financial planning

Your life has only 3 planning scenarios

Mark Ziety

By Mark Ziety, CFP®, AIF®, Senior Advisor, WisMed Financial

You’ll either have a long life, health problems along the way or a short life. That’s it.

Plan for those three situations whether you’re single, married, with or without kids and most of your planning is done. Let’s look at how to plan for each.

First, essential tasks for everyone

  • Manage monthly cash flow. Call it a budget, spending plan, living below your means or whatever makes it appealing to you. It doesn’t matter if you have high income or low income, everyone needs to control their inflow and outflow.
  • Life happens, have an emergency fund.
  • Pay off all high interest consumer debt.
  • Give of your time, resources and be thankful. Live happy.

Plan for a long life

  • Are you saving at least 15% for retirement with the right investments? Boosting it to 20-25% is even better.
  • Have you maximized your tax advantaged retirement accounts through your employer and on your own?
  • Will your tax burden be higher or lower in the future? Hint – if you have a lot of tax deferred investments, you could be igniting a tax bomb that hits later in life.
  • Save for kids’ education expenses.
  • Determine the monthly income you’ll have in retirement from all sources.
  • Dream about your future.

Plan for health problems

  • Health insurance is the obvious answer.
  • Auto and umbrella insurance can provide for you via uninsured/underinsured coverage.
  • Disability insurance that replaces two-thirds of your income if you can’t perform your own occupation is critical, especially during your early and mid-career. A policy with an inflation adjustment is even better.
  • Everyone over age 18 should have health care and financial power of attorney documents.
  • Do you have a source to pay for long-term care expenses? If not, consider an insurance policy.

 Plan for a short life

  • If anyone depends on you for income, get term life insurance. It’s cheap, so don’t skimp.
  • Are your beneficiary designations correct?
  • Do you need a will or trust?
  • Ensure your family knows where to find your documents and accounts.
  • Tell your family you love them. And if you’re faithful, pray.

Since we don’t know the future, all three plans are important for everyone. Our Physician’s Financial Guide has even more tips. Or, for one-on-one help schedule an appointment.

To your best life and healthy finances.

Mark Ziety, CFP®, AIF® 608.442.3750.
WisMed Financial, Inc. part of the Wisconsin Medical Society

Is your group disability insurance good enough?

Tom Strangstalien

By Tom Strangstalien, Insurance Advisor

May is Disability Insurance Awareness Month. This is the perfect time to evaluate your disability protection, determining if you’re adequately covered and address any potential holes or gaps in your coverage. A common theme I hear when talking with our members is, “I have disability insurance coverage as part of my employee benefits, so do I really need personal disability protection?” For physicians and medical professionals, the answer is almost always yes!

Typical limitations of group coverage

First, there is a cap on the amount of benefits that will be paid out for a claim. If the maximum benefit amount is $10,000 per month and as a physician you’re earning $300,000 per year, you’re not even covering half of your income. Are you willing to roll the dice for a potentially devasting and dramatic lifestyle change?

Second, group disability coverage contains “offset provisions.” This means that if you are drawing payments from other sources upon incurring a disability, the benefits paid by the group policy will be reduced pro-rata. These sources could include things like social security, liability settlements, workers compensation payments, employer provided retirement plan replacement benefits and other accident or short-term disability plans. A properly designed personal disability plan will not contain such provisions.

Next, group disability plans are not portable. In other words, if you change your place of employment or go into practice on your own or as an independent contractor, you will lose the disability protection. If you have incurred some health issues, coverage then can be very expensive or not available to you at all. This is why it’s so important to get a personal disability plan in place as early in life as possible.

Benefits of personal disability insurance

With a personal disability insurance plan, there are many optional benefits available to you. It’s not a one size fits all plan like a group plan tends to be. You can elect additional coverages such as:

  • student loan payment coverage
  • inflation protection
  • catastrophic coverage
  • partial and residual disability coverage levels
  • future increase benefits (you can increase the amount of benefits as your income increases with no additional medical underwriting)

What I want you to take away from this article during Disability Awareness Month is this: take a few minutes and review your current disability protection. If you do not yet have a personal disability plan, get one as soon as possible. Don’t roll the dice with your biggest asset – your ability to earn a substantial income! As the independent insurance agency of the Wisconsin Medical Society, we can shop all of the major insurers, review your current group plan and design a plan that will fully protect you and your family for your lifetime.

