Financial Advice for Medical Students and Residents – Podcast #98

Intro: 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.
Intro: Here's your host, Dr. Jim Dahle.

WCI: Welcome to White Coat Investor podcast number 98, a discussion with a resident and a medical student. This episode is sponsored by Set for Life Insurance. Set for Life insurance was founded by president Jamie K. Fleischner, CLU, CHFC, LUTCF, in 1993, which she started while attending Washington University in St. Louis. They specialize in individual term life, disability, and long-term care insurance. They work on the client's behalf to shop around to find the most suitable products at the most cost-effective rate. Set for Life is first and foremost a client-centric company. They listen carefully to the needs of clients and shop around to find the best products available at the best rate. For more information, visit SetForLifeInsurance.com.

WCI: Thanks for what you do. I know your work is not easy, it's often high-liability work, and it's difficult work. It took a lot of training to do it, and it can be very demanding. It can be very both physically taxing and emotionally taxing. If none of your patients have thanked you today for what you're doing, and you're on your way home from work, or even if you're on your way into work, I want to personally thank you for your hard work. Thank you so much.

WCI: Our quote of the day today comes from Jeff Atchison, who said, “Hidden fees are a little bit like high blood pressure. You don't really feel it, and you don't necessarily see it, but it'll eventually kill you.” I think that's so true. You really do have to be cognizant of your fees.

WCI: Now, the Financial Boot Camp book is out. If you're not aware of this, this is the second book I've written. It's called The White Coat Investor's Financial Boot Camp. It's a 12-step, high yield guide to getting your finances up to speed. You may have been introduced to it by the e-mails that you get sent when you sign up for the White Coat Investor newsletter, but this is a dramatically expanded version of those e-mails. We've included a bunch of anecdotes from readers that will help inspire you to take those steps you need to to get your finances under control, and I've added all kinds of information to each of the chapters. Added a glossary, added a bunch of appendices, an introduction, conclusion, all kinds of stuff that was not in the original e-mails. I would recommend you pick that up, and if you can use it, if you're relatively early in your financial journey, not early by age, but early by level of financial knowledge, I think you will find it very, very helpful to get yourself up to speed with other white coat investors as quickly as possible.

WCI: If you're later in your financial journey, you will likely still get a few tips out of it. There's probably a few pearls in there you don't know. But this makes for a great gift, for your students, for your residents, for your colleagues. Something you can pass along, where you don't have to feel like you're preaching to them, but you can give them something that will really make a dramatic difference in their lives. If you will recall back to the first really good financial book you read, it was probably worth a couple million dollars to you over the course of your life. That's what good financial literacy combined with a physician income can do.
WCI: Another thing I want you to be aware of is the WCI Con 20 has been scheduled. The dates for this are going to be in March 2020. The 11th and the 15th are travel days, with classes on the 12th, 13th, and 14th of March 2020. So save those dates. You don't need to get a hotel yet. You can't even register for the conference yet, that'll probably happen in July. But if you are interested in putting your name in the hat to be a speaker, there's an application you can find in the show notes. If you are interested in just giving your input on what speakers you'd like to hear, there's a separate survey that you can take as well. It's very quick and easy, you can find a link to that in the show notes if you want to have some input into who comes to the Physician Wellness and Financial Literacy Conference, aka WCI Con 20.

WCI: All right. Today, we have two very special guests. The first is a resident, the second is a medical student. They both agreed to come on and be live on the show. I guess it's not live as you're listening to it on the podcast, but it's live as we're recording it. And actually discuss their questions they have about their own financial situations. Our first guest on the podcast today is a resident, and we're going to keep him anonymous, but talk about his personal financial questions, his personal financial situation, and see if we can answer some of his questions, all of which are very common questions for other people in similar situations. I think this can be really helpful for a lot of listeners. At any rate, welcome to the show.

Resident: Yeah, thank you for having me. This is a great opportunity. I'm very happy to be having the opportunity to ask questions and share my experiences thus far.

WCI: Cool. Well, we've kind of looked at a list of topics and questions we're going to try to go over today, in the next 15 minutes or so. Let's go ahead and start at the top. Do you want to talk about the first question, or thing you want to talk about?

Resident: Yeah. Absolutely. I guess my first question is kind of about student loans. I guess a little bit of back story for my situation, I'm an internal medicine intern, and I've got around $175,000 of student loans. I initially consolidated them, and I'm currently making payments that are about $0 a month, based on my prior year tax returns. My question is that I'm newly married and my wife always has student loans, and how you would go about filing taxes and whether or not you would do PAYE or REPAYE and just kind of initially, how to go about that.

WCI: So this is one of the most complex questions out there. We're going to need at least a little bit more information. What does your wife do?

Resident: She is a nurse. She has about, around $25,000 to $30,000 still in loans. Most of hers are, the interest rate on them are about, a little bit higher than my loans consolidated.

WCI: Okay. And who is her employer? Is it a 501(c)(3)?

Resident: It is, yes. Yes.

WCI: And you're in a 501(c)(3) residency?

Resident: I am as well, yes. I guess for a little bit more information as well, I plan on probably doing a fellowship, so at least six to seven years of training. I make a typical resident salary and will make a typical fellow salary. She makes a very similar salary as well, if not maybe $10,000 to $15,000 more.

