From Uncertainty

to Confidence
The Transition to Financial
Independence

A Special White Paper for Physicians

By James E. Wilson, CFP®

CO N T E N T S

PAGE

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1 INTRODUCTION
WHITE PAPER FOR PHYSICIANS
THE CHALLENGE . . . . . . . . . . . . . . . . . . . . . . . . 1 From Uncertainty to Confidence – The Transition to
Financial Independence
INVESTMENT TRUTHS . . . . . . . . . . . . . . . . . . . . 4
THE CHALLENGE
THE RIGHT MEASURE . . . . . . . . . . . . . . . . . . . . 7 Challenges Physicians face in planning for retirement

THE SET-UP TO RETIREMENT . . . . . . . . . . . . . 10 INVESTMENT TRUTHS

Science and Saving
THE MOST IMPORTANT . . . . . . . . . . . . . . . . . . 11
ELEMENTS THE RIGHT MEASURE
How much risk is “enough” to reach your financial
independence goal?
ABOUT US . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
THE SET-UP TO RETIREMENT
ABOUT WEALTH RX® . . . . . . . . . . . . . . . . . . . . 13 The “setup” period needed before the first phase of
retirement commences

THE MOST IMPORTANT ELEMENTS

Here are 5 final keys to retirement planning and financial
decision making.

From Uncertainty to Confidence – The Transition to Financial Independence

By James E. Wilson, CFP®
©Copyright 2008 J.E. Wilson Advisors, LLC. All rights reserved.

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accuracy or completeness of such information or for loss or damage caused by any use thereof.

2431 Devine Street, Columbia, SC 29205 w Phone: (803) 799-9203 w Fax (803) 254-4474
www.jewilson.com
INTRODUCTION
THE FINANCIAL BENEFITS OF PRACTICING MEDICINE HAVE DIMINISHED SHARPLY
OVER THE PAST DECADE. Physicians in their 40’s, 50’s and 60’s are facing
unprecedented challenges to achieving long term financial independence.
As retirement moves closer, the margin of error becomes smaller and smaller.

Today, many physicians are far less confident than in previous times about being able
to maintain their lifestyles throughout retirement. Our objective throughout this paper
is to address these very real risks unique to physicians and how they can be solved.

THE CHALLENGE
TRANSITIONING FROM THE RETIREMENT MODEL OF THE PAST TO A FRAMEWORK
KEYED OFF OF FINANCIAL INDEPENDENCE WHERE WORK IS OPTIONAL –MENTALLY,
PROFESSIONALLY AND PERSONALLY REQUIRES DEFT TIMING AND ACUMEN. Today,
many physicians are finding it necessary to work to a later age than was typically the
case even a decade ago. The combination of longer life expectancy and a more
mobile retirement create unique challenges.

More complicated family relationships (support for aging
parents or problematic children) and professional,
business or investment mistakes along the way all add up
to additional pitfalls. Many physicians retiring today in
their mid 60’s will live beyond age 90. Financially
speaking, planning for a 25-35 year retirement is
challenging.
Over the past decade, many physicians have seen their
personal incomes decline by significant percentages.
Cardiologists, gastroenterologists, anesthesiologists and
others have been particularly hard hit. A physician who
has enjoyed a $500k/per year income for many years
generally finds it very difficult to adjust his lifestyle enough
to accommodate a new income of $300k /per year or so.
Of course, this leaves less to save which impacts the
future. Most physicians have historically done a good job
of saving within their tax qualified retirement plans but are
not as disciplined in saving/investing outside these plans.
In most cases, the capital accumulated within the
retirement plans will not provide a sufficient income
stream for the 25-35 years of retirement that may be
needed. Physicians as a group are skilled at working and
earning income. Transitioning to a period of not working
and not earning income (but rather withdrawing) can
prove daunting.
It is our experience (25+ years working primarily with
physicians nearing retirement) that most physicians over
age 55 are entrepreneurial and independent. These are
not qualities particularly revered in the large corporate
medical practices of today. The rapidly changing
professional landscape has led to an increasing likelihood
of serious and long lasting mistakes. Changing practices

