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Need Help Getting Started with High Income

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  • Avatar Panscan 
    Participant
    Status: Resident
    Posts: 789
    Joined: 03/18/2017

    Why is there a penalty if you pay off the loan early? Seems weird. Everyone else covered everything else.

    I think people are just saying it’s weird to get a car loan when you can just buy it in cash and not go into more debt.

    #204052 Reply
    Liked by hatton1
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 11
    Joined: 04/04/2019
    While I am very reluctant to recommend a LIRP, you could be one of the 0.50% of physicians where it might make sense. However, you need to make sure that you fully understand the plan and make absolutely sure that – for the amount of premium you feel comfortable committing to this plan every year – you are buying the smallest death benefit possible while overfunding the policy right to the Modified Endowment Conctract (MEC) limit. If your advisor and his specialist aren’t buying the smallest death benefit with maximum overfunding, walk away from the deal immediately! Reason being, if they are not overfunding to the maximum, they are more concerned with their commission than your financial future. Buying a small death benefit and overfunding pays the advisor a much smaller commission. So, beware of the advisors out there who pitch this strategy and then pull a bait-and-switch. This strategy can work, in the right circumstances for extremely high-income physicians. Just make sure it’s right for your situation and that you fully understand it. Don’t be afraid to ask questions, including how much commission they stand to make. For the commission they stand to make – even if they do it the right way – they should be more than willing to answer every question you have.

    Click to expand…

    The plan they put together, they said was not the death benefit, but purely for retirement distributions tax free. It was a variable policy. Initial annual premium of 240K for 10 years with a projected total distribution of $23,255,280. Initial annual distribution of $1,162,764/yr from ages 66-85. Initial death benefit of 9mil, assumed crediting rate of 6.36%. Don’t know costs of plan yet….just met with them Monday about this option. The advisor also wasn’t pushing for this plan….I just read some stuff and asked him so he put me into contact. He suggested that if I decided to do this, my goal would be to do 240K/yr in this account and try to get another 160ish in taxable. Sound completely off?

    #204054 Reply
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 11
    Joined: 04/04/2019
    While you’re making a great income, are you limited by operatories, hours, staff, size of local market? Any chance of bringing on an associate and/or opening a second office? Don’t just rush blindly into multiple practice ownership, but if you can reproduce the success you’ve had so far you should get far better returns than the 4.05% and under interest you’re paying. You’re young and hard charging now. Are you taking proactive steps to avoid burnout? Making time for date night at least once per week? Make sure to balance success with career satisfaction, duration, and happiness at home.

    Click to expand…

    I am basically at my capacity as far as scheduling goes….I do not care to expand my hours/days working, etc. I currently only work 4 day/wk usually 8-5pm. I do take a couple vacations each year and do not foresee a burnout at this rate occurring. My goal is to make work optional in 10 yrs….however, don’t know if I’ll cut the schedule back at. I could open another office…however, unsure if added stress would be worth it. In order to do so….the office would be 80ish miles away….so I’d be a long distance relationship. Thanks so much for the advice!

    #204066 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2306
    Joined: 09/18/2018
    medical school scholarship sponsor
    4 mil 20 term life

    Click to expand…

    If you wish the wife and future children to have “more”, buy more term.

    Keep your investment separate. No reason to spend money just because it is available.

    #204069 Reply
    Liked by Teefus3
    hatton1 hatton1 
    Participant
    Status: Physician
    Posts: 2979
    Joined: 01/11/2016

    I am no LIRP expert.  I would not want to tie up that much money with an insurance product.  If you put $240K/year into VTSAX or some other index in a taxable account you will be very wealthy with no rules.

    #204083 Reply
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 11
    Joined: 04/04/2019
    Why is there a penalty if you pay off the loan early? Seems weird. Everyone else covered everything else.