WCI: And what is your plan after training? Are you thinking about staying in academia or otherwise trying to go for public service loan forgiveness?
Resident: I think if I end up doing a fellowship, most likely, because it'll be six to seven years of training, and then I'll need three or four more years of academic medicine or a 501(c)(3) until you hit that public service loan forgiveness. Initially, that's my plan now, yes.

WCI: You said you owe $175,000?

Resident: Roughly, yep.

WCI: Okay. And that's all federal loans?

Resident: Yes.

WCI: Okay. I mean, you sound like a good candidate for public service loan forgiveness. You're going to spend a long time in training, you're making these tiny payments during training, and you get to knock it out relatively easily after you finish your training. You're a good candidate for it, for sure. You'd be an even better candidate if you owed $500,000 in federal student loans, but even at the amount you owe, you're probably still going to come out ahead going for public service loan forgiveness.

WCI: Now, that comes with all the usual caveats. I'm sure you're following closely all the travails people are having trying to get fed loans and the other loan servicers to actually count their payments correctly. And so my first warning to you would be, you've got to be all over this process the whole way through. You've got to keep a copy of every certification form, get your employer certification form done every year. Keep a copy of every payment you make, so you've got a big stack of paperwork where you can literally prove you made 120 payments while employed full-time, and making on time payments in an eligible program for this whole time, this next ten years, basically.

WCI: So the only real questions here are what can you do to maximize that forgiveness, and is it worth it to do those things? For example, one of the things you can do that will increase the amount forgiven is to file your taxes married filing separately. What that does, essentially, is it takes her income away from your income on your $175,000 in loans. And what that can do, basically, is it just makes your payments lower, and the lower the payments you make during your training, the more that's left to be forgiven in the end.

WCI: The downside of that is, it almost surely increases your tax bill, versus if you were filing married filing separately, given your disparate incomes. You know, one a nurse and one eventually an attending physician. You may end up paying a fair amount extra in taxes in order to maximize that amount. So this will be a little bit of a year to year decision. Every year, literally, you gotta run the numbers and see if it makes sense for you to be doing married filing separately or not. Unfortunately, there's no obvious answer until you literally look at your taxes and run the numbers on what the payments are going to be. For example, it doesn't do you any good to lower your payments past zero. Once they're down to zero, that's as good as it gets. And doing more, paying additional money in taxes in order to lower them further isn't going to help you get anything more forgiven.

WCI: The other thing you can do to lower that income is to make tax deferred contributions to your retirement accounts. That can be useful, as well, as a tactic. The downside to it is, you're taking these relatively low earnings years that you have and not using them to make Roth contributions. So again, there's a tax cost to this strategy.

WCI: I think in your situation, it is probably worth hiring professional help. I've got a list of four or five people on the website under Student Loan Advice, and this is all they do. All they do is give advice on your student loans and help you run the numbers year to year. They usually charge a few hundred dollars, but in your case, that's going to be money very well spent to help you run those numbers, because this is literally something you're going to have to do over and over and over again for the next seven or eight years. But it would not surprise me at all that the right answer for you could be being in the Pay As You Earn program, not the Revised Pay As You Earn program, because you cannot do married filing separately under that program. And then, of course, filing your taxes married filing separately. And over the next few years, perhaps also decreasing your income by contributing to a 401(k) or 403(b) your residency may offer.

WCI: I wish I could be more specific than that. It's just, unfortunately, it's a very complex calculation.

Resident: Yeah, and everybody's situation's unique, which is why it's difficult to get dedicated advice without hiring somebody, which, I very much appreciate your answer.

WCI: The tricky thing is, you can't just go to any financial advisor and ask these questions, because they don't understand the programs. It really is very complex interplay between the payments and your taxes.

Resident: And it's been difficult, too, this year, trying to file taxes. Most accountants don't understand it either, so you're either left hiring somebody or kind of trying to figure it out on your own.

WCI: Yeah, and then you throw in the uncertainty about the program. Obviously, when you finish your training, you also need to be saving up a side fund in case something happens to this program. Okay, let's move on to your next issue.

Resident: I guess a follow-up question for that would be that, say that all of the public service loan forgiveness does work out, and that is my ultimate goal, is to go for that forgiveness at the end of ten years. Given the current situation, would you recommend contributing to Roth accounts and trying to save to pay taxes now, or would you contribute to tax deferred accounts and try to decrease your income to lower your payments?

WCI: Boy, that's a hard question, because it comes down to how much faith you have in the public service loan forgiveness program. The right answer for most residents is Roth accounts. But, if you're trying to lower your payments in order to get more free money, that obviously makes sense as well. I think if you run the numbers, you will be able to see that the tax deferred contributions, at least in some amount, are probably the right answer for you. But you gotta run the numbers on this one.

Resident: Oh, that makes sense. Absolutely. And then I guess, getting more into the investing side, my wife and I both have a 403(b) through our employer, and then we're obviously eligible to contribute to a Roth account or traditional IRA accounts. Would you recommend one over the other, whether it be IRAs or the 403(b) through our employer?