FROM U NCERTAI NT Y TO CONFIDENCE • THE TRANSITION TO FINANCIAL INDEPENDENCE

1
late in a career can often be problematic. Divorce late in a
career can have an equally troubling outcome but both of
these are trends that we see within the physician age
group nearing retirement. Avoiding professional, personal
and investment mistakes, particularly in the last 10 years
of a career, is critical to financial independence.
From a financial planning perspective, the transition
to full retirement is a time where clear and rational
strategies should prevail. We tell our clients that
financial planning is contingency planning and the
primary contingency is whether we will be alive for days
or decades. Since we don’t possess this particular
knowledge, we must plan on the longer timeframe which
for most of our planning purposes is age 95 as an
assumed life expectancy. It is interesting to note that
when we first started using age 95 in our planning
analysis many clients scoffed at the notion and laughed.
Today, while some clients don’t really think this is likely,
they understand that it is a possibility.
The primary question that we seek to answer for our
retirement age physicians concerns the level of
confidence in retirement. Specifically, we explore the
degree of confidence that their existing lifestyle can be
sustained throughout a 25 - 35 year timeframe. The
major challenge is maintaining purchasing power since
every year, everything you buy costs more. We all know
this intuitively but it is difficult to grasp. In 1980 a First
Class stamp cost 15 cents. Today, a First Class stamp costs
42 cents – almost a three-fold increase within a
timeframe similar to the retirement period we are
planning. This has occurred with an average inflation rate
of about 3% per year. Some physicians are employees of
hospitals or other large corporate entities. In this instance,
which is increasingly likely in many communities, the
physician is not much different that an upper level
management employee of a typical American corporation.
Unfortunately, the normal 401(k) (or even the 401(k)
with a 457 or 403(b) plan will likely prove insufficient to
provide the capital pool needed to fund a 30 year
retirement timeframe. The necessity of outside retirement
plan savings and investments is particularly important for
physicians in corporate or hospital owned practices. We
stress to all of our physicians that this outside retirement
plan savings could spell the difference between financial
independence and something less.
OPENNESS TO ADVICE
Let’s face it–some physicians can have difficulty
accepting advice in the financial realm (as well as other
areas). We have turned down many potential clients over
the years based on our assessment of their willingness to
accept advice.
FROM U NCERTAI NT Y TO CONFIDENCE • THE
2
We are not talking about mindless acceptance of anything
we happen to say, rather a genuine willingness and
openness to experienced and educated counsel.
Advisability may indeed prove to be the most
important “ability” for many physicians and perhaps
the most difficult to develop. This is one reason we
have typically seen new physician clients in their mid 50’s
or even later. They have often been bouncing around
from one place to the next looking for the perfect advisor
or most popular advice or strategy, etc…until it is almost
too late before they realize a different approach may be
warranted.
As the saying goes “you can only help those who want to
be helped” and we think this adage has equal application
in the financial and healthcare fields. Physicians see this
all too often in patients and it is an obstacle to progress
towards good health just as it is an encumbrance towards
financial independence. Luckily, some of us who are
“hard wired” to be poor receptors of advice are fortunate
enough to have spouses who are not quite as difficult.
Oftentimes they can take the lead in receiving and acting
upon advice even though we may acquiesce with some
reluctance.
In addition to being open to advice, being “ready” for
advice operates along the same plane. When we are
referred younger physicians we oftentimes end up finding
that they simply aren’t ready for advice. When most of us
are in our 30’s or 40’s we think that we are “bulletproof”
to almost everything.
We have seen young physicians (for our purposes here
we would consider those under mid 40’s as young) who
are absolutely convinced that whatever they are currently
doing is working and preparing them for their future. We
TRANSITION TO FINANCIAL INDEPENDENCE
have had young physicians say that they invest only in
real estate because it always goes up. Others chase last
year’s best mutual fund seeking the ever elusive above
market gain. These approaches are dangerous at least
and entirely wrong in most cases. Only after the approach
is shown to be detrimental will these younger docs
consider listening to and acting upon advice. Usually this
is simply a matter of time. It is like a cardiologist seeing a
400-pound patient that is a chain smoker. Until the
patient is actually ready to acknowledge some
responsibility and amend his ways, whatever the
physician does will likely be in vain.
We have come to the conclusion in our firm that age is
usually a major determinant of our success with a client.
There are exceptions including two-physician couples that
tend to start serious planning much earlier and generally
take advice well. These exceptions, however, do not
change the essence of the “age/ advice” conundrum.
While on this topic, we should have an understanding of
advice vs. sales. The financial services industry has likely
contributed to this age / advice problem by posturing so
many people and firms as advisors when they are
actually salespeople. We know that many physicians
have been burned by the “wolf in sheep’s clothing” type
“advisor” and that makes them all the more suspicious of
true advisors . We often tell our new clients that
(_______) fill in the blank – brokerage firm/ insurance
company/ bank/etc. has no clients - they only have
customers. A customer is one that you owe a duty not to
defraud but a client is one that you have a duty to
protect. Those are hugely different relationships but the
financial services firms have done a masterful job of
obfuscating this truth through marketing messages that
use the word ”client” over and over. Want a “quickie” test
to determine if someone is or isn’t acting in a fiduciary
(client) capacity? Ask them to acknowledge in writing
their fiduciary duty to you. If they will – congratulations,
you likely have yourself an advisor. In most cases they
won’t which allows you to reach the opposite conclusion.
This is an unfortunate, yet inescapable conclusion when
dealing with the financial services industry.
LOCKED IN
As stated earlier, it is altogether too easy to become
“locked in” to one approach or idea to your own
detriment. We can recall seeing clients in the internet
trading craze during the late 1990’s where they insisted
that “it was different” this time around and that the “new
