7 Most Common Financial Mistakes Made by Doctors

Providing advice to doctors over the years has highlighted some recurring financial mistakes that keep presenting themselves. Below are the top 7 we’ve identified and how you can best navigate them.

7 Most Common Financial Mistakes Made by Doctors1 – Preparing your own tax return

The regulations and laws surrounding tax are constantly changing. For doctors with their own practices or with many income streams, navigating your tax return can be daunting. Specialist knowledge is required to ensure you don’t miss out on the opportunity to secure the best possible tax return. It is crucial that your tax return be completed by a tax specialist, ideally one with knowledge about the medical industry.

2 – Working with the wrong financial advisor

Everyone benefits from working with the right financial advisor, and for medical professionals with many assets and investments, this element of your wealth management is even more crucial. Over your career, you may outgrow your existing financial advisor or perhaps notice that you aren’t receiving a high level of service.

You need to seek advice from a medical financial specialist who is informed about the nuances of allowable deductions for doctors and medical specialists. They will also be able to inform you of the most tax-effective way to structure any trusts you may operate.

3 – Failing to save for the long term (and for tax bills!)

High income earners are often lulled into a false sense of financial security, and doctors are no exception. As they enter the workforce later due to the amount of time spent at medical school, doctors have less time to save for retirement.

The ideal saving ratio might be 20% – 25% of your total income if you intend to retire at 65. For optimum wealth management this should be combined with intelligent superannuation and tax strategies; this will include maximising your super contributions for the best possible tax outcome.

4 – Not focusing on superannuation until too late

As many doctors are self-employed, superannuation contributions can often be pushed down the priority list. It is important to make regular, tax-effective contributions to your super from early in your career and to look to maximise the contributions as your cashflow situation improves over time.

5 – Investing in high-risk schemes

An abundance of disposable income can be dangerous without proper wealth management – just because your income is high, does not mean that you should be drawn into high-risk schemes. It is important to identify risk tolerance levels for your investments and manage them accordingly – your financial advisor will help you in this area. If you invest in a way that aligns with your risk tolerance level, you will be able to safely generate an additional income stream and grow your wealth.

6 – Having an undefined tax strategy

Everyone needs a defined tax strategy. It is particularly important for medical professionals as, while their pre-tax income might be satisfactory, they do not realise that their after-tax position may be drastically different. Intelligent wealth management considers each element of your financial situation and can lower your tax bill by implementing better investment strategies and maximising your superannuation contributions.

7 – Poor Non-Deductible Debt Management

High income earners, including doctors, can easily fall into the pattern of living beyond their means. This may involve credit card debt, personal debt and student loans and can be a significant issue.

The interest expense can take a serious toll on your everyday income and your long-term savings for retirement. Your overall financial position can take a hit and you will not be able to take advantage of tax-effective investments to grow your wealth. If you’re suffering from poor debt management, you need to act immediately.

You should construct a realistic plan that will see you go from making monthly repayments to making monthly savings instead. If you’re unsure how to do this, consult with your financial advisor to help you get back on track.

Ongoing Service

Ongoing advice is critical to the process as an individual’s wealth grows.  Endorphin Wealth recommends that you regularly review your strategy to ensure it remains in line with your desired lifestyle needs.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.auEndorphin Wealth Management Team

Longevity and Retirement

There is a perfect storm developing in retirement:

– Thousands of Baby Boomers are retiring every week in Australia, and

– The 100-year life will soon become common place.

Longevity and Retirement 3The Long and Short of it

Longevity is increasing, and a 65-year-old today is living over 10 years longer than their parents and grandparents did. What this means is a longer period to fund in retirement and a requirement for larger retirement benefits.

One fundamental problem with retirement planning is that many professionals are under estimating how long they will live. Whilst most people use life expectancy statistics to determine how long they will live and how much they need in retirement, the issue with these tables is that 50% of people live beyond their life expectancy.

Whilst living an extra 3 to 5 years may seem irrelevant over someone’s lifetime, the finance impact is vast if left unaccounted.

