Cash Balance Plans, Trusts, and the $1 Million Debate

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 457.

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All right, let's get into your questions. There's some stuff I want to talk about today, but let's get into your questions first. We'll do a few of those and then I'm going to rant for a bit, I think.

CASH BALANCE PLANS

Dr. Jim Dahle:
This one came in via email about cash balance plans. ‘I'm 42 and max out my cash balance contributions every year for the six years that is allowed for my age, six figures each year. I recently realized they don't close the account to roll it over into a 401(k) IRA unless you hit 59 or leave the company, and I'm not planning to leave anytime soon.

As I have a long financial horizon, I was thinking about not contributing anymore and just investing in the market, given the conservative investments in the cash balance plan, as I would come out more ahead by doing that versus continuing to contribute when I run mock calculations. I would contribute later again when I'm closer to retirement. What are your thoughts?”

Well, in general, a cash balance plan should be invested relatively conservatively. That's true. It also, ideally, gets closed periodically. Typical for these physician-run partnership, et cetera, cash balance plans is probably in the five to 10 year range. That reduces the risk to the owners of the business of a very large cash balance plan, but nobody makes you close it and restart it, so it's entirely possible that you won't be able to roll that money over for another 17 years. Although, that seems a bit unlikely to me.

I guess the consideration is how much money are you putting away for retirement besides that money going in the cash balance plan, and how do you want to invest your retirement money? If you don't want a third of your money invested in bonds anyway, and the cash balance plan is only 25% of your annual savings, then no problem to have your cash balance plan invested conservatively.

On the other hand, if you only want 10% of your money invested in bonds and the cash balance plan could be as much as 75% of your annual portfolio contributions, then you've got a problem, and you should probably limit your cash balance plan contribution amount to some smaller amount.

But that's really what you're weighing and trying to sort out. Really, cash balance plans are all about the tax break, and so you invest them relatively conservatively because there's a downside. If it falls in value, you have to put more money into it as the owner, and that's a problem for lots of physicians in physician partnerships. But if you are too aggressive in it and it does really well, it's possible you could end up with some excise taxes on it.

In general, you take your risk on the 401(k) side, you take your risk in your other accounts, your Roth IRA, your taxable account, whatever, not in the cash balance plan. But putting nothing in there is probably the wrong answer. So maybe put a smaller contribution amount instead of six figures, put $20,000 in there, and that's probably the right answer for somebody with this particular concern.

Thanks everybody out there for what you're doing. It's not easy work, and it's often thankless work. Sometimes you go a long time without anybody telling you thanks for what you do. So, if you haven't heard it today, let me be the first.

All right, we got another question off the Speak Pipe. This one's also about cash balance plans.

CASH BALANCE PLANS AND RETIREMENT

Speaker:
Hey, Dr. Dahle. I'm a radiologist practicing in the Southeast. I've recently gotten back into the White Coat Investor and been reading many of the blog posts and listening to many of the podcast episodes. My question for you is in regards to cash balance plans. To provide context, as a radiologist, and my wife is a pharmacist, our combined pre-tax income for 2025 will be north of $700,000.

My group is considering starting a cash balance plan. I know that you have dedicated several podcast episodes and blog posts to this, including recently. At one point in those podcasts, you mentioned that your group's on about its third iteration as far as cash balance plans. I wonder if you could dedicate some time to going through your ideal setup for a cash balance plan.

A specific question I have is how you would address partners as they retire and how to have an agreement on what to do with any difference in funds calculated versus what have been accrued in the cash balance plan. Thank you so much, and I appreciate all that you do.

Dr. Jim Dahle:
Okay, for those again who are not familiar with cash balance plans, think of it as an additional 401(k) masquerading as a pension. The idea behind having a cash balance plan is you're in your peak earnings years and instead of only being able to put $24,000 or $72,000 or however much you can put into your 401(k) profit sharing plan, now you can put more than that into a tax deferred retirement account where it's protected from creditors and bankruptcy, where it grows in a tax protected way.

The idea behind these for most physician partnerships is not to leave the money in there forever. Admittedly, some partners, especially those who really don't understand the point of this thing, might do that. And it is allowed in a cash balance plan that you can leave it in there and even annuitize it in most plans at some point.

But that's not the point. The point is you want to make a bigger 401(k) contribution and you can't. But if you have a cash balance plan, then you can. So you open a cash balance plan, maybe it lets you, I think mine allows me to put $120,000 a year into it. This is in addition to $72,000 into the 401(k) profit sharing plan. That's a lot of tax deferred savings. Most physicians aren't saving that much money per year for retirement. Now I don't make enough money that I can actually max both of those out. I don't make enough money in my physician partnership to max both of those out.

And so, I think I'm at a $60,000 cash balance plan level and I'm not even allowed to max out the $72,000 401(k) contribution because I just don't make enough money for all the ratios to work out.

But the point is, the goal is to be able to put more money into a tax deferred account. And then while it's in the cash balance plan, you generally invest it relatively conservatively. Mostly bonds, maybe some stocks, 20%, 40%, that sort of a thing. That's kind of the mix that most cash balance plans are invested.

And the reason why is if it falls in value, if there's a really nasty market year, say it's 2022 and the stocks and the bonds go down, you have to put more money into the account, because it's masquerading as a pension. The investment risk is on the owner of the company. And that's you, if you're contributing to a cash balance plan.

And so, you have to put more money in that year. That's not necessarily a bad thing. If you have more money to put in there, you get an additional tax break to put that money in. But it's a problem for most physicians because they don't manage their cash flow very well. They don't have additional money. They can't just stuff it in there when the market goes down. So, better to invest it relatively conservatively so it doesn't drop like crazy, causing you to have to put more money in, in that sort of a situation.

And on the far end, if you invest it really aggressively and you get stock returns like we've had in the last 10 or 15 years and it does really well, then now you've got too much money in there. And when you close the plan, you may end up paying an excise tax on it. You took all this risk and you don't even get to keep all the return for it. So, it's not a great idea, so just invest it conservatively while the money's in it.

