Jeff Witz, CFP

With student loan payments set to resume on February 1, 2022, what are some things I should be considering?

The period of administrative forbearance on federal student loans is set to expire January 31, 2022, and payments will resume on February 1.Student loan relief was a major component of the CARES Act passed by Congress and signed into law by President Donald Trump in March 2020. The provisions in the CARES Act suspended payments on student loans, dropped the interest rate to 0%, and suspended collections on student loans in default. After multiple extensions by President Trump and President Biden, this relief for federal student loan borrowers is set to end. Physicians who took advantage of this relief will once again be expected to make payments on their loans.

Statistics show that today’s physicians leave their programs having accumulated an average debt of approximately 

1 At this significant debt level, many physicians look for strategies to reduce their interest accumulation and/or reduce their monthly payments so they can direct more resources toward other goals such as saving for a home, retirement, and their children’s college educations. The nearly 2 years of loan forbearance certainly assisted with this, but with that program coming to an end, now is a good opportunity to review the other options available.

Are you practicing medicine at a for-profit or nonprofit organization? Public Service Loan Forgiveness is a hot-button issue, but as long as it remains a viable option, it is one worth considering for physicians with substantial student loan debt. Many physicians complete their residencies and fellowships at nonprofit hospitals. If you were paying toward your loans during that time, you may already be 5 to 7 years into the 10-year (120 eligible payments) loan forgiveness process. The months of 0 payments under the soon-to-end forbearance program also count toward the 120 total eligible payments, so you may be even closer to forgiveness eligibility.

Are there loan repayment assistance programs available to you? The National Institutes of Health repays up to $50,000 per year of student loans if you agree to conduct medical research in needed fields. The National Health Service Corps (NHSC) offers tax-free loan repayment assistance of up to $50,000 for a 2-year commitment to qualified health care providers who choose to take their skills to geographic areas with inadequate medical care. In 2022, NHSC plans to make approximately3500 new awards to health professionals serving in rural and underserved communities. Additionally, most individual states have loan repayment assistance programs for physicians who practice in their state facilities.

Is refinancing a viable option? If you practice medicine at a for-profit company, such as a private practice or private equity group, refinancing is worth exploring. Refinancing can dramatically reduce your interest rate and monthly payments, especially with interest rates continuing to hover near historical lows. The lower interest rate may result in your paying less over the lifetime of the loan. However, rates are often determined by a combination of credit score and income.

Why is refinancing, reducing your interest rate, and reducing your monthly payment typically desirable? Aside from the fact that the lower the interest rate, the lower the interest accumulation over the lifetime of the loan, lower monthly payments also provide some cash flow flexibility. You can still choose to pay higher amounts to try and pay the loan off sooner, or you can take the money saved and put it toward another financial goal.

The general rule of thumb on whether you should devote additional resources toward paying down your debt vs saving and investing is, if you believe you can earn a higher rate of return by investing than the interest rate being charged on the loan, saving and investing that money is theoretically the smarter financial move. However, investment returns are rarely guaranteed whereas interest rates typically are. A borrower’s risk tolerance should factor into this decision.

Finally, the personal well-being of the borrower also needs to be considered. If loans are causing you significant anxiety or other health or lifestyle problems, your well-being should take precedence and you should consider paying extra toward the loans.

Everyone’s situation is unique, and many factors influence which student loan repayment strategy is most beneficial. Consult your financial professional to determine which option fits your needs best.

1. Average medical school debt. Education Data Initiative. Updated July 10, 2021. Accessed November 15, 2021. https://educationdata.org/average-medical-school-debt

The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice. If you would like assistance with your individual investment strategy, please email witz@ mediqus.com.

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Loan repayment assistance programs and refinancing are options.

Urology Times Money Matters: What is your student loan repayment strategy?

What are some financial planning tasks I should focus on before year-end?

Near the end of each year, we like to provide a list of items everyone should review. The final months of the year are a good time to determine whether financial planning is on track. Do strategies need adjusting, or accounts require updating? The sooner these items are addressed, the better the position you likely will be in for 2022.

Is your emergency fund where it should be? 

If you tapped into your emergency fund for any reason this year, make sure the account is replenished. It is always a good idea to review your budget and see whether necessary spending has increased or decreased and then review your emergency fund level. The general rule of thumb for an emergency fund is to have 3 months of your necessary expenses saved in cash for a dual-income household or 6 months for a single-income household or if one individual earns significantly more and that income is relied upon to maintain your family’s standard of living.

Have you maxed out your retirement accounts or are they on track to max out by year’s end? 

401(k) and 403(b) contributions must be made by December 31, 2021. The 2021 limit for employee contributions is $19,500. Individual retirement account (IRA) contributions can be made until the tax filing deadline in April 2022. The 2021 contribution limit for IRAs is $6000. If you are older than 50, catch-up contributions may be available.

Have you used all the money remaining in your dependent care or health care flexible spending accounts (FSAs)? 