Effects on your Retirement

Living an extra 5 years in retirement could mean you need an extra $200,000 in retirement saving (based on income requirements of $50,000 per year).

When planning for retirement, it is important to consider the financial / lifestyle impact of living beyond your statistical life expectancy. At Endorphin Wealth, we craft our advice to include a strategy for longevity, such as:

– Funding options available to reduce the impact of longevity.

– Discussions around the non-financial impact of longevity.

As a starting point, we always assume the client will live beyond their life expectancy by an extra 5 years. There are a number of strategies we use to address this scenario, depending on the client’s needs / circumstances.

Case Study – Mrs Jackson

The chart below is a real client example where their life expectancy was 88 (i.e. 2032). We structured her investments, superannuation and income stream to ensure her income requirements of $100,000 per year would be met, well beyond her life expectancy. The different coloured columns represent the different income streams we established as part of the strategy.
Longevity and Retirement 2
It is important to note that no outcome can be guaranteed, ultimately whether you are able to achieve your goals & objectives depends on your personal circumstances, changes to government legislation and investment performance.  This highlights the need for ongoing advice.

Ongoing Service

Ongoing advice is critical to the process as an individual’s lifestyle can change quickly when they finish working.  Endorphin Wealth recommends that, as part of responsible retirement planning, you regularly review your strategy to ensure it remains in line with your desired retirement lifestyle needs while considering your longevity and life expectancy.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

Endorphin Wealth Management Team

Personal Insurance for Medical Professionals

The insurance needs for medical professionals is more complicated than other occupations and requires careful advice regarding your needs.

Personal Insurance for Medical Professionals 1Needs Analysis

Part of this financial advice will involve an accurate ‘needs analysis’. A needs analysis is conducted prior to taking out personal insurance. It considers your current assets and income, projected future income, liabilities, existing insurance portfolio, and the needs of your family.

This information is utilised to calculate the amount of insurance necessary to cover your family. The amount of insurance for a single, newly graduated allied health professional will differ greatly from a neurosurgeon at the height of their career with children in private school.

‘Any’ vs ‘Own’ Occupation TPD Cover

When receiving financial advice, you must also consider the type of TPD (Total and Permanent Disability) coverage you require – either ‘Any’ or ‘Own’ Occupation cover.

There is a crucial difference between ‘Any’ and ‘Own’ Occupation coverage. If you have ‘Own Occupation’ cover and are no longer able to work in the same occupation from before your disability but are still able to work in a different field, you may still be eligible for the payment. For ‘Any Occupation’ cover, you must prove that your disability leaves you unable to work in any type of occupation.

‘Own Occupation’ cover is preferred as it provides the greatest likelihood of having your claim approved, as the terms of the cover are more specific. ‘Own Occupation’ cover does however, come with a slightly increased cost, but the benefit of an increased likelihood of payment makes it a more valuable option for Medical Professionals.

Personal Insurance for Medical Professionals 2
Needlestick Cover

In comparison to other careers, medical professionals are also exposed to unique risks in their line of work. One of these is the risk of ‘needlestick injury’, which occurs when a used needle accidentally punctures the skin and potentially infects you.

Needlestick benefits are available as part of personal insurance to protect doctors, nurses, surgeons and paramedics from potential needlestick injuries. Potentially acquired illnesses from needlestick injuries include: HIV, AIDS, Hepatitis B, Hepatitis C, and other blood-borne diseases.

Medical professionals are encouraged to have needlestick coverage as there is chance they could lose some or all of their income – voluntarily or otherwise. As you will be required to disclose your injuries, patients may seek to have procedures conducted by other professionals or an employer may enact a forced suspension. Needlestick cover is generally a lump-sum, while some companies may allow a monthly benefit option.

Comprehensive analytics and research

Endorphin Wealth Management invests a great deal of time and effort researching the best personal insurance options for our clients. We have developed a number of systems to manage and track the marketplace.

The insurance landscape always evolves and it is more important than ever to consider your situation carefully. We want our clients to get on with enjoying their life rather than worrying about money.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

Endorphin Wealth Management Team