Financial Planning For Residents. Society for Academic Emergency Medicine GOALS.

Financial PlanningFor Residents

Society for Academic Emergency Medicine

GOALS


GOALS?

Stuck in ED at age 80


GOALS?


Financial Planning

Speculative Investments

The Pyramid Approachto Financial Planning

Nice to Do(Greater Wealth Potential)

Should Do(Strive to Beat Inflation)

Must Do(Save forOpportunities)

AbsolutelyNecessary(Survival)

J. Strong GrowthInvestments

I. Conservative RetirementInvestments

F. Home Ownership

H. College Education Funding

G. Savings (3-6 Mos.), Vacations, Etc..

Insure the “What If’s”A. Medical Coverage B. Disability Insurance C. Life Insurance

D. Auto/Homeowners/Liability E. Emergency Cash Fund F. Debt Management G. Early Retirement Planning H. Estate Planning

Securities offered Through NFP Securities, Inc., Member NASD/SIPC


Absolutely Necessary

AbsolutelyNecessary(Survival)

Insure Against “What If” • Insurance Protection • Emergency Cash Fund

• Debt Management • Retirement Planning • Estate Planning

Life

Pla

n


Debt Management

Get in the Habit ofPAYING

YOURSELFFIRST!!!


Budgeting

“Income minus Expenses”


Budgeting Goals

Must Define and Articulate*Student loan repayment*Retirement planning*Education funding for kids*Cash savings*Buying home*Eliminating BAD debt*Buying into group*Fancy Car and Toys


Assign Value/Priorities

Importance to you/family Timeline Intelligent repayment of debt Fear of debt Need for toys

*Beware of Golden Handcuffs Financial Independence Avoiding Frustration


Debt Management

Which should you pay off first? *$100,000 Student loan at 3%

*$5,000 Credit Card at 18%

*$250,000 Mortgage at 6% fixed


Fear of Debt

Not all debt is bad Realize that on average the stock market

makes 8-12% a year historically Realize that as a resident you don’t make much

*Compare you student loan debt in relation to 10 of working as a physician

*Defer you student loans *Stretch out you repayment periods *Pay yourself first!!


Emergency Cash Fund

Experts say 3-6 months of expenses This depends on your comfort

zone/situation Do you have short term disability? Long term disability doesn’t kick in for 3-9

months Cash keeps you in control


Emergency Cash Fund

Make use of a money market account*Higher yield and easily liquid

*Some are tax free Should develop systematic and disciplined

method to build cash reserves*Monthly budgeted draft

Goal is to try and avoid bad debt (credit cards)


Credit Cards

Try to get rid of this debt first*Worst kind of debt

*Transfer money lowest credit cards

*Goal is to ALWAYS pay off at end of month

*Only use cards that give you something back with no yearly fees Free Cash back cards are out there

Fund Retirement First?!?!?!


Retirement

Can EM Residents Save For Retirement?

Yes!


Why Invest Now?

Here are the monthly investments required at different ages to accumulate $1,000,000 by age 65, assuming a 10%* compounded rate of return.

Age When Investment

s Begin

Monthly Investmen

ts Required to Reach

Goal

25

$158

35

$442

45

$1,316

55

$4,882


Why Invest Now?

6% 8% 10% 12%

$57,435$100,627

$174,494

$299,599

$0

$100,000

$200,000

$300,000

$400,000

$500,000Illustration of the growth of an assumed $10,000 investment compounded annually over a 30-year period at differing rates of return.*


Save, Save, Save

Can you put aside $333+ a month?*Moonlighting?

*Not paying school loans

*Not overpaying credit cards?

*Not drinking Starbucks daily

*Limiting expenses


Credit CardsRoth IRA (10% each Year)Yr 1 $4000 $400 $4400Yr 2 $4000 $840 $9240Yr 3 $4000 $1324 $14564Yr 4 $4000 $1856 $20420GraduateNo more contributionsBreak even in ~62 monthsKeeps growing tax free

Credit Card (20% each Yr)Yr 1 $-4000 $-800 $-4800Yr 2 $-4000 $-1760 $-10560Yr 3 $-4000 $-2912 $-17472Yr 4 $-4000 $-4294 $-25766GraduatePayoff $1000 a monthDone 33 month~$33262 total payment


Where to Invest?