And then typically after five to 10 years, you close the cash balance plan, you roll that money into your 401(k). Now instead of only having whatever, $400,000 in your 401(k), now you've got $900,000 in your 401(k) because you have all the cash balance plan money in there. And now you can invest that however you want. You want to invest it super aggressively, you can do that, no problem.

And then often another cash balance plan is opened by that partnership. And then you use that one for another five or 10 years. We're on our third one in my partnership. I've been there for 15 years. And that's kind of about how these things work. Now there's rules about how long it's got to stay open and you have to put in a certain amount of funding each year. Like I said, this has to masquerade as a pension, but that's how you deal with it.

What happens on the backend? Well, ideally, everybody takes their money out and puts it in an IRA or puts it in their 401(k) or whatever. And then you don't have to deal with this thing going forward. But because it has to masquerade as a pension, you do have to give participants the option to leave their money in there. And that can be an issue.

But that's why you want to close them is to reduce the size of them to reduce the risk to the owners. Because once somebody separates from the company, the company still owes them that pension. And so, the remaining partners have to make up for the shortfalls. And that's why you get these carefully created and think about that stuff as it's put in place.

Putting this up in your physician partnership is not a do-it-yourself project. You have to hire a professional for this. And if you go to whitecoatinvestor.com, you go to the top of that page and you'll see that you can get some help. You just go under our recommended tab, you go to retirement plans. And we've got three or four or five companies there that can help you set up a cash balance plan, help your partnership decide if this makes sense.

For example, a partnership where it wouldn't make sense. If nobody's maxing out the 401(k), you don't need a cash balance plan. If there's only one of you, if you're the hardcore White Coat Investor, do-it-yourself-er want to save a gob ton of your income, and you're the only one in your partnership, it probably doesn't make sense to put this thing in place. You'll get a 401(k) and you have your backdoor Roth IRA and you're investing the rest in taxable.

A significant number of your partners need to be interested in saving more than $72,000 per year for retirement. If that's not the case, it doesn't make sense to put one of these in place. In fact, when we were redoing the White Coat Investor 401(k), and I think we have the greatest 401(k) out there, this was a conversation we had with some of the hires in the company is “What if we put a cash balance plan in place as well? Would you be interested in that? Would you make an additional contribution to it?” And the answer was really no. And so, we didn't put it in place. And that might be the case for your physician partnership.

But in a group of radiologists that are making $700,000, there's probably a place to at least have this discussion among the partners. But I recently did a blog post talking about how much my partners save for retirement. And some of them do, they save a ton. They save 40%-ish of their money for retirement, but others save zero or 3%. It's really very individual for your partnership. If you are going to save more for retirement, this is a great place to do it, but it's got to make sense for the group. I hope that's helpful.

WHY PHYSICIANS SHOULD RETIRE AS MULTIMILLIONAIRES

Dr. Jim Dahle:
Okay. I wanted to talk for a few minutes about a blog post I ran out on the 29th of December. And I wrote it months before that, like most of these blog posts. I called this, “Why physicians should retire as multimillionaires.”

Now let me read you the first paragraph. I wrote, “A doctor who doesn't retire as a multimillionaire has failed.” There, I said it, hot take, tweet it out. Maybe it'll make some people feel badly, but I no longer care because I think those physicians who are not enroute to multimillionairehood need to be shocked out of their complacency. And maybe this hot take will help do it.

Then I talked about some of the statistics that you see out there in physician net worth surveys, where basically 25% of docs in their sixties, despite making physician incomes for the prior three decades, still are not millionaires. There's 25% of them that aren't millionaires. If you dive into it, 11 to 12% don't even have a net worth of $500,000.

That's the problem I'm working on here at the White Coat Investor. I don't really care if you get $4 million instead of $3.5 million dollars in your nest egg by the time you retire. That's not the problem I'm working on. I'm not trying to reduce your expense ratio by four basis points. Great. If you can do that, that's wonderful.

But that's not the problem that I get up every morning to work at, at the White Coat Investor. I'm working on that lower 25%. I want them to be financially stable because I think they're going to be happier. I think there would be less burnout. I think they're going to be better parents and partners and physicians, et cetera.

Part of the reason why I write a blog post in this manner is to get this shared out there, to get it sent out on various social media things, to get it picked up by somebody like Doximity and included in their email that they send around every few weeks, those sorts of things. I want to get this sort of a post in front of people that don't normally listen to this podcast, that don't normally read the blog.

The point is to shock them a little bit, to go, “Oh, I'm supposed to be a multimillionaire. I better learn how to do that.” That's the goal of this. And of course, it was relatively successful. It got picked up somewhere. I can always tell that because three or four or five days after it gets published, not the day it gets published, but a few days later, all of a sudden, a bunch of people come on and make comments that reveal to me they're not regular parts of the White Coat Investor community. They just stumbled on this article for some reason and often are offended about it.

And so, I think there's some interesting perspectives that can be gained from some of the comments that were left on this blog post. For instance, here's the first one. He quotes that first line, a doctor who doesn't retire as a multimillionaire has failed and says, “Wow, how the world has changed. It used to be physicians were in it for the care of patients.” And obviously we're not talking about failure in life. It doesn't mean you're a terrible parent or a terrible doctor, but you failed financially if you haven't some built some wealth along the way. That was the point of the article.

But as the comments went on over the days, there were a few others that I think you would find interesting. Here's one. “I hate reading such trite. Choosing to work in academic medicine, to share the magic of medicine with others and give of your talents, meaning starting your first job at age 35, making $100,000 a year to start then raising three kids, being fully present, going through an unpleasant divorce, losing half of your retirement and paying a third of your earnings forever, but staying fully engaged and sending all three through professional school. And these three kids still wanting to come home for their vacations and holidays is not enough. A failure you say, basing this on whether one does or does not have $4 to $6 million in retirement savings, you say. Shame on you.”