WCI: As a general rule, you want to make sure you get your match. If there's a match from the employer, put enough in there to get that. Not getting that is like leaving your salary on the table. Once you've got that, I prefer you being in control of it yourself. If you've chosen to do a Roth IRA or a Roth account of some type, I'd do the IRA before I did the 403(b) or the 401(k). But, you know, get the match, use the IRA. If you're able to save even more, great, go back to the 403(b) or 401(k).

Resident: Mm-hmm (affirmative). Okay, great. And then, starting residency, I had heard a lot about life insurance and disability insurance for residents and potentially their spouses. When I started residency, I got myself a life insurance policy and a disability insurance policy, but I wanted to get your thoughts on life insurance and disability insurance for my wife.

WCI: Well, what the real question is for all of this is, what is the plan? What's the plan if you die? What's the plan if she dies? What's the plan if you get disabled? What's the plan if she gets disabled? What's the plan if you both get disabled? What's the plan if both of you die?

WCI: And I think you gotta work through each of those scenarios and go, “Well, what is the plan? How big of a deal is this financially? Is this something we need to insure against?”

WCI: I think once you arrive at that, then you go, “Well, this is what we'd like to happen in the event of my death,” and you look at how much money you have, and you look at how much money you would need to make happen what you would like to happen if you died, and take the difference and buy enough life insurance to cover that. Same thing with disability insurance, it's basically the same procedure. Certainly, nurses get disabled all the time, and if that would cause significant financial difficulty to your lives, it's worth buying disability insurance for her.

WCI: Same with life insurance. A lot of people, even with the stay at home parent, choose to insure the stay at home parent, because of the value there. There's a real economic value to the things that stay at home parent's doing. I mean, it's easy to calculate how much child care costs, but other things like meal preparation, shopping, home maintenance, those kinds of things. Housecleaning, maybe. That all has an economic value, and you can add all that up and put a number on it for how much life insurance to have. So I think it's not uncommon at all for even a stay at home mom or a stay at home dad to have half a million dollars of life insurance on them, just to cover those kinds of costs in the event of their death.

Resident: Mm-hmm (affirmative). And that makes sense. Kind of further complicating our situation is that my wife has life insurance through her employer, which is I think about three times her salary. Obviously, if she was to leave that employer, she would lose it, so what are your thoughts on getting it now or deferring it for another, anywhere from three to six years?

WCI: Well, the issue with life insurance from an employer is, it's usually some tiny amount. Right? 50, 100, $150,000. It's almost like, why bother? If you're going to buy life insurance, buy big numbers. Even half a million on a stay at home parent isn't that big of a number. When I talk to docs about buying life insurance on them, I tell them it's a seven figure amount. One million, two million, five million, those kinds of amounts. Term life insurance is very cheap. If you're going to err, err on the side of buying too much. It just won't cost you that much money.

WCI: I guess, if you feel like there's a need there for life insurance, I'd buy it. I'd just go out and buy it through something like TermForSale.com or InsuringIncome.com. These are websites that will give you a quote. You don't have to give them any personal information. They'll give you a quote and let you know how much it costs. I think once you run the numbers and see just how cheap it is, you'll go, “Oh, let's just get more.”
Resident: Mm-hmm (affirmative).

WCI: It's nice to have something from the employer, but chances are, if there's actually a need for life insurance, it's not going to be enough money.

Resident: Yeah. That's very helpful, very helpful. And then, one of my other topics that I wanted to discuss, if we still have time is, overall budget as a resident. Residents, it's a lot more money than we had when I was in medical school, but still it's not like that attending salary yet. So, I've noticed in our situation, every month we have a little bit of money left over after all the bills are paid, and wanted to get your thoughts on whether or not we should use that money to pay off my wife's student loans, which she's not going to be going for public service loan forgiveness, or if we should save that money in a savings account for a home that we're ultimately going to be buying in the next, anywhere from five to eight years.

WCI: Well, I think if the home's five to eight years away, I don't think that would be a big priority for me to save up a down payment for it. You mentioned, I think, that her student loans were at a higher interest rate than yours, weren't they?

Resident: By a little bit, yes.

WCI: Yeah, so five, six, 7%, somewhere in there?

Resident: Right around six to six and a half.

WCI: I mean, that's a pretty high priority for me. Now, do I put money toward those before I've maxed out Roth IRAs, that sort of thing? That's a hard decision. But certainly, I would do that before saving up a down payment, before really getting a really big emergency fund, before investing in a taxable account. I think it's a no-brainer to pay off those loans. I think you'll be glad not to have that over head. It'll improve your cash flow a little bit to not have that payment going out every month. And I think people just make better decisions in their lives when they get rid of debts like that. So I think that would be a pretty high priority for me. I mean, a six or six and a half percent guaranteed return? Boy, I wish I had an investment like that available to me.

Resident: Yeah. That's very helpful. There's always competing interests when you're out of medical school and finally making money, that you want to save and invest and pay off loans. So that's very helpful, where some of the priorities may be.

WCI: Yeah, it's a big problem for a brand new attending physician too, you have all these great uses for cash, and not enough cash to go around to all of them. And then, later in life, you know, I'm at that point in my career where I don't have as many competing uses for money. I don't have any student loans to go pay off, I don't have a mortgage to go pay off. It makes things very, very simple, but it's kind of funny that when you have this huge need, you don't have the cash, and later you have the cash without the huge need. But that's just a matter of how you end up, if you take care of business early on.

