Case Studies

Current State of Finances

Dr. John and Dr. Emily Smith are a married couple, both working as physicians in their mid-30s, earning a combined W-2 and 1099 income of $680,000 annually. Despite their substantial earnings, they are feeling the weight of their financial obligations. Mainly they don’t know what to prioritize and how everything should be organized especially with all of the new accounts they have access to (403(b), 401(k), 401(a), 457, old employer and IRA accounts).

They live in a beautiful four-bedroom house in a high-cost of living area, valued at $800,000, with a remaining mortgage of $700,000 at a 4% interest rate. They’d love to own a vacation home in the next 10 years.

The Smiths have two children, aged 5 and 7, for whom they’ve started a college savings plan, currently holding $40,000. Their goal is to fully fund their children’s education, estimated to be $200,000 each by the time they attend college. Additionally, they have outstanding student loans totaling $300,000 at a 6% interest rate. Emily will likely be eligible for PSLF so this will reduce some of the burden in 4 more years.

Their monthly expenses, including mortgage, loans, utilities, insurance, and living costs, amount to approximately $15,000. Money continues to stack up each month and they’ve managed to save $150,000 in a joint savings account and have $200,000 in retirement funds. However, they lack investments outside of retirement and savings accounts and have no clear strategy for debt management, cash deployment, or retirement planning.

Financial Advisor Insights: What are we Thinking About?

Tax Efficiency: What accounts do they have access to and how much should they be contributing? Emily will likely have access to a 457 plan while John could work with his private practice on different investment options. In addition, they need to start saving in a brokerage account which increases complexity around saving, but will offer them more liquid savings and opportunities for tax efficiency through asset location strategies.

Strategy: The Smiths are falling into the trap of cash just being built up in a checking/savings account because it doesn’t have a job. There is no strategy. Cash without a job gets lazy and prefers either not to move or be spent on things that don’t increase financial security. Implementing a strategic financial plan could significantly improve the Smiths’ financial health and future. We need to break down their financial goals from retirement, renovations, and college funds to an easily manageable strategy i.e. “Save $XXX each month in your brokerage account and allocate it to these 4 funds…”

Protection: Money is coming in and net worth is growing. Do they have the right amount of life, disability, and liability insurance? How does their estate plan look? Are they implementing steps to protect their personal data and growing wealth?

Current State of Finances

Stephanie is a neurosurgeon who has been practicing for just a few short years. She’s fortunate in that her parents paid for her college and medical school, so she does not have student loans and already earns a high salary. She is currently renting a nice apartment but is careful to keep her expenses below her means.

With a solid foundation in place, Stephanie is on track for success. She is already maxing out her retirement plan, is starting to build up a nice nest egg in her taxable account for savings, and expects to receive an inheritance from her parents. She also purchased disability insurance as well as a whole-life policy.

Recently engaged to a computer programmer, Stephanie is focused on planning a wedding, buying a new home, and beginning to build wealth alongside her new husband.

Goals

1. Get guidance and help with building up a proper reserve for contingencies.
2. Develop a monthly spending budget and systematic investment plan.
3. Purchase a new home before the wedding.
4. Make sure her income is secure for her and her new husband in the event that something happens.
5. Become financially independent by age 55.
   

