It all starts with a plan

How one professional gained financial peace of mind

Like a groundhog day ritual, Patricia, a 54-year-old doctor, used to end every year with a promise to herself to “sort out” her financial affairs over the coming year. But, while she repeated the mantra year after year, she had yet to make any changes…until recently.

Dr. Patricia is a senior radiologist providing services – essentially as an independent contractor – to a private chain of imaging centres. She credits her attention to detail and organizational skills as a key part of her success at medical school, during residency, and now as a well-established and in-demand radiologist earning around $500,000 a year. A moderate saver, she has built a total net worth of $3.6 million. With her husband Sanjay, who holds a management position within a news bureau following a 25-year career as a journalist, Dr. Patricia has twin 19-year-olds who are in their second year of university. Despite the couple’s skills and education, Dr. Patricia has always felt ill-equipped to deal with any sophisticated financial planning matters, particularly regarding her practice. Nevertheless, she says she has “managed” with the help of an accountant (a friend of the family operating his own small business) who focuses solely on her taxes and business accounting.

Dr. Patricia’s goals for financial independence

To retire around 65 or so
Retire with a net worth of $7M
Be mortgage free regarding the main residence (detached house), cottage and downtown condo
Pay off any debts (Student loans, Line-of-Credit, Vehicles, Credit Cards, etc.)
Provide funding for children’s university education
To travel regularly both internationally and in Canada

Have good-quality travel insurance
Have sufficient, and the correct type of, life insurance and disability insurance
Financially plan for elderly health care should it be needed later in life
Review will, power of attorney and personal directives. Ensure they remain up-to-date
Ensure the beneficiary designations on registered investments and insurance policies are correct

Dr. Patricia in her own words

I’ve always been highly organized and a big planner. In fact, this approach helped me get through med school and residency, and has helped fast-track my career – attention to detail is crucial for a radiologist. And these organizational skills are particularly important as I supervise younger, less-experienced radiologists on our team.

Key issue

Review existing financial situation; Create a comprehensive wealth plan.

On saving/spending money

I consider myself a moderate saver. Sanjay and I have consistently saved around $4-5K a month for the past year. I work exceptionally hard and I love to come home to a comfortable house. A few years back we renovated the basement and set up a mini gym. At the same time, we installed an inground pool and had some landscaping done. Overall though, I’m not a spendthrift. When it comes to ‘treats’ for myself, I prefer holidays – mostly as a couple as the boys are no longer interested in family trips! – to stuff like clothes and jewelry.

On managing finances

There hasn’t been a big-picture game plan, which is what we desperately need as the savings pot grows bigger and, frankly, more complicated. Ironically, while I’m a detail-oriented person, I’ve never felt properly equipped to tackle any sophisticated financial matters, particularly related to my practice as an independent contractor. Years ago, my mother suggested I speak to her friend, an accountant, who could help me with my finances when I started as a resident. He has helped me ever since with filing and business accounting. But I’ve wondered how we can better organize our finances so that we maximize any tax savings.

On the major catalyst for change

I’ve worried for some time that my financial situation is disorganized and could leave my family vulnerable. Without fully understanding how, I knew there was the potential to streamline all the accounts, which I found confusing and overwhelming. Unfortunately, it took my father-in-law’s sudden death to scare me into action. He was a small business owner and, while he left a will, it wasn’t up to date, so the instructions were mostly invalid. (The complications involved his business partnership with his brother, also the executor who pre-deceased my father-in-law). This highlighted to me how important it is to spare the family this added stress. As the eldest child, Sanjay continues to deal with the messy financials and legal matters.

On working with an Advisor, and Tax and Estate Planning specialists

I finally took the first step and contacted a Richardson Wealth Investment Advisor. While the process felt initially like falling into a financial abyss and admitting to the disorganized state of our finances, I knew it was a necessary first step. I worked with my Advisor who, over an 18-month period, thoroughly overhauled our finances and developed a comprehensive wealth plan.

The Advisor collected details on each account and asset, so Sanjay and I now have a clear understanding of what we own individually, and as a family, and what we owe. This meant we could streamline and consolidate certain accounts. It turns out we had seven identical accounts, for instance, which as the Advisor pointed out, made no sense in terms of tax efficiency.

A summary of how Dr. Patricia worked with an Advisor to tackle her main pain points:

Budget and savings: Working with her Advisor, Dr. Patricia created a detailed budget after tracking her expenses for a period of time. As part of this budget exercise, she has built in funds to maximize RRSP and TFSA contributions. Another option was an Individual Pension Plan (IPP) to increase her registered retirement savings.

Insurance: Dr. Patricia met with Richardson Wealth’s Insurance Consultant who reviewed her and Sanjay’s insurance needs, both personally and corporately. Dr. Patricia has invested the corporation’s after-tax income into a corporately owned life insurance policy for herself and Sanjay. Income and growth on the underlying investments are tax-sheltered within the life insurance policy and are not included in the corporation’s income on an annual basis, so they don’t form part of adjusted aggregate investment income (AAII).

Wealth plan: With her annual budget, savings and insurance needs determined, Dr. Patricia’s Advisor arranged for her and Sanjay to meet with Richardson Wealth’s Tax and Estate Planning team. The team created a full wealth plan for the couple. Notably, the plan will take Dr. Patricia and Sanjay well beyond the assistance they received from their family friend who provides accounting support. This comprehensive plan also provides a path going forward to help the couple achieve their financial goals throughout their lives and eventually onto estate and legacy planning.

Corporate accountant: Dr. Patricia met with an experienced corporate accountant who provided her with advice on how to reduce taxes, withdraw dividends and wind up her corporation when she’s eventually ready to do so.

Investment strategy: Her Advisor formulated a clear investment strategy based on Dr. Patricia’s financial needs and goals. Her investments are now focused on growth rather than annual interest or dividend income, which can help to time the recognition of a capital gain.

Ongoing monitoring: Importantly, a wealth plan is the beginning, not the end! It provides a clear path forward and Dr. Patricia can now more easily monitor and deal with any changes or deviation in her and Sanjay’s financial situation (or her personal life that may impact this). Dr. Patricia’s Advisor recommended the following steps for long-term success:

Meet periodically to ensure the doctor remains on track with achieving her goals;
Meet annually with her corporate tax accountant to determine the most tax- efficient manner in which to withdraw income and/or dividends from her corporation;
Monitor expenses to ensure they are controlled and in line with the couple’s wealth plan objectives;
Review their wealth plan, estate documents and goals every 3-5 years.

The last word

“Overall, the process of “cleaning up” my financial affairs and creating a comprehensive wealth plan has been thoroughly liberating and has given me genuine peace of mind. And that has allowed me to focus on the most important parts of my life – my family and my work.”

Key benefits of a comprehensive financial plan

A proper financial plan allows you to take control of expenses, maximize tax efficiencies while reducing tax inefficiencies, create a retirement plan, incorporate effective asset protection strategies, and plan your legacy, among other key solutions. The earlier you start planning, the better!