And obviously, building wealth is harder for some people than others. Divorce is a terrible financial thing. You cut your income and your assets in half. But even with that, you should still be able to save something for retirement. And over the course of a career, typical length career and a physician type of income, you should still be able to get to multimillionairehood as far as your net worth goes.

Another commenter said, “What's concerning is your use of language. Failed and appalling, et cetera, are loaded terms, if not inflammatory. Such usage casts a shadow on your ability to engage in polite professional discourse.” Well, admittedly, I used shocking language to try to shock people out of their complacency. That's actually pretty good feedback. I like that, but I did it on purpose. So not surprisingly, a few people didn't like it.

As I scroll down through these comments, a few of them really are illuminating about the mindset out there in medicine. Here's a comment that was left by a doc who actually signed his name on here. It's interesting. He writes, “Whoever wrote this article is a money grubbing piece of, I'll let you fill in the blank. This is a family show. Medicine was never designed to be a cash cow, but an honorable monastic type lifestyle of self-sacrifice, caring for and ministering to the sick. A doctor's patients always take priority over everything else, including his family. If any doctor takes exception to my views, then he or she doesn't belong in the medical profession.”

Now we wonder why doctors won't talk about money. Because every now and then they're talking about money or they're talking about investing or they're talking about insurance or whatever, and one of their colleagues walks up and says something like this, “That you're a money grubbing piece of trash and you should be a monk and you should put your patients ahead of your family and you really don't belong in the medical profession because you're a terrible person.”

Well, the truth is that this attitude is keeping doctors from being able to be good doctors. If you will take care of your finances, you can live a more monastic lifestyle as a physician because you don't have to worry about money. It's the people not paying attention to their finances that are the ones that are stressed out by them.

If you will get your financial ducks in a row, you will be a better parent, partner and physician because you won't have to worry about money. Pretty rich, right? That we're lecturing somebody that doesn't have to work anymore but is still practicing medicine for monk-like reasons. For nothing else. But heaven forbid, we actually become financially stable while taking care of patients, allowing us to actually take a lot better care of them.

So be aware, the fight is still on out there. There's a lot of people that think doctors should not be talking about money, that it is an inappropriate subject for a physician and that you're a bad doctor if you do. The attitude is still out there. It's in our medical schools, it's in our residencies, it's in our academic centers, it's in our community medical centers.

Recognize that and we'll help others continue to see the light and realize that you can actually do well while doing good while still taking excellent care of your patients and that will allow you to actually donate more money to charitable causes, to donate more time, to do more care for free, to go on more missionary-style foreign medical mission trips. That is all powered by your ability to manage your income, use it to build enough wealth to give you financial freedom.

All right, back to your questions. Enough ranting. Next one's about a revocable trust from Brittany. Let's take a listen.

REVOCABLE TRUSTS

Brittany:
Hi, Dr. Dahle. Thanks for all you do. I'm a longtime listener of the podcast and really enjoy the blog as well. My name is Brittany. I'm a primary care physician in Indiana and my question today is about a revocable trust.

My husband is in his early 40s. I'm in my late 30s. We have three little kids and we're buying a house in Ohio that we plan to live in maybe the rest of our lives. And the question is, should we go ahead and set up a revocable trust and put the house in it? We also own a couple other properties.

Dr. Jim Dahle:
Okay, great question, Brittany. I know you got cut off but you got enough of your question out there. I think we can talk about this subject for a few minutes. The purpose of any trust is because you don't trust. If you could trust the person that you're leaving things to, then you wouldn't need a trust.

But in general, the purpose of a revocable trust is to keep an asset out of probate. A probate can be an expensive process. It can be a time-consuming process. I don't know how bad it is in Ohio. Maybe it's not that bad. When I talk to the estate planning attorneys for my parents in Alaska, they're like, probate's not that big a deal. I wouldn't bother with a revocable trust just to avoid that. And they suggested we just take the estate through probate when my second parent dies.

So, you don't have to have a revocable trust, but it does allow you to avoid probate. Probate's a public process, can be expensive, can be time-consuming. Whereas if you're in a trust, you can just distribute assets according to the terms of the trust. And nobody has to know what you own. And you don't have to wait for probate. You don't have to pay as much for probate, maybe. That's very state-specific though, of course.

Your question is, you're buying a house relatively early in your career in Ohio. How should you title it? That's really your question. And so there's a couple of considerations. Mostly when we're thinking about titling things, we're talking about asset protection concerns.

A revocable trust provides no asset protection whatsoever. It's revocable. You can take assets out of it at any time. So the court can order you to take assets out of it at any time and pay them to your creditors. A revocable trust has zero asset protection benefit. Maybe there's a little bit of, it's a little harder for them to figure out who owns it, but that won't take long in a real asset protection situation.

So, don't expect any asset protection benefit there from a revocable trust. The purpose of that is estate planning, really. So if you want to have a revocable trust, you need to have it in place by the time you die, not necessarily right when you buy a house.

The first thing to think about if you're married and buying a house is, “Can I use tenants by the entirety titling?” This is titling available in a bunch of states where it allows you to say, I own the entire house and my spouse owns the entire house. So if just one of us is sued and gets an above policy limits judgment, not reduced on appeal, as rare as those might be, you can't lose the house because your spouse also owns the entire thing.

Unfortunately in Ohio, there is no tenants by the entirety available. So, that's not an option. But what is available in Ohio is a domestic asset protection trust. And these are also available in Utah. And our home is actually owned by a domestic asset protection trust.

Now these haven't been around that long. There's not that much case law that really establishes how well they work in above policy limits, judgment, creditor bankruptcy kind of situation, but it doesn't cost very much. It's not very hard to do. We figured why not? So, we did, we put our house in a domestic asset protection trust.

