Save or Reduce Debt – What Should You Address First? By Whit Newton, CFP ®, a Northwestern Mutual Financial Advisor based in Raleigh, NC An admirable trait of physicians is their decisiveness and understanding of procedures. Physicians understand that there’s a right way and a wrong way to do something – depending on how you approach it. A common question I hear from physicians of all ages is, “Should I overpay my debt or save more.” No physician would ever recommend a procedure without diagnosing a patient. Likewise, the same is true for a good financial advisor. To answer the question, an advisor would need to know more information first. Perhaps the most important question would be what is the interest rate of the debt, and is it tax deductible? Secondly, what is the time frame for the money if you were to save/invest it, and what would be the expected return?
For example, recently a family physician client in their early 60s was looking towards a full life in retirement – a life that included a second home on the beach. He had sufficient cash and investments to buy the home with no debt – but he wondered if that was the right move. We ran the numbers and discovered that, with today’s low interest rates and tax deductibility of a mortgage, he would be better off leveraging a short duration mortgage so his investment dollars could continue to grow in the market. At the same time, you also have to consider how it makes you feel. I often tell clients, “I can mathematically prove to you it is better off to invest and not overpay the debt. However, if you wake up every day and are not going to be happy until the debt is gone, you should pay it off.”
Article prepared by Whit Newton with the cooperation of Northwestern Mutual. Whit Newton is a Financial Advisor with Northwestern Mutual based in Raleigh, NC. Newton is a licensed insurance agent of NM. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI, and its subsidiaries. Northwestern Mutual Investment Services, LLC (NMIS), (securities) subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC. Whit is a Representative of Northwestern Mutual Wealth Management Company®, Milwaukee, WI (fiduciary and fee-based financial planning services), a subsidiary of NM and federal savings bank. Please remember that all investments carry some level of risk including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. No investment strategy can guarantee a profit or protect against a loss. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
MACRA’s final rule also redefined the program’s exclusion threshold. Physicians or practices serving less than 100 Medicare patients or billing under $30,000 per year are not required to participate in the MIPS or APM pathway. However, they still may participate in either pathway to capture additional incentives. Finally, CMS also confirmed that ‘virtual groups’ will be available to allow physicians in small practices to aggregate their data for reporting purposes. However, they will not be operational in 2017. Overall when compared to CMS’s original MACRA draft published last April, the agency clearly moved to make the new program easier to transition to for
Autumn 2016
more practices. This is especially true for small and rural practices, something that the AAFP was extremely vocal about throughout the summer. Looking Ahead The AAFP and NCAFP continue to analyze the 2,400page final regulation. NCAFP members should be on the lookout for additional insight on MACRA in the months ahead. The AAFP has committed substantial time and resources to educate members about the new program. An excellent resource they have developed is called ‘MACRA Ready’ at www.aafp.org/macraready. Members are encouraged to access it for the latest updates.
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