    Click to expand…

    Just the requirements I got when I accepted the lowest interest rate. I can pay an additional 15% of principal off each year without penalty until year 5….then no penalty. The penalty started at year 1 @ 5%, yr. [email protected] 4%, yr. 3 @3% and on down. Just a way that they get some money in return.

    #204084 Reply
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 11
    Joined: 04/04/2019
    If you wish the wife and future children to have “more”, buy more term.

    Click to expand…

    You talking another 2, or 4 more mil? Thanks!

    #204087 Reply
    Hank Hank 
    Moderator
    Status: Attorney
    Posts: 1228
    Joined: 03/27/2017

    While you’re making a great income, are you limited by operatories, hours, staff, size of local market? Any chance of bringing on an associate and/or opening a second office? Don’t just rush blindly into multiple practice ownership, but if you can reproduce the success you’ve had so far you should get far better returns than the 4.05% and under interest you’re paying. You’re young and hard charging now. Are you taking proactive steps to avoid burnout? Making time for date night at least once per week? Make sure to balance success with career satisfaction, duration, and happiness at home.

    Click to expand…

    I am basically at my capacity as far as scheduling goes….I do not care to expand my hours/days working, etc. I currently only work 4 day/wk usually 8-5pm. I do take a couple vacations each year and do not foresee a burnout at this rate occurring. My goal is to make work optional in 10 yrs….however, don’t know if I’ll cut the schedule back at. I could open another office…however, unsure if added stress would be worth it. In order to do so….the office would be 80ish miles away….so I’d be a long distance relationship. Thanks so much for the advice!

    Click to expand…

    You’re working 8-5, four days per week.  Even if you’re working straight through lunch, that’s 36 hours per week.  However, you’re paying rent or mortgage on your office for 168 hours per week.  Currently you are the rate liming step, but career duration, satisfaction, and avoiding burnout are critical over the long term.

    In declining order of expense, here are things you can do to get more production:

    1. Open a new office in another town.  80 miles away gives you plenty of time for podcasts, but it would be a rough commute.
    2. Build out more operatories in your existing office.
    3. Add hours to your schedule without any build-out costs.

    I’d look at bringing on an associate and having him or her pick up days and hours that you aren’t working.  You could have your associate cover Thursday, Friday and Saturday.  You could split your schedule so that the office is open 7 – 7 or 7 – 8.  You may have two shifts that each are on shorter hours.  You could have some support staff that work different days of the week.

    You may very well find that you can go down to 3 or 3.5 days per week and still bring in more income than you do now.  If you have a perio office (or general dentistry), aim for 30% of net production from your hygienists.  If you’re an orthodontist, keep the dental assistants busy with as many patients in chairs as possible.  If you’re endo or oral surgery, then you (and your partner or associate) probably will continue to be the rate limiting step.

    Select a good associate, preferably someone with an ownership mentality who eventually can buy into the current practice.  Take the time each week during the first 6 -12 months for a chart review and chat about philosophy of care.  You’d hate to find out a year from now that your associate was doing work that wasn’t up to your desired level of care and you have a bunch of unpaid re-work on your hands.

    Adding another doc, more staff, and having work happen under your roof while you aren’t there can be stressful.  It’s a bigger leadership challenge than just ruling the roost when you’re the sole doctor provider.  However, it can go a long way towards swamping your fixed costs, bringing overhead down (and profits up), and letting you start to scale your business beyond the inherent limits of what your own two hands can produce in a given week.  Then again, $900K to $1M per year is pretty darn good too!

    #204096 Reply
    Liked by Tim, Teefus3
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 399
    Joined: 06/12/2017

    Sound completely off?

    Click to expand…

    Without knowing the company and the policy, I can’t say for sure. And without knowing that, it’s hard to say if the assumed return of 6.36% is reasonable. That’s because that return would have to be net of both the policy expenses (normally around 1.25% to 1.50%) plus the subaccount expenses (that’s what they call mutual funds inside of a variable life policy and those expenses could run anywhere from 0.05% to over 2%). If total policy expenses are 2.25%, that means your investments inside the policy need to gross 8.61%. That might be a pretty high hurdle to clear.