ROTH IRA*Up to $4000/year -- After Taxes

401k/403b*Up to $15,000/year --Before Taxes

SEP IRA*20% of moonlighting income up to $44,000

*Tax deductible


DEPOSIT ACCUMULATION DISTRIBUTION

Tax Deductible(Before Tax $’s)

Tax Deferred(Funds not Available)

Taxable(Income & Estate)

Not Deductible(After Tax $’s)

Tax Deferred(Funds Available

withMunicipal Bonds)

Can be Tax Free or

Taxable…You Choose

Possible IRS penalties for withdrawalsprior to age 59 ½!

Not Deductible(After Tax $’s)

Partially TaxDeferred

and Partially Tax Free

Partially TaxableAnd

Partially Tax Free

IRS penalties for retirement withdrawals prior to age 59 ½ !

1 401(k)s & 403(b)sTRADITIONAL IRAsSEP & SIMPLE IRAsKEOGH, PSP & MPPESOPs

2 LIFE INSURANCEANNUITIESMUNICIPAL BONDSROTH IRAs529/COVERDALE IRAs

3 CDs, SAVINGS,

STOCKS, BONDSMUTUAL FUNDS

PARTNERSHIPS

Three Phases of Investment


100,000

200,000

300,000

400,000

500,000

600,000

700,000

$323,143

5 yrs 10 yrs 15 yrs 20 yrsYears

Growth if tax-deferred$672,750

Growth if taxable$303,467

Tax-deferred

after taxes

$445,941

Assumptions:$100,000 investment

10% net annual compounded rate of return*39.6% tax bracket

*Hypothetical rate of return for illustrative purposes only. Return is net of expense.

The Value of Tax Deferred


Goal is to Understand and Minimize Income Taxes

7% 8% 9% Tax Deferred

EQUALS

11.66% 13.33% 15% Taxable


ROTH IRA

Should be your first place to put money!!*Money is tax deferred and Tax Free in Distribution

*Can only put money into Roth as a resident Cannot fund if make more that $110,000 single or

$160,000 jointly

*Can pull out for down payments on first home, higher education, some rare other reasons (don’t recommend).

*Pull out at age 59 ½


Louisiana Deferred Compensation Plan (457b)

You should all be in this NOW!!! You can take the 7.5% you pay to Social Security and put

this into your own portfolio All Pre-Tax Money Max of $15,000 a year Can offset contribution with moonlighting pay or recent

raise Can take it with you to other job or financial

institution No Matching


401k/403b/457

For Future Job*Pretax money placed into investment *All growth Tax Deferred*Some Jobs Match (always at least put match

percentage or you are giving away free money)*Hope that your tax bracket will be lower when you

are older *Distribution at age 59 ½*Can take it with you to other job or financial

institution


Why 401k/403b/457?

No Investment*Salary $3000/month

*25% tax bracket is $750/month

*Take home pay $2250/month

Investing $500/month*Salary $3000/month - $500/month contribution

*New Salary $2500/month

*25% tax bracket is $625/month

*Take Home pay $1875/month

*$375 less take home but $500 into retirement ($125 less taxes paid)


SEP IRA

In most cases, third option for resident Can only invest if Moonlighting

(Independent Contractor—Form 1099) Most of times, fund if Roth IRA and

matched 401k/403b fully funded Then 401k/403b/SEP IRA act the same just

depends on what kind of job you have


Insurance

Medical Disability Life Other

*Auto

*Home/Rental

*Umbrella


Medical Insurance

COBRA*Do not let your insurance lapse (especially if

you or your family have pre-existing conditions)

*GME must provide

*Usually have 30-60 days to pay premiums

*Important to know when exactly your contract begins


Disability Insurance

Most Important Thing to do BEFORE Residency Ends!!!



Everything you own, plan to own, or plan to pay off, depends on your

ability to earn an income.



GME provides*Usually either 50-60-66 2/3-80% of your current

paycheck

*$3000/month pretax—your benefit would be $1800

*This money is taxable

*Payable to age 65

WARNING: Not all plans are created equally!!



There are special Disability Insurance plans that are only available for residents!!!

Benefits*Usually starts at $4000/month benefit (more than

you make now)*Can get a rider that allows you to increase to

$10,000/month benefit*Can take it with you after you graduate*Can stack on top of your job’s current disability plan



Prepared for: 1st Year Physician Initial Monthly Salary: $15,000

Specialty: Emer. Medicine Assumed Tax Bracket: 35%

Contract Date: August 1st, 2005 Net Monthly Income: $9,750

60%$10,000

Income at Disability:

Option Group LTD Individual LTD Total Net Income Income Replacement

1. $5,850 $0 $5,850 60%

2. $5,850 $2,000 $7,850 81%

3. $5,850 $3,600 $9,450 97%

4. $5,850 $4,000 $9,850 101%

and Fellowship purchase Program.