economy” would obviate all the sound financial and
investment principles that we followed. We even lost a
few clients during this timeframe over our seemingly out
FROM U NCERTAI NT Y TO CONFIDENCE • THE
3
of touch approach and discipline. Well, as we now know,
“this time” wasn’t different after all and most of the day
trading speculators were relegated to the junk heap of
the investment world for buying into a “philosophy“ that
had little or no financial underpinnings.
Toward the latter days of the 1990’s we met with a
prospective client couple interested in retiring early. After
reviewing their current resources, we noticed that
perhaps two-thirds of their financial worth was in a single
stock that had appreciated rapidly over the two-three
years prior. We asked them how much of this stock they
were willing to dispose of in order to free up funds for
diversification as they moved closer to retirement. They
answered in unison “none” and whipped out a brokerage
firm “research” report that proffered that this stock still
had substantial upside. We ended up not taking this
couple as a client because they clearly believed in a
strategy that we thought would prove detrimental to their
wealth. Less than 2 months after we met with them the
stock fell about 50% and now several years later it is still
not at the inflated share price they were “locked in” on
when we met. In essence this couple was not ready to
take advice and anything we might have done would
have paled in comparison to the harm they were inflicting
upon themselves. You can sometimes get rich
undiversified but you can’t stay rich undiversified.
Lack of diversification – the narrowing of a portfolio to a
single idea – can be financially fatal.
BEGINNING THE TRANSITION
Now that we have outlined some of the personal and
financial challenges, let’s turn to how these might be
solved. We have shown why a very different, very long
term oriented financial posture is needed. This requires
both openness to advice and self-discipline. As we will
cover in the next section on Investment Truths, self
inflicted “bad behavior” by physician investors may be the
single largest obstacle standing between where you are
now and financial independence.
As with all large problems, we only solve them by first
acknowledging the dilemmas and then trying to
understand the choices we have along with their
consequences. We can always “do nothing” and hope for
a better tomorrow. Alternatively, we should learn all we
can about measuring what we will need by way of
financial resources and how these should be managed. O
TRANSITION TO FINANCIAL INDEPENDENCE
I N V E ST M E N T T R U T H S – SC I E N C E & S AV I N G S
TO BRIDGE THE GAP BETWEEN OUR PRESENT REALITY AND DESIRED FUTURE, WE
NEED TO HAVE SOME WORKING KNOWLEDGE of the many forces working for us or
against us.
While Wall Street is indeed a physical place, in lower
Manhattan, the term really applies to a marketing
philosophy aimed at creating needs and solving these via
packaged or structured products. Regardless of what
stockbrokers are called, (Financial Consultants,
Investment Managers, etc…) they are really just
salespeople peddling products. These products have
varying degrees of remuneration to the broker ranging
from a few dollars to several percentage points. The
entirety of the Wall Street edifice – brokers, fund
managers, stock analysts and investment bankers – are all
presented as experts having unique knowledge. This, of
course, is largely untrue but this message is foisted upon
the investing public in heaping mounds, day after day.
Don’t be fooled by the “fee based” accounts that brokers
have designed to “eliminate” their built in conflicts of
interest. These “fee based” accounts essentially lock you in
to a high enough overall commission/fee to virtually
guarantee below market level performance. With a quarter
century of advising physician clients, we have seen just
about everything in terms of investment products and
structures. We often see new clients who come here
thinking that they have adequate diversification. They may
have their retirement accounts in a combination of
individual stocks (selected by the stock-picking brokerage
firms) and mutual funds that in theory at least have
differing objectives. What we often find once we analyze
the various holdings is a serious lack of real diversification
except by way of product name. Many if not most of the
stocks typically fall into the “large growth“ category and
the same usually applies for the mutual funds despite
names and stated objectives that may suggest otherwise.
As people of science, it seems reasonable to expect
physicians might indeed follow the science of the markets.
Starting with the thesis by French graduate student, Louis
Bachelier in 1900, there has been a steady flow of
scientific literature dealing with modern markets.
Bachelier’s thesis, “Theory of Speculation”, postulated that
no amount of information about past performance
enabled traders to predict future ones. In the 1960’s
Eugene Fama at the University of Chicago coined the term,
FROM U NCERTAI NT Y TO CONFIDENCE • THE
4
“efficient market hypothesis”. Using U.S. market data, Fama
found that there was very little useful information about
future stock prices in charts or graphs. The market
reasonably well reflects the fair value.
Traditional investment managers who strive to “out-
select” the market by exploiting perceived pricing
mistakes are in essence trying to forecast the future.
For the large majority, this exercise proves futile with
their customers or clients bearing the expense. When
you take your money to the brokerage firm or bank, this is
precisely what they are giving you in most cases. They all
proffer that they have “selected” the best managers or
mutual fund. It is mostly meaningless. The “timing and
selection” mindset is perhaps the primary fallacy that must
be “unlearned” in order to accomplish your financial goals.
In many respects the investment markets come down to
what you believe. You either believe in the ability to select
superior investments or you don’t. Additionally, you
believe in the ability to time markets or you don’t. The
Wall Street marketing message revolves around believing
that indeed you can out select and time markets. A half-
century of market research refutes this but human nature
and the emotions of fear and greed keep this notion alive.
The financial markets provide differing levels of return for
differing levels of risk. The return on a five year bond is
usually lower than the return on a stock investment
because the risk is lower on the bond. Stock market
returns are dependent upon this higher level of risk (and
commensurate return over the long run); the dividend and
earnings growth; and what is sometimes called
speculative risk. The speculative risk applies to the
multiple of earning that the stock sells for in the market.
Historically most stocks have sold for 16-18 times their
earnings. Stocks that sell for lower earnings multiples are