If you want to consider putting your house into a trust at this point in your career, you might want to consider that in Ohio. But revocable trust is okay to do too. If your goal is mostly just to reduce the possibility of your heirs having to deal with probate through it.

One thing you definitely do not want to do while you are titling a house is put your kid's name on the property. This is like the dumbest estate planning move ever. Because what happens is as soon as you die, the kid owns the whole thing and they don't get to step up in basis at death. Ideally they inherit it when you die. And then it's as though they bought it at the price it was worth when you died rather than the price when you bought it decades before. And they get that step up in basis at death. And if they turn around and sell it immediately, they don't have to pay capital gains on it. So that's the worst thing to do with the titling of your house. Don't do that.

But whether you need to stick it in a revocable trust right now, I would say you probably don't. It's okay to own it in your name. If you're concerned about asset protection though, because Ohio doesn't have an awesome homestead exemption. Let me see how much it is here. I always go back to my asset protection book to look this stuff up by the way, because half the book's basically a reference. It's a list of all the asset protection laws for every state.

But in Ohio, the homestead exemption is $125,000. That's it. If you own a half million dollar house and you have to declare bankruptcy, you only get to keep $125,000 of that home equity. It seems reasonable to use a domestic asset protection trust for a home in Ohio. That's probably the direction I would head if I wanted to make things a little bit more complicated for hopefully a little bit of benefit.

QUOTE OF THE DAY

Dr. Jim Dahle:
All right. A quote of the day today comes from Warren Buffett, who said, “The stock market is a device for transferring money from the impatient to the patient.” Great quote. Love it.

Okay. Let's take another question from Nick off the Speak Pipe.

PEAK SPENDING YEARS

Nick:
Hey, Dr. Dahle. This is Nick Papagiorgio from Yuma, an anesthesiologist. I know you often talk about your peak earnings years and protecting that with insurance. I was wondering if you could talk about the typical doctor's peak spending years and the average White Coat Investor that you speak with when they are spending the most money, whether that's in retirement or with young kids or just at what point in their life do you feel like people's expenses are at a maximum? Thanks.

Dr. Jim Dahle:
Well, this is highly variable. If you're really intentional about your money and you are spending it exactly on what you value most, your case might be a little bit different from what's typical. But typical, I think it's pretty clear that peak earnings years tend to be in your 50s for most careers, not necessarily doctors. I definitely don't think that's true for emergency doctors. Typically, they're cutting back a little bit, not working nights, working fewer shifts, et cetera, by their 50s.

But for a typical career, 50s are the peak earnings years. They are also the peak spending years. And there's a few reasons for that. One, you've grown into your lifestyle at this point. You're not being super frugal like maybe you were back in your 20s and 30s. Your kids are at that age where they're doing things that cost money, whether they're in high school and they're in travel sports, whether they're in college and you're paying a whole bunch of money for them to go to some fancy pants college.

And you're starting to realize, “Oh, I'm not going to live forever.” And you're having midlife crises. You're buying a boat. You're buying a Corvette. You're going on really nice vacations. You no longer want to backpack through Europe, staying in hostels. So peak spending years, I think, are typically in your 50s.

I'm smack dab. Well, not smack dab. I guess I'm in my early 50s. And we're spending more than we've ever spent before. We just added up our spending for last year and it was appallingly high. Thankfully, a fair amount of that is giving that got included in that. But it was more than we spent the year before, even when you subtract that out.

I don't think it's unusual for people to spend more in their 50s. And that's what I would plan for if you thought your life was anything typical, is that you're probably spending more in your 50s.

Now, when you move into retirement, it's classically divided into three categories. This is the retirement smile. And the first category is the go-go years. This is right when you retire, and you've wanted to do all this stuff that you've been putting off for decades, but couldn't do because you had kids at home or you had to work or you didn't have the money or whatever. You're getting an RV, you're driving all over the country. You're going on fancy vacations and cruises and flying out to see your grandkids being born and all kinds of fun stuff. The go-go years.

And these typically last until, I don't know, somewhere in your early 70s probably is pretty typical. So if you retire at 55, you might get 20 years of those. If you retire at 65, you might only get seven years of the go-go years.

The next section of years is called the slow-go years. And typically spending goes down, at least on an inflation adjusted basis. Bill Bernstein was on the podcast a while back and he argued that wasn't necessarily the case because people wanted to spend less, but because they had to spend less. A lot of people realize, “Oh, I just don't have that much money for retirement and so I have to spend less during the no-go years.” But there's some debate about that.

And then the last couple of years, last few years, depending on your health conditions, are the no-go years. So, you have go-go years, slow-go years, then no-go years. And the no-go years tend to be expensive because you're paying for a bunch of long-term care or help in the home or whatever, those sorts of things. And your spending can go back up.

That's the retirement smile. Starts high, goes low during the slow-go years and then comes back high for the no-go years. But if you're really spending a lot of money on travel and those sorts of things early on in retirement, that's replaced by long-term care costs. And so, it might not necessarily go up all that much, whereas I think for a typical person, it's not unusual at all to have much higher expenses the last few years of life. I hope that discussion's helpful. I'm not sure what else to say about that. That's all I can think of.

All right. Here's an interesting question from Aaron. Let's take a listen to this.

BEST ENTRY POINT TO WHITE COAT INVESTOR FOR NON-DOCTORS

Aaron:
Jim, my name is Aaron and I'm a big fan of your podcast. And if you're listening to this, then thanks for taking my question. Let me ask, what's the best entry point to white coat investor content for non-doctors?

To back up for a second, I have to make a confession, which is that even though I do love the podcast, I am not a doctor. I am a lawyer. But I really enjoy eavesdropping on this community, which is a great financial education, and it's also a refreshing change of pace. Let me tell you, there are not a lot of podcasts out there in which lawyers are thanking each other for what we do.

Anyway, yesterday, a co-worker of mine asked me if I had any financial advice, and I asked her if she was taking advantage of our employer's mega backdoor Roth 401(k), which is not very well advertised internally where I work, and she didn't know about it.

