Building a nest egg when money is tight

Building a nest egg when money is tight

Financial Makeover

This couple thought their finances were in good shape—untilour expert uncovered gaping holes.

By Doreen Mangan, Senior Editor

Family physicians Gregory T. and Diana J. Lyon-Loftus aren't strangersto these pages. When Medical Economics first featured the couple12 years ago, they were three years into their rural practice in south centralPennsylvania and had net incomes of about $25,000 each. Their sons, Michaeland Anthony, were 7 and 4.

We checked back with the Lyon-Loftuses to find out whether, at midpointin their careers, they're on track to meet their financial goals. Toppingthe list: funding a comfortable retirement as well as six years worth ofhigher education expenses for each of their two kids, one of whom is alreadyin college.

We asked financial planner Jeffrey Metz, of Marlton, NJ, to analyze theLyon-Loftuses' situation and create a blueprint to help them achieve theseaims.

Satisfying careers, marked by frugality and generosity

In 1984, with high hopes and great enthusiasm, the Lyon-Loftuses openedtheir rural family practice. The town they settled in, Mont Alto, had beenwithout a doctor for 20 years. "We wanted to practice in a place wherewe'd be needed," says Greg. Entranced by the rolling hills, apple orchards,and the trout stream behind their medical building, the pair set out toprove that rural doctors could make a good living.

Their net practice income grew slowly at first, but it has revved upover the last few years. It reached about $100,000 for each doctor in 1998—stillbelow the $138,220 that's typical for FPs, according to this magazine'sannual Continuing Survey. The recent gain was the result of their practice'scertification as a federally qualified Rural Health Clinic, which increasedtheir Medicaid and Medicare reimbursements 11 percent, on average.

Today, Greg, 55, and Diana, 50, seem deeply satisfied with their practice,which has grown to 10,000 patients. The couple employ two physician assistants,and, in 1988, they added another partner, Garrett H. Blanchet, who'd hada solo practice in rural North Carolina. Now, jointly with Summit Health,the local hospital system, the doctors have embarked on a practice expansion.

Although they didn't earn much early on, Greg and Diana always managedto save something each year. Deep-seated frugality was on their side. Theyfurnished their house with what Greg calls "Goodwill antiques."They're careful shoppers, too. "We don't spend much on clothes; maybe$2,000 a year for the boys," Diana says.

They hang on to their cars as long as possible. Although each familymember has a car, only one is of recent vintage, the 1998 Plymouth Voyagerminivan that they bought last December. The vehicle was a splurge for Greg,to celebrate his selection as Pennsylvania Family Doctor of the Year bythe Pennsylvania Academy of Family Physicians.

The Lyon-Loftuses don't budget much for dining out and entertainment,either. The $5,000 they spent last year is minuscule, given their incomes.That amount included season tickets to local theaters and a trip to Williamsburg,VA, where they have a time-share. They also own a townhouse in the BlueRidge Mountains, 45 minutes away. They bought the two-bedroom unit lastyear, partially by refinancing their primary home. They seldom use the townhouse,however. "We would love to golf and ski, but we rarely have time,"Diana explains.

At $47,000 annually, housing is the couple's biggest expense. That amountincludes total monthly mortgage payments of $1,250 on their homes; $1,000a month for the time-share; plus taxes, insurance, utilities, and repairs.Last year, Greg and Diana spent an additional $8,000 redecorating and furnishingtheir vacation townhouse, where they hope to live during retirement.

However, they spend most of the fix-it bucks on their primary residence,a beautiful early-1900s stucco home that they purchased for $103,000 in1986. The family loves the 4,000-square-foot house, though it gobbles $5,000to $10,000 annually for repairs and improvements. There's always more todo. Next on the agenda: replacing their ancient wood-burning heater witha gas heater, and ditching their drafty windows and storms in favor of double-panedwindows. They've budgeted $10,000 for those costs.

Another significant expense is charitable contributions. A big-heartedcouple, the Lyon-Loftuses give freely of their time and money. Together,they devote about 60 hours a month to various organizations. For example,Diana serves on the board of Summit Health, and Greg, as president of themedical staff, is on the hospital's board; they're involved in communityhealth education, screening, and immunization programs.

But the greatest evidence of their largesse is the money—10 percentof their income—that they give away annually. Of the $20,000 they donatedlast year, $1,900 went toward the education of children in Honduras, throughThe Rotary International Waynesboro Club's charitable foundation. Each year,$400 more goes to a teenager in India. The son of a sharecropper, the boyis studying to be a farming engineer. Greg and Diana contribute throughthe Christian Children's Fund. They haven't met the teen, but they receiveoccasional letters from him.

The family's largest contribution last year, $3,000, went to TrinityUnited Church of Christ, in Waynesboro, where they are members. Other recipientsof their generosity include Amnesty International, Doctors Without Borders,Bread for the World, their colleges and medical schools, and the local emergencymedical units. They even donate one of their two time-share weeks in Williamsburgeach year to raise money for cancer research.

However, these doctors don't consider themselves generous. "We giveout of gratitude," says Greg. "My parents put me through college,and the community paid for graduate school and medical school, in the formof scholarships and subsidies. This is giving back." Diana says shewas raised on Martin Luther King Jr.'s dictum, "Life's most persistentand urgent question is 'What are you doing for others?' "

It may be time, though, for the Lyon-Loftuses to think a little moreabout themselves.

The plan for retirement: Travel and some locums work

While saving for college expenses and retirement at the same time isn'tusually a problem for highly paid doctors, it's a catch-22 for the underearningLyon-Loftuses. They began saving small amounts for college in 1989. In 1993,they started to put aside $500 a month for each boy. But considering thatMichael, 19, is already a sophomore in premed at Georgetown University,they're playing catch-up.

"We'd like to pay for at least two years of Mike's medical school,"says Greg, as the couple discussed their goals with planner Jeff Metz. They'vebeen paying Mike's college costs from his custodial account. Right now,though, that account holds $30,000—not quite enough to cover one more yearat Georgetown, not to mention medical school. They have a little more breathingroom when it comes to Tony, who, at 16, has $33,600 in his custodial account.

The Lyon-Loftuses' retirement savings are also lagging. Jointly, theyhave $268,000 in SEP-IRA accounts. Although each has had a traditional IRAsince the early 1980s, they didn't start saving regularly until 1993, whenthey set up their Simplified Employee Pension plan accounts. Furthermore,their annual contributions are limited to about 13 percent of income, aftertaxes and certain deductions. Last year, for example, they saved $20,000jointly in their SEP accounts.

"When we were taking home $50,000 to $100,000 between us, $5,000felt like a serious commitment to retirement savings," Greg says. "Butnow, as we each begin to approach the typical salary for our specialty,$5,000 seems quite small."

Their only other savings amount to $14,000 divided among three stocks—CompaqComputer; Harsco, an industrial manufacturing and services company; andProcter & Gamble—and Merrill Lynch Global Technology Fund.

Greg and Diana hope to retire in two phases. "We love to travel,so beginning when Greg turns 65, we plan on doing full-time locum tenenswork for about seven years in areas we want to visit," Diana says."And we'll be available to help out at the practice during vacationsand busy times." That means they'll continue to build up retirementsavings, instead of drawing on th