    Did they offer to show you the same concept with a whole life policy or with an indexed universal life policy? Both of these types of policies would prevent the devastation that one or two down years in the market could do to a variable life policy. You may sacrifice a little upside, but you prevent the sequence of returns risk of a large down year in the market, right before you start pulling money out of the policy.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    http://www.fswealthadvisors.com | (717) 496-0900

    #204099 Reply
    Liked by Teefus3
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 11
    Joined: 04/04/2019
    You’re working 8-5, four days per week. Even if you’re working straight through lunch, that’s 36 hours per week. However, you’re paying rent or mortgage on your office for 168 hours per week. Currently you are the rate liming step, but career duration, satisfaction, and avoiding burnout are critical over the long term. In declining order of expense, here are things you can do to get more production: Open a new office in another town. 80 miles away gives you plenty of time for podcasts, but it would be a rough commute. Build out more operatories in your existing office. Add hours to your schedule without any build-out costs. I’d look at bringing on an associate and having him or her pick up days and hours that you aren’t working. You could have your associate cover Thursday, Friday and Saturday. You could split your schedule so that the office is open 7 – 7 or 7 – 8. You may have two shifts that each are on shorter hours. You could have some support staff that work different days of the week. You may very well find that you can go down to 3 or 3.5 days per week and still bring in more income than you do now. If you have a perio office (or general dentistry), aim for 30% of net production from you hygieniests. If you’re an orthodontist, keep the dental assistants busy with as many patients in chairs as possible. If you’re endo or oral surgery, then you (and your partner or associate) probably will continue to be the rate limiting step. Select a good associate, preferably someone with an ownership mentality who eventually can buy into the current practice. Take the time each week during the first 6 -12 months for a chart review and chat about philosophy of care. You’d hate to find out a year from now that your associate was doing work that wasn’t up to your desired level of care and you have a bunch of unpaid re-work on your hands. Adding another doc, more staff, and having work happen under your roof while you aren’t there can be stressful. It’s a bigger leadership challenge than just ruling the roost when you’re the sole doctor provider. However, it can go a long way towards swamping your fixed costs, bringing overhead down (and profits up), and letting you start to scale your business beyond the inherent limits of what your own two hands can produce in a given week. Then again, $900K to $1M per year is pretty darn good too!

    Click to expand…

    I am the rate limiting step and have thought about bringing in an associate. The problem is the location (4 of 6 specialists were born and raised here and not many people looking to move), and also not sure I could have another associate full time in my current location. Definitely could have a full time between this office and the satellite if I were to pursue it….I’ll definitely look into it more! Thanks for your advice!

    #204127 Reply
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 11
    Joined: 04/04/2019
    Without knowing the company and the policy, I can’t say for sure. And without knowing that, it’s hard to say if the assumed return of 6.36% is reasonable. That’s because that return would have to be net of both the policy expenses (normally around 1.25% to 1.50%) plus the subaccount expenses (that’s what they call mutual funds inside of a variable life policy and those expenses could run anywhere from 0.05% to over 2%). If total policy expenses are 2.25%, that means your investments inside the policy need to gross 8.61%. That might be a pretty high hurdle to clear. Did they offer to show you the same concept with a whole life policy or with an indexed universal life policy? Both of these types of policies would prevent the devastation that one or two down years in the market could do to a variable life policy. You may sacrifice a little upside, but you prevent the sequence of returns risk of a large down year in the market, right before you start pulling money out of the policy.

    Click to expand…

    They didn’t, and with all current advice I probably won’t check much into it until I’ve added a solid foundation to my portfolio. Thanks for your advice!

