Medical Specialists - The importance of having a plan

medical plan
5
Sep

Medical Specialists - The importance of having a plan

05.09.18

Having spent many years working alongside medical specialists, we are often surprised by the lack of long-term and retirement planning. A failure to have your own comprehensive plan to retirement not only can have a significant financial impact on you and your practice, but also on your goals and aspirations later down the track.

When looking at the career phases of my medical specialist clients, we ordinarily categorise them into three broad classifications:

  • The commencement phase of private practice encompassing purchasing a family home, establishing their new private practice as a business with appropriate structuring, tax planning, cash flows, paying off non-deductible debt etc,
  • The accumulation phase sees a strategic shift to accumulate assets and wealth often using borrowed funds, extra cash into superannuation, cash flow management, more tax planning and hopefully an unencumbered family home;
  • The last of the three phases of the specialist life cycle is the wind down to retirement, often boosting super with additional cash, reducing hours or days worked, selling the practice to a younger colleague who is beginning phase one of their journey.

Ordinarily many of the investments purchased during the second phase are done using borrowed funds. This presents an opportunity for clients given the tax deductibility of the interest - reducing their taxable income while the assets are (hopefully) increasing in value.  Many clients buy lifestyle properties with the longer-term view of using themselves once they retire and some purchase a number of properties - a country retreat, a beach property and maybe a unit in the city. Often clients want to maintain all three.

However, what works well in phase two with regards to large tax deductible debt and negative gearing does not transition well into phase three.  When retirement looms, work hours and therefore income is reduced and the costs of holding the properties may not be serviceable in retirement.

For this reason, I like to prepare a plan (ordinarily a 10-year plan) to retirement for clients to manage this transition and ensure that each year leading up to retirement a tranche of the debt is repaid and the drop in taxable deductions is managed appropriately. This forward planning ensures clients can retire, with their desired level of assets, unencumbered, as well as their family home and their superannuation.

This approach is becoming more important with the changes the banks have made to their lending criteria and the additional information they require for funding. Commonly the banks require not only copies of income tax returns and accounts, but the Notice of Assessment and a years’ worth of ATO reports to show that all tax and BAS/IAS lodgements are not only lodged and are up to date, but also paid.

For some clients who are refinancing or are borrowing more money, having a detailed and thorough plan can aid in accessing credit. For example, providing the banks with a 10-year debt reduction plan can help demonstrate when and how the client intends to have repaid the loan by and the measures they will take to achieve that goal. While this may not seem like much, a well-structured plan can make the difference between having a loan approved or declined.

For further questions on how developing your own plan or your medical business in general, please contact us or speak to Maree Macphail on 02 9283 1666.