sometimes referred to as value stocks while those with
higher than average earnings multiples are called growth
stocks. Over time the higher investor returns are derived
from the value side of the market because the risk is
higher and you purchased them at a lower price.
TRANSITION TO FINANCIAL INDEPENDENCE
There are a number of studies that show how poorly
investors fare, on a real return basis, versus the overall
market. Studies by research firms such as Dalbar, Inc.
highlight how difficult it is for investors to mimic the
“average” returns of the overall market. The Dalbar, Inc.
studies report a great disparity between investor returns
and market returns. In some time periods studied, there
has been as much as 8% per year spread between what
the markets provide and what investors actually collect.
The difference is attributable to what might be termed
“bad behavior.” A large part of what we provide as
an impartial advisor is discipline to stay the course.
When we are successful in implanting this discipline on
behalf of our clients the value can be substantial. In many
respects, while brokers tend to act as an accelerator on the
client’s emotions, we often function as the “brake” – to
keep them from reacting. Examples of bad behavior are:
under diversification; over diversification; panic; euphoria;
leverage; speculation; near term focus and many others.
Source: “Quantitative Analysis of Investor Behavior”, Dalbar, Inc., 2008
Our role is to help clients avoid financially destructive
behavior so that they can receive what the markets
provide. Even more damaging than sheer under-
performance is the level of expenses associated with
typical broker driven accounts. Many mutual funds
dramatically understate their true total cost due to trading
expenses associated with portfolio turnover. Buying and
selling is a necessary component of actively managed
funds. In general, they dig a deeper hole for themselves
and their investors via the trading expenses.
SIMPLICITY AND PURPOSE
Almost as damaging as being sold poor performing/
poorly diversified investment products is the ad hoc
manner in which many investors put together portfolio
strategies. What may have once been a suitable
FROM U NCERTAI NT Y TO CONFIDENCE
investment at a certain stage in life may not be at a later
stage. We have seen new physician clients show up with
literally dozens of different brokerage and mutual fund
accounts all with a purpose at one point in time but
lacking real direction in the present. One commonality of
our clients as they reach retirement is their desire to
simplify and consolidate. It is very difficult to enjoy
financial peace of mind when you have no coherent
strategy and investments strewn all across the landscape.
One of the reasons that we advise clients to whittle down
the number of open accounts is so the level of “financial
noise” is decreased. All of these statements with their
enclosures, comparisons, and suggestions do little more
than clog up the thinking process. We always want to
make strategic financial decisions on purpose and not
by reaction. For a coherent long-term strategy to prevail,
the day-to-day, month-to-month and quarter-to-quarter
“financial noise” must be reduced to a minimum. Investing
for the long term should mean
just that. There is little reason to
adjust long-term investment
positions every month or quarter.
Shorter term investing is really
not investing at all but rather
speculation. Sometimes clients
ask if they should continue to
invest given the “current
environment.” We really don’t
know exactly what this means
but the markets are always
uncertain and there are always
problems. Over time the
problems are solved regardless of
how serious they appear in the
moment. For retirement age individuals born today the
overall stock market has increased in value one hundred
times during their lifetimes. That is the message we need
to focus on rather than the problems of today. Want more?
Suppose your affluent grandparents gave you $1Million
upon your birth in 1925. Say your parents decided to take
the safe route and invest entirely in U.S. Treasury Bills. Your
income today would be about $48,000/year versus the
original $33,000 in 1926. The problem is inflation. The $1
in interest income today purchases less than one-tenth of
what was the case in 1925.
Alternatively, let’s say your folks took another route and
invested in large U.S. stocks comprising the S&P 500
Index. The $1Million would be more than $100Million –
even if you spent all of the dividends along the way. Your
dividend income alone would be over $2Million per year!
From the perspective of a physician nearing retirement, it
is crucial to understand this distinction between investing
for current income (yield) versus total return.
• THE TRANSITION TO FINANCIAL INDEPENDENCE
5
DIFFERENT BUCKETS
Our experience with physicians tells us that in general,
physicians do a good job of saving in their retirement
plan accounts but are not as apt to save elsewhere. This
is typically the starting point for discussion about the
wisdom of having more than a single account or single
source to rely upon for retirement resources. Changing
habits and re-directing current income to another
savings/ investment “bucket” can be extremely difficult.
We have found that it is best to simply initiate the regular
investment program in relatively small amounts and then
move those savings increments higher once the habit is
established.
As we indicated earlier in this paper, even saving the
maximum allowable under a typical defined
contribution/401(k) retirement plan will not likely provide
Source: US bills and inflation data©, Stock, Bonds, Bills, and Inflation YearbookTM, Ibbotson Associates, Chicago. The S&P data are provided by
Standard & Poor’s Index Services Group
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sufficient resources for retirement. The willingness to
establish outside retirement plan investments/ savings
may hold the key to a pleasant or not so pleasant
retirement. Also, in our increasingly hungry taxation
framework it is not implausible that at some point
retirement plan withdrawals beyond a set amount may
trigger an additional tax. Having investment assets outside
the retirement plan will provide much needed flexibility.
Okay – we now understand the problems (too little
savings outside retirement plans, advisability, Wall Street
marketing plans) and some of what we need to do in
order to combat these concerns (save more outside, seek
advice, avoid our own bad behavior, turn down the Wall
Street noise). Assuming we are still on board, the next
step in the solution protocol is to determine how much
we will need to sustain our lifestyle for 25-35 years in
retirement. O
• THE TRANSITION TO FINANCIAL INDEPENDENCE
6
TH E R IGHT M EASU R E – HOW M UCH I S ENOUGH
WE ADVISE OUR CLIENTS THAT YOU TAKE RISKS IN PORTFOLIOS BECAUSE YOU NEED
THE RETURN TO SOLVE THE RETIREMENT INDEPENDENCE EQUATION. We only want
to take the “right measure” of risk to accomplish the job, not more than enough.