Resident: Yeah, that's very helpful. And then, I had just thought of a follow-up question from the investing question that I had earlier. I know that if I do go for public service loan forgiveness and we file our taxes separately, if I understand correctly, we cannot contribute directly to a Roth IRA. So we would have to use the back door Roth IRA, is that … Can you clarify that at all?

WCI: That's correct, that's correct. If you're doing married filing separately, you ought to plan to do your back door Roth IRA contributions indirectly, or your Roth IRA contributions indirectly or through the back door. Not a big deal, I mean, you'll be doing it as an attending anyway. Just something to be conscientious of, because otherwise you'll screw it up and have to recharacterize and reconvert it. It gets to be a big mess. So, just doing it through the back door from the beginning is not a big deal.

WCI: I think the first year I did a back door Roth IRA, I didn't actually have to do it. I thought my income was going to be over the limit and it wasn't. But it's no big deal to fund it that way, as long as you don't have some other outstanding IRA screwing things up.
Resident: Yeah, absolutely. That's perfect. And then I guess my final question would be, I've taken a huge interest in finances, especially in medical school, now moving into residency. I've learned a lot about just how to become financially independent as a physician. Ultimately, I think that's my goal, hopefully in the next 15 to 20 to 30 years, whatever it may be. I guess I just wanted to get your thoughts on, what are some of the active things that you can do now as a resident, or as an intern at least, to kind of start out on the right path to get good habits going forward?

WCI: Well, I think that's exactly it. It's about habits, because nothing you do financially as a resident is really going to move the needle a lot. If you pay a little extra on your loans, that's not going to make a huge difference compared to what you can do as an attending. If you put a little money away from retirement, that's not going to make a huge difference. In reality, the most important year of your financial life is your first year as an attending. Hitting the ground running with a written financial plan when you become an attending is really what makes a difference. All of a sudden, you've got 200, 300, $400,000 a year coming in the door, and you can really do some cool stuff with it, if you can just avoid using it to buy two Teslas and a two million dollar house. So I think that's really it, just being conscious of what makes a difference in the financial life of a physician.

WCI: Your most important things now are develop some good saving habits, take advantage of some retirement accounts, manage your student loans well, get that insurance in place that would take care of a financial catastrophe, and just have a written plan for your first 12 paychecks as an attending, because that's really what's going to move the needle.

Resident: Is there any actionable tips during residency that would really make a huge difference, in your opinion?

WCI: I mean, I think getting insurance in place is probably the biggest one.

Resident: Okay.

WCI: Not having disability insurance, residents get disabled all the time. Or they develop a medical condition, and now they can't buy disability insurance. So I think as an intern, that's probably number one. But aside from that, the other big mistake I see people screw up in residency is not managing their student loans well. They put them in deferment, they put them in forbearance, and then they're like, “I've done seven years of training and I'm going to be an academic attending, but I didn't make any payments in residency.”

WCI: Well, you just pissed away $200,000 in public loan forgiveness. So I think you gotta be a little bit conscientious to manage those two things well, in particular. Everything else is icing on the cake, above and beyond those two issues, in my opinion, as a resident. You're not going to become rich by what you do as a resident.

Resident: Yeah, that's very helpful. I think the biggest thing coming out of medical school, for me especially, was student loans and figuring out how to manage those, because my wife and I got married in that May time right around graduation, so then that's kind of factoring in her student loans as well, and how to do that with taxes and whether it's PAYE or REPAYE and things like that, and trying to figure that out. That was probably one of the most stressful things coming out of medical school, but hopefully, we've got a good plan.

WCI: Yeah, and in your situation, you're not in a terrible place. I mean, all together, you guys only owe $200,000. And so, that's very, very doable. By the time you come out, maybe it'll be a little bit more than that because it grew, but this is a ratio that a doctor can take care of just living like a resident for two or three years and throwing the difference at the loans. This is not some crazy loan amount that you've got. This was a good investment you made to borrow that much money to become a physician, which is not something I can say to everybody. If you come out with an income of $150,000 and you racked up $600,000 in student loans, that wasn't a good investment. You made a good investment, and so this will work out well for you.

Resident: Yeah. I hope so.

WCI: Just remember not to try to do too much as a resident. I mean, your goal as a resident is to learn medicine, to learn to be a good doc. And you don't want to get so caught up in trying to get ahead financially, moonlighting and tweaking all this financial stuff, that you fail in your primary job right now, which is to become a good doctor. The finances will take care of themselves. It's good to pay a little bit of attention to it and make sure you take care of business, but this isn't where your primary focus should be for the next three to six years. You need to be learning how to be a good doc, how to take care of people, and ensuring that you do get, eventually, that high attending pay.

Resident: Yeah, absolutely. That's very helpful. I really appreciate all of your help and your guidance here, Dr. Dahle.

WCI: You're welcome. Thanks for being on the podcast today.

Resident: Yeah. Thank you.

