Smart Moves for Spine & Orthopedic Surgeon Nest Eggs: Q&A With John Gustavson on Retirement Planning

Written by Laura Dyrda | May 28, 2013 | Print  |
John GustavsonJohn Gustavson, a Senior Wealth Advisor with CliftonLarsonAllen Wealth Advisors, LLC, discusses what orthopedic and spine surgeons need to know about financial planning for retirement.
Q: What do orthopedic and spine surgeons need to do about retirement planning today?

John Gustavson: Surgeons should be aware of income tax changes implemented at the beginning of 2013. Surgeons may be highly compensated and impacted by new taxes and changes in marginal tax rates.

There is a new investment tax of 3.8 percent and higher Medicare tax withholding rates. There is planning available for surgeons to minimize the impact of these taxes, but the higher tax structure probably won't change for some time to come. The impact of higher income taxes should be taken into account for projection purposes.

The good news is that the savings in tax-deferred accounts, qualified accounts and IRAs won't be impacted until distributions come out. However, financial planning should take place now for proper asset location. For example, real estate investments like REITs typically generate ordinary income, which could be best shielded in an IRA or qualified account. Be aware of the income tax and build that into the plan.

Q: How will the new taxes impact surgeon investments?

JG: The new investment tax is going to be on interest, dividends, royalties, rents and passive business activities. There are threshold amounts that apply and the CPA or other tax professional should be involved in the tax planning. The next step will boil down to personal circumstances, but there are general things surgeons can begin to think about like converting some IRAs into Roth accounts. It would have been better in 2012, but still may yield more family wealth when generational planning is considered.  

Q: Are there any special considerations for young surgeons? What should they be doing?

JG: For the younger physicians who have some student loan debt and other debt, they need to develop a plan to get those debts paid down or paid off. But they also need a plan to cover the perils in life, such as disability or premature death and build a safety net for themselves and their families. As their income grows, they can divert more of that to the productive investments.

Young surgeons may also be interested in real estate investments. There are tax advantages in real estate and from a valuation standpoint, it might be a good time to invest there now.

Q: What should surgeons coming to the end of their careers do now to make sure they are on track for a comfortable retirement?

JG: The first thing older surgeons need to do is think about the next stage and where their assets will go: to their family, charity or other pursuits. They need a good estate plan to ensure taxes are minimized and their wishes are fully expressed.  No one wants to start thinking about that, but it's going to happen and you need to give it some thought. Surgeons have a fair amount of wealth and it can be a disincentive for those that receive it. Additionally, the IRS or state tax authorities may take more than planned.

The next thing that surgeons who are a few years away from retirement need to do is to make sure they have an adequate cash flow, and that cash flow will last as long as they do. Hopefully they have developed the plan 10 to 15 years in advance of retirement because that's the optimal time to put those structures in place. If anyone has waited, your opportunity set is more diminished in terms of what you can do. You want to have time on your side, not working against you.

Q: How are healthcare industry trends impacting surgeon retirement plans? Where will these trends head in the future?

JG: One of the commonalities we see with physicians planning for retirement in our practice is to maintain current levels of compensation or slightly decreasing them in their projections. It appears that in specialty areas of healthcare, those compensation levels may be coming down as reimbursements come down as well. We are planning for more of a flat to downturn in compensation. If that's not the case, surgeons will be better off, but we don't want them to plan for the same level of increases they have enjoyed over the last 10 to 30 years. We caution physicians to be conservative about compensation in the future.

CliftonLarsonAllen Wealth Advisors, LLC is a registered investment advisor.

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