Principles of Financial Success for Medical Providers · Principles of Financial Success for Medical Providers. Disclosures and Disclaimers • I own a for-profit website – Free

James M. Dahle, MD, FACEPOgden Surgical-Medical Society

May 16, 2019

Principles of Financial Success for Medical

Providers

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

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.

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

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

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

# 1Preventing Burnout Through

Financial Planning

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

Presenter

Presentation Notes

”If you are like most doctors, chances are that you received no education or training in business, personal finance, or investing in medical school or residency. Yet you are now being asked to take on significant financial roles that require a certain subset of knowledge and skills in order to be successful. These include managing your own retirement funds, with or without the assistance of an advisor, managing your family’s finances, and perhaps if you are self-employed, running your own business. You will need to learn how to do this on your own through self-study and on the job training. It is much better to read a little now and learn from the mistakes of others than to make all the mistakes yourself as many doctors have done.” You may wish to include one of the mistakes you personally made due to a lack of financial literacy

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

Presenter

Presentation Notes

”If you are like most doctors, chances are that you received no education or training in business, personal finance, or investing in medical school or residency. Yet you are now being asked to take on significant financial roles that require a certain subset of knowledge and skills in order to be successful. These include managing your own retirement funds, with or without the assistance of an advisor, managing your family’s finances, and perhaps if you are self-employed, running your own business. You will need to learn how to do this on your own through self-study and on the job training. It is much better to read a little now and learn from the mistakes of others than to make all the mistakes yourself as many doctors have done.” You may wish to include one of the mistakes you personally made due to a lack of financial literacy

Who has burnout most often?

AMA/Mayo Study of ~7,000 physicians

The Trend Is Not Your Friend

Whose burnout is worst?

Fixing Burnout

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

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

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

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.

MedScape 2016 Net Worth Survey





# 2Student Loan Management

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


• 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

Presenter

Presentation Notes

“If you will not be working for a 501(c)3, you will almost surely benefit from refinancing. This became possible again in 2013 and now there are 10 or more lenders will to do it for you. You can get both variable and fixed rates for terms of 5-20 years. Please don’t pick the 20 year term. Rates are generally lower than what most residents have and can be as low as 2% variable and 3.5% fixed if you have good credit and a good debt to income ratio. But be aware, these are for-profit companies. They don’t refinance every one and they don’t give everyone the same rate. A pediatrician with a $450,000 debt and a $150,000 income probably won’t qualify.”


• 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)

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

Presenter

Presentation Notes

”If the typical resident makes $50,000 (which is exactly what the median household income in this country is) and the typical attending makes $200-300,000 per year, then if you can maintain your lifestyle at a level similar to lifestyle you were able to afford as a resident, then you can use the difference, even after paying the additional tax, to rapidly build wealth by paying off your student loans, saving up a down payment, and catching up to your college roommates with your retirement savings. I know, it’s hard to get those big attending paychecks and live exactly like a resident, so give yourself a little raise. Live on $60K. That’s a 20% raise. That’s huge! So if you make $250,000, spend $60,000, and pay $70,000 in taxes, that leaves you $120,000 a year with which to build wealth. Even if you put some of it toward retirement and a down payment, that still leaves you enough to put toward your student loans that they should be easily paid off within 2-5 years of completion of your training.”

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.

Presenter

Presentation Notes

”If the typical resident makes $50,000 (which is exactly what the median household income in this country is) and the typical attending makes $200-300,000 per year, then if you can maintain your lifestyle at a level similar to lifestyle you were able to afford as a resident, then you can use the difference, even after paying the additional tax, to rapidly build wealth by paying off your student loans, saving up a down payment, and catching up to your college roommates with your retirement savings. I know, it’s hard to get those big attending paychecks and live exactly like a resident, so give yourself a little raise. Live on $60K. That’s a 20% raise. That’s huge! So if you make $250,000, spend $60,000, and pay $70,000 in taxes, that leaves you $120,000 a year with which to build wealth. Even if you put some of it toward retirement and a down payment, that still leaves you enough to put toward your student loans that they should be easily paid off within 2-5 years of completion of your training.”

# 3Is Your Financial Advisor

Ripping You Off?

Financial Advisors

• Financial advisors are not kindergarten teachers– Remember that personal statement?