By “right measure”, we refer to the point when based on In this example, you have failed to recognize (until it was
current resources and additional savings, the retirement too late) that you must engineer withdrawals to an
income equation will be solved. This concept is totally amount that is sustainable across multi year timeframes
foreign to most of our clients until we walk them through and differing market circumstances. There have been
the thought process. More often than not they arrive here several academic studies that address this topic and
saying that their goal is to “maximize their investment conclude that withdrawal rates of 4-6% per year are
return” a concept that is both illusive and potentially probably the sustainable withdrawal rates for normal
damaging to their overall objective. We usually utilize the portfolios (portfolios with 60-80% equities).
dual concepts know as Monte Carlo simulation and
Sustainable Withdrawal to assist in calculating the A physician who retires in his mid 60’s with a $350,000
probability of “success” in funding a particular financial per year pre-retirement income will likely need $250,000
independence equation. These take into account a wide -$350,000 per year on average in retirement over a 25 -
range of possible scenarios, which in essence make 35 year timeframe (adjusted for inflation). Our experience
uncertainty part of the forecast. The goal is to derive a tells us that assuming good health of both the physician
level of return/ risk needed to obtain a reasonably high and spouse (if applicable), the retirement income need
probability of success (perhaps 80-90%) with all the will likely mimic or perhaps exceed the pre-retirement
inflation, savings, and life expectancy variables included. spending for a period of several years and then decline.
Therefore, without consideration of Social Security or
This concept of “Sustainable Withdrawal” provides us with other pension type income sources, the typical
a broad framework for looking at the sufficiency of a physician likely will need investments somewhere in
client’s overall pool of assets reflected as a regular the range of $5-7 million in current dollar terms to
withdrawal amount. The key is to consider what achieve financial independence.
withdrawal rate is sustainable across both good times
and bad times. At first this seems to be another difficult
leap for many clients to understand. A historic example
might prove helpful. Let’s assume that you retired in 1970
with a $1million investment portfolio and desired
$80,000 per year of income from that portfolio in
retirement. The investments are structured such that an
average return of 8% per year is projected. You expect to
withdraw this average return each and every year and
then leave the untouched principal to your heirs at death.
You start taking withdrawals without much concern for
principal erosion. 1970 is a barely positive year while
1971 and 1972 are double-digit positive return years. So
far so good…right? Well, the bad luck scenario starts in
1973 when the S&P 500 declines by about 15% and 1974
is even worse with almost a 27% decline. So, where are
we after the first 5 years? Well, the average return has
been about -5% per year and all the while you have
been withdrawing 8% per year. You now have less than
one-half of the portfolio value that you started with 5
years prior, all attributable to “bad luck”.