WCI: Okay, our next person on the podcast today is Justin. Justin is a medical student who's also on the line with us here with a lot of other questions worth discussion on the podcast. Justin, welcome to the podcast.

Medical Student: Thank you very much, Dr. Dahle. Very happy to be on.

WCI: All right. Let's go over your first question here.

Medical Student: My first question, really, I've done some research, but haven't seen too many answers on it. I was hoping you could shed some light on it, about advice for young married couples who are health care professionals trying to start a family, and just kind of from your experience or colleagues, how much you should liquidate. I am a medical student, so rather young, and just don't know what to expect when you're expecting.

WCI: What do you mean to liquidate? You mean cash to have on hand when you gotta pay for delivery, or what are you looking for, mostly?
Medical Student: I guess that part, and on top of a rainy day fund, any additional funds you should have to quick access.

WCI: Yeah. I think it's good to have cash on hand because there can be a lot of expenses that come up. Obviously, you can spend gazillions on baby stuff. I mean, there's all kinds of baby stuff out there, and every little item's going to cost $200. But a lot of it can be had for pretty cheap. Used, and a lot of these baby to baby exchange kind of places. You'd be surprised how inexpensively you can also outfit a baby. I wouldn't feel, if you're in a situation in life where you don't have much money, like you are in medical school, that you've got to have the best of best of everything. You don't need an $800 jogging stroller. I think there's a lot of places that you can simply skimp. I assure you, the kid will not care or remember what kind of clothes they wore their first year of life. It's just not going to matter.

WCI: But some stuff can come up. I mean, pregnancy is a high-risk time for medical problems. It's not unusual at all for people to end up in the hospital and to have problems, and for you to run through your entire deductible. Obviously, some sort of health insurance, whether that's Medicaid, like some medical students are on, or whether it's health insurance bought through the school or health insurance bought independently. You gotta have something to cover there. And it's a good year to have a relatively low deductible, if you have control over that, because you're going to go through it paying for a delivery. It's nice that you have nine months' notice for that sort of thing sometimes, and just to get the insurance in line and be sure you have the ability to pay the copays, pay the deductibles, those sort of things. Otherwise, you end up running into cash flow problems.

WCI: But the truth is, most of the time in medical school, most of your living expenses are probably borrowed money anyway, aren't they?
Medical Student: Yeah, correct, they are.

WCI: So it's just a matter of how much you borrow. And of course, the school puts limits on how much they'll give you. Usually, those are pretty generous limits, and then you can tap into other resources, like family and savings and those kinds of things. But it's not like you've got something else to be doing with your money, right? Paying down loans or maxing out retirement accounts, or that sort of a thing. It's just a question of how much you borrow, and the idea is to borrow as little as you can.

Medical Student: Right. So I guess, you kind of touched on something I wanted to hear from your experience as well. When you mentioned deductibles and … So, as a fourth year medical student looking into residencies, how much would you say to students should they prioritize a rank list based on, not only cost of living, but benefits, salary, when making our list? Because obviously, the specialty and the fit with the residents and the program is important, but how much do you think should weigh in on that in terms of the financial aspect of being a resident?

WCI: You know, honestly, I think benefits and salary are probably at the bottom of the list. Quite honestly. I actually, my number one choice and the place I went to residency paid the least of all 21 places I interviewed at. It was the worst paying place. It was $34,000 a year. Before I arrived there, in the three months between the time I matched and when I arrived there, they actually gave us a raise, so it was $37,000 my intern year when I got there. I thought that was great. You know, it was way more money than we were living on as medical students. It was wonderful.

WCI: But that really isn't a high priority. Number one is, are you going to get the education you need? The strength of the training has got to be your number one priority. Number two, what's your fit there? Do you fit in with these people? Are these people that do the same stuff as you on their time off? Are these people you want to work with? Are these people that you can see yourself hanging out with? That sort of a fit is super, super important in choosing your residency. Item number three is probably location, and that's for lots of different reasons. If you have family there that can be a support, is it some place your partner wants to live, is it some place you want to live, can you pursue your recreational pursuits on your limited time off there, because if you can't do it in half a day, you're probably not going to do it during residency.

WCI: And then, of course, cost of living is also in there. But I think you will generally find, if you're married, you have children, you're looking for more of a family kind of atmosphere, you're probably not going to be in the highest cost of living areas anyway. The fit's not there. When I interviewed, you go some place in the Bay area or some place in southern California, and most of the residents seem to be single. They're out going clubbing or whatever. If you're married with children, you're probably somewhere else, in the Midwest or something, where the cost of living is naturally lower. I think that often takes care of itself. But you gotta be a little bit careful. Matching into a residency on Manhattan with a stay at home spouse and two kids, you will not feel very wealthy as a resident in that scenario. In fact, there's a lot of attendings that do not feel very wealthy. They really feel like they're living paycheck to paycheck in that sort of a situation.

WCI: I think cost of living should be taken into account, maybe as the third item, as part of your location. But not the benefits, they're just not dramatically different enough from one residency to another that it should sway your opinion, I think, or your rank list.

Medical Student: Yeah, that makes a lot of sense. Obviously, location is one of the most important things for me when I'm looking into. I am in the Midwest, so yes, I did not apply to any major big cities. That is something that is very intimidating to me, for all the reasons you just mentioned.

