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Financial Planning for Physicians - 101
Harvard Medical School
March 13, 2013Presented by: Richard Sentnor
Copyright©2012
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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?
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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
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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
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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
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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
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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%
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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
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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
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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 $200,000
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ROTH IRA Alternatives
Permanent Life InsuranceMoney contributed w/ after tax dollars (no contribution limits)Tax deferred growth on investment dollarsTax free withdrawal's of policy cash valueNo income LimitationsNo 59½ IRS limitation
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Why Disability Insurance?
Provides an income to an individual who is sick or hurt and cannot work. Critical protection for
– professionals– owners of small businesses– executives
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Recognizing the Need
In the U.S., a disabling injury occurs every 1 second, whereas a fatal injury occurs every 4 minutes.-National Safety Council®, Injury Facts® 2008 Ed.
The average duration of a long-term disability is 30 months.-JHA Disability Fact Book, 2006
A new Harvard University report reveals that 62 percent of all personal bankruptcies filed in the U.S. in 2007 were due to an inability to pay for medical expenses.-June 4, 2009. The American Journal of Medicine
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Definition of Disability
Own Occupation coverage . . . insures the ability to work in
YOUR OCCUPATION.
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Importance of Individual Coverage
You own it – Guaranteed Non CancelablePortable – goes with you wherever you doNo premium increases or changes to policyAbility to increase coverage with incomeTax Free benefitBenefit is in addition to any group benefit
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Myths about Group CoverageBenefit is guaranteed
Policy is convertible as the same coverage
Benefit is tax free
Benefit increases with my income
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Critical to Secure Coverage Early
Cannot just buy off the shelf – must qualify
Age and Health are major factors – older=$
Insurance Companies are changing the rules
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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 !!
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QUESTIONS?
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THANK YOU!!!