It’s a Matter of Saving and Saving More Than You Think

Ask financial planners and accountants with physicians as clients to share their top tip to help doctors prepare for retirement, and more than once you’ll hear these words: Live below your means.

“You don’t have to keep up with the Joneses, and you don’t even have to keep up with the other doctors,” said Sam H. Fawaz, a certified financial planner and founder of Franklin-based Y.D. Financial Services. “The guys who are really doing well are the ones who aren’t buying the Mercedes SL and the Rolexes. Having a nice living, enjoying your life, taking vacations and enjoying your family are great, but basically make sure that you’re putting away money toward your nest egg.”

Rhonda Sides, healthcare services principal with Crosslin & Associates in Nashville, echoed the same sentiment, encouraging physicians to adopt some economic discipline that’s sure to pay off down the road. She also encouraged physicians to “get out and sell” during their productive years. “Don’t wait for the phone to ring,” she chided.

An expert in business valuation and litigation support, Sides also said practice values today aren’t enough to ensure a comfortable retirement when the practice is sold. Once, buyers paid for the “good will” of a practice, but no more. “A lot of hospital systems that buy practices don’t pay for that anymore,” she said.

Sides said physicians “are really good about maxing out on their deferrals” when it comes to paying into their 401(k) or other retirement plan, but that may not be enough for the retirement lifestyle many doctors desire. What’s more, they may not realize that. She encouraged physicians to hire top financial professionals to handle the business side of their practice and their personal finances.

Fawaz said one of his first priorities with a physician client is risk management. “They must make sure that they have disability insurance so that they’re not knocked out if they become disabled and can’t perform the job that they’re trained to do. That’s first and foremost,” he said.

Next, Fawaz said most of his physician clients enter their professional careers with “an anchor around their financial waist.” That anchor is student debt. “I’m not a licensed psychologist or psychiatrist, but what I’ve learned through the years doing financial planning is that a lot of this is much more than numbers. It’s really more about what’s going to help them sleep at night, rather than how much money they can accumulate and what kind of return they can get,” he said. The bottom line: pay off the debt.

Fawaz warned that doctors and other busy, well-to-do professionals are sometimes victims of investment opportunities that generate “quite honestly, better returns for the salesman than the client.” Fawaz is a fee-only adviser, and he recommends that doctors turn to fee-only professionals to vet potential investments. That way, advisers won’t have a vested interest in any investment – and that interest may be as simple as a commission on an annuity or an insurance product.

Cullen Douglass, a certified financial planner whose business, Douglass Financial Services, is affiliated with Northwestern Mutual Financial Networks, serves about 1,000 physician clients. “I found that physicians are over-stimulated on anatomy and all the sciences and under-stimulated on anything to do with finances,” he said.

That’s why Douglass runs a personal planning analysis for each client that “holistically” examines an individual’s assets and goals. He said, on average, physicians should be saving 25 percent of their income to ensure retirement years are truly golden. While that might seem excessive to some people, he noted that physicians launch their careers much later than most professionals and usually begin their careers in debt.

Douglass outlined three ways to save and recommends that his clients use a combination of all avenues. “I don’t think you should put all your eggs in any one basket,” he said. “Obviously, each of these has its pluses and minuses. I believe you build a diversified strategy using a lot of different vehicles.”

The first option is taxable accounts, such as traditional savings, CDs and mutual funds. The advantage is that they’re very liquid and accessible but annual gains are taxed. “If you’re in a high bracket like a doctor, that can be substantial,” he said.

The second is tax-deferred accounts, such as IRAs, 401(k)s and SEPs (self-employed retirement plans). Contributions can be deducted. If tax rates go down in the future, they’re a great investment, he noted. Not so much if rates rise.

The third is tax-favored or tax-free accounts, such as the Roth IRA and specifically designed life-insurance products that serve as tax havens. Contributions are after-tax dollars with no deduction.

John Wooten, a financial adviser with Capital Financial Group in Brentwood, said there are “two burning issues” for his physician clients: taxes and asset protection. “We work with our clients to develop strategies around assets that can be protected from creditor claims, while still allowing them access to the cash for their needs. We also help our clients minimize the tax burden on both current and future earned income,” he said. “In addition to these issues, we find that one of their largest assets is their ability to earn an income throughout their working lifetime and developing a strategy to protect this income is very important.”

Fawaz had some final advice for busy doctors: “The money that you do spend, enjoy it. Save and live within your means, but do enjoy life and take time off. Nobody knows what happens tomorrow.”

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