Physician Family Financial Advisors Blog

The Truth Behind The Million Dollar Myth

I hate life insurance. And I have no love for insurance companies. But life insurance is one of those areas where docs often make mistakes, so I thought I'd hit the issue here today.

Almost every doc I've met has some kind of life insurance, be it whole life, variable life, or (most excellently) term life insurance.

When I ask you how you feel about your life insurance, if you're like most you'll say, "I fee like we have enough. After all, I've got a million dollars worth."

And a MILLION DOLLARS seems like a LOT of money when it comes to life insurance. After all, you may recall that kid you knew in high school whose dad died one summer of a massive M.I. and his mom got a check for a million dollars. Suddenly THAT kid got a brand new, bright red sports car. Right?

One of the symptoms of residentia (that syndrome where you still view your entire life as though you were still a resident) is that a seven figure chieck seems like a lot of money.

So the Million Dollar Myth - the thought that a million dollars worth of life insurance is enough - persists to this very day.

OK, let's play a game. We'll call it the "Life After Life Insurance Game".

Here are the rules:

1) You're dead. (No cheating, please.)

2) Your spouse (husband or wife) cannot go back to work.

3) They use the life insurance money you left them to cover the cost of the goals you promised to pay for while you were alive.

Ready? Let's play.

First comes the check for $1,000,000.00 dollars. Your family uses a chunk to pay off the house, of course, since this is the epicenter of financial security and family stability. If you're like many of the docs I serve, that's about $500,000, but could be as little as $300,000. So let's call it $400K.

Next, they sock away some money for college. If two kids attend Ivy League, you're looking at $50,000 per year, times four years, times two kids (and I've seen families with five kids, so we're being conservative here). That's $400,000 today, and if they invest well, it might grow fast enough to keep up with college inflation.

So, it looks like your family wins, right? The house is paid off, your kids are going to school, and they've still got $200K left, right?

Do I smell "sports car"?

Probably not. Remember Rule #2? Your spouse is not going back to work. So how will they support themselves during the years before THEIR retirement, and AFTER their retirement?

If your family spends $5,000 a month, then $200K will last about three years. Most physician families I know spend about $10,000 per month, so that means the money will last only a year or two.

Given some modest assumptions, it would take about two or three million MORE dollars to build a fund large enough to supply an after-tax income of $7500 to $10,000 per month for life.

Which brings us to the truth behind the myth: most docs are underinsured for life insurance simply because there's not enough "death benefit" (grizzly words, I know) to support their survivors' way of life.

If you don't like the thought of paying the premium for four or five million dollars worth of life insurance, I hear you. Just remember that you may be able to reduce the amount of coverage you have as the years roll on, and your need for insurance decreases as your savings accounts grow.

When "free" credit reports aren't really free

QUESTION: Hi Ben. I got turned down for a store credit card the other day and I was wondering if I ought to check my credit score. I know I should check my score every now and then, and that it's free. Can you remind me of how best to make sure that my credit score is OK, etc?

ANSWER: You're right. It's a good idea to check your credit at least once a year, and it can be free if you do it the right way.

The second paragraph of this page from the Federal Trade Commission's website contains the contact info you will need to request your free credit report:
http://www.ftc.gov/freereports

Don't get scammed!

Note that the URL you want to visit is www.ANNUALcreditreport.com and NOT  "FREEcreditreport.com".

The report you rquest should cost you nothing, but look-alike "para-sites" may try to trick you into paying for a credit monitoring service you probably don't need. (A few of the docs I serve have been fooled by this one.)

You can regularly monitor your credit for free by following these steps:

1. When you request your annual credit report, choose only one of the three reporting agencies (the rports all show the same basic information).

2. Four months from now, request another report from a second reporting agency.

3. Four months after that, request another report from the third reporting agency.

This way you can check your credit three times each year at no cost.

And by the way, skip the department store and gas card offers. Too many open lines of credit can reduce your credit score.

Will Dr. Do-It-Yourself actually do it?

Most financial advisors are not rocket scientists. In fact, some of the very best advisors have only a four-year degree and and the Certified Financial Planner designation.

I'm one of those guys.

And every now and then, I meet a new physician who believes he (or she) is smarter than I am. Let me assure you, this is true. All the people I serve are indeed smarter than I am. That's one of the reasons they're doctors, and I'm not.