WCI: Yeah, I remember I interviewed at Stanford, and I think they give you a signing bonus. It was several thousand dollar signing bonus and we thought, “Well, that's cool,” and then we looked at it and that was basically first month's rent. We'd have to turn around and pay that for renting on some studio apartment. It just wasn't going to work, so I ended up … I can't even remember if I ranked it or not. If I did, it was way down my list based on that. It wasn't that I thought the program was bad, it was just like, “I don't want to deal with that when I don't have to.”

Medical Student: Yeah. All preference related. So, my next question, big fan of your book, by the way. And one of my favorite parts about it is when you mentioned, I'm not sure when this is going to air, but the tax season approaching, and you always look at taxes as a competition between you versus the IRS. I found that very comical. From a competitive standpoint, I'm very much similar to you. So I was wondering, who won this year?

WCI: Well, I haven't even touched my taxes for this year yet. I've still got to do a corporate return I've got due in a couple of weeks, and I probably won't be doing my personal return until at least April, if I don't file an extension. So, as far as how much taxes I paid, I definitely lost this year. But you know, that's a good problem to have. It's far better than the alternative, the alternative of not having to pay a bunch of taxes means I didn't make much money. So, I had a good year and I'll be paying a lot of money in taxes. I already have paid a great deal of it in taxes, but I think I'm going to have to write another big check in April to make up for the difference. But it's a good problem to have.

WCI: I think that is a good thing to do though, to do your taxes every now and then. At least work through the forms, if somebody else prepared them for you, because you learn a lot about the tax code. The day we're recording this, I actually had a post go up on the blog called A $200,000 Income and Paying Zero in Taxes in Retirement, and that's entirely possible. That sort of a result comes from just understanding the tax code. I think it is a worthwhile thing to learn. It really can save you tens of thousands of dollars. Would you rather learn a little bit about the tax code, or would you rather work an extra ten days a year? That's kind of the way I look at it.

Medical Student: Yeah, it definitely can make a difference, I agree. I'm still trying to find a really good book, like you mentioned, to use as a resource to really understand the tax code and the forms related to it.

WCI: Yeah, I hear that a lot from readers, and I keep putting it on my plate of things to do. Really, a doctor-specific tax reduction guide. I haven't seen it out there. Maybe somebody will beat me to it, and that's okay with me, if I don't have to write it. But otherwise, it's on my list of things to do eventually.

Medical Student: Yeah, you got a big plate. So, also, just coming from a standpoint of trying to look at different additional advantages for executive positions or working in health care policy, do you see any need or benefit to getting a MPH or an MBA?

WCI: You know, I think it's interesting. We, as doctors, we love education. We love fellowships, we love certifications and degrees. We're always thinking about getting another one. I know very few doctors that haven't at least thought about getting another degree, for instance. But the truth of the matter is, most of the time it's probably not necessary. You've got a terminal degree with an MD or a DO. And that is going to open most of the doors you need to open, so before really committing the cash or the time and effort to get an MPH or an MBA, I think you really need to ask yourself, “Do I really have a need for this?”

WCI: Because if you don't have a need for it, if it's not going to advance your career, if it's not going to get you some place that you couldn't get without that degree, it's really a luxury. You've got to ask yourself, “Can I afford this?” It's like a Tesla, “Can I afford to drive a Tesla? Do I have 75 or $100,000 sitting around to buy this car or to buy this degree?”

WCI: And if the answer is no, well, maybe you ought to pass on it. I think there are very few physicians who end up in a position where they go, “I really need an MPH to do this.” I think a lot of them just kind of got it during medical school, it seemed interesting. I mean, it's fine, life isn't all about money. Certainly, if you have an interest, you have enough time as a physician to make up for taking a year or two to get a degree or to do an extra fellowship or something. It's not like you're going to be poor because of it. But there is a cost to it. It's like the emergency medicine residencies. There are three year residencies and there are four year residencies, and a lot of people call that last year of a four year residence the $400,000 mistake, because there is an opportunity cost to spending time in education rather than being out working.

Medical Student: Well, thank you. Yeah, that makes a lot of sense. It just seems like, like you said, we're all striving for higher education, and when you get that terminal degree, you're kind of like, “What do I do now?” I want to keep expanding my knowledge base as much as I can, but I would just to see where else I can take this.

WCI: Yeah, I think we just like to be lifelong learners. I mean, medicine selects for people like that. So I think it's pretty natural. But when there's a cost to it, both opportunity cost as well as a real cash outlay, I think you've got to look at it a little more carefully.

Medical Student: Yeah. That makes sense. And a lifelong learner, that got me some refund money on my taxes.

Medical Student: I guess my final question is really just, what kind of advice do you give to new primary care attendings in starting or joining a private practice, and the feasible aspect of it depending on where you're practicing, whether they're getting bought out by larger health networks.