As your financial partner, your WisMed Assure team is here to take care of your personal financial security so that you can take the best possible care of yourself, your family and your patients.

For additional information regarding disability insurance, contact WisMed Assure at insurance@wismedassure.org, complete this online form or call 866.442.3810.

Your 2022 Tax Strategy

Mark Ziety

By Mark Ziety, CFP®, AIF®, Senior Advisor, WisMed Financial

Tax laws feel like stepping into quicksand lately, don’t they? Trying to understand if, when and how the tax laws will change can make you feel like the floor will fall out from under you at any moment. (Particularly at tax time.)

This is especially true if you’re a high earner or have accumulated a significant nest egg. With each tax change, it feels like your tax-saving strategy is in jeopardy. However, we are in familiar waters because the tax laws have evolved constantly. In the past 20 years alone, the wealthiest taxpayers’ top marginal tax rate has shifted between 35% and 39.6%.

It sounds all doom and gloom, but it’s possible to find tax-saving opportunities hiding inside your current strategy and every new tax law update.

With your 2021 tax return in hand, it’s time to start planning your 2022 tax strategy by checking some important lines on your 1040 or 1040-SR. Things to consider:

  • Lines 2b and 3b show dividends and interest that are adding to your current tax bill. Should you hold these investments in a tax deferred account?
  • Was line 4b exactly $6,000 or $12,000? If so, your backdoor Roth IRA contribution(s) was probably not reported correctly.
  • Did you have realized capital gains that may have added to your tax? Check line 7 to find out. If your capital gain tax rate is low, consider whether you should realize additional capital gains in 2022 or defer them to a future year.
  • Did your deductions help you? If line 12a is $12,550, $14,250, $18,800, $25,100, or $27,800 you did not get a deduction. Consider bunching multiple years of deductions into a single tax year so you can itemize deductions.

US Senators still intend to pass portions of last year’s failed Build Back Better Act in 2022, so the timing of property tax payments, additional tax deferral, and Roth conversions are all strategies that should be considered this year.

Want help with your tax strategy? Download WisMed Financial’s free tax planning guide  or schedule an appoinment.

P.S. Download the 2022 tax brackets, retirement contribution limits, investment checklist, and quick decision flow charts from the new WisMed Mobile app.

To your best life and healthy finances.

Mark Ziety, CFP®, AIF® 608.442.3750.
WisMed Financial, Inc. part of the Wisconsin Medical Society

Why Residents Need Disability Protection

Tom Strangstalien

By Tom Strangstalien, Insurance Advisor

As a resident or fellow, your biggest asset is quickly becoming your ability to earn an income. Until you become independently wealthy and can sustain a loss of earning power without consequence, it is imperative to have disability protection. But why do this as a resident or fellow, before the dramatic income increase of becoming an attending physician? Can you wait, get on my employer benefits group plan if applicable, and purchase supplemental personal disability insurance when I can better afford it? There are several reasons why this may not be the best choice as you build your overall financial plan.

While a medical resident or fellow, you are entitled to a base amount of coverage without being required to provide proof of financial qualification. Additionally, WisMed Assure works with several insurers that provide discounts to many of the residency programs. Furthermore, Wisconsin Medical Society Members are eligible for even more discounts. Throughout your career, these savings can add up to a monumental amount of money.

Disability insurance protection increases in cost as we age – it will be more expensive every year. By getting a policy early in your career, you’re locking in the price while it’s the most affordable. Another consideration is to purchase a future increase option at this time, where you can increase your protection as your future income increases, without the imposition of any more medical underwriting.

Group disability insurance coverage is a wonderful benefit, and I almost always advise to enroll for the maximum group benefits that you are eligible for, however it often has limitations. It may be capped at an amount that is insufficient to replace your total income if disabled. Portability is also a concern – if you change employers or career paths, the coverage will be lost. Almost always, group coverage contains offsets where any benefits attained from other sources will decrease the benefits paid out by group coverage. A solid personal disability policy, specially designed for physicians and those in the medical field, addresses these inherent risks.

