Given the physical and emotional demands of their profession, it’s little wonder that some physicians look forward to retirement. However, many other doctors nearing retirement age are reluctant to turn their backs completely on their profession and would rather find a way to ease into retirement.
What should you do if retirement is on the horizon but you would prefer to transition gradually into retirement by working part-time? Here are some things to consider if you are thinking of cutting back on your work hours:
1. Review Your Finances
First off, determine if you can afford the reduction in earnings that reducing your work hours will entail. Pay particular attention to any debt you are carrying (mortgages, etc.). Ideally, you don’t want to be overly burdened with debt once you are no longer practicing full-time.
A review of your current net worth can give you a clearer picture of your overall financial standing. Net worth takes into account the value of all your assets as well as your outstanding liabilities.
If you’ve been funding a tax-favored retirement plan, hopefully you have accumulated sufficient assets to provide a steady stream of income for all the years you may be retired. If you still haven’t met your goal, you’ll want to determine if your earnings from part-time work will allow you to comfortably continue adding contributions to your retirement plan. You’ll also want to determine when you can start taking penalty-free withdrawals from your plan(s) and project what your tax situation will look like. These are all issues we can help you assess.
2. Look at Your Options
If you are part of a multi-physician practice, talk to your colleagues about what arrangements can be made for you to start cutting back your hours. You may need to revise your practice agreement to incorporate a new compensation arrangement. Typically, such arrangements are based on the productivity of the part-time physician less a share of practice overhead expenses.
If you are a solo practitioner, you may find it hard to practice part-time without creating problems with your current patient base. Patients may feel that you can’t deliver the type of patient care they expect if you are practicing part-time. Bringing in a physician assistant may be helpful. However, recruiting another physician who would eventually take over the practice may be the most effective route for solo practitioners.
Give careful consideration to the financial arrangements you make with the new physician. When it comes time to sell, you’ll want to have a formal purchase agreement that outlines all of the rights, obligations, and responsibilities of the buyer(s) and the seller. It should also include a valuation of the practice.
3. Consider Malpractice Insurance
Don’t ignore the issue of malpractice insurance when you are weighing the pros and cons of going part-time. You need to be certain you will be covered during your part-time years and after you stop practicing completely. “Tail coverage” can protect you against any malpractice claims that may be filed against you after you retire.
CIG Capital Advisors Can Help with Retirement Planning
Whether you are serious about transitioning to part-time work or are simply exploring your options, be sure to consult with us. We can help evaluate your personal financial preparedness for retirement and assess the need for other steps, like medical practice valuation or a partnership exit strategy. Schedule a complimentary consultation with a CIG Capital Advisors professional to discuss your specific situation at www.calendly.com/yhai.
As we approach the new year, it is a good idea to examine and review a financial health checklist and make changes as necessary. Here is a list of some of the items the CIG Capital Advisors Wealth Management team recommends you review as part of your resolution for better financial health in the new year and to help establish good personal finance habits in the years to come:
- Review and update beneficiaries. Confirm who is designated as your beneficiaries on your retirement accounts. For many people, naming beneficiaries happens one time, when they set up the account or policy. However, life changes (birth, marriage, divorce, death) are inevitable, and when these changes occur, you, or your family, may find that the designated beneficiary on your retirement account is not who you think it should be now.When it comes to planning for wealth transfers, it’s extremely important to review your beneficiaries periodically, especially if you have had children, divorced, or remarried since you first established your retirement account. This also applies if you had previously named a charity or trust as your beneficiary upon account setup and that organization no longer exists.
- Review and/or prepare for Required Minimum Distributions (RMDs) If you’re 70½ or older, you’re required by the IRS to take RMDs from certain retirement accounts by December 31—or face a penalty equal to 50% of the sum you failed to withdraw. If you turned 70½ this year, you have until April 1, 2020, to take your first RMD, albeit with potential consequences. Additionally, if you will be turning 70½ soon, now is the time to review your distribution strategy.
- Retirement Plan Contribution Increase. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is increased from $19,000 to $19,500 for tax year 2020. Consider reviewing and changing your contribution limits if appropriate.
- Review Living Wills and Trusts. Most often people wait to do their estate planning and draft a Will until they absolutely have to, which is often after they have children, get married, buy a house, start a significant business or have a spouse or family member convince them of its importance. If nothing sudden or significant has happened such as the birth of a child, divorce, marriage, death of a family member, change in jobs, or change in your balance sheet or assets, then a good benchmark for reviewing your estate plan is once every five years. Otherwise, it’s a healthy habit to do a general review once a year.
- Revisit Tax Withholding. Changes in dependents, income and marital status can all affect your tax bill. Use the IRS’s withholding calculator to ensure you’re withholding enough—but not too much.
- Check your credit reports. Under the Fair Credit Reporting Act, each of the national credit-reporting agencies is required to provide you with a free copy of your credit report, upon request, once every 12 months. Get yours at annualcreditreport.com.
- Review your insurance needs. Make sure your loved ones and the things you’ve worked so hard for are protected. Ensure that there are no gaps in your home, auto, business insurance coverage.
Resolve to get take care of your financial health in the new year. To get assistance with a complete, holistic review of your financial plan, contact a CIG Capital Advisor to schedule a brief introductory call today.