WCI: I think you're alluding to kind of a trend we've got in medicine right now, where the entire industry is consolidating. Doctors are much more likely to be employed now than they were five or ten years ago. Practices are being bought out by private equity groups. I think a lot of this is contributing to the burnout rates in medicine. I'm not a big fan of it. I really like doctors being able to own their practices, for a couple of reasons. One, they feel like they're in control, and I think that helps with burnout quite a bit. But also, because I think they take better care of patients that way. And the reason why is that they're not accountable to anybody but themselves for how they take care of patients. There's no corporation pushing you to order more tests or pushing you to see patients faster than you should be seeing them, or do procedures that you maybe shouldn't be doing. I think it actually results in better patient care.

WCI: That said, I think it's getting harder and harder to find those jobs, and oftentimes, there's a real financial sacrifice upfront with them. If you're not in a financial position, because you borrowed $600,000 to pay for medical school, I think it's a little bit harder to take those jobs. You're much more incentivized to get the quick money, which oftentimes is an employee job with a contract management organization or with a hospital or something else. I think it's good to keep your options open. I've certainly enjoyed being in private practice, but it's not for everybody. A lot of people, they just don't want to deal with that stuff, and they just want to punch the clock and take care of their patients, and not deal with any of the administrative hassles of ownership. There's not necessarily a right answer to that question.

WCI: Now, you'd sent off a couple of questions that I think might be interesting to talk on the podcast briefly about. One of them was a question about medical marijuana and marijuana investments.

Medical Student: Yes, I did. So, my state recently legalized medical marijuana, and I had some friends who were trying to tell me to get on the, maybe buying ETFs or something with dispensaries and all those start-ups because of their … I don't know, ability to grow.

WCI: Yeah. It's kind of a hot new industry. I hear this question a lot, actually. But in reality, this is like any other business. If somebody called me up and said, “Should I invest in the companies that make toilet paper?” I'd say, “Well, why don't you just buy all the companies?” Because you're not really sure that toilet paper's going to better than marijuana, that's going to do better than oil and gas, that's going to do better than real estate, et cetera.

WCI: And so my usual inclination, any time anybody asks about buying individual companies, much less a start-up, is, “Why would you take on that uncompensated risk?” If there's a risk that can be diversified away, taking that risk should not result in any additional compensation. Risks that can't be diversified away, like overall market risk, is compensated. When you take that risk, you have an expected higher return because of it, versus treasury bonds or something like that. And so I don't think that's necessarily the case when you're picking an individual company or an individual sector, et cetera, because you can diversify that away.

WCI: Now, do I have any idea what marijuana stocks are going to do over the next five or ten years? I have no idea. Maybe they will outperform the market, maybe they will underperform the market. But I can tell you this. There are a lot of people who are very smart and have access to a lot more resources than you do that are trying to answer that question and struggling with it. And if they are struggling with it, the likelihood of you knowing the right answer without just taking a wild guess is pretty low. So in general, I'd stay away from investments like that. Doctors typically get in trouble when they're trying to get too cute, trying to outsmart the market, and they forget the things that really matter, which is making a lot of money, saving a big chunk of it, and investing it in some reasonable way. I don't know anybody that's going to become wealthy quickly because they chose to tilt their portfolio towards marijuana.

WCI: All right. Any other questions today?

Medical Student: No, I think I'm really good. I appreciate all the time you spent, and your team and the White Coat Investor, the forum on Facebook has exponentially saved a lot of time, because that is one great resource to have, a lot of important discussions being made and covering a lot of great things. Once again, I just want to thank you and your team for everything you guys have been doing for us. I know you love giving that motivational talk in the beginning of each podcast, and that, I think it goes a long way. I like hearing that.

WCI: Yeah. It's amazing how many doctors hear a thank you at work, isn't it?

Medical Student: It is. But when you hear it from other people, it just sends good vibes. So, thank you again.

WCI: You're very welcome. Thanks for being on the podcast.

WCI: Okay, we're going to tack on a few Speakpipe questions at the end of this podcast. Our first one is from Joel Schofer, who was on the podcast not that long ago.

Joel: Hey Jim. It's Joel Schofer from MCCareer.org. There's a lot of discussion from Bogleheads about the three-fund portfolio, consisting of US and international stocks and US bonds. But what Vanguard does with its own target-date funds is use a four-fund portfolio, adding international bonds to the mix as the fourth asset class. What's your opinion on this? Should investors looking to use a simple three-fund portfolio add the fourth asset class of international bonds? Thanks.

WCI: So what he's basically asking is, should investors add a fourth asset class to their three-fund portfolio, and he specifically names international bonds. Well, I don't have international bonds in my portfolio. I don't feel like it's a super attractive asset class, or something that one must own. So if you're trying to keep things simple, if your goal is to have a very simple three-fund portfolio, I wouldn't feel like that was the fourth asset class I would add to it. I agree that Vanguard does add that to their life strategy funds and their target retirement funds, and if you want to, I think it's perfectly fine, but I think you're adding a little bit of extra complexity without a ton of additional benefit. I think if I was going to pick a fourth fund to add to a three-fund portfolio, I would probably add a real estate investment trust to that, a tilt toward REITs.

WCI: But that's really for you to decide. I mean, a portfolio is a very unique thing. There's nothing magic about a three-fund portfolio. The goal is to find something that's reasonable and stick with it for the long term, and fund it adequately with a good income and a good savings rate. The actual asset allocation, so long as it's something that's not crazy, doesn't matter all that much. And besides … I guess that's not the right way to say it. The way to say it is, it does matter, but you can't predict it in advance what the right one's going to be, so you might as well just stick with something reasonable.

