By Jeffrey J. Brown, MD, MBA, CFA®, CFP®
Physicians spend their careers providing individualized care to their patients. Like their patients, physicians face their own set of unique circumstances, including specific financial opportunities and challenges.
At Shearwater Capital, we have decades of experience in helping physicians build wealth by making wise financial decisions. We are intimately familiar with the saving habits and lifestyle choices that lead to successful retirement planning and accumulation of wealth. We have developed a scientific approach to wealth management for physicians and below we have a few tips to help you make the right moves toward a comfortable financial future.
The Three Retirement Buckets
Diversification is a powerful tool, but it is especially useful to hedge your tax risks in retirement because future tax rates and regulations are uncertain. In general, we recommend that physicians save for retirement by growing their investment assets in three buckets, representing three separate types of investment accounts, so that the funds can be withdrawn during retirement in the most tax-efficient manner.
The first bucket includes taxable investment accounts, which are individual accounts, joint accounts, and most trust accounts. These are typically funded with after-tax dollars. One of the benefits of these accounts is that dividends and long-term capital gains are currently taxed at a lower rate than income and there are no restrictions on the amount or timing of your contributions or withdrawals.
Traditional Tax-Deferred Retirement Accounts
Traditional tax-deferred retirement accounts include IRAs, 401(k) and 403(b) accounts. An advantage of these accounts is that you can fund them with pre-tax dollars, in some cases, thereby lowering your taxable income for the current tax year. These assets grow tax-free; however, they are taxed as income when withdrawn during retirement.
Roth accounts include Roth IRAs, Roth 401(k) and Roth 403(b) accounts. Unlike traditional retirement accounts, these accounts are funded with after-tax dollars. The advantage of Roth accounts is that the assets grow tax-free and can be withdrawn tax-free in retirement if held greater than 5 years. If your income exceeds the income limits for direct Roth IRA contributions, backdoor Roth conversions or in-plan 401k Roth conversions provide an alternative route for funding your Roth bucket.
Pay Yourself First
This old financial adage remains true today and is especially true for physicians running their own practices. In many ways, contributing to your investment accounts, in all three buckets, is your most important monthly expense. After all, what is more important than your long-term financial security. We recommend simplifying this process by setting up automatic monthly deposits into your investment accounts. This simple step is one of the most important things you can do to secure your financial future.
We Understand Physicians
We understand physicians because we are physicians. Our founders, Dr. Jeff Brown and Dr. Eric Malden, are practicing physicians, with extensive experience in both academic medicine and private practice. That knowledge base, combined with their experience at Shearwater Capital, has led to an exceptional core competency in helping physicians plan for retirement and accumulate wealth.
Jeffrey Brown is principal and chief investment officer at Shearwater Capital, LLC, a fee-only fiduciary financial advisory firm helping physicians and their families attain financial security using a scientific, evidence-based approach. Jeff has been a practicing radiologist for over 30 years and is currently chair of the Department of Radiology at Saint Louis University School of Medicine. He earned his bachelor’s degree from the University of California, Irvine and his medical degree from the University of California, San Diego. He has been named one of St. Louis’s Top Doctors every year since 2011 in St. Louis Magazine. Jeff saw a need for physician-tailored financial services and earned an MBA from Washington University in St. Louis, going on to found Shearwater Capital, LLC with fellow MBA classmate and radiologist, Eric Malden. Jeff is a Chartered Financial Analyst (CFA®) and CERTIFIED FINANCIAL PLANNER® (CFP®) practitioner. Learn more about Jeff by connecting with him on LinkedIn.