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SMART INSIGHTS FROM PROFESSIONAL ADVISERS

Physicians Face Unique Financial Challenges

A doctor's high income and demanding insurance needs may call for specialized financial assistance.

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Physicians face unique challenges when it comes to managing their finances. The importance of getting pertinent comprehensive advice to fit their specific situations can be a challenge that often goes unnoticed. Consider a sample doctor: Dr. Smith is 40 years old, married, has 2 kids and is making $250,000 in annual salary. We will compare her to household incomes in the U.S., and consider what information she needs to navigate her personal and business finances. The key question is, "Does she need the help of a specialist?"

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General health advice such as "eat more vegetables" and "workout three times per week" is good information that everyone can benefit from. However, if someone has a rare neurological disorder or advanced cancer, is this general advice enough to cure them? Absolutely not! While the general advice still applies, it is time for that person to consult with a specialist. In the same way, for Dr. Smith, based on her income and the risks of her profession, general advice may not be enough. She may need a specialist to properly address her financial health.

Consider data from the U.S. Census Bureau on U.S. household incomes (left). Comparatively, we can see that Dr. Smith's income clearly separates her from the crowd: In three months, Dr. Smith makes more than 50% of all U.S. households. In 12 months, she easily finds herself in the top 3% of U.S. households in terms of income. And remember, this is not including additional income from her spouse. Also, if Dr. Smith owns a private practice, her need for relevant customized advice is greatly magnified.

To properly address her financial concerns, she will need to view her financial situation—both personal and business—very differently. Standing out from the crowd like this can be difficult. When working with a financial adviser to develop a specialized plan, Dr. Smith will likely implement strategies that do not apply for more than 95% of all U.S. households. Dr. Smith may find herself feeling very uncomfortable having to "think outside the box" and utilizing strategies that differ from popularized general information.

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There are many interesting challenges she might face, and these challenges grow when considering the complexities of owning a private practice. How to take advantage of tax deferred retirement savings, what vehicles can provide tax-free retirement income, proper insurance coverage for both personal and business interests? One concern that deserves significant attention in this context is the need for Long Term Disability (LTD) benefits to protect financial interests if a doctor cannot work. The bottom line is that it will take a team of specialists to properly address the financial concerns of a well-compensated physician. There will need to be a financial adviser, an insurance specialist, an estate attorney, an asset protection attorney, as well as a CPA—all working in concert to develop and maintain a comprehensive plan.

Where does Dr. Smith find relevant financial information? Most major financial media outlets – whether websites, magazines, TV shows, book publishers or radio shows – offer advice that applies for the average person with a more typical income and net worth in order to appeal to the masses. The problem is that Dr. Smith has clearly separated herself from the masses, and the general information found in popular financial sources may not be enough to properly address all her financial concerns.

It is important that Dr. Smith finds the right financial specialists who can develop an appropriate finical plan for her and guide her through the process. The advisers will need to help her get comfortable with the reality that if she wants to safely reach her financial goals, while general advice may apply to some extent, she will need to embrace some specialized strategies that will separate her from the crowd. It may be a bit of a learning curve, but in the end, this is a good "problem" to have.

See Also: How to Find the Right Financial Adviser for You and Your Money

Ian Maxwell is an independent, fee-based fiduciary financial adviser with Concert Wealth Management. He is a graduate of Williams College and a former officer in the USMC. Advisory Services offered through Concert Wealth Management Inc, an SEC Registered Investment Advisor.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff.