Renal Business Today
Just like the rest of the workforce, nephrologists eventually have to hang up their stethoscopes someday and enjoy life after work. However, the recent recession and a rollercoaster stock market have to hurt potential retirees and cause a them to work beyond what they planned. That's why it is important to have a solid retirement plan in place as soon as possible. This is especially true as more young nephrologists enter the workforce.
The Marketplace & Compensation
Nephrology is a relatively young specialty having really gotten its start in the late 1960s and early 1970s; therefore, the first wave of retiring nephrologists has just started to impact the workforce in the last five years.
According to Martin Osinski, president of NephrologyUSA, the American Medical Association's Physician Masterfile indicates there are approximately 8,300 nephrologists in the United States and only 4,000 are age 50 or younger. Although there are no concrete statistics on the number of nephrologists retiring, Osinski estimated that probably 200 to 250 nephrologists retire annually.
The American Medical Group Association's (AMGA) 2009 Physician Compensation Survey estimates the median compensation for the hypertension and nephrology specialty at $246,049, with the average starting compensation at $180,000. Nephrologists earn approximately $235,000 in the East; $284,940 in the West, $256,293 in the South; and $238,750 in the North. "You have a lot of older nephrologists, and at a time when the demand is increasing, the number of nephrologists that are coming out are not going to keep up with those that are retiring," he said. "In addition to age, many nephrologists are choosing to retire early due to frustrations and difficulties in practicing medicine in the current economic climate, the predominance of Medicare (and its lower payments) reimbursement in nephrology, the increasingly high cost of medical malpractice insurance, and the difficulties in getting a handle on the future of bundling and its impact on physician incomes (at least those joint venturing or receiving medical directorships)."
Whether you are a nephrologist nearing retirement or a resident just starting your career, you still need to keep an eye on earnings and contributions to savings and retirement accounts. The good news is that more U.S. families are beginning to contribute to their savings. According to the Wall Street Journal, household debt decreased for the first time since 1952. This, in turn, resulted in a rise in the savings rate. In the past few years the savings rate actually has been below zero at times. The savings rate had been declining since the 1980s when it was around 10 percent. Many analysts predict the savings rate will be 3 percent to 5 percent this year, with Goldman Sachs predicting 6 percent to 10 percent.
Is Your Retirement Plan On Track?
A physician coming close to retirement hopefully has established a good relationship with a financial planner that includes a solid plan for their retirement that includes a number of investment avenues. For example, as a partner in the practice, a nephrologist probably is benefiting in a number of ways including the opportunity to buy into real estate and/or ancillary services or dialysis units, or fees received for medical directorships.
Osinski said nephrologists also must consider several things that other physicians do not when it comes to retirement planning. In any financial arrangement that physician has with a joint venture organization or healthcare provider where income is going to be coming to the physician, appropriate tax planning needs, be done to ensure a maximum return of the physician's investments.
" If they are medical directors of the unit, they are not going to earn additional income they otherwise were earning once they retire. Therefore, they need to know if there are going to be opportunities for them to work on a part-time basis (assuming they want to do it) and still maintain that medical directorship," he said.
Additionally, if they are joint venture owners in any real estate venture or dialysis units, a retiring nephrologist needs to determine how and if they will continue in that role. "If they are going to be selling those interests they need to determine how that money will be paid out," Osinski said. "An additional consideration is how the money will be paid out if they are selling their share in the practice."
A nephrology practice also can make substantial contributions through profit-sharing and a pension or 401(k) plan.
Arthur J. Vangeli, a Certified Financial Planner®, with Century Management, Inc. in Austin, Texas, said nephrologists should be keenly aware if their retirement plans are on track or have veered off course due to oversight.
" If you keep saving and investing as you have been, you may already be on course to achieve your desired retirement lifestyle. If not, consider changing habits now, before retirement, to move with great vigor in the direction you wish," he said.
Nephrologists also need to be aware of state asset protection laws in the event of a lawsuit. Some states provide 100-percent exemption of qualified retirement plan assets while others set a limit. For example, Arizona protects 100 percent of a 401(k), but Nevada only protects up to $500,000 of the 401(k) present value against legal judgments. Vangeli suggested logging on to www.creditorexemtion.com to stay abreast of changing state laws.
For nephrologists more than five years from retirement, Vangeli advised using the free Web site http://dinkytown.com/java/RetirementPlan.html that offers a quick, four-minute checkup of the health of your nest egg. The site evaluates eight specific criteria including:
1. Your current age and age at desired retirement.
2. Current household gross income.
3. Current retirement savings total value.
4. Rate of return before retirement (consider using 9 percent).
5. Percent of income to contribute.
6. Years of planned retirement.
7. Percent of income at retirement (start with 100 percent of your net take-home pay now).
8. Expected rate of inflation (default 3.6)
" What's terrific about this Web site is there are no names needed, no personal information to share, and no follow-up phone calls or e-mails," he said. "It allows you to be honest with yourself, and it holds a mirror up to show you, using your own inputs, where you'll arrive if you keep driving the direction you're headed."