FROM U NCERTAI NT Y TO CONFIDENCE • THE TRANSITION TO FINANCIAL INDEPENDENCE

7
I suspect a distinct minority of physicians on the earlier
end of the age spectrum we have been addressing (50’s
and 60’s) are on track to accumulate sums close to what
may be needed. The success rates tend to rise as the
ages get older so that a small majority of those in their
60’s might be nearing the desired target. My impressions
are that these success rates will decline sharply over
the coming years as many physicians at the precipice
of the retirement planning age are woefully
unprepared. Absent sizeable inheritances or winning the
lottery, many of these physicians will simply not have a
retirement that matches their mental construct.
PLANNING VERSUS REACTING
The reasons that physicians and many other high-income
individuals have difficulty staying on tract can be summed
up in a single word… reacting. The over-whelming
majority of new clients that we have seen over the years
come in with a virtual cornucopia of investment, real
estate and personal assets that make little or no sense
when viewed as a whole. For our purposes here let’s
agree that we have both reactive and rational brain
components. Our reactive brain does not fully utilize our
intellectual capacities, but instead resorts to stimulus and
often contradicts the rational side of the brain. Perhaps it
is the long training of physicians, perhaps something
random, but we tend to see overly developed reactive
impulses in some physicians that can do serious harm to
their longer terms plans as a result. Our approach is to
create a long term planning framework and make
dynamic shifts along the way as circumstances change
but avoid reacting. As we tell our clients- you achieve and
maintain financial independence by action…not reaction.
We have had the opportunity to speak to groups of
graduating medical students and even at that early stage
it is apparent that certain reactive tendencies exist. Armed
with bits and pieces of disparate information from friends
and classmates juxtaposed against very little free time
leads many of these individuals to make poor choices.
This scenario will often be repeated time after time
throughout their careers since the framework was
established at such an impressionable time. Oftentimes
when we see new physician clients in their 50’s we have
to undo and revamp this decision making framework to
more closely fit their particular objectives. For some this
can be a very challenging ordeal as they try to break long-
standing habits and focus instead on creating a decision
making system that is rational instead of reactive.
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8
EBB AND FLOWS
When we first started our firm more than 25 years ago,
income tax rates on unearned income (income from
investments) was as high as 76%. In those early years
many clients were over-focused on reducing income taxes
to the point that many unproductive investment schemes
and practices littered the landscape. For the past 15 years
or so income tax rates have been lower and more stable
although the tax code has become increasingly complex.
Top tax rates are about half of what they were previously
although many deductions are now limited or completely
phased out for upper income investors. The lesson here is
that it is generally not wise to make long term financial
decisions based on a particular tax structure that may not
exist several years into the future.
We already mentioned the issues surrounding becoming
“locked in” to one particular type of investment or
strategy to the absolute exclusion of anything else.
Somewhat related to this is over-complicating your
financial affairs unnecessarily. An example may help here.
In South Carolina and most of the states where we have
clients probate is not an expensive venture. All this
notwithstanding, the grand majority of the estate
planning documents we see contain Revocable Trusts
(Intervivos Trusts) even when most of the clients assets
are not now nor will they ever reside with the trusts. We
have asked several estate tax lawyers about this and have
consistently been told that they agree that Revocable
Trusts may not be needed but that clients expect them
and think they (the estate lawyer) aren’t “cutting edge” if
they don’t use them. This really does not constitute a
reason for creating a structure that has no tax savings and
for most just adds a layer of complication.
EXTRAPOLATION
It seems that most of us like to take a short series of
events and extrapolate these well into the future.
Whatever the frame of reference may be, it is important
to understand that most of the world is nonlinear rather
than linear. Nicholas Nassim Taleb in his book The Black
Swan has a particularly good term for this – “the illusion
of the regular”. This illusion can cloud our thinking and
decision-making and generally causes us to dramatically
underestimate risks.
Most of the retirement planning calculations
performed and presented every day are based mostly
on linear outcomes when that is in reality only one of
the possibilities. The difficulty in grasping the real risks is
compounded by the fact that because of the irregularity
of possible outcomes, engineered precision is not
TRANSITION TO FINANCIAL INDEPENDENCE
possible. The retirement projections that show a 91.2%
success rate are wildly oversimplifying the possible
outcomes toward an exact calculation that is at best a
guess. To again refer to Taleb, in The Black Swan he says
it is better to be “broadly right than precisely wrong.”
We agree.
CHANGES AND CHALLENGES
Most physicians are high functioning individuals both by
disposition and training. In many respects physicians are
trained to search for the “best answer” in all aspects of
life. This can oftentimes lead to a mismatched or
misaligned financial life since the best mutual
fund or best stock or best manager may not on a stand-
alone basis create a cohesive strategy. As we stated
earlier, it is important to look beyond the precise financial
independence calculations to what constitutes real risks
and challenges. Younger physicians tend to be looking for
the “home run” investment strategy that will allow them
to reach their broadly conceived goals without any
sacrifice or savings. We often tell these physicians that
there is little that we can do as an advisor until they have
established a wise and sustainable savings strategy.
Middle career physicians often struggle with burnout and
re-assessment of their working timeframe and where they
are on the path towards financial independence. This
period may in fact be the most critical timeframe where
minor mistakes can still be absorbed without critically
damaging the prospects for reaching financial
independence. As physicians move towards “mellow
maturity” in their professional lives they to some extent
become more and more “locked in.” Late career course
corrections can be enormously painful in financial and
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9
emotional terms oftentimes without possibility of full
recovery. Changing practice groups, locations and spouses
during this period can simply be devastating.
REAL RISKS
Within this paper we have tried, in a variety of ways, to
elaborate on the real risks in planning for financial
independence. In many instances the large potentially
significant risks are social versus financial (of course the
social risks can and often do lead to negative financial
consequences). Busy physicians are often too involved in
the details of day-to-day movement in their 401(k) or
stock market investments but much less so in the areas
of their life. Yes, having a well diversified and structured
approach to one’s financial life is important but a balance
needs to be achieved for financial independence to be
attained and maintained.
The retirement question of today is really one
concerned mostly about income. Growing the income
year over year for 25-35 years or more so that your
pre-retirement lifestyle can be maintained. It is okay to
have concerns and even fears about the investment
landscape but it is not okay to act upon these fears.
Doing so can sabotage your financial future and put
all you have worked for in peril.
The practice of medicine today is fraught with all sorts of
risks that were not present (or at least were not visible)
20 or 30 years ago. These risks can be instructive because
they give us hints about projecting our present course too
far into the future based solely on what we have
observed as risks when the more sizeable ones aren’t
yet apparent. O
TRANSITION TO FINANCIAL INDEPENDENCE
T H E S ET U P TO R ET I R E M E N T
THE TIMEFRAME 5-15 YEARS PRIOR TO THE FIRST PHASE OF RETIREMENT
(REFERRED TO SOMETIMES AS THE LEISURE PHASE) SHOULD BE SEEN AS A “SETUP”
PERIOD FOR THE ENSUING RETIREMENT. Many elements of one’s life that exist today
were put into place over years if not decades and unraveling some of these often
cannot be done quickly.