I told her it existed. She set it up, and I'm feeling pretty good today because that five-minute conversation might have saved her hundreds of thousands of dollars in taxes in her lifetime.

Coming off that win, I wanted to recommend that she check out the White Coat Investor generally, but I looked at your website and your books, and I'm worried that she will think that you are not for her. Obviously, I'm not asking you to rename yourself and change your entire strategy, but for her or for other listeners who are looking to recommend your book or website to friends who are not doctors, what would you suggest as a good starting place? Thank you.

Dr. Jim Dahle:
Yeah, let's talk about this issue of non-doctors in the White Coat Investor community. About 25% of the community is not doctors or trainees, med students, residents, etc. And so, it's a substantial portion. It's a little higher than that when you include the dentists and their trainees, but it's a substantial portion of people are not doctors.

And most of those people that stick around anyway have realized that only about 1% of the content is truly doctor-specific. Now, I'm a doc. I can talk doctor. I can relate well to doctors. I work with doctors every day. And so, it's easy for me to focus on doctors. And when I think of that person out there I'm writing for, that's often a doctor in my head that I'm thinking of.

But let's be honest. It's 1% specific to doctors. What's specific? Well, some of the student loan issues are a little bit specific. Some of the retirement account issues are a little bit specific. Some of the asset protection concerns are a little bit specific. That's about it. The rest of it is really aimed at high earners. So, it's specific to the upper tax brackets, much more so than it is specific to doctors, and many attorneys, of course, fit exactly into that situation.

I wouldn't feel like you have to tell somebody “Oh, you can't listen to this because it's doctor only stuff.” Let's be honest. 95% of it's the same for everybody. And 99% of it's the same for all high earners. And so, certainly those of you who aren't docs and been listening to this for years know this already. But for a new person, it's maybe not that obvious for a while. It's sad if we're turning people off that way. I'll do the best I can not to speak doctor-specific so we can help more of those people as well.

If you're hesitant to recommend the books because they do focus a lot on doctor specific issues, we have a list of recommended books. If you go to whitecoatinvestor.com, we've redesigned the website now, it's under the Learn tab now. There's a Books tab under Learn and that goes to our sales page for our books.

But if you keep scrolling down, you’ll see a link for other personal finance books and it actually says “Other Personal Finance Books for Physicians.” But here's the truth of the matter. Most of them are not for physicians. They're fine for physicians, but they're not specific to physicians. Only one little section of the books on that list is, and there's dozens of books on this list.

If you scroll down, you'll see the first section is doctor specific finance books. But after that, we've got personal finance, investing basic, investing advanced, investing behavioral, mortgages and real estate investing, taxes, contracts and practice management, estate planning and asset protection. And the last section I added just a year or so ago, books about how to be rich as opposed to how to get rich.

And so, if you want to recommend books that aren't the white coat investor books, recommend some of those. They're all excellent books and I don't pretend to be the only person that can write anything worth reading about personal finance and investing.

The vast majority of what I say on this podcast, of what I write on the blog are not ideas I came up with in a vacuum. I can claim a few of those, but not very many. Mostly I've taken what's out there in personal finance and investing land across the internet and in your libraries and podcasts, et cetera, and kind of honed it down and focused it for high earners and physicians in particular.

But it's not like I came up with all these ideas myself. Give me a break. There's lots of brilliant people out there that have come up with this stuff. And that's how I found it. And that's how I learned it. And that's why I'm teaching it and trying to get it in a way that it's good for high earners, it's good for doctors, et cetera.

I hope that's helpful. I wouldn't feel like you've got to sugarcoat it or somehow give them something else. I'm not planning a book specific to attorneys. Although we're always looking for columnists and guest posters that are attorneys, not just to write about legal stuff, but to write about the financial life of attorneys as well as pharmacists and APCs and every other high income career out there.

So, let's build the community as much as we can. We're probably still always going to have somewhat of a focus on doctors and that's okay. But we're not that special as doctors. Our financial life is not that different from the financial life of an attorney. Let's be honest.

SPONSOR

Dr. Jim Dahle:
This podcast was sponsored by Bob Bhayani at Protuity. One listener sent us this review. “Bob has been absolutely terrific to work with. Bob has quickly and clearly communicated with me by both email and or telephone with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications underwriting process in a clear and professional manner.”

Contact Bob at www.whitecoatinvestor.com/protuity. You can also email [email protected] or call (973) 771-9100 to get your disability insurance in place today or just review your coverage and make sure you have adequate coverage.

Now, don't forget about that $200 off special podcast listener discount for WCICON. Use VEGAS200 at checkout as your code and you get $200 off WCICON. This is our conference. It's in Vegas. It's at the end of March. You can sign up at wcievents.com.

You'll love it. It's all about burnout prevention, getting your financial ducks in a row and really connecting with your people. Love to meet you personally there if you can come.

Thanks for leaving us five-star reviews and telling your friends about the podcast. We had a recent one that was left. One of these reviews says, “Seize the forest for the trees. There's no shortage of personal finance podcasts out there, but the White Coat Investor stands apart in one crucial way. Dr. Dahle understands what actually matters for busy, high-income professionals.

You won't find episodes on optimizing credit card rewards.” Actually, I think we did have one episode on that. “Or other time-intensive strategies that might save you a few hundred dollars a year. That's not the point. Instead, you get thoughtful, practical guidance on the things that genuinely move the needle, the insurance products you actually need, the estate planning basics you shouldn't ignore, and the investment approach that lets you build wealth without becoming a part-time financial hobbyist. What I appreciate most is the perspective. He'll remind you to spend time with your family. He'll encourage you to donate.”

That's for sure. I need to spend more time talking about that. Actually, I think I'm going to write another blog post about that today.