Vangeli suggested nephrologists less than 10 years from retirement can get a quick snapshot of their retirement needs by evaluating their net take-home pay per month and adding in expected healthcare premium costs. He said other variables that will impact retirement spending include expected Social Security payment at your retirement age, whether you will still have a mortgage at retirement, how much you plan to spend in retirement, whether you will sell a home, downsize or move to a less taxing state.
Case Studies in Retirement Lifestyles
The basic question any retiree asks is whether he or she will have enough money to retire in the lifestyle they desire. A Defined Benefit Plan works best for older physicians who want to beef up their retirement accounts due to the recent market drop. Conversely, a Safe Harbor 401(k) plan works best for younger physicians.
The following case study provides insight into the different plans for various phases of a practice.
Jane is a 59-year old nephrologist with an average-size practice earning $230,000 annually. She is only four years from retirement and would like to maximize her pre-tax contributions to a retirement plan. She also wants to reward some much younger, loyal employees who helped build her practice.
Vangeli suggested Jane implement a defined benefit plan for her business because employers generally can contribute and, therefore, deduct more than to other types of plans. They also reap substantial benefits that are not dependent on asset returns (even with early retirement) and vesting can be immediate or spread out over a 7-year period.
"Nephrologists who establish a defined benefit plan also can have other retirement plans, can be a business of any size, and benefits cannot be retroactively decreased," he said.
Jane's 48-year-old brother Dennis is still building his nephrology practice and is years away from retirement. Vangeli said Dennis may want to consider a 401(k) Safe Harbor plan with a voluntary profit-sharing contribution in years his practice earns money.
He noted that a well-designed 401(k) attracts and keeps talented employees; allows participants to decide how much to contribute to their accounts on a before-tax basis; entitles employers to a tax deduction for their contributions to employees' accounts; benefits a mix of rank-and-file employees and owner/managers; allows the money contributed to grow through investments in stocks, mutual funds, money market funds, savings accounts, and other investment vehicles; and allows participants to take their benefits with them when they leave the company, easing administrative burdens.
Vangeli said 401(k) plans may be established or amended to permit employees to designate some or all of their contributions as Roth contributions. These contributions are made on an after-tax basis, but distributions (including earnings) are tax-free (if certain conditions are met).
A safe harbor 401(k) plan is similar to a traditional 401(k) plan, but, among other things, must provide for employer contributions that are fully vested when made. However, the safe harbor 401(k) is not subject to many of the complex tax rules that are associated with a traditional 401(k) plan, including annual nondiscrimination testing.
Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.
"You have control over your own retirement savings, so please take time to ensure you're in the most advantageous plan available for your goals," he said. "The most important person in your life is the person who makes you do what you know needs to be done, but left to your own devices won't get done. Take the time now to ensure you're on the right path to the retirement you deserve."
A Murky Economy
No one can deny that the past few years of economic turmoil definitely have taken a bite out of everyone's nest egg and forced many physicians to delay their retirement plans due to substantial decreases in their 401(k) and retirement plans. And while the reality the recent market run-ups have make retirement an option again, Osinski cautioned nephrologists to look at the big picture before making the decision to hang up their coats.
"Physicians need to stay abreast of what is going on in Congress and through Centers for Medicare & Medicaid Services (CMS). The sustainable-growth-rate formula and its impact on physician reimbursement probably would have the most immediate impact on physician incomes if it is not dealt with in a satisfactory way in the coming weeks although both parties in Congress understand the need to deal with it and have indicated that the cuts will not be made," he said.
Osinski added that many physicians are concerned with the potential of Obamacare and what that will do to the future of physician reimbursement, and although the plan is still being developed it probably will not have that big an impact on the specialty of nephrology.
"Bundling will probably have an impact on future medical director fees and income for joint ventured physicians and for that reason it is important for physicians to remain engaged in these discussions through comments to CMS and through involvement with national associations," he said.
Stay The Course
Vangeli offers the following advice to keep you on a straight course for achieving retirement planning success.
- Financial Adviser. Choose a trusted financial adviser who will help define retirement goals, select a plan to provide the easiest path to achieve that goal and keep you on track. Schwab, Fidelity or TD Ameritrade have excellent small business plans and will gladly send a qualified adviser to meet with the owner to review plans.
- Selling Your Practice. Physicians thinking about selling their practices should keep in mind that the proceeds typically will not provide the nest egg needed to sustain your lifestyle in retirement. Selling a thriving practice for $750,000 will only fundamentally yield $30,000 of annual income in retirement without depleting capital.
- The Stock Market. Stay the course when it comes to the stock market. You are a net buyer of stocks for the next few years, so low prices means more shares for the same dollar contributed. Industry experts agree the S&P 500 should gain another 50 percent from current levels in the next five years. If this holds true, stash away what you can now, allow it to grow, and harvest your fruits down the road. You'll be glad you heeded this advice five years from now.