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Spring 2017


Preparing for the Financial After-Life

Gregory R. Zinser, CPA
Vice President, Anesthesia Business Consultants, Jackson, MI

Depending on how much fun you’re having in the OR each day, at some point, you may decide to “discontinue full time professional engagement.” Please note that I did not use the “R” word or the “W” word. With so many negative connotations, including declining physical and mental abilities and boredom, retirement, in the traditional sense of the word, is not something to look forward to, but rather, to be dreaded for most of us.

Regarding the “W” word, I would suggest that to call what you do “work,” it must meet certain criteria. You may currently depend to some degree on the income stream produced by your “job,” but if you would choose to spend your time engaged in a profession or activity even if you were independently wealthy and did not need the money, then it’s not work and it’s not a job. It is a calling, and you are among the lucky few who will want to continue doing it until you are no longer able. If there are other things you would prefer to be doing if you were independently wealthy and not dependent on the income stream, then it is important to take a closer look at your current situation and predict the future as best you can to determine when you will reach that point of financial independence. You won’t necessarily choose to stop working at that precise time, but knowing when you have the choice will likely affect your decisionmaking as life events occur, and your bucket list becomes longer and more important.

Your Personal Financial Projection

While financial planners use many tools to project life after income production, one approach I have found to be most helpful is a model designed to “solve for” any one of the primary variables, or more specifically, answer the following typical financial planning questions:

1. If fixed variables are:

  • Current level of assets
  • Life expectancy
  • Average annual return on investments
  • Level of essential expenses and non-recurring cash needs
  • Desired discretionary expense levels
  • Average annual inflation rate and estimated federal and state income tax rates

How long do I need to continue income-producing activities?

2. If fixed variables are:

  • Current level of assets
  • Life expectancy
  • End Date of Income-Producing Activities (EDIPA)
  • Level of essential expenses and non-recurring cash needs
  • Desired discretionary expense levels
  • Average annual inflation rate and estimated federal and state income tax rates

What average annual investment return is needed to cover all anticipated expenses between now and the end of life expectancy?

3. If fixed variables are:

  • Current level of assets
  • Life expectancy
  • EDIPA
  • Average annual return on investments
  • Level of essential expenses and non-recurring cash needs
  • Desired discretionary expense levels
  • Average annual inflation rate and estimated federal and state income tax rates

What is the date of full asset depletion?

4. If fixed variables are:

  • Current level of assets
  • Life expectancy
  • EDIPA
  • Average annual return on investments
  • Level of essential expenses and non-recurring cash needs
  • Average annual inflation rate and estimated federal and state income tax rates

What is the average level of discretionary funds available after EDIPA up to the end of life expectancy?

This model is a mathematical calculation using inputs you provide to show how things would turn out if all of the assumptions you made proved to be true. It is a departure from the traditional “Monte Carlo” risk assessment analysis that most financial planners will run for you unless you direct otherwise. So, while ideally this model should be built by someone with financial planning experience, you will need to describe it and request specifically that it be run either in lieu of or in addition to the traditional models.

The process starts with providing the following information:

  1. Current age
  2. Targeted EDIPA
  3. Estimated life expectancy
  4. After tax assets:
    • Current balance
    • Estimated annual additions (after tax savings over and above essential, discretionary and non-recurring expenses) between now and EDIPA
    • Estimated average annual investment return between now and EDIPA
  5. Pre-tax assets (401k/IRA)
    • Current balance
    • Estimated annual contributions between now and EDIPA
    • Estimated average annual investment return between now and EDIPA

The following information is then provided relating to the period between EDIPA and end of life expectancy:

1. Annual after-tax cash flow needs in today’s dollars (by year):

  • Essential living expenses. This would include mortgage debt, utilities, annual home maintenance items, food, insurance, medical care transportation-related expenses and all other things that you could not live without. They will change from year to year as mortgages get paid off, dependent education costs are incurred, etc. This is also the category where you would estimate cost of post-employment healthcare coverage and some form of nursing home care (or the cost of a long-term care policy) if you so choose.
  • Discretionary expenses. Discretionary expenses are non-essential things like travel, entertainment, gifts, donations, etc. This category is the source of funding for all of the fun things you are doing now and would like to continue doing to some degree when you discontinue full-time employment.
  • Non-recurring cash needs. Non-recurring expenses are major one-time expenditures such as major home maintenance expenditures, funding your daughter’s wedding, putting a new roof on the house, etc.

