[Editor's Note: Today's guest post was submitted by Dr. Rikki Racela. I applaud Dr. Racela's energy and determination to figure out and correct his financial errors. It should give a lot of hope to those of you who are still digging yourself out from those stupid doctor mistakes. Enjoy!]
It was an hour before midnight and I was pumped! I was about to go to Montreal to celebrate a bachelor party. The flight was the next morning and, even if I wasn’t going to the Mecca of bachelor celebrations, just the anticipation of getting away was bliss.
I was choosing the credit cards to use internationally when I realized that the minimum payment was due in one hour on one of my Chase cards. My anticipation turned to panic as I frantically called Chase and paid over the phone in order to avoid the late payment penalty. A few minutes before midnight the payment went through! Whew . . . a wave of relief went through my body.
I could not stop, however, from reflecting later on the plane, at the Montreal dining clubs, and during other bachelor related debauchery activities, some profoundly deep financial musings: How’d I get this credit card debt in the first place? My wife and I are both doctors, after all. How did it come to this? I had a financial advisor for Pete’s sake! Wasn’t I supposed to be insulated from situations like this?
The answer was I was stupid. Well, not totally stupid, more financially stupid — FinStupid!
How an Ivy League Doc Made the Most Mistakes Imaginable and Dug Himself Out – And You Can, Too!
Despite graduating from Princeton, I had a Forrest Gump financial IQ. Yes, I had walked the same campus as economic pioneers Jack Bogle, Daniel Kahneman, and Burton Malkiel. Yet I had balance-transferred $31K of consumer debt to a Chase credit card, and could only afford the minimum payment. I went to Princeton, the number one college in the US (sorry, Harvard grads), and still fell prey to Wall Street. What happened is that I chose to dedicate my time, energy, and intelligence to just medicine, never thinking that this 100% dedication to learning our craft would have devastating consequences. I actually chose to be FinStupid, wrongly thinking that this complete medical immersion would make me the best doctor I could be. That fateful choice led me to depend on a financial advisor salesman. Forrest Gump was right; stupid is as stupid does, financially speaking.
Before finding WCI, I had a buddy of mine from high school be my financial advisor. He worked with the all too popular Northwestern Mutual. During residency, as mentioned above, I was too busy learning medicine to address my finances. And who better to trust than a childhood friend? With him, I didn’t see a salesman. I saw the guy who pitched against me in Little League, who ran laps with me during football practice, who shared jokes with all the other dudes in high school. I did not see, until later, the amount of money I was paying in fees and commissions.
I had great hopes that he and Northwestern Mutual would lead me to financial success and I could focus on neurology. For the first 7 years starting at the end of my residency and going through my early attendinghood this financial advisor led me into the dark side of Northwestern Mutual's underbelly of financial products and was basically taking advantage of my financial illiteracy. While my back was turned focusing on being an empathetic neurologist, my advisor had sold me expensive products that were detrimental to my wealth.
That, combined with lifestyle creep and not living like a resident, I found myself in credit card debt, having money fights with my wife, and not being able to afford my tax bill (side note: I live in NJ; if you ever have the chance to live here, don’t!). I even rushed through patients in order to generate more income. I am ashamed to have compromised the thing I value most — integrity in patient care — to pay off $28,000 a year of whole life insurance premiums.
I remember a scathing e-mail I received from the sister of a patient with a posterior fossa neoplasm whose visit I had sped through. On the off chance they might be reading this, I am sorry. My total dedication to being a superior neurologist and ignoring personal finance led me to be a worse doctor. It was at this desperate moment that I found the White Coat Investor and made a total 180-degree turn. Now instead of being a FinStupid, I like to think I’m FinSmart. I am no longer distracted paying off Northwestern Mutual whole life insurance premiums. Instead, I am now laser-focused on my patients.