This “setup” period is where you begin to think about your
vision of retirement (and the vision of your spouse). This
should include the “where” or “place” that you will live
during at least the first phase of retirement. It is not
uncommon for parents/ grandparents to move to be
closer to the kids/grandkids. This discussion of “place”
can often be tension filled and has numerous financial
implications (such as selling one house and buying another).
During this transition timeframe it is important to
realistically establish a vision of what retirement means to
you (and yours). Again, our experience tells us that
spouses often have mutually exclusive visions of
retirement. There may be no right or wrong but clearly it is
paramount that both agree on the fundamental outline of
what this period might look like.
This should also be a period where the physician needs to
be certain to develop (if they don’t already exist) outside
interests so that both mentally and physically they will be
prepared for the after work phase of their lives. As we
have said throughout this piece, for the most part,
retirement years today are far more active than in previous
generations. Intellectual stimulation and interests can
contribute significantly to a happy and healthy retirement.
Of course, in addition to becoming prepared mentally for the
next 30 years or so we have to be prepared financially. We
are after all trying to protect dignity and independence both
of which have a cost. Our substantial experience in this
realm suggests that retirement can be divided into two or
three phases with distinctly different financial implications.
Assuming good health of both spouses, the first few years of
retirement usually see an increase in spending versus the
period immediately preceding retirement. Spending
sometimes can be in the range of 20% per year more for a
few years before leveling off. The reason can be traced
primarily to availability of time and travel.
If during this set up to retirement you discover that your
resources do not match your lifestyle then you have time
to save more and prioritize between competing financial
commitments. You may not be able to afford the house at
the coast or the mountain cottage if traveling is of
greater importance. This is the time to explore the options
and prepare. O