WCI: All right. Our next question on the Speakpipe, and if you want to leave one of these questions, you can go to www.Speakpipe/WhiteCoatInvestor and leave your own questions for the podcast. This one comes from Chris.

Chris: Hey, Dr. Dahle. I'm an undergraduate student right now, relying on Parent Plus loans. Ideally, I will matriculate into med school in 2020, just after graduation, by then relying on federal student loans in my own name. I know that you generally advise using REPAYE and all those types of programs for paying off student loans in residency, but does that differ when accounting for Parent Plus loans, since they're not in my name?

Chris: I know that the loans are in my parents' name, the Parent Plus loans, but the plan was always just to pay them myself because they are unable to cover the costs themselves. Not to mention, it's my own education, so I mean, I probably should. Anyways, how can I best optimize paying the Parent Plus loans, and ideally registering for IBR for the loans in my own name in my future residency? Should I refinance the Plus loans in my own name and lose the federal benefits? I have a while to think about this, but I figure I'd start early. Thanks for your answer.

WCI: He's basically asking, what should I do with my Parent Plus loans from undergraduate in residency? Well, Parent Plus loans are tricky. These are loans your parents take out to pay for your education. This is not something you even have a responsibility to pay back. It's their loan. So unless you have some sort of agreement with them that you're going to pay them off for them, this isn't your issue. But bear this in mind. You can actually get public service loan forgiveness for these loans. But the issue is, they are not eligible for the IBR, the PAYE, or the REPAYE program. The only income-driven repayment program they're eligible for is the crappy old one, the ICR program, the one where you've got to make 20% of your discretionary income payments. And so, this is not a great route to go, taking Parent Plus loans for anything. I really don't like them, I think it's a bad option, unless it's like the only way you can possibly go to college, which seems unlikely to me, given the low cost of college compared to medical school.

WCI: Be sure, of course, if your plan is to pay these off for your parents, that you bought enough life insurance on you that they can pay them off if something happens to you. You should also buy enough disability insurance to cover them as well. Otherwise, your parents are going to get stuck with something that they were intending for you to pay off.

WCI: All right, let's take one more. This one is anonymous.

Anonymous: I have a quick question about tax loss harvesting. I hold a Vanguard brokerage account with some broad-based index funds, and I'd like to do some tax loss harvesting moving forward. The question I have is that my wife, she has a workplace retirement plan, a 403(b), where she contributes every two weeks to a Vanguard target retirement account that holds the same underlying funds that I hold in my brokerage account. If she contributes every two weeks to it, can I not tax loss harvest? How do people in this situation work around that? Any insight would be helpful. Thank you very much.

WCI: So this is about tax loss harvesting. Basically, how do I deal with tax loss harvesting if my wife is using the same funds and contributing every two weeks in her 403(b)?

WCI: What we're talking about here is a wash sale. If you sell a fund and then you buy it back within the next 30 days, you basically don't get to harvest that loss on your taxes. Technically speaking, wash sales only apply in taxable accounts and IRAs, if you actually look carefully at how the law is written. Now, a lot of people suppose that, because they apply to IRAs, they also apply to 401(k)s, but that's not technically there. The other thing to keep in mind is, nobody is really looking closely at this either. The IRS doesn't get a list of what you bought and sold in your 401(k) every year. So if you accidentally forget to watch this sort of a thing, nobody actually notices at the IRS.

WCI: That said, I think the spirit of the law is that you're not supposed to be buying something in your 401(k) that you just sold in your taxable account, if you're trying to claim a loss on it. I think the easy fix is just use different funds in your brokerage account. There are so many funds that are similar to what you should be buying. If you've got a Vanguard total stock market in the 403(b), use a fidelity total stock market in the taxable account, or use a 500 index fund, or a large cap index fund, that sort of a thing. It's so easy to get around it, you might as well just get around it. But I wouldn't expect to really be caught on this one, should you happen to do it accidentally.

WCI: All right. This episode was sponsored by Set for Life insurance. Set for Life was founded by president Jamie K. Fleischner in 1993. She started it while she attended Washington University in St. Louis. They specialize in individual term life, disability, and long-term care insurance. They work on the client's behalf to shop around to find the most suitable products at the most cost-effective rate. Set for Life is first and foremost a client-centric company. They listen carefully to the needs of clients and shop around to find the best products available at the best rate. For more information, visit SetForLifeInsurance.com.

WCI: Be sure to check out the Financial Boot Camp book, it's out. This is my first book I've written in five years. It's really not an update, nor a sequel to the first book, it's a completely separate book. It's designed to take you from zero to hero in 12 easy steps. It's available on Amazon now. By the time you hear this, it should be available also as an e-book and an audio book.

WCI: Thanks for subscribing to the podcast, thank you for giving us a five star rating on iTunes. That does help the message get out to more people. Head up, shoulders back, you've got this, we can help. See you next time on the White Coat Investor podcast.

Speaker 8: My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He is not a licensed accountant, attorney, or financial advisor, so this podcast is for your entertainment and information only. It should not be considered official personalized financial advice.