So where should you obtain this vitally important coverage at the most affordable price? Only purchase personal disability insurance coverage through an independent agent who can offer plans from multiple companies. Never allow yourself to be sold a policy by a representative who offers only one plan, and thereby has an innate conflict of interest. The plan should be designed for you, not just a standard policy.

WisMed Assure exists for your benefit and offers plans from the Big 5 insurance companies, with plans specifically designed for physicians. Reach out to us and let us design a plan that fits your needs. James Dahle, MD, of The White Coat Investor states, “Early in residency, buy as large of a high-quality, specialty-specific, own occupation, individual disability insurance policy as an agent is willing to sell you.” Take care of this urgent financial chore today.

For additional information regarding disability insurance, contact WisMed Assure at insurance@wismedassure.org, complete this online form or call 866.442.3810.

Financial Success Requires Offense and Defense

…and, defense may not be what you think it is

By Tom Strangstalien, Financial Protection Advisor

Offense, financially speaking, is focused on growth. Defense is focused on keeping what you have. Pretty simple concepts all-in-all. However, each has nuances that vary depending on your tolerance for risk, age, retirement goals, current and future lifestyle goals, and of course, income.

Income itself is one of your offensive tools. This includes the income you earn from working and passive income earned by investments. The other form of offense shows up in investment portfolio design and is generally about choosing assets or combinations of assets that have a high probability for growth… and generally, a greater degree of risk. And, of course, you can also play defense in your portfolio by choosing assets that are slower growing and less risky. The proportion of offense and defense in your portfolio is dependent on the variables mentioned above. This is where the advice of a professional investment advisor who understands your current situation, along with your goals and desires, is essential to your success.

As to other forms of defense, well that’s where I have spent my life helping people figure out. For example, during your earning years, your salary and other earned income is your most formidable offensive asset. But what happens to your plans if due to illness, injury or – God forbid – death, reduces or eliminates your income? How will you and your family maintain your standard of living? How will you be able to continue pursuing your retirement plans?

A substantial market for income replacement insurance has steadily developed for decades. (I include life insurance in this definition as it provides income for your family if you die.) There are as many options as there are individuals who need this type of defense, which means you have the opportunity to choose the type of insurance that exactly fits your current situation (including budget), and future goals.

A general feeling within the insurance industry, is that once a couple reaches the age of 55, there is substantial probability that one of them will need a form of long term care during their lifetime.   I have personally witnessed this within couples that I have worked with throughout my career.  That’s where another form of defense plays an exceptionally important role in protecting your immediate financial security and the integrity of your estate.

Now, like income protection insurance, there are many long-term care insurance options. To choose the option that’s right for you, you have to take into consideration how much tax you are paying and will pay. Again, the nuances can be quite subtle, but generally speaking, an experienced advisor will be able to show you all the ins and outs of the insurance products available.

One thing is for certain; the best time to do this type of planning and make your decisions is now. The sooner the better because, as you age, your options may become more limited, and for certain, the cost will increase.

If you would like a personalized tour of all the options that are right for where you are today and where you want to be in the future, contact me. I look forward to being your defensive coach.

Tom Strangstalien 

Direct:  608-442-3730

Cell:  608-304-1579

tom.strangstalien@wismedassure.org

Different Kinds of Debt: The Good, the Bad, and the Just-Don’t-Do-It!

By Rufus Sweeney

Amassing a considerable amount of debt during medical school is “situation normal” for practically every medical student. Even though debt is rarely seen as a good thing, you need to know the difference between good debt, bad debt, and debt to be avoided at all cost.

Choosing wisely now makes paying off your debt much easier.

In the category of “Just-Don’t-Do-It”, all sorts of credit cards are available and in many cases, actively promoted to medical students with special offers that include an interest free period, cash back on purchases, and all too easy sign up terms. But once that interest free introductory offer ends, you’re on the hook for anywhere from 12 to 25 percent interest on any balance you carry from month to month.

When you use a credit card to finance your lifestyle choices or, worse case, pay for essentials without a plan for paying off your balance each month, you’re playing with financial fire.

