Financial Strategies for Physicians

Welcome to Financial Planning for Primary Care Physicians

Presented by Michael Merrill, CLU, ChFC, Senior Partner, Finity Group, LLCThe presentation will begin shortly

This webinar is being recorded for future use.

Funds for this webinar were provided by the U.S. Department of Health and Human Services (HHS), Health Resources and Services Administration (HRSA) with the American Recovery and Reinvestment Act (ARRA) funding for the Retention and Evaluation Activities (REA) Initiative.

This webinar is being offered by the San Francisco Community Clinic Consortium and the California Statewide AHEC program in partnership with the Office of Statewide Health Planning and Development (OSHPD), designated as the California Primary Care Office (PCO).

WELCOME EVERYONE!Thank you for joining us today

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Financial Strategiesfor PhysiciansPresented by

Michael F. Merrill, CLU, ChFC Financial Advisor | Senior PartnerFinity Group, LLC

Michael.Merrill@thefinitygroup.com

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Finity Group, LLC and Cambridge are not affiliated. Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation.

0368-2002-2445DOFU: 062002

6Why are you here?

What prompted you to come?

What do you hope to gain from this?

[Possible answers (lead them into it): How to handle my finances better, information about retirement planning, etc.]

Your Strategy Can Not Be NORMAL > $113,799 = 10% > $159,619 = 5% > $380,354 = 1%

*According to the IRS 2010 DatabaseMost people tend to think of themselves as average in many ways, and physicians are no exception.But consider the financial position of the average American, and see how you stack up.According to the U.S. Census Bureau, the average American family earns less than $45,000 a year. Thattranslates to an income tax liability of less than 12 percent. The average American family will never beworth more than $1 million. In fact, fewer than 2 percent of all families will ever incur an estate-taxliability.

As you can see, the top 10% of income earners make over $113kthe top 5% make over $159k and the top 1% make over $380k.

Due to this fact, the financial strategies that you should be implementing will not be identical to most people. Therefore, we encourage physicians to use caution when obtaining financial advice from the news media and other financial resources that market themselves to the masses or in other words, the average American. 7The Three TsTimeGetting a late start!TaxesDue to your income, you will pay significantly more in taxes than most people!Trial AttorneysYou are an attorneys dream come true!Keys to Reaching Financial IndependenceCalculate Net WorthMatch Investments to Time HorizonsSave 20% of your IncomeEliminate Bad DebtManage Risks ProperlyUse Tax Code to your advantageReview your Financial Situation Yearly

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EmergencyReserves

Debt Management

SECURITY & CONFIDENCERiskManagementMutual Fund PortfolioSavings

CAPITAL ACCUMULATIONRetirement PlansHome

TAX ADVANTAGEDINVESTMENTSWEALTHSUCCESS10When we get to the top of our Pyramid what do you suppose we have? [click]

A greater potential for achieving Wealth Success!

Define it.

For most of us it is not a house on both coasts, three cars in the garage and a boat at every location. For most of us, wealth success can be defined as a financially comfortable retirement.

SECURITY & CONFIDENCEDebt Management11If the base we lay is strong and wide and secure, the rest of the plan will not collapse. That is why we are going to use a pyramid to illustrate the best way to build for the future. [click]I want to immediately point out that our strong, solid base is not delineated with a dollar amount or investment suggestion, but with the words Security and Confidence. Therein lies the key - Security and Confidence. By building this base effectively we will have the security and confidence to move up the pyramid without fear of having it collapse around us.So, how do we build the base?Lets start right in the middle. [click]Debt Management.At the very center of our base is the second secret to financial security.Does this reiterate the importance of this?Enough said!Debt Management7% ruleGood Debt vs. Bad DebtMortgage InterestStudent LoansBusiness LoansFocus on high interest, short-term debt

12The 8% rule focuses on attacking those debts that you are paying more than 8% interest on (Bad Debt) and being less concerned initially with "good debt" which is tax deductible interest below 8%. Not all debt is bad, e.g., tax deductible mortgage interest (currently as of December 2011) and low interest tax deductible student loan interest.There are salary limitations that apply to your ability to deduct student loan interest from your taxes. Please consult with your tax advisor on specific tax consequences.

SECURITY & CONFIDENCEDebt ManagementEmergencyReserves13Emergency ReservesAll financial planners recommend an emergency fund. This fund should consist of cash, or assets that can be converted quickly into cash. Passbook savings account and money market accounts are all suitable assets for your emergency fund.An emergency fund helps you meet unexpected expenses.Most experts recommend an emergency fund equal to three to six months take home pay. However the size of the fund will vary with individual circumstances.

Emergency ReservesSafe, Liquid, Low CostsIm not so concerned about the rate of return on my money, just the return of it!High-Interest Savings Accountswww.bankrate.com

EmergencyReserves

Debt Management

SECURITY & CONFIDENCERiskManagement15[Risk Management - What is it?

Risk ManagementMedical InsuranceHome InsuranceCar InsuranceLife InsuranceDisability InsuranceProfessional Liability Umbrella Liability

16The I word, the one that sends you running for cover, diving under the table, hanging up the phone. Any guesses? Insurance!Sorry, it is critical, without having it in place, you wont have the stable basis you need in order to build.And there are a lot of them: Medical Insurance, Home Insurance, Car Insurance, Life Insurance, Disability Insurance.By the time you pay for them all, the money is gone. Forget climbing the rest of the pyramid.The good news - You should not try to insure against all risk. Two important rules will help you determine which risks to insure against.

Umbrella Liability InsuranceExcess liability insurance that covers above and beyond the limits on your Auto & Home Owners insuranceOnly sold in million dollar incrementsUsually costs $12 - $15 per month per million of coverage

Keys to Risk ManagementSelf Insure High Probability, Low Cost RisksDeductibles and waiting periodsShare Low Probability, High Cost RisksInsure those risks with the least probability of occurrence and the greatest potential loss.Protect Your Most Valuable AssetsHealthIncomeFamily

18Small losses should not be insured. When a loss is unlikely to hurt you financially, dont waste your money insuring against it. Instead, bear the risk yourself. We call this self insurance.Potentially severe losses should always be insured. When the potential loss would seriously weaken your financial position, you should protect yourself with insurance. You buy this insurance even when the possibility of loss occurring is small. When you buy insurance, you are buying protection you hope youll never have to use.Protect your most valuable assets: Income & Family. Your financial future is too important not to have as much income insurance as is necessary and the most comprehensive coverage that is available.

Life InsuranceTemporary vs. Permanent Term insuranceLeast expensive form of life insuranceLasts for a specified period of time (i.e., 10, 20 or 30 years)

Permanent (whole life, variable life, etc.)Can last your whole lifeCosts more than term insuranceBuilds cash value

Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender charges.Long Term Disability Insurance

Example Benefits Received from Group LTD*Based on an individual making $20,000/month, 33% effective tax rate and a Group LTD policy with a taxable 60% benefit and a monthly maximum of $15,000. 21What to look for in a Financial AdvisorSpecialized in working with PhysiciansTruly Independent no conflict of interestsNo Regulatory Violations, Disciplinary Actions, or Client Complaints filed. www.FINRA.org Broker Check

What is the meeting process? -its a three step process that entails fact finding, education, and recommendations

What do you charge?-depends on the situation. Fees are based on the level of service provided & the time required to meet your needs.

Im already taken care of why should I meet with you?-we are available to provide you with a second opinion if youre interested.

What makes you different?-we specialize in assisting physicians and other medical professionals reach their long term financial goals.-we are an independent financial services firm, meaning we do not have an obligation to recommend any specific insurance or investment product, thus were able to provide unbiased recommendations.22

EmergencyReserves

Debt Management

SECURITY & CONFIDENCERiskManagementCAPITAL ACCUMULATIONMutual Funds, College Savings Plans, Real EstateTAX ADVANTAGEDINVESTMENTSWEALTHSUCCESS23Our next step toward Capital Accumulation can come through investing in a Mutual fund portfolio.