Options 3 and 4 assume qualification under a Residency and Fellowship Purchase Program.

Option 4 assumes the maximum monthly benefit that can be purchased under the Residency

Options for Long Term Disability Protection

Group LTD:Group Limits:

Benefit must be applied for prior to graduation from program.



Must have these Characteristic*Cannot be dropped or amended by the insurer

*The premiums cannot be increased

*Protects your right to work in your own medical specialty

*Ability to control benefits through Guaranteed Purchase options (Rider to increase amount)

*Cost of living adjustments features

*Consider catastrophic or long term care provisions $181-418 a month depending on coverage



Carriers*Guardian

*MetLife

*Standard

*Union Central

*Principal Financial


Life Insurance

Why do you need it now?*The younger you are, the cheaper it is

*The healthier you are, the cheaper it is

*Lock it in now at the youngest and healthiest you will ever be

*Prepares you for future need at today’s prices Married or kids later in life


Life Insurance

2 Types of Life Insurance*Term Life Insurance

Limited Term (10, 20, 30 years) Cheap (32 year old--~$450/yr for $1,000,000

coverage) Good to cover for early unexpected death

*Permanent Life Insurance Lasts for life More expensive Many types: Whole Life, Universal Life, Variable Life Good as a method of saving more money


Life Insurance

Variable Life Insurance*You can add to the cash value*Grows Tax Deferred in an account inside your life

insurance*You can pull cash out (that you put in) at any time

and use it but your relatives won’t get that*You die—Family gets your death benefit and

whatever you put in—Jackpot*You don’t die—You can pull it out as you need it like

a loan (emergency cash fund?)


Other Insurance

Auto Insurance*Don’t forget to cover appropriately as net worth

goes up, (can come after salary if not covered) Homeowner Insurance

*Don’t forget to cover for appropriate cost of rebuilding home

Umbrella Insurance*Extra insurance that protect for catastrophe

attached around car and home


Estate Planning

Decisions are easier to make while you are ALIVE!


Estate Planning

Basics*Will*Living Will*Durable Power of Attorney*Healthcare Power of Attorney

Advanced*Trusts*Inheritance planning*Gifts


Financial Planner/Team

Do you really know what you are doing?



If yes, Proceed If no, Consider hiring someone you TRUST!

*Remember that poor investments or poor allocation could cost you $1000s-$10,000s. Especially as you get older

*Do you have the time to manage this?

*Do you know all the legal loopholes

*Is it worth your time?

*Can you work one shift a year for the comfort of mind


FINANCIALGENERAL MANAGERCoordinates Team on Your

Behalf

MORTGAGE BROKERCERTIFIED PUBLIC

ACCOUNTANT

ESTATE PLANNING ATTORNEY

PROPERTY & CASUALTY AGENT

Home/Auto/Umbrella

CONTRACT ATTORNEY

INSURANCE SPECIALIST

GME OFFICE

INVESTMENTADVISOR



Final Thoughts

Define what you want Pay Yourself FIRST Purchase disability insurance before leaving

residency Keep medical insurance—Cobra Maximize retirement savings Minimize income tax Make your student loans a long term deal Delegate non-medical skills Plan your estate while you can


Author Credit – Financial PlanningArmando Hevia MD

Questions


Postresidency Tools of the Trade CD

1) Career Planning – Garmel

2) Careers in Academic EM – Sokolove

3) Private Practice Career Options - Holliman

4) Fellowship/EM Organizations – Coates/Cheng

5) CV – Garmel

6) Interviewing – Garmel

7) Contracts for Emergency Physicians – Franks

8) Salary & Benefits – Hevia

9) Malpractice – Derse/Cheng

10) Clinical Teaching in the ED – Wald

11) Teaching Tips – Ankel

12) Mentoring - Ramundo

13) Negotiation – Ramundo

14) ABEM Certifications – Cheng

15) Patient Satisfaction – Cheng

16) Billing, Coding & Documenting – Cheng/Hall

17) Financial Planning – Hevia

18) Time Management – Promes

19) Balancing Work & Family – Promes & Datner

20) Physician Wellness & Burnout – Conrad /Wadman

21) Professionalism – Fredrick

22) Cases for professionalism & ethics – SAEM

23) Medical Directorship – Proctor

24) Academic Career Guide Chapter 1-8 – Nottingham

25) Academic career Guide Chapter 9-16 – Noeller

Financial Planning For Residents. Society for Academic Emergency Medicine GOALS.

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