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Retirement Uncertainty for Physicians

As many healthcare professionals get closer to retirement, they will face the following fears regarding an uncertain retirement:

  1. overvalued securities market
  2. higher taxes
  3. inflation
  4. net worth discrimination
  5. worthless pensions

1. Overvalued Securities Market

The Bad

Many older individuals are nearing that age when they can no longer work slowly selling out their securities (index funds, mutual funds) to enjoy less volatile cash flows.

Because our economy goes in busts and booms, we end up with groups of individuals such as the baby boomers, generation Y, etc., each entering retirement at a specific time.

When a mass sell-off of index funds happens, then the value of these securities will drop. You might be invested in your favorite index fund, but if all the 70 yo’s are selling out of them in large flocks, their supply exceeds the demand, driving their price down.

The Good

If you are a 40 yo and the 70 yo’s are driving down these prices, then you still have another three decades for the costs to recover. Will they recover? Historically, yes.

You can’t bank on this recovery, so investing is a risk – a gamble. But it is one of the better gambles out there. Diversification is a potent way of protecting yourself again the downside of overvalued securities and an uncertain retirement:

  • have securities investments
  • have fixed income investments
  • have some real estate (consult, teach, trick)
  • earn a little income on the side
  • have a small business

2. Higher Taxes

The Bad

It’s impossible for taxes not to go up, but I realize that this is an opinion and a prediction – both worthless. However, there is nothing useless about considering the possibility and building some redundancy in your retirement portfolio to address a potentially uncertain retirement.

The wealthy have always been discriminated against (feel sorry for me), so those who earn more or have a high net worth are taxed more. Physicians are among the highest paid salaried professionals with the most to lose. It took a physician 13 years at minimum to become an MD/DO – this is a precious sunk cost to exploit.

Here are two higher-tax scenarios to stimulate your cerebrum:

1) You will be taxed at a higher rate if your retirement income is higher than a certain amount. You’re the king-dingaling ENT surgeon who has stashed away $7M, and you’re withdrawing $250k a year because of RMDs and personal income desires. This is a high-income retirement distribution situation, and the government will levy an added tax against this sort of income.

Imagine a math equation applied to your excess tax similar to an AMT. It will be a factor in what you withdraw from your retirement account annually plus a percentage of what you own in that account – not pretty.

2) You might have that $7M retirement account but decide only to take out $100k a year so that you don’t get hit with the extra tax. The problem is the RMDs – let’s say you somehow manage to get around this. You still have $7M parked in an account collecting dust.

They will now levy a tax against unused assets. Even if it’s a retirement account, your government can tax you on that money unless you mobilize it in some fashion.

Parked real estate has a passive tax; what makes you think your retirement balance won’t? Ireland didn’t have a property tax up until 2013 – now they do.

The Good

The government (= rich people in power) will always feel bad for poor people. Since the median household income is in the $60-70k/year range, anything you earn below this value from your retirement income will likely be excluded from excess taxation.

Single physicians will be hit hardest (you damn predator). If you’ve managed to avoid the black hole of a marriage and don’t have kids, you’ll likely have to get below $40k/year of income to escape excess wealth taxation.

3. Inflation

The Bad

Everyone fears inflation. Some say that you should keep your mortgage to protect against inflation. Others say you should have a hefty real estate portfolio that keeps up or possibly outpaces inflation.

As we get older, most of us cannot handle the schizophrenic market swings. Much like our partners, we prefer a slightly more predictable portfolio – dare I say, reliable.

This means you’ll have to be positioned in bonds, CDs, cash, or some other flaccid investment product that will lose value in an inflationary economy.

The Good

The first point I would like to make is that you have a lot more control over inflation than you think. This is where budgeting can be your best friend and protect you against an uncertain retirement. Inflation means that the dollar amount you have to pay for something is more than what it’s worth – excellent, don’t buy it.

Look at automobile prices – the average car price is now in the $30k+ range? W…T…F! Remember being able to buy brand new $8k cars in 2009? No, we haven’t had that much inflation. Sure, a particular sector may have experienced more inflation, but that doesn’t mean that you have to give in.

The second point is that securities do keep up with inflation – not on a day-by-day basis, but they do keep up. Will they keep up with hyperinflation? No. But neither will real estate – I think TIPS might. Buy those sexy TIPS – that’ll get you some ass right there.

4. High Net-Worth Discrimination

The Bad

We touched on this, but those with a higher income, a higher net worth, or a higher passive income have been discriminated against.

You are punished for being more productive. 13 years of higher education to become a doctor? Fuck you, it’s a privilege, and now we want you to pay for others. The irony is that healthcare professionals are some of the most generous human beings on earth. They donate, and they support their extended families.

My sister helps support my mother and my father, and not only does she get little to no tax deductions for doing so, but she gets taxed heavily as a healthcare professional. In contrast, her deadbeat female counterparts with kids get to live on gov’t cheese.

The Good

Currently, we aren’t taxed on our net worth. It wasn’t easy to track how much everyone had under their mattress a few years ago. Now that finances are all digital, it’s easy for the government to know exactly what your net worth is and thereby tax you on your net worth on top of your income – whether passive from a retirement portfolio or a j-o-b.

