Dr. Marcinko Interviewed on Physician Retirement and Succession Planning

Medical Business Advisors

Physicians Have Unique Challenges, Opportunities

By Ann Miller RN MHA

[Executive-Director]

Medical Executive-Post Publisher-in-Chief, Dr. David Edward Marcinko MBA CMP™, and financial planner Paul Larson CFP™, were interviewed by Sharon Fitzgerald for Medical News, Inc. Here is a reprint of that interview.

Doctors Squeezed from both Ends

Physicians today “are getting squeezed from both ends” when it comes to their finances, according Paul Larson, president of Larson Financial Group. On one end, collections and reimbursements are down; on the other end, taxes are up. That’s why financial planning, including a far-sighted strategy for retirement, is a necessity.

Larson Speaks

“We help these doctors function like a CEO and help them quarterback their plan,” said Larson, a Certified Financial Planner™ whose company serves thousands of physicians and dentists exclusively. Headquartered in St. Louis, Larson Financial boasts 19 locations.

Larson launched his company after working with a few physicians and recognizing that these clients face unique financial challenges and yet have exceptional opportunities, as well.

What makes medical practitioners unique? One thing, Larson said, is because they start their jobs much later in life than most people. Physicians wrap up residency or fellowship, on average, at the age of 32 or even older. “The delayed start really changes how much money they need to be saving to accomplish these goals like retirement or college for their kids,” he said.

Another thing that puts physicians in a unique category is that most begin their careers with a student-loan debt of $175,000 or more. Larson said that there’s “an emotional component” to debt, and many physicians want to wipe that slate clean before they begin retirement saving.

Larson also said doctors are unique because they are a lawsuit target – and he wasn’t talking about medical malpractice suits. “You can amass wealth as a doctor, get sued in five years and then lose everything that you worked so hard to save,” he said. He shared the story of a client who was in a fender-bender and got out of his car wearing his white lab coat. “It was bad,” Larson said, and the suit has dogged the client for years.

The Three Mistake of Retirement Planning

Larson said he consistently sees physicians making three mistakes that may put a comfortable retirement at risk.

  1. The first is assuming that funding a retirement plan, such as a 401(k), is sufficient. It’s not. “There’s no way possible for you to save enough money that way to get to that goal,” he said. That’s primarily due to limits imposed by the Internal Revenue Service, which allows a maximum contribution of $49,000 annually if self-employed and just $16,500 annually until the age of 50. He recommends that physicians throughout their career sock away 20 percent of gross income in vehicles outside of their retirement plan.
  2. The second common mistake is making investments that are inefficient from a tax perspective. In particular, real estate or bond investments in a taxable account prompt capital gains with each dividend, and that’s no way to make money, he said.
  3. The third mistake, and it’s a big one, is paying too much to have their money managed. A stockbroker, for example, takes a fee for buying mutual funds and then the likes of Fidelity or Janus tacks on an internal fee as well. “It’s like driving a boat with an anchor hanging off the back,” Larson said.

Marcinko Speaks

Dr. David E. Marcinko MBADavid E. Marcinko, a physician and [former] certified financial planner and founder of the more specific program for physicians www.CertifiedMedicalPlanner.org, sees another common mistake that wreaks havoc with a physician’s retirement plans – divorce.

He said clients come to him “looking to invest in the next Google or Facebook, and yet they will get divorced two or three times, and they’ll be whacked 50 percent of their net income each time. It just doesn’t make sense.”

Marcinko practiced medicine for 20 years until about 10 years ago, when he sold his ambulatory surgical center to a public company and retired. Then his second career in financial planning and investment advising began. “I’m a doctor who went to business school about 20 years ago, before it was in fashion. Much to my mother’s chagrin, by the way,” he quipped. Marcinko has written 25 books about practice management, physician finances, risk management, retirement planning and practice succession. He’s the founder of the Georgia-based Institute of Medical Business Advisors Inc.

Certified Medical Planner

Succession Planning for Doctors

Succession planning, Marcinko said, ideally should begin five years before retirement – and even earlier if possible. When assisting a client with succession, Marcinko examines two to three years of financial statements, balance sheets, cash-flow statements, statements of earnings, and profit and loss statements, yet he said “the $50,000 question” remains: How does a doctor find someone suited to take over his or her life’s work? “We are pretty much dead-set against the practice broker, the third-party intermediary, and are highly in favor of the one-on-one mentor philosophy,” Marcinko explained.

