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Physician Financial Planning

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Where Are the Doctor Millionaire's? – PowerPoint PPT presentation

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Title: Physician Financial Planning

1
Where Are the Doctor Millionaire's?
2
Other Existential Questions Yes No
Does it seem to you like the Government, insurance companies and employers offer you nothing but unattractive business choices?
Do efficiency and quality sound like business terminology borrowed by Medicare, Medicaid and Managed Care to disguise oligopoly and we will pay you what we want to pay you?
Are income and expense pressures, along with spiraling malpractice insurance costs, forcing you out of practice ownership and into employee status? Or forcing you to leave medicine all together?
After all you have been through and the investment of time and money you have made to become a Doctor?
Have you ever been overwhelmed by the business of medicine?
Do you feel financially insecure?
3
Have You Heard?
The Tale of Two High School Graduates
4
The Tale Physicians Are High Earners
Physicians Income Grew Eight-fold 1980-2003
1980 1980 2003 2003
Expenditure Category Percent of total Total Expenditure (in billion) Percent of total Total Expenditure (in billion)
Hospital Care 43.5 101.6 32 516.5
Physicians Services 20.2 47.2 22.9 369.7
Other² 9.5 22.2 13.8 222.8
Prescription Drugs 5.2 12.1 11.1 179.2
Other Professionals³ 7.3 17 7.6 122.7
Nursing Home Care 7.6 17.7 6.9 111.4
Other Medical Durables and non-durables 5.9 13.8 3.3 53.3
Home Health Care 1 2.3 2.5 40.4
¹ Excludes medical research and medical facilities construction. ² Other includes net cost of insurance and administration, government public health activities and other personal health care. ³ Other Professional includes dental and other non-physician professional services. ¹ Excludes medical research and medical facilities construction. ² Other includes net cost of insurance and administration, government public health activities and other personal health care. ³ Other Professional includes dental and other non-physician professional services. ¹ Excludes medical research and medical facilities construction. ² Other includes net cost of insurance and administration, government public health activities and other personal health care. ³ Other Professional includes dental and other non-physician professional services. ¹ Excludes medical research and medical facilities construction. ² Other includes net cost of insurance and administration, government public health activities and other personal health care. ³ Other Professional includes dental and other non-physician professional services. ¹ Excludes medical research and medical facilities construction. ² Other includes net cost of insurance and administration, government public health activities and other personal health care. ³ Other Professional includes dental and other non-physician professional services.
Source The Healthcare Group, Inc.
5
The Tale Physicians Are High Earners
Physicians Income Will More Than Double by 2014
Source The Healthcare Group, Inc.
6
The Tale Physicians Are High Earners
Medical Average Starting Salaries 2002-2005
Year Year Year Year
Medical Specialty (ranges in 000s) (ranges in 000s) (ranges in 000s) (ranges in 000s)
2002 2003 2004 2005
Dermatology 120.0 - 175.0 120.0 - 200.0 200 160
Dentistry 120 - 70.0 - 180.0 -
Emergency Medicine 230.0 - 260.0 240.0 275.0 250.0 275.0 240.0 277.2
Family Practice 90.0 - 165.0 93.0 - 151.3 60.0 - 142.0 105.0 - 275.0
General Surgery 150.0 - 225.0 150.0 - 350.0 150.0 - 220.0 140.0 - 200.0
Hematology/Oncology 200.0 - 250.0 160 155 150.0 - 275.0
Internal Medicine 75.0 - 180.0 115.0 - 250.0 120.0 - 130.0 100.0 - 190.0
Neurosurgery 225 100.0 - 260.0 300 -
Orthopedics 102.0 - 290.0 180.0 - 360.0 145.0 - 285.0 200.0 - 385.0
Plastic Surgery 100 120.0 - 125.0 140 -
Pulmonary Specialty - 140.0 - 190.0 145.0 - 175.0 145.0 - 160.0
Radiology 192.0 - 400.0 210.0 - 240.0 210.0 - 300.0 235.0 - 350.0
Source The Healthcare Group, Inc.
7
The Tale Few Physicians Become Millionaires
Wealth In America
Occupation Percent
Senior Corporate Executive 14
Business Owner / Entrepreneur 12
Consultant 8
Educator 7
Sales Professional 6
Home Maker 5
Accountant 4
Physician / Dentist 4
Active Investor 3
Attorney 2
Other 35
Source Northern Trust 2006 Wealth in America Source Northern Trust 2006 Wealth in America
8
The Tale Physicians Are Not Taught Money
Of the 125 medical schools in the USA, only one
of them to my knowledge offers a class related to
saving or investing money. - William C.
Roberts, MD

9
The Tale Physicians Need Save More
Physicians Investment Asset Distribution
Median Value for Doctors Median Value for Doctors Median Value for Doctors Median Value for Doctors Median Value for Doctors
Early Career - Early Career - Mid-Career - Mid-Career - Late Career -
Wealth Planning Wealth Planning Wealth Accumulation Wealth Accumulation Wealth Preservation
Younger than 35 35-39 40-49 50-59 60 and up
Retirement Plan 26,000 50,000 125,000 450,000 470,000
Total real estate equity 100,000 150,000 250,000 425,000 440,000
Stocks and stock funds 40,000 100,000 200,000 400,000 500,000
Bonds and bond funds -¹ 20,000 50,000 100,000 200,000
Other income investments 27,500 30,000 50,000 100,000 100,000
Total Net Worth² 80,000 300,000 600,000 1,300,000 1,500,000
Notes The amounts shown for specific types of investments dont include retirement plan holdings in those categories. ¹ Insufficient sample. ² Includes other assets and liabilities not listed. Medians exclude those who answered none. Notes The amounts shown for specific types of investments dont include retirement plan holdings in those categories. ¹ Insufficient sample. ² Includes other assets and liabilities not listed. Medians exclude those who answered none. Notes The amounts shown for specific types of investments dont include retirement plan holdings in those categories. ¹ Insufficient sample. ² Includes other assets and liabilities not listed. Medians exclude those who answered none. Notes The amounts shown for specific types of investments dont include retirement plan holdings in those categories. ¹ Insufficient sample. ² Includes other assets and liabilities not listed. Medians exclude those who answered none. Notes The amounts shown for specific types of investments dont include retirement plan holdings in those categories. ¹ Insufficient sample. ² Includes other assets and liabilities not listed. Medians exclude those who answered none. Notes The amounts shown for specific types of investments dont include retirement plan holdings in those categories. ¹ Insufficient sample. ² Includes other assets and liabilities not listed. Medians exclude those who answered none.
Source Medical Economics Financial Surveys - 2000
10
The Tale Physicians Could Save More

26 saved less than 10 of their income
74 saved at least 10 of their income
34 saved more than 20 of their income
9 out of 10 own stocks
Median investment equity was 200,000
Median net worth was 700,000
A third are debt free
Medical education loans represented 30 of the
debt of physicians younger than 34
Fewer than one in ten had margin loans
They favor real estate as an asset class
23 own a vacation home
29 own their office
39 own other real estate

Source Medical Economics Financial Surveys - 2000
11
The Tale of Two High School Graduates
College Graduate - Bachelors Degree Age 23 31 40 50 60 65
Yrs in Labor Force Yrs in Labor Force 1 9 18 28 38 43
Yearly Taxable Earnings Growth Rate 3.0 50,000 63,339 82,642 111,064 149,261 173,035
Yearly Federal Taxes 05 Tax Table 6,770 9,165 13,991 21,096 31,525 38,181
After Tax Income 43,230 54,174 68,652 89,968 117,737 134,854
Student Loans Beginning Balance Interest Rate 7.50 50,000 13,079
Student Loan Debt Service (7,284) (7,284)
Student Loans Ending Principal Balance 46,466 6,776
Income Available for Savings 35,946 46,890 68,652 89,968 117,737 134,854
Savings Rate 10.0 3,595 4,689 6,865 8,997 11,774 13,485
Return on Savings 12.0 5,882 26,384 97,909 325,024 582,228
Amount Saved 3,595 59,586 253,113 922,817 3,045,333 5,447,613
12
The Tale of Two High School Graduates
Med School Graduate - MD, DO Age 23 31 40 50 60 65
Yrs in Labor Force Yrs in Labor Force 1 10 20 30 35
Yearly Taxable Earnings Growth Rate 3.0 0 126,677 165,285 222,129 298,523 346,070
Yearly Federal Taxes 05 Tax Table 25,201 36,011 53,894 79,104 95,187
After Tax Income 101,476 129,274 168,235 219,419 250,883
Student Loans Beginning Balance Interest Rate 7.50 150,000 20,328
Student Loan Debt Service (21,853) (21,853)
Student Loans Ending Principal Balance 139,397 (0)
Income Available for Savings 79,623 107,421 168,235 219,419 250,883
Savings Rate 10.0 7,962 10,742 16,823 21,942 25,088
Return on Savings 12.0 15,802 78,394 282,530 515,475
Amount Saved 7,962 158,228 748,502 2,658,892 4,836,187
13
The Tale of Two High School Graduates

Becoming a doctor entails a significant (8-10
year) delay in entering the labor market and
saving for retirement.
This can be costly e.g., a 1,000 investment,
yielding 10, that is not made today will result
in lost earnings of 1,594 over a ten year
period.
Individuals with far less education and income
levels can achieve higher levels of wealth than
doctors, even when they both consistently save at
high rates.
The median net worth of a retiring physician
(1,500,000) may be insufficient to sustain the
standard of living of doctors accustomed to
earning in excess of 100,000 per year during
their careers.
Physicians need to develop strong savings
discipline in order to make up the earnings
forgone during their medical training.
Life-money strategy (aka, financial planning)
promotes savings discipline.
Working with financial professionals who can help
physicians reach top-tier risk-adjusted returns
should be a key component of physicians
financial security strategies.

14
Early Mid Career Wealth Planning
Accumulation
No single mix of asset classes will satisfy an
investors conflicting goals of growth and
preservation of capital in all market environments
The Need to Preserve Capital The Need to Preserve Capital The Need to Preserve Capital The Need to Preserve Capital The Need to Preserve Capital The Need to Preserve Capital The Need to Preserve Capital

U.S. Large Cap Stock/ 20/80 40/60 50/50 60/40 80/20 100/0
Intermediate Treasury Bond 20/80 40/60 50/50 60/40 80/20 100/0

Annualized Return (1926-2002) 6.80 7.90 8.40 8.90 9.70 10.20

Periods w Less Than 0 Return
Rolling 1-Year Periods 11.20 17.40 20.30 21.60 24.90 27.20
Rolling 3-Year Periods 2.00 4.00 6.40 9.10 12.50 14.80
Rolling 5-Year Periods 0.00 2.80 4.20 5.50 8.30 10.40

Best/Worst Annualized Returns
Rolling 1-Year Periods 38.5/-17.0 69.7/-32.6 85.5/-39.7 101.3/-46.2 132.6/-57.7 162.9/-67.6
Rolling 3-Year Periods 20.1/-5.7 23.1/-15.4 26.5/-20.1 29.5/-24.8 36.3/-33.8 43.0/-42.4
Rolling 5-Year Periods 19.2/0.1 20.8/-3.6 21.9/-5.6 24.6/-7.8 30.0/-12.3 34.8/-17.2

Source David E. Marcinko (2005)
15