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Financial Planning for Physicians - 101

Harvard Medical School

March 13, 2013Presented by: Richard Sentnor

Copyright©2012

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?

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

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

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

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

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%

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

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

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

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

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

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

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 !!

QUESTIONS?

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THANK YOU!!!