Most FSAs are use-it-or-lose-it accounts, meaning money left over at the end of the year is forfeited back to the plan, not to you. Some employers do offer a grace period into next spring or a $500 carryover from one year to the next for health care FSAs, but most do not. Use this money so you are not leaving anything on the table.

Have you made contributions to your children’s 529 accounts? 

As the cost of college continues to rise, it is important to start saving as soon as possible. 529s offer excellent tax advantages if saving for college or other post–high school educational opportunities. Many states offer a state income tax deduction for contributing to a 529 account. Sometimes these tax savings can be substantial. Contributions must be made before December 31, 2021, to receive a 2021 tax deduction.

Have you designated all the gifts you planned to give this year? 

For 2021, the annual gift tax exclusion amount is $15,000 per individual or $30,000 for a married couple. This means you can give up to these amounts to an unlimited number of individuals without having to worry about gift taxes. Making gifts can be a great way to remove assets from an estate if future estate taxes are a concern. Gifts must be made before December 31, 2021.

Have you made your charitable donations for the year? 

Giving to charity can be a very powerful tax-savings tool. Check whether you have any appreciated investment assets you could donate instead of cash. Donating appreciated investments allows you to avoid paying capital gains taxes when you sell the investments, and you get to claim a deduction for the full value of the donated asset. The charity can then sell the investment and not have to pay capital gains taxes. However, be aware that with the increased standard deduction under current tax law, you may need to donate a substantial amount to see any tax benefit. Donations must be made by December 31, 2021, to count toward your 2021 taxes.

Have any of your investments lost money this year? 

If any investments in your taxable accounts are in the red, you could consider selling those investments to harvest the loss. Tax loss harvesting can be used to offset gains elsewhere or potentially lower your 2021 tax bill. If your captured losses exceed your realized gains, you will have a net capital loss. Up to $3000 ($1500 if you are married and file separately) of net capital losses can be deducted against ordinary income, including salary, self-employment income, and interest income. Any excess loss above these amounts can be carried forward to future years to cancel out gains or deduct against income. Sales to capture losses must occur before the end of the year to count toward 2021.

If there has been a major change in your life, such as a marriage or divorce, the birth or adoption of a child, or a death in the family, you may need to update the beneficiaries on your retirement accounts and life insurance policies. You may also need to update your will and power of attorney documents. There is no deadline for these changes, but the sooner the better.

There are likely to be other items to check on, but this list should give you a good start on making sure you end the year on strong financial footing.

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Effective June 21, 2005, newly issued Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the preceding message contains written advice relating to a Federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding Federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.

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Be sure to replenish your emergency fund if necessary.

Financial tasks you should complete by the end of the year

 I understand the basics of inflation, but what is the greater impact of increased inflation on the economy?

Inflation is the concept that the cost of goods and services increases over time. What a dollar can purchase today is going to be more than a dollar will be able to purchase 20 years from now. The purchasing power of that dollar diminishes over time as the prices of goods and services increase. Many people think of inflation as having a negative impact because they must spend more to purchase the same items. However, inflation can serve as a healthy component in an economy’s growth.

Inflation is not the increase in price of a single good or service, but rather of a broader basket of goods and services. For example, if the price of avocados increases due to a rise in popularity or lack of supply due to drought, flooding, or conflict, that is not considered inflation. The rest of the economy would carry on largely unaffected. In the United States, the standard used to measure inflation is the Consumer Price Index (CPI). The CPI is a measure that examines the weighted average of a “basket” of consumer goods and services. This assortment is intended to mimic the products and services commonly purchased by U.S. consumers and includes items such as food, energy, clothing, housing, medical care, education, communication, and recreation. The weighted average of these goods and services produces a percentage that is reported as the rate of inflation.

Although economists often disagree about the exact numbers, it is commonly believed that inflation in the range of 5% to 6%, or below, is healthy for an economy, whereas inflation rates of 9% to 10% or higher are harmful to the economy.

Here are some of the common effects that inflation can have on consumers and the economy:

As stated earlier, when inflation raises prices, the purchasing power of a dollar diminishes. Consumers will have to spend more money to purchase the same items. Those hit hardest are the ones holding cash or who are on a fixed income that is not inflation adjusted annually. Over time, their purchasing power can be significantly impacted.

If consumers and businesses suspect inflation is on the rise, and fear that the value of their dollar will diminish, they attempt to spend that money before that occurs. In other words, they’ll likely worry that cash will only lose value due to inflation, so they’ll reason that it’s better to get any necessary shopping out of the way and stock up on things that probably won't lose value. In turn, increased spending by consumers and businesses positively impacts the economy.

As consumers and businesses spend more, more money enters the money supply and inflation continues to rise. To curb run-away inflation, the Federal Reserve Board will increase interest rates. Higher interest rates mean higher payments when borrowing money. This causes consumers and businesses to reconsider taking out loans to make major purchases. The money that would have been used as a down payment or as collateral now stays in their bank accounts earning interest. Consequently, less money is spent and less money is in the money supply, which slows the rate of inflation. 