  • You can buy gold and silver.
  • You can put some of your money in a foreign country in the form of securities or real estate.
  • You can invest in a business.

Gold and silver can be bought anonymously but must be stashed safely. Humans fear poverty & mortality. Therefore they will always value gold/silver/diamonds.

Even though you must report your overseas income, you can own assets overseas that are incredibly unlikely for your local government to be able to tax. Sure, they can tax any income or profits you receive from it but not if it’s just parked and sitting idly.

Finally, a business is a great way to hide your net worth from the government and avoid a potentially uncertain retirement. If you own a small clinic and are earning $100k/year, reporting $50k, then the government has no way of knowing your business’s exact value.

But guess what, even that is changing. Remember my post on big data? Notice how you’re swiping your credit card on those Square registers everywhere you go? That data is now used to determine how much money similar businesses earn, making it possible for the IRS to come knocking wondering why you’re earning half as much as the other dentist next door to you.

5. Worthless Pensions

The Bad

Will your company even exist 30 years from now? How about its pension program? Sure, government programs are designed to protect your pension, but there are plenty of examples of bankrupt pensions.

Your pension could entirely disappear, but ass-wild inflation could take a massive bite out of its value, which leads to an uncertain retirement.

If it’s not inflation gnawing at your pension’s value, it’ll be the government who will take from you and give to the poor – or at least to its military budget. You’ll have to pay a higher tax on that money one way or another.

Pensions have already been replaced by cash balance plans which are called pensions. That’s, of course, a complete farce unless I’m an idiot who… is possible. A CBP is not a pension, and pensions are going away because they are too costly. Is it possible for your company to turn your pension into a CBP? Absolutely. It’s being done as we speak, and it’s very likely.

Think about it. Your company sends out an employee-wide memo asking you guys if you’d all rather see the company file bankruptcy or have all the employees/partners agree to turn the pension into a CBP? It would be best if you had the job because you have baby mommas and a mortgage, so you’ll opt to keep the job and lose the pension.

The Good

Regardless of what anyone says, your pension will always have value. It may not be much, but even in some of the worst cases, you’ll see some money after legal settlements when the company or entity goes belly up.

What should matter to you is the value proposition of sticking around for an uncertain pension. Instead of bailing on a shitty job with a hostile work environment, you may decide to stick it outtoo vest – to vest in a pension that may no be around, maybe of little value, or require a huge sacrifice on your part to obtain.

I walked away from a pension that would have had a value of around $800k – I have no regrets.

Fostering Fear – Selling Reprieve

I write this negative post because I want to cover both sides of the story. You aren’t me and I ain’t you. We have different desires and we make different lifestyle choices.

It’s good to hear how the best case scenario will play out and it’s good to see what could be lurking around the corner.

Will healthcare professionals ever be broke living in this society? Hardly. You’d have to make big mistakes, be end-stage flagrant with your finances, and ignore even the most basic of financial advice to end up in a financial gutter.

The best advice – the BEST advice that you will ever get is to spend less than you earn. Do this long enough and you’ll end up with a surplus. That’s the proverbial farm that you can sell so you can retire.

Beware

Beware of anyone who puts the fear in your and then is ready to offer you reprieve. Give them the middle finger.

This is how Whole-Life policies got a bad name. No, they aren’t bad options for the right person but they were used to prey on people who were saddled with fear.

High-earning and high-spending physicians are now in the same position because they continue living a burnt-out life working for shitty corporate medical groups just because of the employee benefits which are dangled before them.

Bull Market Hype

And never, ever jump into a new investment idea when it takes off during a bull market. A great example is the crowdfunding real estate orgy riddling every personal finance blog these days. Peer-to-Peer lending like Lending Club was the same hot shit until it wasn’t.

The investment ideas come out of bleeding markets that make for the best investments. Those individuals who were buying up foreclosures and renting them out had the right idea.

Hire a Seasoned Professional

Fear is healthy. I fear a lot of stuff. But don’t go changing a wise investment philosophy just because you’re fearful or panicking. Find a solid financial adviser who has been through a market downturn and can look a few years ahead and identify risks in your portfolio.

Individual risk is so much more important than market risk. My financial adviser, Andrew, can’t do anything if I marry the wrong woman and lose another $150k in another divorce. But he can tell me to position myself into a fixed annuity if I start having excess risk anxiety.

Antidotes

1. Budget. I’ll be publishing my March 2018 expenses post in a couple of days, and you’ll see that I am tired of budgeting. I got plenty of income coming in from different sources, so I don’t care to watch my dollars anymore.

That said, I still hold a black belt in budgeting, and if need be, I can cut my spending down however much I need to to get through whatever financial drama my economy serves me.

2. Earn income. I enjoy earning an income now because I do what I like doing. Though mostly stoned, I am teaching eager young minds at a community college while earning $60/hour.

If you maintain your ability to earn an income and if you can budget, then you’ll never, ever have to worry about anything I said above.

If earning an income isn’t your cup of tea, start a business to avoid an uncertain retirement. Open a coffee shop. A small restaurant. A private pharmacy. A pilates studio. Physicians and other healthcare professionals are experts at customer service and retail work.

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