The “bad” in comparison to credit card debt, doesn’t look all that bad, but still with interest rates ranging from six to 10%, unsubsidized student loans are an expensive choice.

The “good” are those loans with the lowest possible interest. For example, interest rates for institutional loans from medical schools range from four to five percent. If low interest was the only criteria for determining “good” debt, then a mortgage at three to five percent and car loans at four to five percent would also fall into this category. That said, check out my previous blogs and podcasts on the pros and cons of buying a home and the reasons why it is a good idea to live like a resident, even after you become an attending physician.

Paying the piper

No conversation about interest rates is complete without a word or two about repaying debt.

Generally speaking, there are two popular methods: the snowball method and the avalanche method.

Popular financial expert Dave Ramsey recommends the snowball method because he says, “… personal finance is 20% head knowledge and 80% behavior. You need some quick wins in order to stay pumped enough to get out of debt completely.”

Here’s how it works:

Step 1: List your debts from smallest to largest regardless of interest rate
Step 2: Make minimum payments on all your debts except the smallest
Step 3: Pay as much as possible on your smallest debt
Step 4: Repeat until each debt is paid in full

Here’s an example using four different debts:

  1. $500 medical bill—$50 payment
  2. $2,500 credit card debt—$63 payment
  3. $7,000 car loan—$135 payment
  4. $10,000 student loan—$96 payment

Using the snowball method, you would make minimum payments on everything except the medical bill. You would pay as much as possible each month on the medical bill until it is paid off.  You would then take the money you used for the minimum payment on the medical bill, plus as much extra as you can afford and use it to pay off your credit card debt. As soon as that debt is paid, you take all the money you previously used to pay the medical bill and credit card debt off and apply it to your car loan.

By the time you are ready to pay off your student loan, you’ve got a pretty big debt repayment snowball working for you.

The avalanche method takes a more practical approach… at least mathematically speaking.  You make minimum payments on all debt and use any remaining money to pay off the debt with the highest interest rate. Like I said, this method is a more practical approach because it allows you to save hundreds of dollars in interest payments and reduce the time it takes to pay off all your debt.

When it comes to choosing which method to use, remember what Dave Ramsey says… “personal finance is 20% head knowledge and 80% behavior”.

In my next blog, we will explore the different ways in which interest rates are calculated.

If you need help managing your debt, one of your best resources is your financial aid officer. And, I highly recommend visiting the White Coat Investor website. It’s a great source for guidance on how to acquire and manage the “good” forms of debt.

To Buy or Not to Buy: A Personal Challenge

Despite its appeal, buying a home in residency is usually a bad idea

By Christopher Rufus Sweeney

In residency, buying a home is most often not a wise financial decision. That said, the emotional appeal of owning a home is powerful and difficult to resist.

In my previous blog – Live Like a Resident – we looked at how living frugally for five to 10 years after residency is the fast track to financial freedom. Speaking of powerful, the emotional appeal of buying your dream car, taking high-end vacations, bringing your wardrobe up to a higher standard, regularly treating yourself to fancy restaurant meals (because after all, you deserve it!), can be all but irresistible.

Just like owning a home.

But, if you detach emotion from your reasoning, and rely solely on logic in your financial decision-making, you are likely to decide against buying a home in residency. Here’s why:

  • Closing costs associated with buying are on average 2-5% of the value of the home, which pushes the break-even point out quite another year or two
  • Residents often don’t have enough saved for a down payment. If you can only afford a down payment of less than 20%, you will need Private Mortgage Insurance (PMI), or a certain percentage to insure the loan
  • You could lose money if home values decline
  • There are extra expenses beyond mortgage payments
  • You are responsible for repairs, remodeling
  • No tax advantages because residents typically can’t afford an expensive enough home to exceed the standard deduction

On the other hand, renting a home has these advantages for a resident:

  • Far fewer upfront costs and paperwork
  • You have freedom to be more mobile
  • You are not responsible for maintenance, repairs
  • You can build your credit rating (if your landlord reports rent payments to the credit bureaus)
  • No property tax bills
  • And, there’s no need to worry about falling home values

Under certain circumstances, owning a home can make sense. For instance, if you have minimal student loans, are facing a long residency, and the housing market where you want to own is favorable, then it may make financial sense to own. If your residency is five or more years, the financial logic is sound as it is enough time for your home to appreciate beyond your costs.