2. Estimated inflation rate

3. Estimated annual income (by year):

  • Part-time employment or consulting
  • Social Security

4. Estimated average annual investment return (net of all fees):

  • On after-tax funds
  • On pre-tax funds

5. Estimated federal and state income tax rates:

  • On Social Security income
  • On all other income and IRA withdrawals

With these assumptions, a mathematical model can be built that will solve for any one of the primary variables described above. The sample calculation in Exhibit 1 is solving for the level of annual discretionary, after-tax cash flow between the EDIPA and the end of life expectancy. In addition to those assumptions listed in the exhibit, it also assumes:

  • Current age is 57
  • EDIPA is age 70
  • Life expectancy is age 88
  • Expenses in all three of the major categories between now and the EDIPA are covered, with enough remaining to contribute $30,000 per year to your IRA during that 13-year period
  • Essential annual expenses of $70,000 (after tax) between EDIPA and end of life expectancy
  • A “terminal portfolio value” (i.e., amount remaining in the portfolio at end of life expectancy) of $1,000,000

While the only thing that is certain about any version of this model is that reality will never match your assumptions, knowing how things would turn out using your best estimates will prove to be a very useful tool for planning your developing an investment strategy necessary for you to reach your goals, or level of discretionary spending during your post-EDIPA years.

One of the most useful purposes of this model is to guide decisions about portfolio diversification both before and after EDIPA. In one sample of the model, every 0.5 percent increase in average return on investments changed the portfolio depletion date by three years. If you kept the portfolio depletion date the same, you could also solve for how much more after-tax discretionary income you would have each year (post EDIPA) with each 0.5 percent increase in the average investment return. Knowing that sensitivity in your own model can help you decide how much risk you need to take in the market to achieve your goals.

If you can diversify your portfolio in a manner that will result in a very low probability of average annual returns that are less than your investment return goal, you will also have a portfolio that minimizes the downside risk in the market to the greatest degree possible. This is just one example of how information provided by this model can influence your decisions regarding investments, major purchases and all types of discretionary spending. Also, when reality proves to be different than your assumptions, you will be able to change the applicable variables, and see exactly how it affects your results and what course changes you might need to make to keep things on track.

The thought process required to make these assumptions causes each of us to examine our beliefs and attitudes about lifestyle, future tax rates, longterm investment returns, future cost of healthcare, and many other difficult and very personal matters. There are no right or wrong answers; only personal comfort levels. Accordingly, this model has potential risk areas and also potential positive impact items that will vary with the individual.

Possible negative impact variables not covered in the model include:

  1. Major medical expenses above and beyond those covered by Medicare and that exceed amounts you budgeted for healthcare.
  2. Other non-discretionary expenses higher than budgeted.
  3. Unexpected large non-recurring costs related to house or family.
  4. Tax rates higher than assumed.
  5. Inflation higher than assumed.
  6. Investment returns lower than assumed.
  7. Sequence of investment returns could have a negative impact on long-term results (e.g., poor market returns in five years immediately following EDIPA affect income more than poor returns 20 years after EDIPA).
  8. Social Security payments reduced or eliminated by federal government.

Possible positive impact variables not covered in the model include:

  1. Investment returns higher than assumed.
  2. Tax or inflation rates lower than assumed.
  3. Post-EDIPA income higher than assumed.
  4. If there is equity in your home:
    • Reverse mortgage could increase cash flow.
    • Option of selling current home; purchasing less expensive home (either in current location or moving to another location with a lower cost of living); and adding some of the equity to available assets.
  5. Inheritance not included in assumptions.

With all of the negative things to worry about, it is understandable that the most conservative among us may never get to the point where we’re comfortable enough to stop working. On the other hand, we all know that when the end is near, no one ever said that they wish they would have worked longer. The death of loved ones, especially those who pass “before their time,” and other high-profile catastrophic events, remind us that life is short and unpredictable. At those times, many of us re-examine our path and our personal goals, and sometimes make changes in how we’re planning to spend the rest of our lives. The purpose of this model is only to assist in that thought process by quantifying the financial implications of various possible scenarios using certain assumptions.

It is said that there is a time to accumulate wealth and a time to stop and enjoy it. While the timing of that decision is a very personal one that has both financial and personal considerations, this article has been devoted to describing a financial planning tool that can help in achieving some degree of peace of mind when faced with what can sometimes seem like an overwhelming number of variables and uncertainties.

If the model and underlying assumptions are updated as circumstances change, it can be used as a basis for important decisions about spending levels, when to discontinue or curtail income-producing activities, and investment diversification strategies. Regardless of how you choose to act on the results, the process will provide a valuable frame of reference for many years to come.


Gregory R. Zinser, CPA Vice President at Anesthesia Business Consultants, has a broad range of experience in healthcare finance and administration. Mr. Zinser’s recent experience includes four years as CEO of one of the nation’s largest anesthesia billing and practice management companies, and CEO of the management company for one of the nation’s largest anesthesia groups. With experience in all facets of anesthesia practice management, Zinser adds strength and depth to an ABC management team that has become the industry standard in responsiveness and quality of resources. He is a licensed CPA with an undergraduate degree in accounting with honors from the Ohio State University. Mr. Zinser can be reached at Greg.Zinser@AnesthesiaLLC.com.