAFSA and Financial Aid• Estimated cost of attendance minus• Expected Family Contribution equals• Need based financial aid fills the gap
– Mostly loans, some grants and scholarships• Formula is complex, but income >> assets
– Expect to contribute 1/4-1/3 of income and 6% of assets• Bottom line, for most physicians EFC > COA
– Your kid won’t get any aid– Minimal role for financial aid planning– Possible exceptions include multiple kids attending very
expensive schools
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Options to pay for college
• Student– Merit scholarships– Savings– Cash flow- Summers and during school– Grad/Professional School Debt
• Parent– Savings– Cash flow
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529 Accounts
• 5% state tax credit for up to $4K per kid• Tax-protected growth• Tax-free education withdrawals• $15,000 ($30,000 married) max contribution
– Can be front-loaded 5 years
• Utah plan is best in the nation– Low cost Vanguard and DFA funds
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# 5How Much You Need To Retire
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Can I Retire?
• Retirement is not an age, it’s a number– The 4% Rule (Trinity Study)– Retirement = (Spending – Income) * 25– If you spend $120,000, and get $40,000 from
Social Security, then• Retirement = ($120K - $40K) * 25 = $2 Million
• You must actually know what you are spending
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Item Working Physician Retired PhysicianWorking Income 300000 0Portfolio Income 0 46600SS Income 0 45000Total Income 300000 91600
Taxes 75000 12000Retirement Savings 60000 0Mortgage 30000 0College Savings 15000 0Work expenses 2000 0Children's expenses 15000 0Life Insurance 2000 0Disability Insurance 3000 0Health Insurance and Health Care 7500 10000H.S.A. 6400 0Charity 30000 12500Transportation 5000 3000Travel 10000 15000Other Expenses 39100 39100Total Expenses 300000 91600
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What To Do If You Are In Trouble
• Cut spending now– Moderate cut now staves off drastic cut in early
retirement
• Try to work longer– More time to save– More time for compound interest to work– Fewer years of retirement to support– Higher Social Security payments
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What To Do If You Are In Trouble
• Consider alternative strategies– Downsize, move, purchase SPIAs
• Remember no physician is ever more than 10 years from retirement– Combine high income with hyperfrugal lifestyle
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Pearl # 5
Your Biggest Tax Break is
Your Retirement
Account!
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Why 401(k)s Are Awesome
• Upfront tax break• Marginal tax rate (35-45%)
• Tax protection while it grows (grows faster)• Excellent asset protection in most states• Withdraw at a lower effective tax rate
• Fill the brackets– Contributing at 35-37% and withdrawing at 0%, 10%,
12%, and 22% is a winning strategy
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The Backdoor Roth IRA
• Pre 2010 Rules: High earners could not1. Contribute directly to Roth IRAs2. Deduct traditional IRA contributions3. Convert traditional IRAs to Roth IRAs
• Three steps to a Backdoor Roth IRA1. Contribute to traditional IRA2. Convert to Roth IRA3. Don’t screw up tax paperwork• Beware the pro-rata rule
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The Stealth IRA
• Health Savings Accounts• Pre-tax contributions• Untaxed growth• No taxes due at withdrawal
if used for health care• Becomes a traditional IRA at age 65• Money need not be withdrawn in same year it is
spent on health care• Triple Tax Free!
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# 6The Basics of Estate Planning
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3 Reasons to Do Estate Planning
• # 1 Make sure your kids and money go where you want them to go
• # 2 Avoid probate• # 3 Avoid estate and inheritance taxes
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Everyone Needs A Will
• A will dictates:– Who takes care of your kids– Who manages the money on behalf of your kids
• (Doesn’t have to be the same person)– What happens to your money that isn’t in a trust
and isn’t covered by beneficiary designations
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Why Probate Sucks
• The process of adjudicating a will is called probate– Expensive– Time consuming– Open to public knowledge
• Avoid probate by– Using beneficiaries whenever possible
• Retirement accounts, insurance policies, pay-on-death accounts
– Placing assets into revocable trusts
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Why You Probably Don’t Care About the Estate Tax
• 2019 Federal Exemption Amount - $11.4M– ($22.8M married)– Adjusted upward each year for inflation
• No Utah State Estate or Inheritance Tax• Only 1/6 of docs 70+ has a net worth > $5M• Options for those with estate tax problems
– Give to charity– Give to heirs early using gift rules
• Irrevocable trusts
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If You Have an Estate Tax Problem
• Give it away– Gift Tax Exclusion $15K/year in 2016– 3 married kids and 9 married grandkids means you
can give away $720K/year without using up your estate tax exemption
• Irrevocable trusts are for getting money out of your estate– Highly taxed (highest bracket starts at <$13K of
income)– Often used with permanent life insurance- put in
$15K/year, then beneficiary gets hundreds of thousands estate and income tax free
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# 7
The Basics of Asset
Protection
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Malpractice Statistics
• 8% of emergency docs are sued each year • 93% of malpractice suits are dismissed or settled• Of those that go to court, the doc wins 79% of the time• That leaves 1.47% of suits that doctors lose in court• Average verdict of suit lost in court is $800K (median is half
that.)• Of verdicts that award more than policy limits, many are
reduced on appeal ($269M award reduced to just below malpractice limits)
• Less than a 1/10,000 chance of being sued for more than your policy limits in any given year
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Who is most likely to take your money?
• Doctors are rarely sued for more than their malpractice limits
• Doctors lose much more wealth to divorce than to professional or personal lawsuits
• Marriage generally increases net worth, but do it right the first time
• Be careful “putting everything in my wife’s name”
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Asset Protection Laws Are State-Specific
• Utah has below average asset protection laws– Retirement accounts are 100% protected
• Except amounts contributed within 1 year
– Cash value life insurance is 100% protected• Except premiums paid in last year
– Annuities don’t get protection– Homestead law
• $20,000 single, $40,000 married
– Asset protection trust
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Be Careful with Complex Asset Protection Plans
• Since risk of being sued above your limits is similar to winning (losing) a lottery, be careful how much money, time, and effort you spend “insuring” against the possibility
• Buy malpractice and personal liability insurance
• Max out your retirement accounts• Titling of property important- tenants by the
entirety if allowed by your state– Not allowed in Utah
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Asset Protection Pearls
• Separate toxic assets from safe assets– Rental properties in LLCs– Incorporating doesn’t protect from malpractice,
but it does from other business creditors/lawsuits
• Asset protection plans don’t have to be expensive.
• You don’t need one until you have assets that aren’t protected in other ways.
• Don’t tell people you’re a doctor
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What We Learned
1. Financial planning is probably the best burnout prevention and treatment
2. If not in PSLF, refinance your loans3. Get good advice at a fair price4. Remember 4 pillars of paying for college
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What We Learned
5. You need 25 times expenses to retire6. An HSA and a Backdoor Roth IRA are great
retirement accounts7. Estate planning avoids probate, minimizes
taxes, and ensures your legacy 8. Your spouse is your greatest asset protection
risk