If you are uncertain of where you will be attending after residency, you may think you can always rent your home if you move out of town. This is typically a bad idea. First, if you may end up in a different city, you will quickly learn that remote land lording is hard. If you do end up in the same city, you’ll be managing the place unless you hire someone to do it. Regardless, you’re still on the hook for any repairs you make to the home which can eat away at the amount of income you make.

If you do buy a home during residency, it’s usually a good move to sell when you’re ready to move on (hopefully for more than you bought it for).

A word of caution before you buy: Online services like Zillow provide a history of what the house has sold for previously. If you notice it’s cheaper than it was a few years ago, this could be a good sign… or a bad sign. The place could be cheaper because it has serious problems. Which is why you must always get the home inspected by a professional before purchasing.

It’s up to you. Whether or not you can apply Spock-like logic to your home buying versus renting decision, or find some sort of logic/emotion compromise, you need to always ask:

  • What can you really afford?
  • How long do you plan to stay in the home?
  • Do you want stability or flexibility?
  • Can you afford to be responsible for home repairs/maintenance?
  • What impact will this decision have on your long-term career, family and financial goals?

Here are some additional resources to help you make the best possible decision.

Next blog: Different Kinds of Debt: Knowing helps you choose the best repayment method.

Is Your Money Unemployed? Replace budgeting with goal setting and give your money a job

By Christopher Rufus Sweeney

If you are willing to live like no one else will early in life, then you can live like no one else can later in life.”

James Dahle, MD, “The White Coat Investor”

As we developed our financial literacy course for medical students, my colleague Emma Crawford and I initially called the first module “Budgeting”.  We quickly realized no one likes to create a budget much less stick to it. So, we changed our perspective and called the module “Budgeting: Goal Setting”.

Goal setting is all about giving your money a job… a very empowering activity. And, to add a little sugar to the medicine, we’ve replaced the “b” word altogether and use “earmarking” instead.

Emma and I created this course to give medical students a scaffolding on which to build their futures… financial and otherwise. Goal setting and earmarking challenges you to do three things:

  1. Determine and rank the values that drive you
  2. Decide the goals that are most important for you to achieve
  3. Make sure your spending habits reflect your values and goals

These steps are simple to understand, but they are perhaps some of the most challenging to live by. There are plenty of studies about the psychology of why we struggle with these but one published in the Journal of Consumer Psychology is particularly helpful. It’s titled, “If money doesn’t make you happy, then you probably aren’t spending it right” and it is available on sciencedirect.com. The title speaks for itself.

When determining your values and identifying your goals, one key takeaway from the study may be very helpful: Buy experiences instead of things. Because we quickly get used to new things, the happiness we experience is fleeting. With experiences, new and repeated, the happiness we experience is much more enduring.

Another key takeaway is easy to say but extremely difficult to do: Pursue your own goals, not anyone else’s. This is where your values come in; when you are very clear about what they are, and you review them often, they protect you from getting caught up in someone else’s definition of what’s important in life. (The quote by James Dahle, MD at the beginning of this article speaks to the reward you can expect when you stick to your values.)

Once you have your values and goals, you need to decide how to earmark your money. Here is a simple table with my spending categories to help you get started.

  NON-NEGOTIABLE NEGOTIABLE
FIXED Housing
Transportation
Insurance
Savings
Subscription streaming services
Amazon Prime
VARIABLE Food
Gasoline
Hobbies
Nights out
Vacation

There are a number of very good online resources to help you set up, manage and stick to your goals. In the course, we run through a detailed explanation of how to use an app called Mint. Without actually going online to do so, here are some of the soundest steps you can take to give all of your money the job of ensuring you achieve your goals:

  • Look at your personal history of spending. (With apps like Mint, you track your credit and debit card activity)
  • Track your spending back at least a month… preferably six months
  • Assign categories of spending for all transactions
  • Once you know how much you spend on average, you can refine or create new categories of spending as needed
  • Set a monthly budget and identify where you can cut back if needed
  • Keep track of how you’re doing on at least a weekly basis

What do you learn from tracking your expenses? First, you learn where all your money is going. Without a doubt, you will be surprised at how many different ways you spend money and, most importantly, how little much of your spending contributes to the achievement of your goals. In other words, you learn how to recognize when you are spending money towards the achievement of someone else’s goals (increasing Starbuck’s income comes to mind).

The best result of earmarking is it gives you a clear picture of what you can do to accelerate your progress to your bigger longer-term goals. The sense of power and satisfaction even the smallest step towards those bigger goals is invigorating and an acknowledgement of your ability to be in control of your money instead of suffering as your money controls you.

Next blog:

Live Like a Resident: If you live and work like a resident, you can become financially independent in 10-12 years. That feels good.

Physician Financial Wellness Matters

New course battles financial stress and physician burnout

By Christopher Rufus Sweeney

The survey says… wait, that’s wrong. Start again: 42 percent of all surveyed physicians say that they are burned out. And that number is steadily rising.

My research shows that financial anxiety is one of the primary drivers of physician depression, burnout, and suicide. When asked why, physicians say it’s because of their job. But, when asked what would reduce burnout, their first answer is increased compensation to avoid financial stress.

But, think about this: getting a higher salary is often not something you can directly control. On the other hand, you do have direct control of how you manage your salary. You can control what you have.

That’s the great news my colleague Emma Crawford and I are spreading through our new course being offered to students at the School of Medicine and Public Health at UW-Madison.

Funded by a grant from the Wisconsin Medial Society Foundation, our goal is to help med students make smart, well-thought-out, intentional financial decisions now so that you are able to enjoy your life with less financial stress later.

Medical students, residents and physicians are busy and have little financial training, which can result in suboptimal decision-making and being targeted by less than scrupulous “financial planners”. This can be scary, intimidating, and discouraging.

I am speaking from experience here. Before entering medical school, I was talked into a bad investment and quickly realized physicians represent a vulnerable combination of high income and poor investment skills. This makes us an ideal target for salesmen posing as financial planners. Since then, I’ve dedicated myself to helping others avoid the mistakes I made.

You can’t blindly luck into financial independence, even with a physician’s salary. No one is born good at managing finances! Financial decisions both large and small are more psychological than logical. The good news is that anyone can learn it. That’s why we’ve put together this course. From budgeting and living on a resident’s salary to figuring out whether you should rent or buy a house during residency, this course arms students with carefully distilled personal financial wisdom to better navigate their financial journey when they graduate from SMPH.

The Wisconsin Medical Society’s insurance agency, WisMed Assure, has asked me to share some of the course’s highlights over the coming months.

Here’s what you can expect:

  • Budgeting: The word budgeting sounds like a scolding… it’s a lot better to think of it as Goal Setting
  • Live Like a Resident: If you live and work like a resident, you can become financially independent in 10-12 years. That feels good.
  • Rent or Buy a House in Residency: In residency, most of the time, the answer is rent!
  • Different Kinds of Debt: Knowing helps you choose the best repayment method.
  • Types of Educational Loans: Don’t pay people to help you with student loan repayment. Don’t get bamboozled!
  • Compound Interest and Loan Basics: Compound interest is unfriendly when used against you… it’s quite nice if you use it to your advantage
  • Emergency Fund: Consider setting aside about $5k as a resident, and more as your resources and liabilities accumulate
  • Income Driven Repayment Plans: The many ins and outs of income-driven repayment options
  • Public Service Loan Forgiveness: A great deal for many physicians, but you have to do it right
  • Insurance: Insurance works best when it is low probability, but high consequence
  • Taxation: Navigating safely through the sea of taxes and deductions
  • Retirement: Never, ever raid your retirement account

While there are a few pitfalls in personal finance, there are many more ways as to be successful. Most often, what works comes down to what is most important to you and you alone. That’s why we created this course to teach students how to make a plan for their finances based on their personal goals and individual situation. It will give them a scaffolding on which to build their futures.

Looking ahead, think about what James Dahle, MD, “The White Coat Investor” says: “If you are willing to live like no one else will early in life, then you can live like no one else can later in life.”

Next Blog: Budgeting: Goal Setting is all about giving your money a job… and it really is an empowering activity.