 Borrowers who already took out debt, such as a fixed-rate mortgage, will likely benefit from inflation. The value of their monthly mortgage payments will decrease over time. A fixed payment of, say, $2,500 per month on a 30-year mortgage will decrease in value over the lifetime of that loan. Assuming the borrowers’ income is growing along with inflation, it will feel like they are paying less over time. However, borrowers who are in variable debt products will likely see their payments increase over time so that the value of those payments are keeping up with inflation.

One way to offset rising prices is to purchase stock in the companies that are benefiting from receiving more money due to higher prices. As the companies earn more for the products they make, their stock prices will tend to increase. The value of an investor’s money will increase as the stock price increases which will offset some of the impact of inflation.

Many consumers feel the immediate impact of inflation and interpret it as a negative. Spending more on an item you are used to buying never feels great. However, modest inflation does serve an important service to the overall economy. As long as the rate of inflation stays within a healthy range, it is something to take advantage of rather than fear.

Inflation within healthy ranges can be advantageous for consumers.

Urology Times Money Matters: How does increased inflation affect the economy?

A colleague shared with me that they created their own estate plan on a website vs using an attorney. Is that a good idea?

Having a good estate plan can be critical to ensure your family is well taken care of after you are gone. Although the quality of online tools continues to improve at a good pace, working with an experienced estate planning attorney remains the best way to ensure assets are distributed according to your wishes and in the most tax-efficient way possible. The drawback to using an attorney is often the cost, as some can charge a significant amount of money for their services. Sometimes people attempt to make an estate plan online without consulting legal and financial professionals to avoid the higher cost. However, everyone’s situation is unique, and using a boilerplate estate plan can lead to mistakes.

Here is a list of potential estate planning mistakes you can help avoid with professional counseling.

Your life and financial circumstances may change, so it’s a good idea to review your estate plan at least once a year. For instance, if any of the following life changes occur, your estate plan should be modified accordingly:

• Your parents have died, so they can no longer be beneficiaries.

• Your children have gotten married and/or had children of their own.

• Your assets have grown or decreased significantly.

• You no longer own a home or you purchased additional property.

For many of the same reasons listed above, make sure the will you drafted many years ago is still applicable. Some people believe that if they scratch out a part of an old will, add information, and initial the document, it will be valid. This is never the case.

Relying only on joint tenancy to avoid probate. 

Many assets are transferred outside wills. For example, assets titled in joint tenancy pass to the surviving joint tenant, not per the terms of your will. Many feel that you and your spouse should own a home as joint tenants to avoid probate. This move actually avoids probate only on the first death. When the surviving spouse dies, the home will typically end up in probate.

 Creating a trust and transferring assets to it may help you avoid probate and save taxes. However, if you have a will and a trust, be sure the documents are aligned so your wishes will ultimately be carried out. If a will and a trust are not in agreement, delays and unnecessary costs may be incurred.

 You want your intentions to be carried out for all assets, including your primary residence, additional residence, bank accounts, brokerage accounts, retirement accounts, and even vehicles. Be sure to make beneficiary designations and properly title accounts. Designate a beneficiary or beneficiaries on all individual retirement accounts, employer-provided retirement plans, and other qualified accounts. Take time annually to review the beneficiary designations as they will control the distribution of those assets.

Not naming successor or contingent beneficiaries. 

Let’s say you name 1 beneficiary on an account and that individual dies. If you do not update the beneficiary designation, there will be no successor to receive the account assets upon your death. It is important to name more than 1 beneficiary on accounts and to keep your designations up to date when named beneficiaries pre-decease you.

Failing to name a person to make health care decisions. 

All 50 states permit you to express your wishes as to medical treatment and to appoint someone to communicate for you in the event you become incapacitated. Depending on the state, these legal documents are known as living wills, medical directives, health care proxies, or advance health care directives. On 1 of these legal documents, designate someone you trust to make sure your wishes are carried out.

Relying on outdated or stale financial powers of attorney. 

You may have selected someone to make financial decisions for you with a power of attorney. However, after you signed the document, your circumstances or your relationship with the person may have changed. Consult with an attorney about how to proceed.

Having a good estate plan is critical and some of these issues can be complex. Going it alone creates opportunities for missteps. Speak with your estate planning expert to ensure you have a proper estate plan in place so that your heirs are taken care of in the way you intend.

The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice. If you would like assistance with your individual investment strategy, please email witz@mediqus.com.

A list of potential estate planning mistakes you can help avoid with professional guidance.

Jeff Witz, CFP

Articles

Urology Times Money Matters: What is your student loan repayment strategy?

Financial tasks you should complete by the end of the year

Urology Times Money Matters: How does increased inflation affect the economy?

Urology Times Money Matters: Estate Planning mistakes to avoid