How Medical Professional Geared Financial Planning Helped

• We developed a target amount she needs to build up in a cash “war chest” to guard against contingencies. Fortunately, she had already met her target.
• With the excess investment assets and monthly savings, we developed a tax-efficient investment strategy designed to grow over time.
• We quickly recommended she buy a large 20-year term policy at a much lower cost than her existing whole life premium and surrender the whole life insurance policy. We also recommended that she purchase a different disability insurance policy that would give her greater flexibility in her own occupation definition.
• We referred her to an estate attorney who put in place basic estate documents for her and her fiance.
• We also advised her to get a prenuptial agreement in place before marriage to protect her future inheritance, the assets she creates before marriage, and to avoid having to pay alimony should the marriage end in divorce. The agreement also addressed the equity in the home since she will be putting up her money to purchase it and will continue to pay the mortgage and taxes.
• A few years back, her parents reworked their estate plan and as part of the revisions decided to give her the inheritance outright because she was older and responsible. We had a discussion with her and her parents and advised them to put any assets she receives in a discretionary, lifetime trust to protect her inherited assets from creditors and unforeseen events. They agreed to rework their plan as they did not think about protecting the assets for her.
• We referred her to one of the numerous realtors we work with that we know will provide her with objective advice and guidance while keeping focused on the budget as she and her fiance search for a new home.
• We helped establish a reasonable budget for purchasing a new home. Through one of our numerous lending partners, we arranged a physician mortgage that required a low down payment and reasonable interest rate. She was able to keep her money working for her. We recommended she continue to own the home only in her name. After marriage, we will retitle the home in tenants by the entirety for asset protection purposes, but it will remain her property per the prenuptial agreement.
• We developed a monthly spending and savings plan that will create financial independence for her by her desired age of 55.
• We reviewed her employee benefits and given her healthy profile and low need for annual healthcare, we suggested that she change her health care plan to a high deductible plan, allowing her to max out a Health Savings Account each year.
• We implemented for her a backdoor Roth IRA strategy so she can begin building a tax-free pot of money. Additionally, we recommended she use a Roth 401(k) option for her deferrals while she is young.
• We moved her high-cost, commission-based mutual funds (purchased from her insurance agent who works for a large mutual insurance company) to institutional share classes where she had capital gains. We also liquidated other funds where the gain was minimal. We developed a low-cost, tax-efficient investment portfolio that should enhance her after-tax returns over her investing lifetime.
• We made sure her property and casualty insurance had the proper limits to ensure adequate coverage should something unexpected happen.

RESULTS

Stephanie is happy and has peace of mind that she has created a path toward financial independence. She appreciates the advice and has turned over the implementation and management of her finances to us so she can focus on her career and upcoming marriage. She is confident that she can weather any unexpected event, and if something happens to her, her new husband will be fine. She and her fiancé are busy decorating and enjoying the new home. The financial plans with her parents are now coordinated so as to not expose her inheritance to creditors and unforeseen events. After engaging with us, Stephanie is more financially savvy about her overall fiscal health and situation.

Current State of Finances

Michelle, an oncologist, is married with three children. She graduated from medical school with over $300,000 in student loans.

She wants to become a partner in her practice but is concerned about her current debt and ensuring that she is managing her financial affairs wisely. Her job requires her to be on call regularly, so she is looking to partner with someone who can proactively manage her finances, simplify her life, and free up time to spend with her family.

The Strategy

A colleague refers Michelle to a Physician Focused Financial Planner. She is interested in their “Personal CFO” platform to help oversee her finances. After an initial meeting, she realizes that the service goes well beyond just managing investments and encompasses areas such as student loan planning, retirement and tax planning, advice on buying into a practice, and developing college planning strategies for her children. They agree to work together and get started on an initial plan.

How Medical Professional Geared Financial Planning Helped

• Michelle learns that refinancing her student loans makes more financial sense than just consolidating them. Through guidance from her financial advisors, she finds a company to help refinance her six different loans into one loan. The process saves her thousands of dollars in interest and provides peace of mind knowing that her rate and payment will never increase.

• The practice Michelle works for has offered her an opportunity to become a partner. Her wealth management team walks Michelle through the entire process by providing guidance on financing options, her employment contract, and succession planning. All of Michelle’s legal documents are scanned to her personal online Wealth Portal for easy access.

• Michelle realizes that putting three children through private college can cost a small fortune. Her Physician Focused Financial team helps her not only save for college but also determine which colleges are most likely to offer her children the most merit aid. This strategy helps reduce the overall cost of education and minimize student loans for his children.

• Michelle is concerned about her retirement. She is wondering how to best allocate her savings and reduce her taxes. As part of the curated planning process, her financial independence plan is put into action. The plan includes the timely liquidation of appreciated assets, paying down high-interest debt, optimizing retirement plans, and coordinating all plan actions with a team of attorneys and CPAs.

RESULTS

Whether it’s navigating her employee benefits or trying to make sense of the recent tax code changes, Michelle knows her finance team is anticipating her needs and is one call away, any day of the week. Having a point person proactively planning and coordinating her financial life has freed up an immense amount of time for Michelle to focus on building her business and spending time with his family.

Current State of Finances

Jim is happily married to his high school sweetheart Margie, and they have three children, Joe, 20, John, 17 and Bernadette, 12. Jim is currently a shareholder in a successful neurosurgical medical practice group. He has found his career in practicing medicine to be incredibly rewarding, but recent changes to state healthcare practice standards and an increase in insurance liability has led to a substantial decline in the practice group’s revenue and an increased workload that is hard to cope with. This is especially the case amongst the elder members, like Jim.

