The value of financial advice: An MD-guided process. This series from MD Financial Management (MD) illustrates financial situations faced by Canadian physician households, along with our planning process to solve problems and help you achieve your personal goals. While these composite case studies do not portray any single individual, they do reflect real-life conversations MD Advisors* have with physicians and their families every day.
Connie, 47, and Javier, 50, have always shared a passion to live life to the fullest and see the world. Even before they married 20 years ago, they jumped at opportunities to travel and experience new things, personally and professionally.
For Connie, this meant taking a couple of breaks during her early days of work as a locum physician. There was the time they moved to Spain for two years for Javier’s contract research job. They also lived in Mexico for a year, to get to know Javier’s extended family.
They were drawn to Vancouver when they returned to Canada in 2009, attracted by the area’s great quality of life. They rented a two-bedroom apartment for a couple of years, then moved to the island and bought a house in the suburbs of Victoria. It was the ideal place to raise their family, and Connie found work as a medical health officer.
The challenge: Why does it feel like we don’t have any money?
Connie is starting to feel panicked about her family’s finances. It seems like they keep slipping backwards, even though she has a steady, salaried position of $250,000 (after income tax and Employment Insurance/Canada Pension Plan premiums and the spousal tax credit, it’s about $162,000). She is stressed about being the sole income earner; Javier has stayed home to care for their two boys for the past six years. In their last move, made after Javier lost his job as a research scientist, they sold their large suburban home, downsized to a smaller one in central Victoria, sold one of their two cars, and laid off their nanny.
Connie’s particularly worried about providing enough for her children’s needs — the older they get, the more expensive everything seems. Both boys, ages 11 and 13, are enrolled in an arts-oriented private school, which costs $6,000 apiece in tuition. They’re also scheduled for orthodontic work soon. And, suddenly, it seems like university is not that far off — will there be time enough to build up RESPs?
On top of all that, Connie contributes $1,500 per month to support her dad, 83, in Calgary. His pension barely covers the cost of the home care worker he needs, but he has vowed to live in his house until the day he dies. Connie wishes he’d change his mind, sell the home, and come live with her family on the west coast.
The numbers: The couple’s financial picture
| Income | |
|---|---|
| Connie’s annual income (before tax) | $250,000 |
| Connie’s take-home pay after tax (based on B.C. rates), RRSP contributions of $5,000 | $159,000 |
| Net worth | |
|---|---|
| Home value ($1.4M minus $700K mortgage) | $700,000 |
| Savings | |
|
|
|
|
| Total net worth | $900,000 |
The analysis: An Advisor’s fresh eyes
Connie was inspired to call Marc, an MD Advisor in the Victoria office, after a colleague at work spoke highly about their experience working with MD. After a brief introduction by phone, it became obvious to Marc that, between all the moves, the family’s accounts had lagged all over the map.
Struggling on one income. When Javier lost his job in research several years ago, Connie saw it as perfect timing for him to stay at home with the boys. She could focus on her job, they’d save on childcare, and he could hatch his idea for a new business to develop specialized software for clinical trials. But, faced with the dueling responsibilities of being a “dadpreneur,” Javier’s startup has stalled. Connie has doubts whether the venture will ever get off the ground and generate income. She didn’t expect to be the sole breadwinner forever!
Regrets, they’ve had a few. Marc could see Connie was second-guessing many of the decisions the couple had made in the past and was regretting the financial repercussions. As a locum at the start of her career, Connie had the flexibility to choose her work, but it lacked any benefits. After the birth of their first child, the couple had taken a year off, with no income, to travel and stay with Javier’s extended family in Mexico. When they moved to the island for Connie’s permanent position, they splurged on a large home in the suburbs of Victoria. Feeling in over their heads with the cost and commute, they downsized to a smaller house in the city.
Competing priorities. The couple seems torn over roles and responsibilities. Connie worries about being the sole income earner but loves how Javier takes the lead in raising their sons. Javier, too, is conflicted. He knows he needs to work harder to launch his business but cherishes all the time he can spend with the boys at their age. The startup is vague on any sort of concrete financial outlook. What would help is a reality check and a timeline: Can entrepreneurship wait until the kids turn 18?
The plan
“Connie needed a plan to shift her focus from all the ‘what ifs’ of the past and move forward, so she and Javier can build confidence in their future,” says Marc. As an MD Advisor, Marc understands how successful professionals can fear being judged about household money habits or “coming clean” about financial insecurities.
Get a realistic picture of cash flow. Beyond knowing how much comes in monthly with Connie’s paycheque, the couple had little oversight of expenses, leading to chronic shortfalls. “The first thing we did was track spending and cash flow,” says Marc. The process quickly identified a few “nice to haves” they could trim to save several hundred dollars monthly. They scaled back from weekly housekeeping service, cancelled a subscription to a wine club, and provisioned for more meals at home, breaking a habit of frequent take-out dinners. After some discussion, they also felt it made sense for Javier actively manage the day-to-day spending.
Take advantage of every tax break available. So long as Javier isn’t working, Connie should take every available opportunity to split income: in his hands, it will be taxed at his lower income tax rate. She can contribute to a spousal RRSP; the amount allowed would be reduced by a pension adjustment for her workplace benefits, but that $4,000 to $5,000 a year would bring her a meaningful tax deduction. Connie can claim her sons’ orthodontics treatment as medical expenses. And if she later notices that she missed claiming a certain credit or deduction from a previous year, she can go back and amend her tax returns for any of the previous 10 calendar years.
Take a new perspective on retirement planning. While most doctors spend their late careers shoring up finances for a self-funded retirement, Connie’s salaried position includes the perk of membership in a defined benefit pension plan. This alone changes the whole scope of the couple’s retirement planning.
“Connie felt peer pressure among friends from medical school who are accumulating hundreds of thousands of dollars in savings inside their incorporated medical practices,” says Marc. “Once we projected her own financial outlook in retirement, with the deferred income of a pension, she saw how, in comparison, her financial situation was much more secure than she thought.”
As much as Connie would love her father to sell the family home in Calgary and head west, she should take solace that her monthly $1,500 contribution allows him to live in comfort. He’s made it clear she will inherit the house, but in the meantime, she should ensure he has a will and power of attorney1 documents, and can factor this into her own estate and retirement planning.
Living a full life is worth every penny
The financial planning process helped Connie and Javier understand their family situation for what it is: a life well lived, full of worthwhile memories, and ready to greet the future with two wonderful sons. Rather than dwell on their financial faux pas of the past, we helped this couple look ahead, discover new ways to manage money, and make the best of everything they’ve got.
Under the guidance of their MD Advisor, they were able to take control of their finances, shift priorities and be better prepared for their next adventures — whether planned or spontaneous!
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
1 In Canada, a power of attorney can be called a “continuing power of attorney,” “enduring power of attorney” or “protection mandate,” depending on the jurisdiction and the terms contained in the document. A power of attorney for personal care can be called a “representation agreement,” “personal directive,” “enduring power of attorney appointing a personal attorney,” “health care directive,” “advance health care directive” or “protection mandate,” depending on the jurisdiction.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.