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10
T H E M O ST I M P O RTA N T E L E M E N T S
WE HAVE DISCUSSED A RATIONAL FRAMEWORK FOR APPROACHING RETIREMENT
AND ONGOING FINANCIAL DECISION-MAKING. THE THEMES AND CONCEPTS ARE
ALL INTER-RELATED AND SYSTEMATIC. IF YOU DON’T REMEMBER ANY OTHER POINTS
HERE ARE 5 FINAL POINTS TO TAKE AWAY:

1. Understand the “new longevity” that makes the retirement period about 30 years for the average retiree.

2. Remember that the most important component in retirement is income and protection of purchasing power.

3. You have but one rational goal – to offset the increases in costs.

4. You have but 2 investment choices – fixed income and rising income (equities) investments.

5. Above all else – understand the distinction between an advisor and a pretender (stock broker, insurance sales
person, banker, etc…)

A financially independent retirement is dependent on establishing a wise and sustainable financial structure that can
withstand many different possibilities. Armed with over a quarter century of advising retirement age physicians, our firm
has created a unique wealth management approach that we call Wealth Rx®.

ABOUT US

J.E. Wilson Advisors, LLC is the oldest South Carolina fee-only financial planning firm after being founded in 1982.
Since then, our mission has always been to provide independent and unbiased financial solutions through long term,
trusted advisory relationships.

Our comprehensive approach to wealth management combines nearly three decades of experience with the most up-
to-date and relevant academic and empirical evidence available today. We provide a holistic approach to the overall
financial well-being of our clients, inspiring confidence in their ability to maintain their lifestyle for many years to come.
With more than two-thirds of our clients being physicians, we developed a proprietary process, Wealth Rx®, to focus on
the challenges specific to successful physicians today.

We are one of a select group of fee-only independent financial advisors that have access to funds through Dimensional
Fund Advisors (DFA). We can provide our clients with these structured, low-cost mutual funds that can not be
purchased in the retail market. Together, J.E. Wilson Advisors and Dimensional Fund Advisors help our clients develop
and maintain a disciplined, scientific approach to investing.

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11
James E. Wilson, founder and CEO, received his undergraduate education in Economics
at the University of South Carolina. He then completed the postgraduate study in
investments, taxation, estate planning, insurance and retirement planning leading to
the Certified Financial Planner™ (CFP®) professional designation. In 1982, Mr. Wilson
formed South Carolina's first comprehensive fee-only financial planning firm.

He is a past president of the National Association of Personal Financial Advisors

(NAPFA), the primary professional association for fee-only financial advisors. Mr.
Wilson also served for four years as a member of the Board of Governors of the
Certified Financial Planner Board of Standards. From 1990-1992, he served as a
member of a Blue Ribbon Committee for the South Carolina Securities
Commissioner to review South Carolina securities laws. He also served as President
of the Consumer Financial Education Foundation. Since 1994 he has been a member
of the Board of Advisors of Priestly Fraternity of St. Peter and chairs the Financial
Management Group of the Board. He was selected as one of the top 60 financial
advisors in the United States by Worth magazine in 1994 and again in 1996, 1997
and 1998 by Worth as one of the top 200 financial advisors. He also was named by
Medical Economics as one of the top financial advisors for doctors in 1998, 2000,
2002, 2004, 2006 and 2008.

Mr. Wilson has been active in serving the financial planning needs to physicians for over 25 years and has been a
pioneer in the field of fee-only financial planning. He is uniquely experienced to offer unmatched wisdom to
medical professionals.

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W H AT I S W E A LT H R X ® ?

Wealth Rx® is our unique wealth management process, designed specifically with successful Physicians in mind. This
proprietary planning process provides the strategy, structure and solutions that create a framework for helping our
clients ensure they have the ability to sustain their lifestyle, now and into retirement.

Perhaps the most important thing to understand about Wealth Rx® is that it is a systematic, disciplined process that
helps you design and implement the structure that will enable you to create and maintain your financial independence,
now and over time. The structural components of Wealth Rx® work in concert with one another, with each element
interlinked to achieve the desired result…uncommon confidence.

Successful individuals and families turn to us to help them understand their situation, address their questions and
concerns, determine what options are available, and design plans that support their ability to feel truly confident about
their financial futures. And it is for these reasons that we work so hard each day - to help transform uncertainty into
confidence.

Not everyone has the comfort of achieving financial success, and those that do often face uncertainty and challenges
that make it difficult to feel confident in their long-term financial independence. Unfortunately, for physicians in this day
and age, financial confidence is not common. Wealth Rx® is a holistic and disciplined regimen that provides a new level
of confidence in your wealth, and your life.

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J.E. WILSON ADVISORS, LLC
2431 Devine Street
Columbia, SC 29205
Phone: (803) 799-9203
Toll Free: (888) 799-9203
www.jewilson.com
kstokes@jewilson.com