Financial Preparedness

What's Your Financial Planning Stage

October 11, 2011

You’ve likely heard friends and colleagues talk about steps they’ve taken to reallocate their investments as they move closer to retirement. Financial professionals have long considered reallocation a sound planning strategy. When time is on your side, assets typically are held in more aggressive investments. As retirement approaches these assets are “reallocated” to more conservative positions in the market — to ensure funds are there when needed.

However, today’s era of economic turbulence raises important questions. “Is asset reallocation enough? As a physician, are there other things I should be doing?” To address these questions, it may be helpful to think about financial planning in four distinct stages: Wealth Protection, Wealth Accumulation, Wealth Preservation and Wealth Distribution.

Wealth Protection

Through the course of a physician’s career, financial planning needs will of course change. Near the beginning of their careers, physicians typically focus on protecting current — and future — income.

This is referred to as the Wealth Protection stage of planning. Financial resources are usually scarce, the debt load often is heavy and the primary focus is on launching a career. At this stage, it makes sense to purchase coverage to protect earnings from the impact of a long-term illness, a disability or even death. This is especially true for physicians concerned with protecting their family. Protection in the form of term life insurance, disability income insurance, and long-term care insurance is often purchased at this stage.

Wealth Accumulation

As physicians enter their prime earning years, the Wealth Accumulation stage begins and the focus shifts toward saving money and building wealth. A tax-deferred savings vehicle often is a smart place to start. Most likely you already participate in at least one tax-advantaged plan — maybe a 401(k) or an Individual Retirement Account (IRA). But is that enough?

Considering that Americans are enjoying longer retirements, one could argue that additional savings could be needed. And, with today’s roller-coaster economic climate, many have seen their nest egg balances diminish. Although generally the market has regained some of its footing, consider asking yourself or your financial advisor the following questions:

  • Should I look for ways to supplement my current qualified retirement plans such as a 401(k)? If so, what’s the most effective way?
  • Do I plan to maintain my current investment strategy, or am I willing to become a bit more assertive to try and recoup losses I’ve sustained? If I don’t want to supplement my savings or change my investment philosophy, am I willing to work longer/retire later?

Wealth Preservation

Retirement planning should be ongoing — periodic adjustments are needed to ensure that you continue to meet your retirement goals. Physicians approaching retirement should consider ways to preserve their wealth through effective planning.

A comprehensive plan should quantify your expenses, assets, other income sources, and account for any big-ticket expenses, such as your ongoing health care needs.

The Wealth Preservation stage is the time to evaluate things such as business succession planning (Buy-Sell Agreements may be applicable, for instance), tax-planning strategies, and even products like annuities to preserve a future stream of income — regardless of how the market performs.

You’ll want to meet with your financial planner to discuss specific strategies and products applicable to you. 

Wealth Distribution

As retirement approaches, it’s increasingly important for physicians to consider how income or wealth will be distributed to them, and eventually, to their heirs. You’ve worked hard to build your nest egg — creating an effective Wealth Distribution strategy will help ensure that you and your family can maintain the lifestyle you’ve worked so hard to establish.

Additionally, estate-planning services, structuring funding instruments to cover estate taxes, creating a will (if you haven’t already) and other end-of-life considerations are important to think about in this stage.

Pertinent questions include:

  • What are my assets and how much are they worth?
  • Who is to receive these assets and when?
  • Who will manage my assets if I can’t do so during my lifetime?
  • What legal documents do I need to make sure all of this happens smoothly? 
  • What type of professional advice do I need?

Sometimes your estate goals may seem to contradict each other. You may want an heir to have certain assets while you retain control over how those assets are used. You may be worried that your decisions will provoke bad feelings or result in lawsuits even if you believe what you’re doing is correct. These and other possible scenarios underscore the need
for seeking the help of an experienced attorney who specializes in wills and trusts to help you sort out such issues and accomplish as many of your goals as efficiently as possible.

If you’re not already working with a financial advisor, a good resource is the Physicians Financial Partners program.
Those approved to participate in this program have undergone a rigorous due-diligence process by our agency. To locate an independent financial professional near you, call 1-855-210-4015, 8 am – 5 pm CT, Monday – Friday.

Mike Hegwood 
Assistant Vice President 
AMA Insurance Agency, Inc. 

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