    #204130 Reply
    Avatar orthodds 
    Participant
    Status: Dentist
    Posts: 111
    Joined: 11/07/2017

    Add profit sharing to make sure you are hitting the 56k max for 401k/PS contributions.  At some point in the relatively near future you should consider doing a cash balance plan.  Once you have maxed contributions to these tax deferred accounts you should load up your taxable account with investments.  Taxable is a great place to put money.  TLH, charitable contributions, LTC etc make it a very useful investment tool.  If you think an early retirement is a possibility then taxable will be that much more important.

    #204272 Reply
    Liked by Teefus3
    Avatar Teefus3 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 11
    Joined: 04/04/2019
    Add profit sharing to make sure you are hitting the 56k max for 401k/PS contributions. At some point in the relatively near future you should consider doing a cash balance plan. Once you have maxed contributions to these tax deferred accounts you should load up your taxable account with investments. Taxable is a great place to put money. TLH, charitable contributions, LTC etc make it a very useful investment tool. If you think an early retirement is a possibility then taxable will be that much more important.

    Click to expand…

    Was able to profit share to max out my 56K and max my wife’s as well. Do you use a match or nonelective safe harbor? I was currently in a match, but have been told I should be in a nonelective. Also, I talked to a 401K specialist about cash balance, and he recommended waiting 5 yrs or so, due to eventual higher taxes and being able to put more away as I age (since 2.8 mil is cap in total contributions)….is this sound thought? Thanks!

    #205540 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 366
    Joined: 10/29/2017

    Hey Teefus.  Congrats on a great start.

    It’s a wonderful position to be in .  You’ll find many debt hawks on this board, and none of them are wrong.  You’ll soon find yourself in a position that debt is less of a stressor and more of a tool.  Debt that is hard to pay off is a problem.  Debt that you choose to be in to facilitate better options is not.  I’ve borrowed 5 and 6 figure sums several times just to smooth cashflow and never held them more than a month or three.  That’s the power of earning.  Everytime it worked out either financially or personally.

    Here is what I would do if I was you.

    First prioritize insurance.  You are off to a great start.

    A.  I’d go 6 million on the life insurance, just because you can, and a few hundred a year now is a lot of piece of mind for your family.  My lifestyle is scuba, road and mountain cycling, and soon to be small aircraft.  I don’t plan to die doing these things, but at least I know I’m not abandoning my family if crap happens.

    B. Disability seems good.  Same as above regarding going to $25k.  Mine isn’t that high, but I have more net worth than you.

    C.  Malpractice.  2/4 is a ton.  I’m guessing you are OMFS, otherwise that is overkill.  If so, then my opinion is useless.

    D.  Practice interruption / overhead insurance.  You need to get enough of this to pay your bills due, your rent, and your staff for at least 3 months.  You aren’t just the head of your family now, but you have an obligation to your staff to not disappear and leave them in the lurch.  This works similar to disability.  I broke my hand a few years ago and missed a few weeks work.  If I were a better patient and did what my surgeon suggested, I’d have missed 6 weeks.  Floods happen.  Tornadoes happen.  Fires happen.  Protect yourself.

    Health insurance.  I got caught up in the High deductible HSA plans for a while through the marketplace, and ended up costing myself a lot of money.  We even did the healthcare ministries thing for a while.  An HSA is great, but depending on costs and needs, it is only one factor to consider.  We do give a wellness bonus to my staff, but we don’t provide healthcare insurance.  Once you start, it is VERY hard to go back if costs become unmanageable.

    I saw that you addressed estate planning.  That is a big one.

    Depending on the number of staff you have (less is better, younger is better), a defined benefit plan might just work in your favor in a big way.  Your young age is against you.

    I would pay the max on my practice loan, but not a penalty.  2.99% on the car loan is close to a tipping point for me.  If it was 4%, it would be gone tomorrow.  If it was 1%, I’d ride it to the end.  At 3%, you aren’t wrong either way.  I suspect you barely notice the payment in your monthly budget.