“Keeps the focus on the few decisions that truly matter rather than drowning you in optimization details that consume time you don't have. The advice is reasonable, well-informed, and calibrated for people whose time is their scarcest resource.” Isn't that the truth?

If you're a high-income professional looking for financial guidance that respects your priorities, this podcast delivers exactly what you need and nothing you don't. Thank you to the whole team. You've made a real difference in my financial well-being, honestly, and my peace of mind, too.” Five stars.

Wow, what a nice review. Thanks for sharing that. Not just to make us feel good about what we're doing here. It does help us do that. But those five-star reviews help spread the word. That podcast gets put in front of more people because of five-star reviews, and it helps them to find it and helps to build the White Coat Investor community and make this all better for all of us.

Keep your head up, keep your shoulders back. You've got this. We're here to help. We'll see you next time on the White Coat Investor podcast.

DISCLAIMER

The White Coat Investor podcast is for your entertainment and information only and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 260 – General Contractor Becomes a Millionaire.

This podcast is sponsored by Bob Bhayani of Protuity. He is an independent provider of disability insurance and planning solutions to the medical community in every state and a long-time White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies.

If you need to review your disability insurance coverage or to get this critical insurance in place, contact Bob at www.whitecoatinvestor.com/protuity. You can email [email protected] or you can call (973) 771-9100.

Okay, today is the last day to apply for that WCICON scholarship. This is only for residents and students is only for the virtual WCICON. If you want to come in person, you still got to pay, sorry. It's just too expensive to put on those sorts of conferences to give away a lot of scholarships to them.

But for the virtual version, we're giving away five scholarships this year to medical students or residents to attend the Physician Wellness and Financial Literacy Conference for free.

The conference is designed to give you clear practical education on topics like investing, insurance, avoiding burnout, leadership, and building a strong financial foundation as a physician. We understand that even a virtual conference can be a stretch during training. And we don't want costs to be the reason you miss out on education that can both teach you how to become a multimillionaire and save you hundreds of thousands of dollars over time.

The scholarship is our way of investing in you early when the payoff of good information is the highest. If you're in medical school or residency and want to be intentional about your financial future, we encourage you to apply.

Please share this with those you know who would be eligible. Go to whitecoatinvestor.com/wciconscholarship to submit your application by February 4th. That's the day this podcast drops. So, if you're just listening to this, you got to go apply today, whitecoatinvestor.com/wciconscholarship.

All right, we got a great interview today. It is not a doctor. It is not somebody that's paid off their student loans. So, if you don't love those particular versions of this podcast, I think you're going to like this one. Let's get them on the line.

INTERVIEW

Dr. Jim Dahle:
My guest today on the Milestones to a Millionaire podcast is Michael. Michael, welcome to the podcast.

Michael:
Thank you for having me, Dr. Dahle.

Dr. Jim Dahle:
Tell us what you do for a living and how far you are out from your education.

Michael:
Yeah, I'm a general contractor and my wife is a director of marketing. We both live in the Philadelphia area and we both started working around 2013.

Dr. Jim Dahle:
Okay, so a little over a decade out. Very cool. What milestone are we celebrating today?

Michael:
We've recently become millionaires.

Dr. Jim Dahle:
Oh, awesome. Congratulations.

Michael:
Thank you.

Dr. Jim Dahle:
That's pretty cool. A lot of people are not millionaires, believe it or not. This is actually relatively rare, despite the impact of inflation over the years. We all think of millionaires as that guy on the Monopoly board game cover, right? In reality, to be that guy, you got to be a decamillionaire now.

But a million is still a lot of money to most Americans. I looked at some statistics yesterday, 46% of Americans have nothing saved for retirement. So, you don't have to have much to be ahead of average, but this is pretty awesome. Tell us about your net worth. What's it composed of? How much is in your home and how much is in investments, et cetera?

Michael:
We have $650,000 in investments and we have a paid-for home, which is worth $450,000.

Dr. Jim Dahle:
And anything else significantly contributing to that?

Michael:
No, we're pretty boring, honestly, financially.

Dr. Jim Dahle:
Do you own your own company?

Michael:
I do. It's very recent. I started this business about nine months ago and it's going pretty well.

Dr. Jim Dahle:
But maybe not a lot of value there yet, as far as selling that company.

Michael:
Very little value. Yeah.

Dr. Jim Dahle:
Okay. Did any of this money come from somebody else? Did you inherit any of this or is this all from y'all's hard work?

Michael:
No inheritance whatsoever. We've had very meager incomes compared to a lot of your guests.

Dr. Jim Dahle:
Yeah, I'm sure. Okay. Your wife's a marketing director, you're a general contractor. Tell us about what your incomes looked like over the last 13 years.

Michael:
In 2013, I started out negative $26,000. My wife was negative $35,000. We both made $35,000 that year, so a combined income of $70,000. Our highest earning year ever was in 2024 and that was $210,000, but that was fairly short-lived since I started my own company.

Dr. Jim Dahle:
Wow. So you saved a fair amount of your income. Did you build your own house?

Michael:
I did not. I bought a fixer-upper.

Dr. Jim Dahle:
You did not actually build your house. Okay. Fixed it up, probably. You probably added a little bit of value there. So mostly this was savings you put away into your retirement accounts, et cetera. So, how much of your income do you think you saved on average over those 13 years?

Michael:
Well, when I was younger, I was very intense. And my first year, just to give you an idea, I made $35,000. My total expenses for the year were $4,600.

Dr. Jim Dahle:
Were you in a cardboard box in your parents' basement or how did you do that?

Michael:
I was living for free with an aunt at the time. I'm very grateful for that. But yes, I was very intense. My wife famously said to me, “If it were for me, you'd be living in a van right now.” And I think she's correct.

Dr. Jim Dahle:
Very cool. And so, how about the last few years? I mean, you're saving 5%, 10%, 20%? What do you think of your incomes going toward investments?

Michael:
We're probably around 65%. We had a child recently. Daycare has decreased our savings rate.

