Financial planning: Lessons learned from involuntary retirement
It's been 15 years since Gary Rose, MD, closed his practice of 19 years and retired at age 49, due to a sudden central vision loss in his right eye that prohibited him from performing plastic surgery.
Although some of his colleagues had the option to retire on his or her own terms, Dr. Rose's health condition left him without a choice. Within a year of his diagnosis, he sold his practice to a board-certified plastic surgeon and accepted a full-time faculty position as associate professor of surgery at Florida Atlantic University's Charles E. Schmidt College of Medicine.
Fortunately, Dr. Rose was prepared for the unexpected, major life event. He says his strategic financial planning at the start of his plastic-surgery career helped to sustain him and his family after his health forced him into involuntary retirement in 2002.
"The two disability insurance policies I purchased in the beginning of my career were lifesavers," he tells PSN. "I would encourage any plastic surgeon beginning their practice to make disability insurance one of their first priorities. Not just a policy from an employer, but one they manage on their own because employers change their policies all the time. If you're healthy and never utilize it after you've made all those payments, then that's wonderful. But if something unexpected happens, you'll be happy you have that type of insurance."
Dr. Rose says he maintained a reasonable lifestyle throughout the years between his teaching salary and disability benefits. Based on personal experience, he strongly recommends that plastic surgeons planning for their future pay for their disability premiums with after-tax dollars.
"Many people think they'll never use it, but buying your disability insurance with after-tax income is very critical, and if you ever start receiving benefits, they will be exempt from tax," Dr. Rose advises, and adds that the disability insurance enables him to remain financially healthy and prevent him from sinking.
Lawrence Keller, who is a certified financial planner and founder of Physician Financial Services, says purchasing disability insurance should be plastic surgeons' chief priority after they graduate from medical school.
"During residency, plastic surgeons should get a disability insurance policy that protects their ability to perform their duties as a plastic surgeon," Keller says. "If they have an accident or sickness and they can no longer perform plastic or reconstructive surgery, they get their full disability insurance benefits even if they work in another occupation or medical specialty."
Save now
To maintain solid financial health, Keller advises plastic surgeons to save 20 percent of their gross income and develop a succession plan early in their careers, which should include paying off debt and learning about personal finance. If physicians don't plan for retirement or financially prepare themselves in advance, he says the result is that they could end up working longer solely to receive a paycheck.
"If you're financially successful and you're working because you love what you do and you're doing the cases you want, you'll wake up feeling excited about your career," Keller says. "But if you just work because you need the money, it becomes a job and you're not going to be as excited about your work. Your odds of burning out will be higher than if you're flexible with your schedule and have the ability to walk away at any time on your own terms."
Keller recommends plastic surgeons aim to "live like a resident for as long as you can after residency," and he adds that it takes time to foster good financial planning. He says if you can save 20 percent of your gross income and remain committed to your investment plan, you'll have the choice to retire either sooner or wealthier – and that saving should begin as soon as possible.
"Look to maximize the value of your practice," Keller says. "Maybe you'll need to work longer than you planned and downsize your lifestyle, whether it's moving to a smaller house or driving a different car. It's like a tug of war between living for today and saving for tomorrow. That's why the key is saving young and starting early."
Succession planning
Attorney Mathew Levy, a partner at Weiss Zarett Brofman Sonnenklar & Levy PC, has assisted numerous plastic surgeons with succession planning – a process that can take up to 10 years to implement. He says the best way for physicians to maximize the purchase price for their practices is to have them sell the practice to a physician who is already associated and familiar with the specialty, patients and location. He also recommends that solo practitioners hire a physician who will eventually buy-in as an owner of the practice, and purchase it in full when the aging physician is ready to retire.
"Your practice will be most valuable to that physician as opposed to a competitor, assuming that the physician-employee has been working with you and knows all of your patients," says Levy, who also co-chairs the firm's corporate transaction and health-care regulatory practice. "There will likely not be that much patient attrition, because they already know and are comfortable with this physician. Assuming the location does not change, everything should essentially be copacetic and remain the same.
"However, you have to take into consideration the amount of time it may take to find the right candidate," Levy adds. "Just because a physician hires someone out of residency does not necessarily mean that the physician-employee has the desire or capability to ultimately take over the practice or meshes with the personality of the practice owner or patient demographic. Finding the right person does not happen instantaneously – it is a process."
