residency, you have the debt repayment, and you also haven't been able to buy anything of large value for maybe a decade or more, and you now have the funds to fix your car or buy a home. You start playing catch up. But first you want to think about taxes. The question becomes, "How do I both effectively save money and reduce taxes?" That’s when those tax advantage retirement accounts like your 401K, a 457 B if you have it, an HSA or a back door Roth IRA become a big help. All these accounts give you a tax benefit and an investment benefit, and there is a limited amount you can put in those each year. It helps get everything in line.
The next thing to focus on is an emergency fund, which is done by sketching out a cash flow plan of your income and expenses, so you can see what is left over for other kinds of saving. If all this preparation is done earlier, it's a lot easier to know how much money there is left to be able to prioritize toward your conflicting objectives. It’s important to figure out your targets and then automate as much as possible, be it through automatic transfers, or automating your savings. Whatever you want to save each month, move it to a separate account that you won’t touch, and automate as much as possible. If you have the right systems in place, everything gets easier.
WK: With each point you mention, there seems to be more and more complexity and I feel like I have neither the understanding nor the time to actually deal with this myself. If you're just a naive interventional radiologist, how do choose someone to help you with this?
CG: That’s a good question. The financial industry isn’t like medicine where you go to one practitioner and they might not quite be as skilled, but at least you know they went to medical school. There's not that equivalent in finance. It's easy to think you're dealing with a reputable advisor, but what you're really dealing with is a commissioned salesperson or someone that gets paid to sell you products.
When looking for an advisor, look for an advisor who is fee-only and has some certifications. At a baseline, I
a little silly, but fee-based can also apply like a commission. It’s not just understanding that someone is fee-only, but ultimately you want to know how they are compensated. The only person that pays the advisor should be you, the client. There are a lot of different fee models out there, but your advisor should not make any money off of insurance commissions or for selling products to you.
WK: It’s amazing how much work it is to find the right person.
Clint Gossage, CFP
CG: It is, and I think that barrier scares a lot of people. Some think, “Well, if I have to do this much research to find somebody qualified maybe I'll just put my head in the sand and hope it will all be fine.”
WK: For IRs close to retirement, does your advice change on days where there is a lot of fluctuation in the market, or the points drop a lot?
Warren Krackov, MD, FSIR
recommend working with a Certified Financial Planner (CFP). If someone says they're fee-only, do your digging and try to understand how they are paid. Are they only paid by you? Before you start an agreement, an advisor should provide you with a form ADV which has all their disclosures and information on how they’re paid and how their fees work. It’s important to understand those pieces.
I also wouldn’t rely on word of mouth. No shots fired to older attendings, but I feel like the word of mouth happened a lot more though in that generation, and now a lot of the younger attendings are doing their own due diligence to find advisors who aren’t just their buddy or their friend or their friend's friend.
WK: If I find someone who is fee- based, does that mean that I pay them for the work they do, whether I make money or lose money?
CG: There’s different terms out there. You want it to be fee-only, which seems
CG: My approach doesn't change. We try to get our clients to understand that the market is risky. It's easy to forget it when over the past 12 years, the market's pretty much been straight up, but the market can move so much on just a day-to-day basis. If you look at the statistics, the market tends to be down more than 4.5% two days out of the year on average. Going into it, I expect these things will happen and I try to communicate that early on, so my clients aren't caught by surprise.
We manage the risk by not changing things based on a day-to-day fluctuation and preparing a portion of the portfolio to be ready for events like this. We want to have at least five years’ worth of safe investments that won’t fail when the stock market falls. These investments may not earn as much, but you can live off them when the market is down. This preparation prevents you from needing to sell stocks while they're dropping. That’s where people get into trouble— panic selling after stocks have dropped. Ultimately, you want your stocks to sit and grow for a long time.
Watch for the next installment of Fixed Income which will focus on what comes after retirement.
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