Prescriptions for financial challenges doctors may face throughout their lifetimes

Life happens. But every so often life’s challenges present in ways that seriously threaten your financial health. The Medical Post asked three financial experts to highlight the challenging scenarios most commonly faced by their physician clients, along with potential solutions doctors in these situations can prescribe for themselves.

Problem: Earning a lot, spending even more

Prescription: Budget and make some lifestyle changes

You’ve got the big house, the cottage, the $120,000 car, the big wine collection and two kids in private school. Your retirement portfolio? Not so impressive. Kurt Rosentreter, president of Toronto-based Upper Canada Capital and a portfolio manager at Manulife Securities Inc., said overspending is a common problem among most of the population. But when you’re a physician making upwards of $350,000 a year, being carefree with your wallet can add up to millions of dollars diverted from savings.

“Or worse, you could end up with massive amounts of debt,” said Rosentreter. “Now there’s nothing wrong with debt, and physicians certainly have the firepower to borrow for big expenditures like real estate. But there’s got to be a balance between spending and accumulating wealth for your retirement, and the problem is when you’re faced with all the demands on your income, saving for retirement is the easiest thing to defer.”

The solution for financially overstretched physicians starts with a basic exercise most people tend to avoid: budgeting. Setting a budget for expenses and savings based on money that’s coming in is the first step toward getting your spending under control and growing your wealth instead of your debt load, said Rosentreter. In most cases, this means giving up some things, like that ski chalet in France you’re visiting less and less these days. Or maybe reducing the downpayment you were going to give an adult child looking to enter the real estate market.

“Some of these choices will be tough,” said Rosentreter. “But if you’re not prepared to make these tough decisions then be prepared to keep working years after your planned retirement age.”

Problem: Breaking up: It’s really hard to do

Prescription: Get a clear financial picture, hire the right pros and review your goals

Whether you’re married or in a common-law relationship, a split with your partner can be financially disruptive, even devastating. Strict financial discipline during this time is critical, said Rosentreter.

“You need to get a clear picture of your current finances—what you have money-wise, your cash flow, your costs—and then figure out what everything would look like when the assets are divided and when you’re no longer part of a two-income partnership,” he said. “It’s important to gather and keep complete and accurate records as you—and the lawyers—go through the process of working out the appropriate settlement. You’re really forced by the legal system to be accountable so you’ve got to pull all that together.”

Many professionals and business owners, including doctors, employ certain strategies to protect their business—such as putting investments and other assets, including the family home, in their spouse’s name—that could put them at a financial disadvantage during a separation. Getting expert financial, tax, business and legal advice is key to ensuring you don’t lose it all, said Rosentreter.

“Another important message that doctors need to think about is: What will getting divorced mean for your retirement goals and what are you going to have to do going forward to make these goals achievable?” he said. “You have to redefine your goals and reflect on the affordability of your new goals based on your new life situation.”

Problem: Burned out, throwing in the towel

Prescription: Reduce your market risks and build an emergency fund

While the pressure cooker called COVID has been declared no longer an emergency by the World Health Organization, the country’s strained and drained health system continues to push many doctors toward early retirement.

Sebastien Chevrier, senior wealth advisor and portfolio manager at Canaccord Genuity, Physicians Wealth Advisory in Toronto, said stopping or slowing work even just a couple of years sooner than planned can have a significant impact on your retirement income.

“If that happens, then we need to go back to the drawing board and look at different scenarios,” he said. “What adjustments in your lifestyle will you have to make? Are you planning on going back to work in a few years or are you going to fully retire? Whatever the case, you’ll need to look at different investment products or different investment strategies.”

For example, a doctor whose current portfolio is designed for growth—perhaps with 80% in equities—may now be better off with a more conservative allocation of assets. With less or no cash coming in from working income in the foreseeable future, it would make sense to protect the nest egg by taking fewer risks in the market, said Chevrier.

It’s also a good idea to build an emergency fund, equivalent to at least six months’ worth of expenses, before leaving medical practice, he added.

Problem: Financial planning for a disabled child

Prescription: Set up a registered savings disability plan and a Henson Trust

Gurtej Varn, a certified financial planner and founder of White Coat Financial—a financial services firm in Surrey, B.C., focused on healthcare professionals—said planning for the future of a child with a disability can be complex and is often difficult for parents.

“It’s something that’s often overlooked because the parents are already under a lot of stress and just trying to cope with the current needs of their child,” he said.

While many physicians may be able to afford the ongoing expenses associated with raising a disabled child, can they continue supporting that child into adulthood while also ensuring their own financial stability in retirement? And what happens when the adult child is past middle age and the parents have passed away?

Varn pointed to a financial strategy that includes a registered disability savings plan (RDSP) and a trust designed to provide financially for a disabled child or adult. Introduced by the federal government in 2007, RDSPs have two components: a bond and a grant. The bond portion of an RDSP provides up to $1,000 a year to a lifetime maximum of $20,000—for plan beneficiaries with low to modest family incomes, regardless of whether or not they or their families contribute to their RDSP.

The grant portion of the RDSP matches contributions up to $3,500 a year, up to a lifetime maximum of $200,000, depending on the amount contributed and the income of the beneficiary’s family. Beneficiaries can get RDSP bonds or grants—or both—until age 49 and can typically start withdrawing when they turn 60.

For parents looking to make additional provisions beyond an RDSP, a Henson Trust may be a good idea, said Varn. Besides money—which could be funded by a life insurance policy—parents can choose to leave a home for their disabled child in a Henson Trust. But because this trust needs to be managed by a third party, parents need to make sure they’re choosing the right trustee, which could be an individual or a trustee services firm.

“It’s also important, before you put anything in place, to talk to a financial professional to determine the implications on your child’s tax position as well as on any income from a government disability program,” said Varn.

Problem: One kid will take over your practice, what about the siblings?

Prescription: Document all gifts and major spending on children, explain your intentions

Medicine tends to run in the family. That’s the conclusion of at least one study, published in 2020 in the British Medical Journal. For many doctors, this means there’s a good chance a physician’s son or daughter may stand to take over their medical practice.

“But if you have more than one child, how do you arrange it so that each child gets a fair inheritance?” asked Varn.

Distributing your wealth equitably among family members isn’t as easy as simple division, especially when there are significant assets, such as a medical practice. This is why it’s important to keep track of what you’re giving to your children, said Varn.

“Maybe you have one child who didn’t go to university and just started his own business, and another child you helped put through med school who will likely take over your practice. In this scenario, you’ve already spent significantly more on the child who went to med school so you need to figure out how to structure ownership of your business as well as how to allocate the rest of your estate so both children get their equal share,” he said.

In addition to keeping accurate records of major spending and gifts, it’s also important to document your intentions for your business and your estate, added Varn. This reduces the risk of family members disputing your will and fighting amongst themselves.

“I’ve personally found, in my experience, that when the intentions and reasoning behind your estate plan are well documented, your children are less likely to fight or make an estate claim,” said Varn.