Charitable trusts and the difference between a charitable lead trust and a charitable remainder trust
For many of us, philanthropy can provide great personal satisfaction. However, when properly planned for, charitable giving can provide financial benefits both today (as an income tax deduction and/or capital gains tax shelter) and in the future (when the amount of taxes your estate may owe when you die can be reduced).
There are many ways to give to charity. A common vehicle for many families is a charitable trust, where a charity is named as the sole beneficiary. You may name a non-charitable beneficiary as well, splitting the beneficial interest (this is referred to as making a partial charitable gift). The most common types of trusts used to make partial gifts to charity are the charitable lead trust and the charitable remainder trust.
What is a charitable lead trust?
A charitable lead trust pays income to a charity for a certain period of years, and then the trust principal passes back to you, your family members, or other heirs. The trust is known as a charitable lead trust because the charity gets the first, or lead, interest. A charitable lead trust can be an excellent estate planning vehicle if you own assets that you expect will substantially appreciate in value. If created properly, a charitable lead trust allows you to keep an asset in the family and still enjoy some tax benefits.
SOURCE: Broadridge Investor Communication Solutions, Inc. Copyright 2017
What is a charitable remainder trust?
A charitable remainder trust is the mirror image of the charitable lead trust. Trust income is payable to you, your family members, or other heirs for a period of years, then the principal goes to your favorite charity. A charitable remainder trust can be beneficial because it provides you with a stream of current income — a desirable feature if there won’t be enough income from other sources.
SOURCE: Broadridge Investor Communication Solutions, Inc. Copyright 2017
Note: There are expenses and fees associated with the creation of a trust. Please speak to your financial and/or tax professional to understand the cost and tax implications of your particular giving situation.
CIG Asset Management Update November 2019: Optimism versus economic data: Has the market already priced in most of the good news?
U.S. equity markets reached new all-time highs at the end of October. The S&P 500 Index increased 2.0%.(1) Foreign stock markets continued their recent outperformance over U.S. equities as international stocks, measured by MSCI EAFE Net(2), advanced 3.6% last month and the MSCI Emerging Markets Net(2) was up 4.2%.
The Federal Reserve, as expected, cut short term interest rates by 0.25%. Longer term U.S. rates increased by 0.08 – 0.11%.(1) The Barclays U.S. Aggregate Total Return Bond Index (3) increased by +0.3%. German government bond yields became less negative, moving up 16 basis points to -0.41% and Japanese government yields moved up 8 basis points to -0.13%.(1)
There were plenty of reasons to become more optimistic in October. Negative bond yields worldwide became less negative, especially in Germany and Japan.(1) The September unemployment rate was 3.5%(4), the lowest in 50 years. Nearly 74% of the 341 S&P 500 companies that reported earnings during the month beat lowered estimates.(5) Markets traded higher at the end of the month on hopes that the trade war would de-escalate as the U.S. and China announced a partial trade deal at the White House on October 21st. A deal was not actually signed, details were lacking, and both sides said talks would continue. Europe was relieved that it did not have to worry at this time about a “no deal” Brexit after a deal was reached to extend the original October 31 Brexit deadline to January 31, 2020. The Federal Reserve injected more liquidity into the banking system and said it would start purchasing $60 billion in treasury bills monthly and increase daily repo operations to $120 billion per day from $75 billion.
However, an abundance of data shows that the economy continues to slow. The September ISM Manufacturing purchasing managers’ index came in at 47.8%(6), the lowest level since June 2009. A number below 50% indicates a contraction in manufacturing. ISM Non-Manufacturing Index came in at 52.6, down from August at 56.4 and a 3 year low.(7) The Bureau of Labor Statistics (BLS) reported August Job Openings Levels: Total Nonfarm (JOLTS), decreased to 7.051 million, the lowest number of openings since March 2018.(8) Corporate earnings results are down -0.6% on 4.9% higher revenues than one year ago.(5) Companies buying back their own shares has been a major contributor to the rally since 2009. Goldman Sachs analysis warns that they anticipate 2019 stock buybacks will drop 15% in 2019 to $710 billion and continue to drop in 2020. Corporate buybacks currently provide more demand for stocks than any other individual source, including households, mutual funds or exchange traded funds. Buybacks as a percentage of trailing annual free cash flow has historically peaked near the highs of the market, i.e.: 2000, 2008, and 2016.(9) Lastly, the Federal Reserve is still looking at how to fix short term funding market strains, according to Chairman Jerome Powell at his post FOMC rate cut press conference on October 30. “One thing that was surprising about the episode was that liquidity didn’t seem to flow as one might have expected”, said Powell.
In summary, while the U.S. economy is enjoying its longest expansion in American history, we believe that much of the good news very well may be priced into equity markets. The Federal Reserve began injecting massive amounts of liquidity into the banking system and still does not know why there are short term funding issues. Global economic growth continues to slow. We believe the markets have effectively priced in a U.S.-China trade deal despite its tenuous and elusive nature. We are continuing our defensive posture that we adopted when we recently transitioned to “a later cycle approach” in portfolios during the quarterly rebalance. We still have exposure to equity markets should they continue to move higher but will look to shift, if conditions warrant.