Dr. Jim Dahle:
But you were at 65% of your gross income?

Michael:
Correct. And I'm a little embarrassed by that. It used to be a lot higher.

Dr. Jim Dahle:
All right. Well, you're well on your way to whatever your goal is here in this game we play with our own financial goals. You're well on your way to it. Clearly with that sort of a savings rate, you can accomplish just about anything you want to in really not that much time. So, have you thought about some of your long-term goals and what you want to accomplish in your career?

Michael:
Early on, I was a really big fan of Mr. Money Mustache. That's how I started this. I always had the idea of FIRE in my head. But the reality is, I think FIRE is constantly a moving target for me. I don't know if I will ever get there, but I think probably decreasing the workload and only taking on projects that I enjoy would be the direction I'd like to pursue.

Dr. Jim Dahle:
Now, one, you mentioned earlier that maybe you make a lot less money than a lot of the people we have on this podcast, but you also spend a lot less money. What can you say to some of the listeners out there that are spending a multiple of what you're spending about living a frugal life and still being happy?

Michael:
For me, I grew up in a very frugal family, so it comes naturally to me. My father is probably the most frugal person you'll ever meet. Despite having a PhD, I know he hasn't turned his heat on yet this winter. I know for me, this comes naturally. But when I make a budget, I make a budget so that it hurts. That's painful. And then I cut it even more. And that's kind of my mindset.

Dr. Jim Dahle:
Okay. There's two schools of thought. One is to live as frugally as you can, reach your financial goals. The other one is this idea of die with zero, that you don't want to necessarily be the richest guy in the graveyard. How do you balance those two schools of thought in your wealth building process?

Michael:
I have balanced them very poorly, to be honest with you. It is something I need to work on. I recently purchased the book Die With Zero because of your podcast with Dr. Bernstein. I haven't read it yet, but I have been relaxing a little bit more financially over the past two years. And I definitely need to make more compromises moving forward. That's very true.

Dr. Jim Dahle:
Okay. For people out there that are like you, they're in a typical career of some kind. I shouldn't necessarily say typical. The person who now runs White Coat Investor was running a general contracting company before he came here to run White Coat Investor. But what advice do you have for folks that want to build wealth, that want to be millionaires, that want to be multimillionaires? You're at an age where lots of docs are just coming out of training and you're already a millionaire. What advice do you have for them if they want to do what you've accomplished?

Michael:
I think it's super important to keep your investments and your budgeting simple. Don't muddy the waters. Don't make it complex. Just make it simple and streamlined and live far below your means.

Dr. Jim Dahle:
So, what's your next goal? What are you working on? You mentioned that you had some desire to be financially independent relatively early in your life. How are you planning to make progress toward that?

Michael:
I'm probably just going to keep moving forward as always. My next couple goals are a million dollars of investable assets and I would like to acquire a couple of rental properties. I have a background. I worked for a decade for a real estate developer. So that's an angle I'd like to pursue.

Dr. Jim Dahle:
Tell us a little bit now about your retirement account situation. Where have you invested money? What types of accounts?

Michael:
I've maxed out my wife and my Roth IRA since probably 2014-2015. My wife maxes out her workplace retirement and has a match. I have a Roth Solar 401(k). Although this year I haven't been able to contribute a ton since I just started the business. But right now it's roughly 50% Roth, 50% traditional. My previous employer only allowed a traditional account, traditional 401(k). So I didn't have many Roth options in that avenue.

Dr. Jim Dahle:
What investments have you put into those accounts?

Michael:
I'm a Boglehead. VTSAX, VVIAX, Vanguard value, Vanguard total stock market, QQQs. I own a very, very small percentage of individual stocks and I have them just for fun. But everything is pretty boring.

Dr. Jim Dahle:
Very cool. Well, Michael, congratulations on your success. You should be very proud of yourself. You become a millionaire at a relatively young age and you're all set for bigger and better things as you move throughout your career and your life. So, congratulations and thank you so much for being willing to come on the podcast.

Michael:
Well, thank you for having me, Dr. Dahle.

Dr. Jim Dahle:
Okay. I hope you enjoyed that podcast. It's wonderful as always to remember that the White Coat Investor community is not all doctors. In fact, it's only about 75% doctors. So, there's plenty of people out there that are general contractors and business owners and attorneys and pharmacists and PAs and NPs and whatever. And you're welcome here.

As you've realized, 95% of this information is the same for everybody. Probably 99% of it's the same for high earners. Only about 1% of what we talked about here is truly physician-specific.

FINANCIAL BOOT CAMP: HOW DOES DENTAL INSURANCE WORK?

In fact, what we're going to talk about here for a few minutes is Financial Bootcamp. We've been adding these episodes in and you can actually listen to all of these on the side if you're interested in just getting the Financial Boot Camp podcast. But we're going to include one of these each week with these milestones podcast. And the one we're going to do today talks a little bit about how dental insurance works.

Dental insurance is not necessarily catastrophic coverage. In fact, most dental insurance plans have a cap on what they'll pay. In some ways, it's almost the opposite of insurance. Dental insurance pays for the cheap stuff. It doesn't pay for the expensive stuff. It'll often cover your cleanings and your exams and the first 50% of your cavities until the plan's paid out, I don't know, $2,000 or $3,000 or something like that.

It is relatively inexpensive and it's often provided by your employer as a nice benefit. And it's a good reminder that you ought to go in and get your teeth cleaned and examined every now and then. But it's not exactly the same thing as a catastrophic health insurance policy, where when you fall off the side of a mountain, you really need that health insurance.

Dental insurance is pretty optional. And it's optional in the lives of a lot of our dentists that are White Coat Investors. They're like, we're not going to bother with insurance or you got to pay this in addition to the insurance or whatever. They have a different relationship with insurance than a lot of people like emergency doctors do, where we take what we can get because we're happy to have it. A lot of times they pick and choose which dental insurances they take or whether they take it at all, or maybe have you do all the reimbursement hassle with billing your dental insurance for payment of the services that you've engaged them for.

