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Financial advice helped this client recover from one financial mistake, and avoid another

case study of Dr. E

Financial mistakes are not all the same. If you’re lucky, you can make a bad decision and then move on. Other mistakes can be very difficult—or even impossible—to recover from.

Dr. E counts himself among the lucky ones. After overcoming a financial setback in his early 40s, he nearly made a colossal mistake a decade later that could still be affecting him.

Dr. E’s Profile

Age: 56

Career stage: Retired

Assets:  $4.1 million

Disability income:  $11,000 per month benefit, adjusted to inflation

Goals: Keep on budget until age 65 (when his disability income will end), manage his retirement income wisely, enjoy a comfortable retirement, support his grandchildren’s education and leave a legacy

The 56-year-old retired orthopedic surgeon, who still lives in the small B.C. town he grew up in, comes from a family of physicians. “My dad, uncle and older brother were all doctors and clients of MD,” says Dr. E. “So when I graduated from medical school, I became an MD client too.”

Between residency training and age 40, Dr. E’s life was a textbook series of events that affected his finances: he paid off his medical school debt, got married, bought a house, had two children and slowly built up his assets—all under the guidance of his financial advisor.

By 1999—at the height of the “tech bubble”—the value of Dr. E’s portfolio had reached $1.2 million.

Tech trading brings first financial setback

Looking back at 1999–2000, Dr. E says that the technology frenzy was so pervasive, it seemed impossible not to participate. “Before that, I had no interest in the stock market,” he explains. “But there was an overwhelming feeling at the time that if you didn’t get on the ‘gravy train,’ you’d end up missing one of the greatest financial opportunities.”

Without consulting his MD Advisor (we’ll call her Patricia), Dr. E moved $300,000 to his direct trading account at MD. He bought 10 tech stocks, including Nortel and JDS Uniphase. Within six months to a year, he had lost 90% of his investments. “I was delusional in thinking that I was any sort of an expert,” he says.

Crestfallen and worried, Dr. E turned to Patricia to see what could be done. In addition to reviewing each of the stocks, she consulted with other MD experts to determine which holdings could be salvaged and which ones should be sold at a loss.

“This was a glitch in my history,” he says. “I’d gotten myself into this mess and realized shortly afterwards that I didn’t have the time, interest or knowledge to be handling this.”

Never missed a day of work

Despite losing nearly 20% of his money, Dr. E recovered from the tech investment fiasco and by 2010 had succeeded in building his assets to $3.2 million. Though it seemed as though his finances were on track, he felt that he needed to get a handle on his long list of expenses.

When the renewal for his disability insurance arrived in the mail that year, Dr. E figured this was one expense that he could terminate or at least reduce. “I hadn’t missed a day of work in 27 years,” he recalls. “The disability insurance premium had increased again, and was now at $5,000 a year.”

Patricia strongly advised against reducing or terminating his coverage. “Dr. E was still young and I told him that he was more likely to become disabled than pass away at that age,” she says. “If something happened to him, it was important to make sure he had a secure financial future. And any disability benefit payments received would be tax free.”

It turned out to be one of the best financial decisions he would ever make.

Within one year of paying that disability insurance premium, Dr. E became disabled and had to stop working. He has been retired for more than four years and it is unlikely that he will return to practising medicine again.

The original $10,000 per month disability benefit that he received has grown to $11,000, since it’s adjusted to inflation. Though the income is a lot less than his take-home pay as a surgeon, Dr. E says it’s enough to live on. The key is to stay on budget and focus on controlling what he can.

In consultation with Dr. E’s accountant, Patricia also advised her client to withdraw dividends annually from his medical corporation while collecting the tax-free disability payments. Dr. E and his spouse can withdraw $40,000 a year in dividends without incurring much income tax, compared with paying tax at a rate of 30% or more after age 65. Using this strategy is expected to save them more than $250,000 in taxes over 10 years.

As a lifelong client, Dr. E says MD has provided him with a sense of financial security and peace of mind. Moreover, his advisors really understand how much education, involvement and consultation that each family member needs and wants. “If you’re like my mother, who needs to keep things simple, they do that,” he says. “And they’ve enlightened me as much as I want to be enlightened.”

As for his investments, Dr. E says he no longer follows the stock market. “I feel very comfortable that I have the right people looking after my money.”

The information contained in this document is not intended to offer 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. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The MD ExO® service provides financial products and guidance to clients, delivered through the MD Group of Companies (MD Financial Management Inc., MD Management Limited, MD Private Trust Company, MD Life Insurance Company and MD Insurance Agency Limited). For a detailed list of these companies, visit MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. MD Financial Management Inc. is owned by the Canadian Medical Association.