I've made a ridiculous amount of mistakes. I have read and listened to numerous WCI podcasts and blogs and the number of mistakes you guys in the community have made pales in comparison to mine. Not so much in absolute dollar amounts (there was an orthopedist that bought whole life insurance and was more than $100K underwater, then got disabled and could no longer practice!), but rather in the number of products that my advisor had placed my money that were subject to increased prices, exorbitant fees, and illiquidity rules that prevented me from building wealth.
For anyone else that has fallen prey to these products and gotten out, congrats, we did it! For those of you feeling that sense of crushing burden of financial regret and shame, the point of this post is don't despair! WCI will lead you out, just like it led me out, and just like it led others of us out — many without the need of having to put trust in another financial advisor. If I can get out of all the inappropriate products that were sold to me, then any doc can right their financial ship. Also at the end, I will also mention a separate issue of recovering from credit card identity theft committed by . . . wait for it . . . mom!
The Damage
The following is the expensive, fee laden products my wife and I had with Northwestern Mutual (I had to unwind these things twice!):
- whole life insurance policies paid up at 65
- convertible, non-level term to 80 life insurance
- advisor led traditional IRA’s rolled over from old attending job 401k’s
- variable annuities within IRAs
- an advisor led Virginia 529 plan
How I Dug Out Of My Whole Life Insurance Policy
First, I did not formally fire my financial advisor. Not only do I hate conflict, but also I knew I needed his help untangling this massive mess. I tackled the whole life insurance first.
Dr. Rikki Racela getting dirty at the Reebok Spartan Race.
Through the immense resources here on WCI I learned the best choice for us was to 1035 exchange the whole life policies into low-cost variable annuities in order to preserve the cost basis. I asked for in-force illustrations from my advisor for both whole life policies. I then asked to have the premium payments immediately be put on hold (btw each policy cost $14K per year — that decision immediately freed up $28K per year of cash flow!). I also asked when the dividend on the cash value would actually be paid. Northwestern Mutual pays a dividend, and I did not want to formally exchange the policies until that dividend was paid. Because the cash values were $67,000 and $54,000 and the cost bases were $92,000 and $79,000 respectively, it made sense to do the exchange to make up the cost basis tax-free in a low-cost variable annuity.
The most cost-friendly options mentioned on WCI forums were Jefferson National (now Nationwide), Vanguard, and Fidelity. Given my cash values, Fidelity had the lowest cost at 25 basis points, so I went with them. At the time I was doing this in 2019, Nationwide would have been cheaper if my cash value exceeded $96,000. I contacted Fidelity that I wanted to do a 1035 exchange, and they guided me through the process. It was helpful to have the in-force illustrations while doing this. A helpful step by step guide was written by TJ on June 4, 2015, at 1:15 pm MST on the WCI post How to Dump Your Whole Life Policy. TJ, if you are out there, man, thank you!
Term Life Insurance
I next tackled the term life insurance. As recommended by WCI, I went to term4sale.com and picked the insurance company that gave me the cheapest rate, which happened to be Lincoln. I knew also that we needed new disability insurance because Northwestern Mutual's definition is not true own occupation. I used the links here on WCI and found the best price with an independent agent, who also provided me with the term life insurance policies. Turns out for the same amount of disability benefit with a better definition of disability the new policies were actually cheaper, even being 7 years older!
Only then, with new term and disability insurance in place, did we cancel the Northwestern Mutual policies.
IRAs
The next thing to tackle was the IRAs that kept us from contributing via the backdoor Roth IRA. I had a traditional IRA that was rolled over from a previous attending job, which was easy to transfer to a solo 401k I had set up at Fidelity. I didn't need to talk to my advisor about making this change. However, I did need my advisor to help unwind the variable annuity within the IRA that was set up after residency. Now you might be asking, “why would you have a tax-advantaged product within a tax-advantaged account?” Fees, my friend, fees. I found out later that annuities are layer, upon layer, upon layer of fees. My advisor didn’t tell us that part. He sold them to us as “a pension during retirement.” In order to get rid of the IRA, I first had to ask my advisor to liquidate the variable annuity. After this was done, I did a rollover to my solo 401k and my wife had her retirement plan at work pull the money into her 401k. I never bothered looking into surrender charges, etc . . . I am angry enough as it is.