A few docs - those who might be interested in hiring my firm - have told me, "If I had a little more time, I could do this [easy financial planning stuff] myself."

Well, I'm here today to tell you that every doctor is smart enough to handle his/her own financial planning and investments. Really. Every doctor can do the work I do.

But they don't.

In my career, I've never (not once) met a physician who had the right kinds and amounts of disability insurance coverage. I've almost never met a doc who had enough life insurance to make sure his family would be able to meet their needs if he bites the dust before he's supposed to. I've met docs whose college funding plan is to let their kids borrow the money (even though they won't qualify). And way too many docs believe that fully funding their 401k is all they need to do to prepare for retirement.

Sure, plenty of physician families have a budget, and some can even produce three color Quicken reports showing how much they've spent on dry cleaning for the past five years . But spending doesn't move you closer to your goals, and budgeting won't cause you to achieve financial security. For that, you need a savings plan.

And of course, there's the Holy Grail: investing. It's that thing your colleagues have all figured out, and convinced you that you will never understand. I've spoken with docs who love to pick value stocks, who've mastered timing the market, and others who only do real estate. But they've never included their spouses in the self-education process, and it's all ready to fall apart when they kick the bucket (believe me, your widows are going to have a mess on their hands).

Just because you CAN do your own financial planning does not mean you WILL do your own financial planning.

So why not?

The Number One reason I hear is that "I'm too busy." O.K. I hear you.

You said you're too busy. But I think "too busy" is only a half truth. The whole truth is that other things have a higher priority in your life. Your practice. Your kids. Your marriage. And even your own health (gotta get that workout in today, right?). Money is important, but it's not a priority for you, so it doesn't get done.

But let's assume for a moment that you've decided to take a 5-day vacation strictly for the purpose of sorting out your own personal finances; sort of a "personal finance sabbatical". On the first day, you decide to tackle your disability insurance.

And so you begin.

But where DO you begin? Do you read through the policy you already have? Do you even have a policy? Maybe you're covered by your policy at work. But you don't have a copy of it because it's not really "your" policy; it's your employer's policy. So you call that H.R. person who must have it, and they make you log on to the website (forgot your password?) to retrieve it.

You sit down to read it, and discover that you don't know which "classification" you belong to, so you call the H.R. person back, and find out you're an "A1t". Then you begin to read your policy from an A1t's perspective. But you've never read a disability policy before, so how in the heck do you know what's not there if something's missing?

AS if you're on some boring, twisted game show, you decide to call an expert. But wait a minute. EVERYBODY is an insurance expert - your State Farm guy, your life insurance guy, the guy at your bank, even your colleagues make you think they've got it all figured out. So which one of those "guys" is the REAL guy who has the REAL answers?

You think to yourself, "Hey, it's a policy from work, it must be OK, I'm probably covered, and I'll probably never need it anyway." So you give up, and move on to the next topic.

But at the end of five precious days of struggling with the five big areas of personal finance (insurance, investments, taxes, retirement, and college, you really haven't made much headway.

In fact, you're still not certain about any of this stuff.

Let me assure you that none of this personal finance stuff is "hard". Anyone physician is smart enough to figure it out. But I've met only a half dozen or so docs who were so dedicated to their personal finances that they actually persevered through the process and did actually get it all done.

If you're one of those select few docs, I say "Well done." I am very glad to see you have the gratification of doing it yourself. It's rewarding to know that you're OK, and you're going to be OK, and your family is going to be OK.

But if you're NOT one of those docs, I have one piece of free advice for you. Find one of those docs and get them to help you do it yourself, or hire a competent financial advisor who not only CAN help you but one who actually WILL help you take care of this stuff.

Your family's counting on you.

Giving up on "corporate" blogging

I'm not a blogger. I'm merely a financial advisor who has struggled to use and make the most of this new technology called a "blog".

In fact, this is about my fifth attempt at "blogging" and so far, I've had mixed results.

First, the successes:

- I've drawn the attention of reporters and journalists who are specifically covering my niche: physician families and their personal finances. Most found me through Google, and most were writing for publications for doctors about the financial failure of other doctors. Sad, but true.

- A few prospective clients have read my posts, learned more about my practice, and made a decision to choose or reject my firm. And both are good outcomes since I serve a focused group of families.

