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Financial Planning for Physicians - 101
Harvard Medical School
March 13, 2013Presented by: Richard Sentnor
Copyright©2012
Today’s Agenda
Financial Planning BasicsMoney Management IdeasRetirement PlanningRisk ManagementWrap-up/Questions
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Why People Fail to Become Financially Independent
No PlanProcrastinationTaxesPoor Investment decisionsNo Investment ManagementCatastrophes – “plan for the unplanned”
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"Common vs.Uncommon"
How do you think? and Why?
2013 Taxes RulesSingle Married filing jointly
10% Up to $8,925 Up to $17,850
15% $8,926 - $36,250 $17,851 - $72,500
25% $36,251 - $87,850 $72,501 - $146,400
28% $87,851 - $183,250 $146,401 - $223,050
33% $183,251 - $398,350 $223,051 - $398,350
35%39.6%
$398,351 - $400,000Over $400,000
$398,350 - $450,000Over $450,000
Money Management
Get a handle on your spending –do a BUDGETUnderstand your loansBorrow from the right placeStart NOW! No ExcusesPAY YOURSELF FIRST !!
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Money Management
Emergency Reserves – 3 to 6 months worth of expenses (Liquid)
Take advantage of current low interest rates
Systematic savings plan
The Advantage of Time and Compounding Interest
Investing $100/month at age:
At age 65 will result in:
25 $351,428
35 $150,030
45 $59,295
55 $18,471
Assumes 8% annual rate of return
Disciplined Investing
Investors must take the “EMOTION”out of investingStrategy is only as good as investor behavior
20 years through 2011:Market gain - 7.9%Average Fund Investor - 3.5%
Dalbar Associates (April 2011) – Quantitative Analysis of investor behavior
S&P 500 Index – returns1995 – 37.43%1996 – 23.07%1997 – 33.36%1998 – 28.58%1999 – 21.04%2000 – (9.11%)2001 – (11.88%)2002 – (22.10%)2003 – 28.70%2004 – 10.87%2005 – 4.91%2006 – 15.80%2007 – 5.49%2008 – (36.55%)2009 – 27.11%2010 – 15.06%2011 – 2.11%
Retirement Planning Basics
Qualified Accounts (IRA, 401k)Tax deductible contributionsTax deferred growthCan’t touch until age 59½10% penalty on early withdrawsWithdrawals taxed at ordinary income rateMinimum required distributions at age 70½
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Roth IRAQualified accountContributions NOT tax deductibleTax deferred growthCan’t touch until age 59½10% penalty on early withdrawalsTAX FREE withdrawalsNo minimum required distributions2012 Income limitations
• Single ~ $112K - $127K• Married ~ $178K - $188K 12
Retirement Planning Basics
Contribution limits for IRA and Roth IRA2008-2012 $5,0002013 $5,500
Contribution limits for 401(k) and 403(b)2006 $15,0002007-2008 $15,5002009-2011 $16,5002012 $17,000
2013 $17,50013
Maximizing Your Tax Deduction
Utilizing the right type of Qualified PlanPlan Type Annual Cont. LimitTraditional IRA $5,500401(k), 403(b), 457, deferrals $17,500Defined Contribution plans $50,000Defined Benefit Plans $200,000
ROTH IRA Alternatives
Permanent Life InsuranceMoney contributed w/ after tax dollars (no contribution limits)Tax deferred growth on investment dollarsTax free withdrawal's of policy cash valueNo income LimitationsNo 59½ IRS limitation
Why Disability Insurance?
Provides an income to an individual who is sick or hurt and cannot work. Critical protection for
– professionals– owners of small businesses– executives
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Recognizing the Need
In the U.S., a disabling injury occurs every 1 second, whereas a fatal injury occurs every 4 minutes.-National Safety Council®, Injury Facts® 2008 Ed.
The average duration of a long-term disability is 30 months.-JHA Disability Fact Book, 2006
A new Harvard University report reveals that 62 percent of all personal bankruptcies filed in the U.S. in 2007 were due to an inability to pay for medical expenses.-June 4, 2009. The American Journal of Medicine
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Definition of Disability
Own Occupation coverage . . . insures the ability to work in
YOUR OCCUPATION.
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Importance of Individual Coverage
You own it – Guaranteed Non CancelablePortable – goes with you wherever you doNo premium increases or changes to policyAbility to increase coverage with incomeTax Free benefitBenefit is in addition to any group benefit
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Myths about Group CoverageBenefit is guaranteed
Policy is convertible as the same coverage
Benefit is tax free
Benefit increases with my income
Critical to Secure Coverage Early
Cannot just buy off the shelf – must qualify
Age and Health are major factors – older=$
Insurance Companies are changing the rules
Life Insurance
Lock in Health and AgeTerm vs. Whole Life/ULBenefits of Life Insurance to High Net Worth Individuals
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Wrap-up…planning issues
Protect your investment–Amount and type of insurance (life & DI)
Retirement planningMoney management (debt, cash flow)Wills and Trust documents
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DO NOT PROCRASTINATE !! THE TIME TO START IS NOW !!
QUESTIONS?
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THANK YOU!!!