529 Plan
Finally, for the 529 plan, I contacted Virginia where the plan was held. I explained that I wanted to convert from the advisor-led plan, which had 130 basis points of fees, into the self-directed one, which used Vanguard funds at an average cost of 13 basis points – 10x cheaper!
Extra Bonus — Ripped Off by Mom
This final financial disaster was actually not Northwestern Mutual-related but rather being ripped off by my own mother! My wife and I were mortgage shopping and went to Chase Bank as our first stop. You would not believe my surprise when the loan officer said that I would not be approved given there were multiple credit cards with maxed out balances on my credit report. I looked over a copy of my credit report and saw 5 credit cards with multiple balances on them that I had no idea existed, totaling up to $31,000. One of those credit cards was listed as me being a joint account holder with my mother, which pointed the finger to the culprit.
Needless to say, I was very angry at my mother and tried to work my way out of this mess. You wouldn’t believe it, but I went to my local police station to at least formally document the crime. Don’t worry, I didn’t throw my mom in jail — and, FYI, the local police actually have no jurisdiction in regards to arresting non-local cybercrimes. Anyway, I filed disputes with the 3 credit bureaus with the formal police documentation and was successful in getting these cards off my Transunion and Equifax reports. Unfortunately, Experian would not remove these cards. I ended up having to pay the unpaid balances in order to clean my credit report with Experian.
Summary
After all this, I would have to disagree with Warren Buffet’s “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” A doctor can do a bunch of things wrong and still come out financially ahead. My wife and I are now maxing out our retirement plans at work, doing Backdoor Roth IRAs every year, saving 20% of our income, have true own-occupation disability insurance, laddered level term life insurance policies, an appropriate emergency fund, and credit card debt that has a 0% APR while the money used to fully pay it off sits in a high yield savings account. It was only through the resources of WCI as well as the tenacity and perseverance that defines us as doctors that we could defy the wisdom of Warren Buffett. If I can crawl out of the above plethora of financial traps, then you can too!
What financial mistakes have you made? Were you sold whole life insurance inappropriately? How did you correct your mistakes? Comment below!
Rikki, thank you for sharing! As you know, I similarly made so so many financial mistakes. I felt embarrassed to look them in the face but as you show, it actually gives you so much power to do so! Once you look them in the face, then you can start taking action. And the first thing is to stop digging! WCI was my first stop to help me get financially educated as well. And thank you Dr Dahle for that!
Congrats on your success!
The Prudent Plastic Surgeon
thanks so much Jordan!
Thanks for the story! Very inspiring
thanks man- never thought finances would be such a struggle in my life.
also just got through another inspiring struggle -got my 5 year old to bed!
Hi rikki!
Thanks for sharing
Did you get a new financial advisor and accountant in the area that you like? (I’m in NY, but originally from NJ)
Also, Do you mind sharing your asset allocation?
Thanks
Hey M, no I didn’t end up getting a new financial advisor, hard to trust anybody after having my buddy selling me all of the above crap. But I definitely did talk to a whole bunch either on Jim’s recommended list or whenever their was an offer in the mail or when offered through webinars, podcasts, etc. Ryan Inman, despite being on the opposite coast as us, would definitely be the #1 guy I would go to as his honesty and integrity are easily seen through his podcasts and verified through this WCI site and by TPP well. He does offer a one time check up overview of your financial plan that I may take in the future. Another advisory firm that Paul Merriman endorses is called Vestory, based out of Washington, that are also knowledgeable and are fiduciaries. Also if you know Wade Pfau and Bob French at retirement researchers they recommend Maclean Asset Management based out of Virginia, and also are fiduciaries. Larson Financial, who wrote the Doctor’s Eyes Only on Jim’s book list, also seemed very knowledgeable fiduciaries, based out of St. Louis.