A physician-employee might be more willing to pay a higher amount to have an ownership interest in the practice, if the physician owner has a profitable practice with a high valuation. However, Levy says that if the practice is risky and not lucrative, a physician-employee may not want to pay much.
In an article titled "Understanding Succession Planning," Levy writes that if the physician-employee accepts the offer for ownership interest in the practice, the practice owner should enter into an agreement with the physician-employee that outlines the terms of the relationship as owners of the practice.
Succession planning ultimately allows physicians to control their destiny rather than be forced to sell their practices to a third party immediately pending retirement.
"Although instant retirement may sound appealing, many surgeons who have been practicing medicine the majority of their lives may find the idea of retirement daunting as they might not necessarily have many hobbies and interests outside of work," Levy says. "This business is their baby. They want to leave a legacy behind, and they may still want the option to work for a little while. A successful succession planning model takes time and planning."
Investments
Dr. Rose, now 64, is one year away from receiving benefits from the pension and profit-sharing plans he started during his earlier years of practice. His advice for planning a successful exit strategy hasn't changed since he shared his retirement story and exit plan with PSN more than a decade ago ("Members shift gears from active practice to retirement," April 2003). He still advises plastic surgeons to diversify with low-risk, moderate-return investments and also to use caution when investing in the stock market. In addition, he encourages surgeons to make the maximum contribution possible to their respective retirement plans every year.
"Have a plan A, B and C," he says. "Be flexible in your thinking. Be proactive and be willing to take large risks with large returns, but always have your steady flow of income based on low-risk, high-return investments. If you want to invest in the stock market, just remember it's high-risk, high-reward – and it's volatile – so you have absolutely no control over it. I never counted on the stock market for anything. I've seen many of my friends and colleagues go broke because of the stock market. You can still find a long-term investment that's less risky."
To maintain steady income during retirement, Dr. Rose also recommends investing in an annuity, which might not yield a high return, but it's an almost guaranteed return – which is important when you consider that physicians are advised to be more fiscally conservative during their retirement years.
Higher-risk situations merit a greater amount of research. Dr. Rose discovered his favorite and most-profitable investment after he retired: real estate. The reward can be phenomenal depending on the risk you are willing to take, but he says decisions have to be well-planned, from discovering the property to conducting market analyses for a long-term investment.
"Real estate always goes up in value as long as it's well chosen," he says. "You can do exceptionally well, but you have to be willing to sit and wait until the market is right."
Keller says simple is better when it comes to investing.
"A lot of physicians are very quick to invest in things that are complicated and in investments they don't really understand," Keller says. "Invest in what you know. Make sure to take advantage of tax-advantage retirement plans and/or tax-favored investments that are available. Ideally you'll want to invest in low-cost investments. A low-cost index fund, which doesn't have a lot of turnover and costs very little to maintain, is really the ideal situation. As you build up your portfolio and you accumulate more money that you're willing to take risk with, you can then explore other options."
Life after plastic surgery
Dr. Rose decries the dearth of retirement planning information that's available to plastic surgeons today, and says most of his peers aren't yet prepared to retire – and are uninformed about where to even begin.
"My colleagues are still working because they can't retire," he says. "They keep saying, 'Gary, you're so lucky.' I'm not lucky. Misfortune hit me, but I was prepared. I didn't want to retire when I did, but now I'm very happy."
Although Dr. Rose was told his vision loss could further deteriorate, he says he's fortunate that his medical condition has stabilized. From teaching students in medical school to writing, working out, scuba diving and spending time with his family, Dr. Rosenberg says he enjoys feeling like he's living life to the fullest.
"I do the best I can," he says, adding that among his other accomplishments, he recently published his book, The Medical School Coach. "I run 20-35 miles per week. I do yoga and eat a balanced diet. I love my kids. I love my family. I love my job. I enjoy life."
The key to maintaining a sense of purpose and enjoyment after retirement is to discover activities that most appeal to you early in your career, says Dr. Rose. He adds that he enjoyed running and doing yoga before retirement – and has continued to do so since.
"The bottom line is you have to find passion in what you do," Dr. Rose advises fellow plastic surgeons. "It doesn't matter where you are. As long as you plan ahead and have financial comfort, you can have a great life after retirement."