Start Saving Early$2,000/year from Age 35 to age 45Stop InvestingTotal: $20,000Result at Age 65:$147,157Wait to start saving$2,000/year from age 45 to 65Total: $40,000Result at age 65:$114,550This example assumes an 8% rate of return compound interest. This is a hypothetical example for illustrative purposes only, and is not representative of any specific investment. It does not factor investment costs, and if costs were factored, results would be less.243 Methods of Diversifying Your Financial StrategyAsset ClassTime HorizonTax Treatment

*Asset allocation and diversification strategies cannot assure profit or guarantee against loss. Past performance does not indicate future results.25

Investor Behavior 20 year average equities investment return = 9.14% 20 year average equities investor return = 3.83% 20 year average bond investment return = 6.89% 20 year average bond investor return = 1.01% 20 year average inflation = 3% Average equities investor retention rate = 3.27 yearsSource: 2011 DALBAR Study of Investor Returns Offers Ways to Improve Investors AlphaThis slide shows the difference between investment & investor returns. The cause of this difference was found to be due to investor behavior. More specifically, investors allow their emotions to dictate their investment decisions, so when the market is up investors get excited, gain confidence in the market and tend to buy (i.e. buy high) and when the market is down investors get scared, lose confidence in the market and tend to sell (i.e. sell low).

One statistic that supports this finding is that the average equities investor held onto their investment for a period of 3.27 years before selling it. 273 Methods of Diversifying Your Financial StrategyAsset ClassTime HorizonTax Treatment

*Asset allocation and diversification strategies cannot assure profit or guarantee against loss. Past performance does not indicate future results.

28Time HorizonsShort Term

Medium Term

Long Term3 Methods of Diversifying Your Financial StrategyAsset ClassTime HorizonTax Treatment

*Asset allocation and diversification strategies cannot assure profit or guarantee against loss. Past performance does not indicate future results.

30What do you get when you combine the words:The IRSTHEIRS*Source: www.taxpolicycenter.org 32Three Buckets UsedPre-Tax401(k), 403(b), SEP, Traditional IRAPost-TaxRoth IRA, Cash Value Life InsuranceCapital Gains TaxNon-Retirement Investment accountRoth IRA Vs. 401k / 403bRoth IRAAfter tax contributionTax deferred growthTAX FREE distributions*401k / 403bPre-tax contributionTax deferred growthTAXABLE distributions*For a Roth IRA, earnings withdrawn prior to reaching age 59 and/or not meeting the five-year holding period may be subject to a 10 percent penalty in addition to income tax. After-tax contribution amounts are generally returned income tax free.Investors anticipated tax bracket in retirement will determine whether or not a Roth IRA versus a traditional IRA or qualified plan will provide more money in retirement. Generally, investors who are in a higher tax bracket at retirement relative to their current tax bracket while making contributions to a Roth IRA benefit more than an investor who is in a lower tax bracket at retirement.For 401k or 403b plans, withdrawals prior to age 59 are subject to a 10% early distribution penalty unless an exception applies.34Possible OpportunityDo you have an old IRA, 401k, 403b, or other retirement plan? Roth ConversionIRA Rollover

Roth IRAEffective January 1, 2013Filing StatusIncomeSingle or Head of Household$112,000 - $127,000 Married & filing jointly$178,000 - $188,000 Contribution Limitation2013: $5,5002012: $5,000(Eligible participants may contribute up until April 15th, 2013 for tax year 2012)

DistributionsTax-Free If over age 59 , and Established for at least five years

36The Roth IRA is available beginning in 1998 to any taxpayer with income below a certain level. For single filers with income less than $95,000 per year, the maximum contribution of $2000 can be made. Between $95,000 and $110,000 of income, this IRA is phased out. And over $110,000 the IRA is not allowed.

For those married couples earning less than $150,000 per year, a full contribution can be made for EACH spouse (e.g. thats $4,000 or $2,000 for each spouse). Between $150,000 and $160,000 of income, this IRA is phased out. And over $160,000 per year, the IRA is not allowed.

For married filing separately, Roth IRA is not available.

As mentioned previously the power of the Roth IRA is the Tax-free distribution. This distribution is tax-free if you are over age 59 1/2 and have established the IRA for at least 5 years. Unlike the Traditional IRAs, you pay taxes at time of distribution.People dont plan to fail, they fail to plan.Please Take a few Minutes to Fill Out the Seminar Comment Form & CME Evaluation