Different stages of life present different monetary demands - from paying off student loans ... to buying a home and planning for a child's education ... to preparing for retirement. Matthew Harrison, CRC, senior vice president/relationship manager for Medical Private Banking at First Horizon Bank (formerly First Tennessee), shared smart strategies for every stage.
Harrison said his first piece of advice holds true no matter what age or career stage: "Everyone should start by finding a good financial planner -someone who is a dedicated financial planner and is a CFP." He added, "They will put a roadmap together to tell you what you should be doing along the way."
Harrison noted a common misconception is that an individual needs to have accumulated a significant amount of wealth to meet with a financial planner. Instead, he said you are never too young to begin to think long-term about managing finances to achieve your goals.
For those starting out, there are a number of considerations. Often, paying down student debt is a chief concern. Harrison also said everyone should begin an emergency fund to save for the unexpected. When nearly every dollar is allocated each month, a costly car repair can throw a budget into complete disarray. Insurance - disability, life, liability and rental or homeowner's - are also key considerations, he added.
"For everyone, the ability to earn an income is really your most valuable asset so look at disability insurance to protect that asset," Harrison noted.
A financial planner will help you see the bigger picture. "For some people, it might be we need to attack debt. For others, if they are in a public loan forgiveness program, we might not tackle debt so aggressively," Harrison pointed out. "There's only so much pie that can be split, so you need to make sure you're properly allocating resources ... maybe you forego aggressive debt reduction until the emergency fund is built. At the end of the day, it's a balancing act."
Gage Logan, Managing Director, Raymond James
"The end of the year is a great time to review your overall financial plan. Double check your liquidity and make certain your asset allocation is appropriate. It is important you have done all you can to maximize contributions for the current year. If you ended the year in good shape, perhaps you should consider increasing contributions in the year ahead.
"How much money will you need to retire? Think of retirement savings as an expense. A good idea would be to increase your 401K or 403B contribution in the coming year. It's best to plan ahead and not wait until the last minute to save for retirement. There are too many people today waiting until later in life to even begin thinking about financing their future. I believe it's better to save too much in your younger years and get the chance to retire early and enjoy it. It is much easier to monitor and adjust a long term goal than it is to accomplish that goal in a shorter period of time. "
Building a Career & Life
As providers and executives move into their 30s and 40s, income has typically increased ... but so have financial demands. At this stage, there are often investment and partnership options to consider, homes being purchased, growing families with educational considerations, and a need to make sure distribution of assets has been considered in case of untimely death.
"It's very important for us to make sure if they don't have a will that one is created and that we keep that updated, as well," Harrison stressed.
Another way to take care of a growing family is to consider both near-term and long-term educational goals. "You need to start thinking about allocations for education and how you are going to pay for that ... and if you are going to pay for that," he said. College options include 529 and UTMA plans, among other strategies. "A portion of 529s can now be used also to fund private education for elementary through high school, but there is a maximum for private school of $10,000 per year. Even if it doesn't cover all of tuition, it can help with tax implications."
To help navigate funding options for homes and business investments, some area financial institutions have medical private bankers who will work with physicians, advanced practice clinicians, researchers, and industry entrepreneurs and executives. Unlike a financial planner, however, there are usually asset thresholds required to be assigned a private banker. Harrison said in the traditional private banking world, those requirements are typically half a million or more in liquid assets or an ability to get to that level within a reasonable timeframe.
He added most medical programs eliminate asset requirements for providers. Some banks have lending programs specifically geared to physicians. These can include mortgage options requiring little to no money down with very competitive rates and lines of credit that can be quickly accessed to launch a practice or purchase equipment.
William Braddy, Wealth Advisor, Kraft Asset Management, LLC
"Over the years the internet and increased regulations have made active management very difficult to impossible to outperform indexes. Be very aware of returns after taxes and fees. Ask questions!"
And while not an investment tip, it's important to keep in mind rules change when children become adults, which can block parents from managing medical and financial decisions in times of emergency. Braddy, noted, "Healthcare privacy is a serious issue. Parents with children of the majority need Health Care Powers of Attorney in place for them. Hospitals may not allow parents to help with decisions that need to be made."
Harrison said 'eyeing retirement' should begin at the start of a career. Even if it's a small amount put back in the beginning, it establishes a habit of saving for retirement. While it's easy to contribute to a plan when employed by a large practice, health system or firm with a mechanism in place, Harrison noted solo providers and entrepreneurs can work with a financial planner or investment advisor to set up individual retirement plans.
By 50, he said individuals should really be thinking about long-term care, as it is one of the largest potential wealth drains in retirement. Harrison said that's also the age to maximize retirement plan investment. "Once you hit 50, you're able to make a catch-up contribution, which is an extra $6,000 per year for workplace plans."
As retirement draws even closer, Harrison said providers and corporate owners should begin planning for divestiture. "Are you going to sell? What are the tax implications? How do you minimize your tax burden?" he said are questions that should be explored with an expert. For those with stock options, Harrison noted, "You want to make sure you're diversified in your portfolio. We also want to make sure you minimize your tax burden when exercising any stock options or selling any interest in a partnership or company."
This is also the time to analyze different retirement funding sources and how that will be drawn down. "Traditional IRAs and 401Ks and 403Bs are all regular income (tax deferred but regular income at withdrawal), so you want to make sure there are some tax-free buckets, as well - Roth IRA, Roth 401K and cash value of life insurance," Harrison explained.
Other topics for discussion include health insurance, long-term care wishes, transfer and withdrawal of wealth strategies and estate planning. With a bit of planning and expert help, it's possible to successfully navigate every stage of life and career.