Jim’s first son Joe is currently enrolled at Vanderbilt University as a Junior and his other son John is quickly approaching college age, as a junior at the local high school. Jim’s daughter Bernadette is a beautiful 12-year-old but has some challenges. She has special needs related to autism spectrum disorder (ASD).

Despite performing well in elementary school, Jim and Margie are unsure if college will be the right atmosphere for her socially, nor will it have the learning assistance programs and guidance she needs for academic success. Jim and Margie are also concerned that Bernadette may not be able to live independently as an adult and they may have to provide a level of financial and living assistance throughout her lifetime.

The Challenge

Jim has accumulated over $1.5 million in assets. His accounts are mostly small and distributed amongst a few different brokerages and mutual funds.

He knows he is not making his finances work more to provide for his family’s future but does not have time to meet with a financial advisor and devise a more effective investment strategy. He would like to retire at 65 but is unsure what he needs to do to be financially safe in retirement. Jim would also like to purchase a small, but well-located golf condo in Fort Lauderdale, Florida sometime in the next 5 years. He also would like a boat for weekend trips to enjoy with the family.

Margie’s primary concern stems from being able to protect the family’s financial future should anything unforeseen happen to Jim. Having recently experience the loss of her beloved father, this concern has become increasingly pertinent for Margie. She has also started to assume more of the responsibility for her aging, widowed mother’s finances and well-being. Margie wants to future-proof the family’s financial situation by having several safety nets in place. These include taking out life insurance and disability insurance policies, as well as having long-term care insurance in place. Margie also wants to ensure her and Jim’s wills are up-to-date and remain so.

How Medical Professional Geared Financial Planning Helped

Joe and Margie decided that a financial planning firm geared towards medical professionals was a perfect fit for answering all their financial questions, creating the necessary safety nets and arrange their investments to help them achieve their goals.

One of our financial planners collaborated with them to create a complete and tailored financial plan. Jim and Margie also began working with one of our experienced investment portfolio managers to both merge and manage their investments and accounts in way to achieve their goals.

We did the following plan for Jim and Margie

• Create a net worth analysis to examine the family’s assets and liabilities. We recommended they refinance their existing home mortgage and paired them with a trusted lender who specializes in the financial situations of physicians.
• Devised a cash flow plan to restructure their fixed expenses to afford them more flexibility should Jim’s income become unstable. We even showed them how to fund Jim’s dream boat for the next year and purchase the golf condo in Fort Lauderdale within 5 years.
• We also created a college fund for their children, Joe and John. We examined the cash flow they had and borrowing strategies they could undertake to ensure funds were available immediately for Joe and John’s college expenses. For Bernadette, we developed an education funding plan that is highly flexible, given that she would likely not attend college like her brothers.

Our financial planners then developed a retirement projection that demonstrated to Jim and Margie what they needed to save each year to retire happily. Part of this projection involved devising a comprehensive plan for how Jim could begin identifying value from his shares in his practice group, plus examining the buy-sell agreements between the partners.

Furthermore, we assisted them in seeing how their insurance needs impacted their financial situation and helped them find the most comprehensive coverage to meet their needs. Jim required about $3 million more in life insurance to adequately protect his family than initially thought. Most of this could come from term insurance, but a significant section needed to come from permanent insurance in the event Bernadette needed more substantial financial support.

We then paired them with an independent life insurance agent we know well to get the new insurance policies set up. Jim and Margie also needed a small amount of long-term care insurance, to meet one of Margie’s requests. So, we referred them to another trusted agent who specializes in long-term care insurance to get the coverage in place.

We went on to review their estate planning and analyze their current wills. One glaring issue emerged that their choices of guardians for Bernadette, in the event of their passing, would not be sufficient for her. They also did not have a power of attorney clause in either will should either Jim or Margie pass to manage the other’s finances. We then connected them with an experienced attorney who helped ensure their assets were properly titled and the designation of beneficiaries on the life insurance policies and retirement plans were consistent with their estate plan.

RESULTS

Together with one of our portfolio managers, an investment policy statement was crafted that will guide the family in their future investment strategy successfully. We helped them consolidate their assets into a single custodian that allowed them to actively manage their assets. Jim and Margie meet with their portfolio manager every 6 months (or whenever they feel like it) to discuss any changes in their financial plan. Every quarter, the family receives a thorough report of their investments so they can measure their financial progress.

Through the help a personalized financial plan and continuous advice to keep them on track, Jim and Margie now have the peace of mind they need to enjoy life without the stress of money.