Financial Planning for
Medical Graduates
Vanderbilt University School of Medicine
Presented by Mike Waters, CEBS
The Benefit Planning Group, Inc.
The Need for Financial Planning
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Step 1: Choose Your Financial Planning Team
Basic Steps in the
Pyramid of Financial Strategies
Level 1: Necessary Foundation Risk Management Level 2: Financial Foresight Capital Accumulation Saving for the FutureLevel 3: Financial Growth Wealth Accumulation Overcoming Inflation Level 4: Investing Aggressively
Speculative Investments for Greater Growth Potential
Medical Insurance Disability Insurance Life Insurance
Auto & Property Insurance Emergency Savings Buying a Home Vacations
Providing for your Family (e.g. College Savings) Retirement Plans Money Market Accounts Corporate/Municipal Bonds Conservative Equities
Investment Real Estate Growth Stocks & Mutual Funds Variable Life Insurance & Annuities
Art
Metals Oil & Gas Commodities Venture Capital
Debt Management
n Long Term Perspective
n View your school debt in relation to your next 10 years of
income, not just your resident’s salary
n Pay Yourself First
n Prioritize retirement plans, savings, investments
n Rate Reductions
n Auto-Pay and timely payments can significantly reduce your
interest rate
n Repayment Extensions
n Stretch out your repayment period to lower monthly
Student Loan Deduction
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Deduct interest for life of loan
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Maximum deduction is $2,500
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Income phase-out ranges apply
n Single: $55,000-$70,000
n Married: $110,000-$140,000
When phased out, consider using a home equity loan or consolidate to lower interest rates
Tuition Deduction
n Maximum deduction of $4,000 on higher education
expenses
n Income phase outs
n $130,000 to $160,000 for married, filing jointly
n $65,000 to $80,000 for single filers
n No need to itemize
n Education Credit vs. Deduction
n Could claim deduction in lieu of education credits.
American Opportunity Credit
n $2,500 annual tax credit for education expenses
n 40% of credit amount is refundable
n Available for undergraduate, graduate & professional
degrees
n Income phase outs: Single $ 80,000 to $ 90,000
Married $160,000 to $180,000
Buying a House?
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How long will you live in the house?
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What are the taxes?
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What is the cost of insurance?
Buying a House?
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Deductible mortgage interest on first and second
homes
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Deduct up to $100,000 in home equity loan
or line of credit interest
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Deduct points paid on mortgage or refinancing
INVESTMENT STRATEGIES
Key Investment Questions
Application question:
What do I invest the money in?
n What are your investment goals?
n How liquid does the investment need to be?
n What is your risk tolerance?
n What is the impact of income taxes?
n What is the economic outlook?
n Is the skill and knowledge needed to manage the
investment available?
Compound Growth:
Rule of 72 and 115
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How long for your money…
n To double? …Divide 72 by the interest rate.
Asset Allocation
Stocks
Cash Real Estate
Bonds
Sample Financial Portfolio
Category Allocation Fixed Income 20% Large Value 24% Large Growth 26% Small Cap 6% International Equity 24% Total Allocation 100%
Sample Equities Portfolio
How a Roth IRA Works
n Establishing an account
n Open anytime between Jan 1st of current year and the due
date of the tax return
n Account is typically self-directed
n A separate Roth IRA may be establish for a spouse with little
or no earnings
n Contribution considerations
n $5,000 contribution limit in 2010 & 2011
n Earnings accumulate tax-deferred
n Contributions are not tax deductible
n Distributions typically during retirement or at death
Summary / Action Points
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Establish a financial plan
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Develop the habit of paying yourself first
n Establish an “Emergency Fund”
n Roth IRA, 403(b), Money Market account, etc.
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View your debt with a long-term perspective
n Refinance High-Cost Loans
Risk Management
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If injured or sick, will you have income?
n Disability Insurance
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If deceased, how will debts be covered and your
family afford living expenses?
n Life Insurance
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If engaged in legal proceedings, how will
expenses be covered?
n Malpractice Insurance
n Umbrella Policy
DISABILITY INSURANCE
Everything you own, plan to own, or plan to pay off, depends on your future ability to earn an income.
What is the Likelihood I
File a Claim?
n Approximately 30% of all people aged 35 to 65 will
suffer a disability for at least 90 days, and
approximately 15% will be disabled for five years or more.*
n This is higher than the probability of filing a claim
for life insurance, homeowners’ insurance, or car insurance.
Post-Disability Income
Disability income is typically broken into two categories: business and personal
It typically takes multiple types of coverage to cover all your expenses through the duration of a disability
Personal
Sick Pay &
Vacation Short-Term Disability Group Long-Term Disability Supplemental Individual Disability
Point of Disability Retirement Age
Busines s Revenue and Cash Flow Overhead Expense Revenue and Cash Flow
Types of Disabilities
n TOTAL – Inability to work in any
occupation
n RESIDUAL/PARTIAL – Ability to work
in your occupation, but with a reduced capacity and earning potential
n OWN OCCUPATION – Inability to work
in your occupation or specialty, but ability to work in another occupation
Types of Own Occupation Benefits
n INCOME REPLACEMENT Disability would pay a benefit
proportional to your loss of income.
n TRANSITIONAL OWN OCCUPATION Disability would pay
until your new income plus disability benefits exceed your pre-disability earnings.
Income + Benefit = 100% of pre-disability earnings
n “TRUE” OWN OCCUPATION Disability would pay 100% of
Group vs. Individual
Disability Insurance
Typical Group Quality Individual
Tax Free Benefit No Yes
Non-cancelable by
insurer No Yes
Guaranteed Rates No Yes
Portable to new job No Yes
Own Occupation
Benefit Sometimes Yes
Recommended Insurers
for Physicians
Disability Insurance Premiums
by Age and Specialty
Age Non-Invasive Invasive
25 $28.15 $33.12 26 $29.17 $34.42 27 $30.21 $35.74 28 $31.24 $37.02 29 $32.26 $38.30 30 $33.23 $39.47 31 $34.20 $40.65 32 $35.16 $41.79 33 $36.05 $42.83 34 $36.96 $43.88 35 $37.85 $44.89
Based on $1000 monthly benefit including benefit update, residual disability, $1000 catastrophic coverage, and COLA.
Summary / Action Points
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Disability Insurance is one of the most
under-rated Risk Management tools
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Locking in now protects against changes in your
health status
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Take advantage of BPG’s negotiated discounts
LIFE INSURANCE
General Purposes of Life Insurance
Death Benefit Uses for Life Insurance
n Create an estate
n Pay death taxes and other estate settlement costs n Fund a business transfer
n Pay off a home mortgage
n Protection from the loss of a key employee n Replace a charitable gift
n Pay off loans
n Equalize inheritances
Types of Life Insurance
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Term
n Level Term - Premium level for duration of term
n Annually Increasing Term – Premium increases each year
n Decreasing Term – Premium remains level, death benefit decreases
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Permanent
n Universal Life – Guaranteed premium and death benefit
n Variable Life – Few guarantees, cash value tied to the stock market
Life Insurance
Premiums for $1 Million of Coverage
Male
10 year 15 year 20 year
Guardian $33 $37 $50
Banner $25 $28 $37
MetLife $28 $35 $40
AIG $27 $29 $45
Female
10 year 15 year 20 year
Guardian $28 $30 $40
Banner $22 $26 $33
MetLife $23 $31 $37
Summary / Action Points
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Will you have life insurance during residency to
cover debts and provide for family?
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Term insurance is inexpensive while you’re
Questions?
If you have questions or would like to see personalized quotes, please give us a call.
(800) 225-7174
www.myBPGinc.com | info@myBPGinc.com
The Benefit Planning Group, Inc. 3400 Croasdaile Drive, Suite 206
