Ailing stock market leaves doctors' retirement funds anemic

High-risk investors feel the financial pain when stocks are hurting. Some physicians may have to delay the end of their working lives.

By Cheryl Jackson, amednews staff. Aug. 19, 2002.

Accountants for Roland Molinet, MD, told him to diversify his investments. But the Fort Lauderdale, Fla., internist didn't listen, letting his retirement plans ride on the lofty tech stocks of the 1990s.

As a result, he has lost more than half the value of his IRA -- more than $1 million -- over the past two years. Now 69, he had planned to retire when his contract with North Broward Hospital District ends in two years.

Keeping your head up in a down market

That plan will likely change. "This is my life savings that I've lost. All in the market. Everything was in the markets."

Dr. Molinet's story is typical, financial planners say.

With stock prices down over the past 2 1/2 years, and the Dow Jones Industrial Average hitting a five-year low last month, many doctors are taking a closer look at their retirement schedules, asking if they're still on track to get out of a profession that has them stressing over slow and low pay, increased hassles from insurers, and higher costs for liability coverage.

"For the clients coming in the door, most of them have given up hope that they can manage their portfolios themselves. Most have made major errors with regard to allocation to technology stocks and large-cap stocks," said certified financial planner Louis P. Stanasolovich, CEO and president of Pittsburgh-based Legend Financial Advisors Inc.

"Many went from thinking about early retirement to thinking about perhaps working longer."

Physicians traditionally have been aggressive in the market, financial planners say. Many have more of their money invested in equities, subject to recent massive losses, said Ralph Heffelman, founder and president of International Capital Management Corp. in Dallas.

Physicians in general come later to the game than do other investors, having spent much of their early working years paying back school loans and starting practices.

But when the money does come in, physicians are among the larger earners and bigger players in the market, so they often taken bigger hits when the market is off.

"Doctors are more worried than a large portion of the population because they have felt like the cash flow and earnings would continue to support an ever-increasing asset base or lifestyle," said Bob Haley, a planner at Advanced Asset Management in Portland, Ore.

The market decline, combined with greater income squeezes from managed care and Medicare, is causing doctors to pay closer attention to their investments, he said.

"In a hot market, they could look at the broker's statement and their investments have gone up 10% to 15% a month, and they think, 'What the heck am I worried about how much I'm making?' " Haley said.

Physicians like Dr. Molinet let the profits ride during the good times.

"I was late getting into it with my pension fund. It was doing so well. I had good advice to diversify, but I was on a roll," Dr. Molinet said. "I'm not a businessman. Maybe I've always been kind of a gambler.

"At this point, I'm stuck. I'm going to be practicing for a long time. I lost everything that I had made." The 401(k) Dr. Molinet has through his hospital employment has also decreased in value.

Dr. Molinet saw the downturn in 2001, but didn't think it would get worse. He wasn't alone. That thinking was particularly common with investors whose initial experiences in the market came in the 1990s, said James M. Richardson, a Raleigh, N.C., financial planner. The recent turmoil is surprising a lot of people.

"The corrections didn't last very long. Their risk tolerance is only based on corrections of the '90s."

The losses have led some retired physicians to consider returning to work. But there aren't as many options for doctors as there are for other professionals.

"You can't just simply go back and consult," Richardson said. "Unless you have a niche specialty."

Retired physicians are likely to be OK if they reduce their spending, planners say. That however, is a hard sell in most cases.

"They work their whole life; they want to maintain their lifestyle. In the last 10 years, they've learned to have a lot of discretionary income. At that age, they say, 'No, I worked hard all my life for my retirement. Now I'm not willing to compromise it,' " said Grace Wellwerts, an Avon, Colo., financial planner.

Orthopedic surgeon John Wickenden, MD, has made some concessions during the 2 1/2 years he's been retired, including cutting back his traveling.

"I looked with concern as the market has dropped. But I love retirement so much, I'll adapt my lifestyle to whatever resources I have," he said. "I can't imagine going back for anything. Even if we had an 89%, 1929-type drop."

Dr. Wickenden, 62, lives on $75,000 to $80,000 a year in Camden, Maine. Since last fall he's lost an estimated 15% to 20% of his $2 million net worth. He guesses about $100,000 of that was lost on Enron stock alone. Of his $1.8 million in investment funds, about 70% was in the stock market.

"I haven't had the courage or desire to see what my equity was," he said.

"What the hell! I ran it up pretty aggressively in the '90s, and I didn't complain then. It's still a wonderful life. I'm still very privileged in relation to most people in the work force.

"If I had to I could live on $30,000 a year," Dr. Wickenden said. "I hope I won't have to."

At 47, Alan Routman, MD, an orthopedic surgeon in Fort Lauderdale, didn't have as much invested as some older physicians. Yet, he's seen a 30% to 40% drop in his investments over the past two years.

"Being relatively young, I'm going to ride it out," he said. "I'm a long-term player and I haven't really taken anything out of the market. I think stocks will rebound. They always have. It's just a matter of riding out this dip."

He's still paying the mortgage on his house and has a 21-year-old child in college -- on scholarship -- and a 10-year-old and a 12-year-old waiting in the wings.

"I'm going to have to wait until the last bird has left the nest," Dr. Routman said.

Although it wasn't what he'd anticipated, Dr. Molinet said he's come to terms with the fact that he's likely to be practicing well into his 70s.

"Medicine's been good to me. I've been happy and successful. As long as my health holds up, I'm sure I'll enjoy continuing to practice."

ADDITIONAL INFORMATION:

Keeping your head up in a down market

Tips from financial planners:

Reduce spending.
Factor in inflation and project living into your 90s or age 100.
Take advantage of changes in the tax code that allow for greater contributions to plans.
Save as much as possible, especially in tax-deferred plans.
Steer away from the herd mentality. Develop an asset allocation strategy that's in line with your own risk tolerance.
Have a portfolio with investments that have low correlation. Every investment should not move in the same direction.
Create an emergency account that allows you three to six months' worth of expenses. Not every dollar needs to be invested at all times.