    401k and DB/CB plans require a select specialist to plan for.  You just can’t do those yourself, especially if you have staff.

    Hank has a lot more experience as a practice owner than I do, but it is (I think) as a general dentist.  Hiring a specialist is SO much harder than a GP, especially to a low density area.  Hiring a specialist associate to a LCOL area is so much harder than it should be, especially if you have a large geographic area to cover.  If you know an endodontist who wants to live in an incredible place and make double or more what their peers do as an associate, have them call me.  We do put high mileage on our cars though.

     

    PS.  I’d avoid the LIRP, but may not be the most informed there.  Feels dirty though.

    #205596 Reply
    Avatar Malocclusion 
    Participant
    Status: Dentist
    Posts: 7
    Joined: 01/30/2018

    While you’re making a great income, are you limited by operatories, hours, staff, size of local market? Any chance of bringing on an associate and/or opening a second office? Don’t just rush blindly into multiple practice ownership, but if you can reproduce the success you’ve had so far you should get far better returns than the 4.05% and under interest you’re paying. You’re young and hard charging now. Are you taking proactive steps to avoid burnout? Making time for date night at least once per week? Make sure to balance success with career satisfaction, duration, and happiness at home.

    Click to expand…

    I am basically at my capacity as far as scheduling goes….I do not care to expand my hours/days working, etc. I currently only work 4 day/wk usually 8-5pm. I do take a couple vacations each year and do not foresee a burnout at this rate occurring. My goal is to make work optional in 10 yrs….however, don’t know if I’ll cut the schedule back at. I could open another office…however, unsure if added stress would be worth it. In order to do so….the office would be 80ish miles away….so I’d be a long distance relationship. Thanks so much for the advice!

    Click to expand…

    You’re working 8-5, four days per week.  Even if you’re working straight through lunch, that’s 36 hours per week.  However, you’re paying rent or mortgage on your office for 168 hours per week.  Currently you are the rate liming step, but career duration, satisfaction, and avoiding burnout are critical over the long term.

    In declining order of expense, here are things you can do to get more production:

    1. Open a new office in another town.  80 miles away gives you plenty of time for podcasts, but it would be a rough commute.
    2. Build out more operatories in your existing office.
    3. Add hours to your schedule without any build-out costs.

    I’d look at bringing on an associate and having him or her pick up days and hours that you aren’t working.  You could have your associate cover Thursday, Friday and Saturday.  You could split your schedule so that the office is open 7 – 7 or 7 – 8.  You may have two shifts that each are on shorter hours.  You could have some support staff that work different days of the week.

    You may very well find that you can go down to 3 or 3.5 days per week and still bring in more income than you do now.  If you have a perio office (or general dentistry), aim for 30% of net production from your hygienists.  If you’re an orthodontist, keep the dental assistants busy with as many patients in chairs as possible.  If you’re endo or oral surgery, then you (and your partner or associate) probably will continue to be the rate limiting step.

    Select a good associate, preferably someone with an ownership mentality who eventually can buy into the current practice.  Take the time each week during the first 6 -12 months for a chart review and chat about philosophy of care.  You’d hate to find out a year from now that your associate was doing work that wasn’t up to your desired level of care and you have a bunch of unpaid re-work on your hands.

    Adding another doc, more staff, and having work happen under your roof while you aren’t there can be stressful.  It’s a bigger leadership challenge than just ruling the roost when you’re the sole doctor provider.  However, it can go a long way towards swamping your fixed costs, bringing overhead down (and profits up), and letting you start to scale your business beyond the inherent limits of what your own two hands can produce in a given week.  Then again, $900K to $1M per year is pretty darn good too!

    Click to expand…

    Holy cow! pretty detailed suggestions. Not everyone is built to build an empire (associates, multiple offices). Just don’t do anything risky; with that income, OP will be very well off without additional headache.

    #205599 Reply

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