Unfortunately I can’t recommend anybody more locally in our neck of the woods. I met with advisors from Altfest Financial, Empire Financial, both based out of NY, and NDA Wealth Foundation down by the shore and many of them were not as knowledgeable or were not fee only. I met with a Thrivent advisor in the town next to me who was just pushing indexed universal life. First republic who I did my student loan refinancing with also offers financial advising but because of the AUM fee seemed bias to get your assets to them.
I just kept my current tax guy.
My current asset allocation is 65% total US, 10% small cap value, 25% total international. I know I’m crazy but my financial plan called for increasing risk if I didn’t sell during a bear with an 80/20 allocation and wouldn’t you know it, I lost sleep in March because the market didn’t go down far or long enough!!! I’m only 39, my wife is an anesthesiologist, don’t plan on retiring until 65. So my risk tolerance is super high and risk capacity is pretty high as well.
Thanks!
Do you like your tax guy and if so can you recommend?
Yeah my tax guy I like his name is Scott Landau, firm is Krim Landau based out of Little Silver, NJ. Just google him. He fills out the fax forms correctly, knows about all deductions you can take and has handled a plethora of IRS notices that I have gotten over the years. That being said he is not a financial advisor so he doesn’t really proactively mention things I can take deductions on. for example with my 1099 income I had to mention to him about putting it in a retirement account. When I did mention it, he knew that it was too late to do solo 401k, that I had to open a sep IRA b/c calendar year was over, can rollover to solo401k so can do backdoor roth, etc. My feeling is that unlike him some of the other accountant recommendations here on the WCI website might be more proactive in finding tax deductions, though honestly not sure.
Two comments on the advisors you mention: # 1 I believe Wade is an owner of Maclean. # 2 The Larson firm split up a few years ago into three companies, some of which are fee only and some of which are fee based like the old company (AUM fees on investments and commissions on insurance products).
Thank you for sharing your story, RR! You know mine well 🙂
The lesson here is twofold- when it comes to our finances, the buck stops with us. And, it is never to late to start over.
Here’s to WCI, who’s been the turnaround point for many, including me!
Best,
PFB
Thanks PFB, and you have definitely overcome more than I ever could, not just breaking through our predatory financial world, but securing a career as foreign medical graduate, succeeding as a woman in medicine, and maintaining a family above all that!
Thank you for your kind words. Wish you the very best in everything!
It takes great insight and courage to see your own mistakes. Even more to share that experience with the world. I have no doubt that someone reading this now will make big changes for the better in their own life because of this.
I made many money mistakes over the years. I’ve been talking about the lessons learned and helping other to reduce the problem over 20 years. I made minimal progress in helping others on any grand scale. WCI has done an incredible job of getting these messages out. But as your story indicates, there is more work to do.
Hey Doc, you actually made a difference in one doc’s financial life that I know featured on What’s Up Next/Earn and Invest- I am friend’s with Kay and having answered all her financial questions she was super grateful and is on much better financial ground. Every one doctor counts. And yes, despite all of Jim’s hard work, still a lot financial education needs to be done.
Wow, this reads like a whodunit with multiple perpetrators, including the victim himself! I was so engrossed in reading this during a meeting that I didn’t hear multiple people calling my name! Very compelling and impressive, a successful resuscitation! Thanks for sharing and Congrats, Dr. Rikki!
That’s how I felt when I read it, too!
thanks! and hopefully the meeting wasn’t important!
Thanks for the inspiring post! I was wondering how your relationship with the financial advisor weathered your financial turnaround. Years ago, we initially invested with a financial advisor that my husband knew from college and that was in our wedding. We eventually pulled out our investments from his company, but it was a little sticky as we are all good friends. I always recommend to avoid any type of financial relationships with family or friends. It can go south quickly and there are many hurt feelings and resentments. We learned our lesson.
Hey Bev we are still friends. don’t hate the player- hate the game!