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

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)

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

Presenter

Presentation Notes

Many physicians choose to do their investing by themselves. It is a reasonable choice for an appropriately disciplined person willing to take an interest in it. However, the majority of physicians still generally choose to use an advisor of some kind, despite the significant expense (usually $1-30,000 per year.) There are no perfect financial advisors, but when choosing one, look for these qualities. You want someone committed to the profession, which means they have a designation such as a Chartered Financial Analyst, Certified Financial Planner, Chartered Financial Consultant, or a Certified Public Accountant with the Personal Financial Specialist sub designation. While the length and difficulty of these designations pales in comparison to med school and residency, having one of these demonstrates a commitment to the profession and at least a base level of knowledge which many of those claiming to be advisors do not have. You are also looking for some gray hair. You want an advisor who has guided clients through a bear market in the past. You want a fee-only advisor- no commissions. Many doctors have mistaken commissioned salesmen for a financial advisor. You end up with biased advice and poor investments, because the poor investments pay the biggest commissions to get them sold. You want an advisor with a fiduciary duty to you- that means he will do what is right for you even if it makes him less money. You also want an advisor who understands the evidence behind investing. For example, if he doesn’t understand why an index fund is likely to outperform the vast majority of actively managed funds over the long term or thinks he can choose individual stocks and beat the market, you don’t want him as an advisor. It is also helpful to have an advisor with numerous other physician clients. While most of investing is not physician-specific, there are a few unique issues such as tax reduction, student loan management, and retirement account issues for the self-employed physician.

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

Presenter

Presentation Notes

There are various methods of paying a financial advisor. The most common is through commissions, but as mentioned earlier, you don’t want an advisor using this method. These included mutual fund “loads” and the commissions on insurance based investing products like whole life insurance or annuities. The load on a mutual fund may be 3-8%, meaning that if you give an advisor $1000 to invest, he may take $80 and put it in his pocket and invest $920 in the investment. Commissions on insurance products are even higher. The typical commission on whole life is equal to the first year’s premium. The remainder of these methods are considered “fee-only.” The most common method is an asset under management fee. These range from 0.15% for a roboadvisor, to 2% a year. So if you have a $1M portfolio, that can be $1500 to $20,000 per year. Perhaps a better way to pay for investment management with with a flat annual fee. There are a few advisors who will manage your investments for $1-5,000 per year. You can also pay a flat fee for a financial plan. Advisors paid by the hour are less common, and have fairly high hourly rates, sometimes as high as $500 an hour, but in the end, you can pay for a lot of hours before you get to the $20,000 or $30,000 a year many doctors are paying their advisors, sometimes without even realizing it. All of these methods have their conflicts of interest, but look at the bottom line- how much are you paying each year and how much value are you getting out of those dollars.

The Tyranny of Compounding Fees

Neufeld et al, Journal of Financial Planning, 2014

Presenter

Presentation Notes

The less you pay an advisor, the more you get to keep. This chart from the Journal of Financial Planning demonstrates just how much fees can add up to over time. The X axis shows the starting dates of various 30 year periods. The Y axis shows the percentage of the market gains that went to the financial services industry. The green line shows that if you were paying 0.5% a year, over 30 years you lose almost 20% of the earnings of the investment. If you’re paying the “industry standard” 1%, you lose 30%. If you are paying an obscene but common 2.5%, you may be giving up 60-70% or more of market gains over the long run.

# 4How to Pay For College

4 Pillars of Paying for College

1. School Selection2. Student’s Contribution3. Parental Savings4. Parental Cash Flow

College Selection Is The Most Important Factor In Paying For College

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

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

Options to pay for college

• Student– Merit scholarships– Savings– Cash flow- Summers and during school– Grad/Professional School Debt

• Parent– Savings– Cash flow

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

# 5How Much You Need To Retire

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

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

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

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

Pearl # 5

Your Biggest Tax Break is

Your Retirement

Account!

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

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

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!

# 6The Basics of Estate Planning

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

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

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

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

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

# 7

The Basics of Asset

Protection

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

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”

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

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

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

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

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

Questions

• Email me at [email protected]

• Or come by the website: http://whitecoatinvestor.com

mailto:[email protected]

Documents

Principles of Financial Success for Medical Providers · Principles of Financial Success for Medical Providers. Disclosures and Disclaimers • I own a for-profit website – Free