Disability Insurance, Retirement Planning, and Refinancing Student Loans
April and May often lead to discussion regarding the subject of transition. Whether upgrading PGY status in June, or finally planning to break free of “house-staff living,” there are three topics that can contribute the greatest value to your future financial well-being. If done properly, they can truly improve your net worth by hundreds of thousands of dollars over the course of your career:
- Obtain adequate disability insurance, at the most competitive price.
- Go all-in on your employer-provided retirement plan.
- Consider refinancing your student loans.
I hope that the following summary offers confidence, education, and awareness as you make decisions for yourself and your families.
Disability Insurance for Emergency Residents
There are plenty of good opportunities for disability insurance in today's marketplace. However, misinformation is abundant.
The bottom line is that, for most states, the field of emergency medicine has six very competitive contracts. Each of these contracts has everything you need, including:
- Own occupation definition of disability – Each of these contracts will consider you totally disabled if you cannot perform the substantial and material duties of your occupation, regardless of outside income or earnings. An own occupation contract does not guarantee that you will receive full benefits in every situation, but it does offer the most comprehensive, flexible level of income protection in the most diverse set of potential claim scenarios.
- Specialty benefit limits – This is where current residents really benefit. Currently, a resident or fellow within the last six months of training can obtain up to $7,500 of tax-free monthly income protection. Obtain this prior to completing training and you may be able to start in practice with greater than 100% of your net income insured. This is well above the normal industry guidelines and the opportunity expires as soon as you complete your training.
- Two important supplemental benefits – All six of these companies offer the ability for you to increase your disability benefit in the future, with no new medical qualification, and also allow your benefit to increase annually if disabled. These provisions are called a Future Purchase option and Cost of Living Adjustment, respectively.
What is the important differentiator?
- Out-of-Pocket Cost – The industry is hyper-competitive right now with six companies fighting for your business. Females pay significantly more than males in most cases, but there are some programs that allow the rates to be blended, reducing male rates by 14% and female rates by 44%. This can result in annual savings of $350 for men and $2,400 for women. Over a 30-year period, these same savings add up to $10,500 and $72,000, respectively!
A competent disability advisor will be able to compare multiple contracts, design an appropriate strategy, and negotiate the terms of the contract. For more detailed information on this topic, review the Disability filter video, located at www.integratedwealthcare.com/physician-strategies/emra-members.
Regardless of your status as of July 1, recognize that retirement planning opportunities are based on a calendar year, not the academic year that you are accustomed to. Here is how to make the most of the current law:
- SEP IRA – If you moonlight at an outside ED and have 1099/self-employment income, if you are starting practice as an independent contractor, or if you are in practice and do case review or other legal work, you need to understand the SEP IRA. It allows you to defer +/- 25% of your self-employment income, saving you an average of $0.34 in tax per $1.00 invested. Many CPAs will not proactively advise you of this. Make sure you request it!
- Employer-based plans – If you are starting practice and have the ability to fund a 401(k), 403(b), 457, or other such program, you may be able to contribute between $18,000 to $36,000 per year before taxes. Enroll immediately the day you start in practice by taking the annual amount that you can contribute and dividing it by the number of remaining pay periods. This will fully fund the plan, provide maximum tax savings, and get you accustomed to a standard of living that already includes disciplined savings.
- Invest appropriately – Try to achieve maximum growth with minimal risk. The industry term is “asset allocation.” This can be a complex topic, so if you are not comfortable making your own investment decisions, pay someone for their expertise.
Between tax savings, contributions, and potentially higher and more consistent rates of growth, you can significantly improve your current and future standard of living. It is your money, make it work for you.
Student Loan Refinance
This is a developing topic, as several banks and lenders have recently decided to develop this as a business model. Currently, there are at least two financial institutions that offer reconsolidation loans with attractive rates. We have just started to work through this with clients, but here are some tips that I have learned:
- You must have a signed contract to be eligible.
- It is important to understand the lender's debt-to-income ratio, and what goes into it. To save a lot of time, ask this up front and work through it.
- You can structure a “basket” of loans, refinancing some of your loans, but not all, based on the varying interest rates. The lender will only show you the terms for a complete refinance, but if you have eight different loans, only three of them may be appealing for refinance. Because this is a developing business model, it is not an all-or-nothing game and there is significant room for negotiation.
I wish you the very best in your endeavors. Please do not hesitate to reach out if our firm may be of service to you.