By Katherine Vessenes, JD, CFP®, RFC
President, MD Financial
All of doctors dream of the day they will be financially independent—the day where practicing medicine is optional, not required. To plan for this day, we do extensive retirement planning for all of our clients and review it at every meeting.
Our plan for building wealth for our physicians follows this process:
- First, we gather all your data. This will not only include details on your existing investments, insurance policies, but also your benefits at your current job and former employers. We find many clients don’t know where they stand today. So part of our process is reviewing your existing investments, liabilities and strategies for retirement to make sure you know exactly what you have.
Some of our clients have no idea what they have today in the way of investments or what they will need in the future. One case, a 60-year-old Anesthesiologist, “Dr Kelly”, could only tell me he thought he might have something at Fidelity, UBS, Scottrade and AXA, but he wasn’t sure. When I pressed him, he couldn’t tell what he had purchased. It could have been an annuity, a mutual fund, a stock or something else entirely. Dr. Kelly thought his wife had a pension from GE, but had no idea of the amount or the terms.
Here is how we solved this problem: I asked one of my top Client Service Managers to call Mrs. Kelly, and from there the two of them called Fidelity, T Rowe Price, GE and a dozen other places where they thought the Kelly’s might have accounts. This took a couple of hours! We helped them discover their account numbers, the balances in their accounts and how the money was invested.
Our first step was just to present to the Kelly’s a succinct report on what they owned, and the pros and cons of each investment.
- Second, we prepare a written financial plan and gap analysis along with an action plan. During this meeting we start with your “work optional” date and calculate the probability you could retire at that time and avoid running out of money in retirement. Frequently, clients have not yet saved enough to make work optional. Then we calculate what it will take, saving on a monthly basis, to meet these goals.
We also do a detailed review of your insurance policies, investments, debts and even your goals for putting your own children through college. This is where create your gap analysis and action plan for filling all the gaps. All of this is presented in a succinct, easy to understand, report.
Our approach is simple (and in keeping with our fiduciary duty): everything that is working for you, you should keep! Frequently our clients have good insurance policies, at great prices. If that is your case, by all means, you should definitely hang on to those policies. Sometimes we can find better or cheaper policies. If that is the case, we will show you why a change might be in order.
We also provide the same type of in-depth analysis to your investments and benefits. Many of our clients are using an old-fashioned conventional style to investing, and find they like our scientifically-tested approach a lot better. The difference of getting a potential 1% to 2% per year on your investments is dramatic over time. It can almost double the amount of money you can spend in retirement, so it is important to make sure your investments are all working as hard as they can.
Before engaging us, few clients have taken into consideration the tax consequences of their current investment strategies. If you haven’t had your investments reviewed for tax-efficiency before, this can be a big surprise to see how much you will be paying for taxes once you retire. We will make recommendations for a more tax efficient strategy both now and in retirement, if it is needed.
- An optional third meeting, is a “budget” or cash flow discussion. During this meeting, we look at your current expenses on a monthly basis and work together to see if the proposed savings plan is even possible. We find it really helps clients to feel more comfortable about saving when they see how it fits into their monthly budget without sabotaging the other fun things they want to do with their money. After all, you worked hard to get to where you are—it is time to celebrate with a few comfort items, like a fun trip or a new car.
- Fourth step: Implementation. Next we review each of the items in your action plan, and determine which ones need immediate attention and should be tackled first. We also note some items that might be deferred to the future.
For many of our clients “implementation” with us means we will be managing their investments and their life and disability insurance policies.
Our investment philosophy is described here (Link), but in a nut shell it can be summed up in: control the things that are within your control, and enhancing returns comes from applying scientific research to investing.
- Finally, monitor and review. Few things in life are guaranteed, but one that is almost certain are things will always change. Whether it is the tax code, your job, or the economy the farther out you go, the softer the numbers get. After five years, they are very soft. So every 18 months or so, we go back to the drawing board, see how things have changed and re-run all of your numbers to make sure you are still on track. We adjust your positions as necessary in the new environment and use advanced technology to monitor your success.
After our clients are fully on-boarded and have taken the steps outlined in their action plan, we usually move to a quarterly review meeting schedule. Some clients prefer to meet twice a year, and a couple would like to meet every other month! We adjust our schedule to fit your needs.