HEY DOCTOR – GOT A CURE FOR RETIREMENT?
Neal A. Deutsch, CFP®
Published in Rivertown Journal, January 2008
There is no doubt about that doctors are some of the most respected and affluent
professionals in the workplace. In fact, according to U S. Department of Labor
reports, eight out of the top ten highest paying jobs in the nation belong
to healthcare professionals.
As a doctor, you face several challenges when it comes to securing your financial
future. Educational requirements and substantial student loans delay your ability
to generate income and savings while constant
patient care and the need for continuing education demand your full attention,
leaving precious little time to devote to your own financial well-being.
Ironically, you spend most of your life caring for others and very little time
caring for yourself and your family's future. What’s more, your income
bracket makes you the target of' “financial specialists” of all
shapes and sizes, each of whom professes to have the expertise to provide you
with the most efficient of retirement plans – a can’t miss stock
tip, tax shelters, and; oh what-the heck: how about a great deal on the Brooklyn
Bridge?
Doctors and healthcare professionals, as opposed to other high earners are
in a different category – eight years of school and a residency put you
into your early to mid thirties before you begin your earning years, still
strapped with perhaps hundreds of thousands of dollars of student loans to
repay. Now, couple that with a first time home purchase, raising children and
trying to establish a practice and standard of living. Add it all up and it
leaves little or no time to begin a retirement savings program.
With a myriad of retirement plans available the independent entrepreneur,
the selection of a plan suitable to allow a healthcare professional to achieve
his or her retirement goals with the handicap of delayed saving can be as difficult
as trying to diagnose a patient. Contribution limits, deductibility, equality
and other factors are crucial in selecting a suitable program. The most often
used plan falls into the category of Defined Contribution, in which the employer
is bound to a predetermined contribution for all employees, with a limit of
$45,000 for the employer, dependant on age.
Once you hit your peak earning years though, if you do have extra funds to
put away in addition to your Defined Contribution plan it must be taken as
wages and taxed as ordinary income, reducing your net savings and increasing
your current annual tax burden. How do you save more and pay less on your current
annual taxes?
A Defined Benefit Plan, if it is suitable for you and your situation, may
increase your allowed annual deductible contribution from $45,000 to as much
as $200,000. How does it work? The employer con tributes an actuarially
determined amount each year to the plan, which is tax deductible for the employer.
The contributions are not taxed currently to the employee, and the earnings
accumulate income tax-deferred.
Distributions at retirement are generally taxed as ordinary income and may
be eligible for 10-year income averaging or capital gains treatment to those
born before 1936: this rule is not available to those born after 1935. Beginning
in 2001, federal law allows retirement distributions to employees who are at
least age 62 even if they have not separated from employment at the time the
distributions begin. Additionally, if the Defined Benefit Plan is designed
in conjunction with a Section 79 Plan, you may be allowed to deduct life insurance
payments which now must be paid with after tax dollars, saving you further
current taxation.
The design of a suitable retirement plan is crucial to financial security
in your retirement years, and is best left to the professionals. Check with
your financial advisor to see if they are well experienced in this highly specialized
area. While the best plan is to start as early as possible, with sufficient discretionary
capital a Defined Benefit Plan is designed to allow you to make up for lost tine.
Remember, it’s your future...take control!
Neal A. Deutsch is a Certified Financial Planner™, Registered
Securities Principal and President of Chestnut Investment Group in Suffern,
NY, helping people with financial planning since 1984. Please feel free to
call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com
Feel free to visit his website at www.chestnutinvestment.com
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