Those Northwestern mutual guys must be everywhere!! I did have a 529 with them also. Glad you righted the ship. We all make financial mistakes but seems like you’re on track now. Good job.
thanks man and I don’t think the NWM are technically everywhere, they are just very good at finding us! I sort of picture their “advisors” going to that day spa Zoolander went to. They get hired as good people, and then come out trying to kill the prime minister of Malaysia and sell docs whole life insurance.
Thank you so much for sharing your story! I was most upset by learning about the identity theft by your mother. Intrafamily identity theft seems to be an epidemic. How do you manage that relationship? Again, really appreciate hearing how you turned it around.
Ha! I actually didn’t know that intrafamily identity theft was epidemic, but sort of makes sense as even now my mom knows more about me than I know about myself. Who better to impersonate you than a family member? Also doesn’t help that she named me the girl spelling of Rikki, so when she was opening up credit cards in my name over the phone her woman’s voice fit the first name spelling. I still love mom and talk to her once in awhile. My wife on the other hand is not so forgiving 🙁 Every time we save for purchase my wife is like, “we would have had this if it weren’t for you mom,” whether its buying furniture, a car, etc. You can buy a lot of things with $31K.
Wow. That really was painful to see you taken advantage of like that by your friend and mother.
I made a ton of mistakes in my life as well with similar financial epiphany courtesy of Jim Dahle (and the Bogleheads). Was in the red by about $850k after my divorce and climbed out of it (combination of luck and trying to educate myself financially).
Our salaries afford us to make great strides once we know what to do with it.
Congrats on climbing out of the hole. Continue your laser focus financially and you will quickly make up for the early mistakes 10 fold
thanks man and will keep not only laser but xray focus 🙂 btw great job digging yourself out financially from such a huge debt and also personal pain. I didn’t mention this in the post but my wife is the saving grace, going from a 4 day work week as an anesthesiologist to taking a call position because of the above financial mistakes, from 300K to 500K! The only reason we are meeting our goals now is b/c of her ability to jack up our income. Kudos to you for getting on track without the help of a spouse, especially a high earner like mine.
Wow, Rikki! First, thank you for sharing your struggles and letting us learn from your mistakes. I too have been FinStupid, but thankfully to resources on WCI, I now consider myself FinSmart 🤓
awesome Rose glad to hear it. Wish this finance stuff was standard learning in med school, but unfortunately a lot of adulting gets put to the way side while we’re studying in med school 🙁 But hey now that we are financially literate we have to spread the word and teach each other 🙂
Thanks so much for sharing Rikki–I was also pitched a whole life policy by NWM by one of my husband’s friends. It helps to find these stories and avoid the same mistakes. All the best–
thanks and well done on not falling for the pitch! I hate how NWM does such a good job of finding friends/family to hit up with these terrible products- it really is the best way to get us to lower our guard and be vulnerable to attack.
Thanks for being so candid in sharing your personal story! I had the misfortune of falling prey to a Northwestern Mutual sales pitch too. In this case, it was my trusted friend and colleague who referred me to her brother. He sold me products I didn’t really need by using scare tactics. I don’t think my friend really knew about what he did. Anyway, I’m just thankful he didn’t do too much damage and I got out of it sooner than later!
so glad that you did- I unfortunately was not as fortunate but have recovered just like you 🙂 Also, did your friend also buy whole life from her brother??? Knowing NWM tactics, I’m sure she did! Tell her your story and show her this post!
Well done! Well said. Your story resonates with me a great deal. Courageous and important for you to have told it to help others. We have dug out as well.
Thanks Bill and yes your story is inspiring as well, but also love the extra mild of promoting financial literacy like Jim does here. I just signed up for you facebook group!
The very first advise to Rikki when he started raking in his physician earnings was to stay away from any salesman, utmost insurance sale. You buy what you need and let no salesman tells you what you need.
What comes to most physicians is FinArrogance but for whatever financial lost your earning power would overcome. Working hard and playing harder is the real bummer. Check your inner self, your lifestyle!
It was sad that Rikki would think of being ripped off by his mom. Rikki studied hard in med school the $31K sustained him “playing harder”.