- In writing about topics, I've had to do in-depth research and that research has improved the way I practice.

- My posts have been authentic, and cover topics that are all mine, rather than putting a spin on other people's posts.

And now, the failures:

- This is my first post in 4 months. I tend to think of great ideas for posts, then shelve them because I think they're not good enough, or because I don't have time to develop them fully. I've let "the perfect" be the enemy of "the good" and failed to post often enough.

- I've tried to use my blog for marketing purposes, rather than using it to broadcast honest, open communications with people who are interested in my thoughts and my business practices. The simple truth is that docs don't have time to read blog posts. In fact, if you're reading this in your feed reader, I'll bet you're either a consultant, someone who markets to advisors, or a would-be spammer. That's cool. You're still valuable to me. (And if you're none of these, by all means leave a comment.)

- Financial advisors do indoor work with no heavy lifting, no sweat, and good incomes, so our job looks easy. But the mental challenges are at times overwhelming. I'd like to share my thoughts openly on the good and bad, but I know people may judge me harshly. I've let fear get the better of me in this, and I've held back. Some of my best posts I've written out of sheer frustration related to a topic (like my post about car buying advice) and I should just let 'er rip more often.

So what does it all mean?

It means that I'm trying, and I'll probably fail several times before I - in my mind - succeed at this. It means I'm not giving up. I'm not a quitter and never have been. It means I'm ready to be more honest and sincere with my end of this open conversation. And it means I'll be posting more often, regardless of the doubts and fears.

It also means I'll expect more out of my readers. Post a comment. Let me know what you think. Send me something relevant. Let's fire up the neurons and have a decent conversation.

Sincerely,
Ben Utley CFP

Why Might Physicians Need a Medical Practice Broker?

I'm always on the lookout for resources to help the physician families, so when I got an introductory letter from David Greene, the owner at Medical Practice Brokers in Colorado Springs, Colorado, I gave him a call and asked a few questions.

Medical Economics Ranks Physician Family Financial Advisors Among "150 Best Financial Advisors For Doctors"... Again

Given that there are about 700,000 financial advisors in the United States, I'm proud to announce that I have recently been ranked among Medical Economics’ list of “150 Best Financial Advisors for Doctors”.

Three things physician families should note about this list are...

Tired of Bad News? Read This Anti-News

Every morning I wake up to the news on NPR, since that's how I've programmed my alarm clock. It's a rude awakening indeed, and more alarming than the "blat blat blat" sound of my other less alarming option.

Next, I watch the 24/7 bad news channel on television as I eat breakfast. And before a serious case of indigestion has the chance to set in, I reach my office to plow through somewhere between 60 and 360 headlines from around the markets and around the world via Google Reader. And you guessed it... more bad news.

This gloom and doom bad news isn't designed to make you feel good. But good investing isn't about "feelings." It's about thinking, and acting (or not acting) appropriately.

The thing I've been thinking lately is that there's a great deal of news that's NOT being reported clearly, and that's what I've decided to call the "anti-news". So here's the news I hear, and the anti-news I perceive to be true as well.

3 Reasons to Stick with Stocks

In this video, David Booth of Dimensional Fund Advisors (DFA) discusses three reasons to sick with stocks at this "tumultuous time".

http://www.dfaus.com/library/videos/stick_around/

Check it out.

2008 Mortgage Bailout Summary for Physician Families: Emergency Economic Stabilization Act of 2008

Today's Wall Street Journal reports that President Bush signed into law the Emergency Economic Stabilization Act of 2008, which you may know as "the bailout bill".

What does it mean for physician families? Here's our summary of the relevant points in the 425 page document.

The Losses In Your 401(k) Probably Won't End Today

If you were thinking the bailout bill might make your stocks and mutual funds finally bottom out, think again.

2008 Mortgage Bailout Summary for Physician Families: Emergency Economic Stabilization Act of 2008

Today's Wall Street Journal reports that President Bush signed into law the Emergency Economic Stabilization Act of 2008, which you may know as "the bailout bill".

What does it mean for physician families? Here's our summary of the relevant points in the 425 page document.

The Losses In Your 401(k) Probably Won't End Today

If you were thinking the bailout bill might make your stocks and mutual funds finally bottom out, think again.