“There is more than enough opportunity to befriend or mentor several medical students or interns or residents or fellows that you might feel akin to, and then develop that relationship over the years.” He said third-party brokers “are like real-estate agents, they want to make the sale”; thus, they aren’t as concerned with finding a match that will ensure a smooth transition.

The only problem with the mentoring strategy, Marcinko acknowledged, is that mentoring takes time, and that’s a commodity most physicians have too little of. Nonetheless, succession is too important not to invest the time necessary to ensure it goes off without a hitch.

Times are different today because the economy doesn’t allow physicians to gradually bow out of a practice. “My overhead doesn’t go down part-time. If I want to sell my practice for a premium price, I need to keep the numbers up,” he noted.

Assessment

Dr. Marcinko’s retirement investment advice – and it’s the advice he gives to anyone – is to invest 20 percent of your income in an indexed mutual fund for the next 50 years. “We all want to make it more complicated than it is, don’t we?” he said.

What makes a physician moving toward retirement different from most others? Marcinko’s answer was simple: “They probably had a better shot in life to have a successful retirement, and if they don’t make it, shame on them. That’s what’s the difference.”

More:

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Product DetailsProduct DetailsProduct Details

Product Details  Product Details

Product DetailsProduct Details

About these ads

2 Responses

  1. On Doctor Retirement
    [It is not about the money]

    An essay by Robert Marion MD.

    http://www.kevinmd.com/blog/2013/08/physicians-view-retirement-kind-failure.html

    Why many physicians view retirement as a kind of failure.

    Hope Hetico RN MHA

  2. More on Succession Planning

    Building a successful small business is somewhat like being a parent. You start with an infant enterprise that needs constant attention and often deprives you of sleep. You foster it through various stages of growth, including some rocky times, and enjoy seeing it become able to stand on its own. And eventually, you may rely on it to carry on your legacy and take care of you financially.

    Making that transition from taking care of your business to having the business take care of you is the purpose of succession planning, which helps ensure the orderly transfer of a business to the next generation.

    A succession plan is especially important if you want the business to continue beyond your career or your lifetime. It also matters if you need to monetize your investment by selling the business. It’s not a given that these two issues are important to every owner.

    The first step in a succession plan, then, is to figure out what you want for and from your business in the long term. Is your goal to pass it on to later generations within the family or current employees? Will you search for new ownership from outside the company? Can your buyers pay cash, or will you need to finance a portion of the sale? Do you need the sale proceeds to fund your retirement, or would you like to structure the sale to leave a financial legacy for your heirs?

    Or will the end of your working life mean closing the doors? Some small businesses are so tied to the owner’s skills and interests that the owner’s retirement effectively brings the business to an end. This might be the case for, say, a craft-based business, a professional practice, a consulting business, or a design firm where you are the main talent.

    Once you have clarified what you want, don’t wait too long to do the actual planning. For an internal succession plan, it’s important to start about 10 years ahead of your anticipated retirement. One of the biggest challenges here is identifying an internal successor and developing that person’s skills. It’s not uncommon to go through several potential successors before finding the right one. If keeping the business in the family matters to you, it’s essential to make sure anyone you consider to take your place really wants the job. Grooming a family successor whose heart is not in the business can be a recipe for both business and family struggles.

    If you plan to sell the business, starting five years prior to retirement is probably sufficient. You’ll need to get the financial books in order and make sure you have the appropriate staffing. It’s also a good idea to leave a few years for the marketing of the business ahead of and during the transition.

    A typical challenge with selling a business, whether inside or outside the family, is how to structure the deal. Financing the purchase is an option that carries some risks. It’s a good idea to secure the purchase against collateral other than the business itself.

    Another choice is to start by selling perhaps 10% or 20% to a potential successor, then selling more shares over time until the new owner owns the majority. Keeping some ownership can provide you with dividends to help fund your retirement.

    If your business ends when you retire and isn’t a saleable asset, what you need is a “cessation plan.” This plan is simple, but needs to start early in your career: make sure you use part of the income from your business to fund your retirement and provide for your future.

    Rick Kahler CFP®

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: