An open letter to all TIs
Hi, my name is Ti. I am 25 years old and about to start my first house officer year with the DHB. I planned every step of my way through med school and now I need to plan my working career.
I have met with a professional financial planner who has shown me that between now and me turning 65, I have the potential to earn a net income of over $4 million – and this is conservative, as it assumes I remain on my starting salary throughout. This is a large amount of income, but I am likely to earn a lot more, depending on my chosen specialty and career path.
While employed by the DHB it will match my contribution of 6% with another 6%. This is a generous scheme.
While I can choose to contribute up to 10% to KiwiSaver (the DHB would still contribute 6%) I will instead use an investment portfolio for my extra savings, so these funds remain flexible for me (I do like to change my mind!). At 6% contributions matched by the DHB, by time I retire at 65 my KiwiSaver will be worth over $2.0m.
I plan to use my KiwiSaver to help buy my first home, but this won’t be until I have finished my specialty training so at least 6 years from now. I have chosen a KiwiSaver that provides me with access to my own personal financial adviser as they will help ensure I change my allocation as I get nearer to my home purchase.
Some DHB’s will only contribute 3% to KiwiSaver and then another 3% to one of the 3 Super schemes they approve. One Super scheme would allow me to withdraw my funds each time I resigned from a DHB which might be helpful if I had a mortgage, as then I could repay lump sums from this. While my mortgage would be repaid faster the downside is that I will have less in retirement. Another Super scheme will allow me to withdraw funds from age 55. I have talked to senior docs who say by that age you are focused on retirement and unlikely to want to withdraw funds, unless you are eyeing early retirement.
I always thought my house would be my biggest investment, but my adviser reminds me that my (minimum of) $4m of future income is my most important asset. I wouldn’t consider not insuring my house or car, and so I have also chosen to insure my income. I’m young and healthy now and I love to travel off the beaten
track as I enjoy tramping and skiing – and I am well aware that at anytime I could be injured for a decent period of time. While ACC will cover 80% of my income if I have an accident (up to a limit of $107,000 p.a. though!) if I was sick for a prolonged period of time (or from a condition I couldn’t recover from) then my income will be gone. How would I repay a mortgage?
How would I take care of my family? I wouldn’t be able to contribute to KiwiSaver, which means my employer wouldn’t contribute either – a double whammy!
Trauma and income insurance cover is there to provide me with choices at a really difficult time.
Life insurance may be important for the loved ones I leave behind, but at this stage I have chosen only a small amount of life insurance for final expenses (repaying the last of my credit card debt and cost of funeral). I will review this when I get married, have children or take on a mortgage.
Trauma cover and income protection will provide me with options and hopefully dignity, in the event of a serious illness. I see this as vital to protect my future.
I have chosen level premiums as opposed to premiums that will increase each year as I get older. Its a little more costly to begin with but there is a significant saving over time.
My financial planner tells me it is important to make a will and appoint an enduring power of attorney to look after my affairs should I become incapacitated. These are pivotal documents to ensure that I don’t become a problem for my family and friends. To complete both a will and power of attorney will cost around $500 with a lawyer – it will possibly cost my loved ones thousands without!
So my plan to commence employment is in place:
- KiwiSaver/superannuation house purchase on track
- I know where I am heading financially
- Personal risk protection and
- Will and power of attorney are all in place.
But you won’t find me resting on my laurels. I know I will need to monitor, measure and review my position regularly and ensure my plan evolves with me and my changing needs. My financial planner will be there to assist me with decisions as I get busier and my time even more pressured.
This is a strange concept to consider at the start of my career. However, I want to be in control of my future and have choices. Retirement savings beyond KiwiSaver contributions are likely to be required. If I save between $100- $200 a fortnight from when I start earning, I am likely to be in a far better position than, say, my professor who is 57 and now (reluctantly) saving $5,000 per fortnight to meet her retirement targets.