It's a little bit different in those respects. Optional to buy, we've had it for most of my career. We like it. If nothing else, it's a good reminder and a good incentive to get in there and get our money's worth out of it, which usually means doing your cleanings and exams. And I think it promotes good dental health in that respect. But if somebody said, I'm just going to play cash for my dental insurance, I wouldn't say they're making a bad financial move.

In other respects, it works a lot like medical insurance. There tends to be copays, there tends to be coinsurance. Just read the plan, understand what you bought, and if it works for you, go ahead and use it. If nothing else, it allows you to buy some of your dental care with pre-tax dollars.

SPONSOR

This podcast was sponsored by Bob Bhayani at Protuity. One listener sent us this review. “Bob has been absolutely terrific to work with. Bob has quickly and clearly communicated with me by both email and or telephone with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications underwriting process in a clear and professional manner.”

Contact Bob at www.whitecoatinvestor.com/protuity today. Email [email protected] or call (973) 771-9100 to get your disability insurance in place today.

Thanks so much for listening this podcast. It’s not much of a podcast without listeners, but if you want to come on, we'd love to have you, whitecoatinvestor.com/milestones is where you apply.

Until then, keep your head up, shoulders back, you've got this. We'll see you next time on the Milestones podcast.

DISCLAIMER

The White Coat Investor podcast is for your entertainment and information only. It should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.

One of the best ways to manage federal student loans for doctors over the last 15 years has been Public Service Loan Forgiveness or PSLF. And what this is, is this is a program available to not just doctors, but to anybody that is employed full time, which is defined as at least 30 hours in a week, full time by a nonprofit, aka 501(c)(3) or government employer.

If you're working for the military, if you're working for the VA, if you're working for a nonprofit hospital, all these sorts of places and most academic centers, you are eligible for Public Service Loan Forgiveness. Under the program, you need to make 120 monthly payments, i.e. you have to pay on your loans for 10 years in an approved program. And then the remainder, whatever else you owe, whether it's $40,000 or $400,000 is forgiven. And that forgiveness, unlike many other forgiveness programs, is totally tax free. You do not pay state income taxes on it. You do not pay federal income taxes on it. It's like if you had $200,000 forgiven, it's like your net worth instantly goes up $200,000. It's pretty awesome.

And the cool thing about it is, at least under current law, and laws for this are always changing, payments you make during your training, during residency, during an internship, during fellowship, almost always count. And the reason why they count is because those programs are run by nonprofits and by government employers. You're usually a university employee while you're an intern or a resident or a fellow. And so those payments all count.

Now, the way you make payments is typically through an income-driven repayment program. There are always changes being made to these programs. You have to stay as up to date as you can on which one you should be in. But as a general rule, these programs certify your income only periodically. And they typically do it by going back to your last tax return that you filed and looking at what your income was on that tax return.

What a lot of docs do is they file a tax return their last year of medical school, even though they're not required to, but they file a tax return that says their income's zero. And so, for the next year or two, their payments are zero. But those $0 payments count. They count for these 120 monthly payments.

And even after that, you'll certify with a year where you had no income for half the year and an intern income for half the year. So, those payments aren't going to be very high. And then you'll certify using some residency payments where your income's not very high. So you're not making very large payments. And even when you come out of residency, you've got a year where you only have half of an attending income. And so, your payments are a little bit lower.

And it's not unusual for a year or two after you finish training, you're still making low payments like you were making as a resident. So in reality, lots of doctors are only making real payments, large multi-thousand dollar payments on their student loans for one to five years after finishing their training, after recertifying their income. In fact, some people even delay their tax return so they can get another year out of this. They file an extension on their taxes. Their taxes aren't filed until October. And then they're going back an extra year to look at their lower income in setting these payments.

The amount that can be forgiven can be substantial. It is not unusual to have six figure amounts forgiven. I don't know that I've yet run into somebody who had a seven figure amount forgiven, but it is theoretically possible. Especially if you ended up going to a really expensive dental school and you paid for all that with debt and you went to an orthodontics residency and paid for all that with debt and went to an expensive undergrad. Seven figures is not impossible to have the public service loan forgiveness. There is no upper limit on it, at least under current law.

Pay attention to legal changes. There's always things being talked about in Congress, things being talked about in the executive branch. And it's possible there will be future changes in public service loan forgiveness. But what typically happens is those that are currently in the program are grandfathered in.

Now it's a good idea to hedge a little bit against the possibility of changes. Not only changes that are brought about by Congress or by the executive branch, but changes in your career. Maybe you decide you don't want to work full-time. You want to go on the parent track. Or maybe you decide you don't want to work for a nonprofit anymore. You realize you can be making twice as much money working in a private practice or a for-profit position or something. And you decide, “No, I don't want to do public service loan forgiveness anymore. I'm going to refinance my student loans using links at the White Coat Ambassador and get some cash back. Then I'm going to pay off my loans quickly, maybe by living like a resident.”

It's okay to change. But the nice thing about having a public service loan forgiveness side fund is that you've still got the money to pay on those student loans. And so, what I recommend you do is instead of making these huge payments, like you would make if you're trying to pay off your loans quickly in just like a couple of years, instead of making them to the lender, make them to your brokerage account.

And that way, if you change your plans or something happens to PSLF, you've got some money in the brokerage account. You might have $50,000 or $100,000 or $200,000 in that brokerage account. You can turn around and send to your lender and not be behind as far as getting your student loans paid off yourself.

All right, that's public service loan forgiveness. Everybody should take a look at it. It doesn't necessarily mean you should take a job that qualifies for public service loan forgiveness, but it's something to consider, especially if you like that job just as much and that job pays just as much, why not take the one that's also going to qualify for you to have a substantial amount of money passed to you in the form of student loan forgiveness.