med school scholarship sponsor

Our host today is Leif Dahleen, aka Physician on FIRE. It is FIRE week here at The White Coat Investor, and he happens to know a few things about FIRE. So, we asked him to come on and guest host and answer your questions. He will answer questions about health insurance, giving to charity, savings rates, 529s, and tax-loss harvesting, to mention a few. He will also talk about his journey from anesthesiology to FIRE.

 

Life After FIRE

Since this is FIRE week, I'd like to talk a little bit about my FIRE journey for those of you who don't know me and maybe haven't heard my story. I won't belabor it too much, but I'd like to talk a little bit about the why of my FIRE. It wasn't that I was burned out necessarily, but there were a few things that kind of left me disillusioned with the career of medicine. I did retire from my job as an anesthesiologist in the summer of 2019. I have continued to write on the blog, Physician on FIRE, which I started back in 2016. I'm not completely retired, although this life that I've carved out for myself has me feeling much more free than the one that I had before when I was a practicing physician.

We're actually recording this episode in April, well in advance, because my family and I are heading out soon on another month-long travel adventure. This will be the third month-long trip that we've taken thus far in 2022, and we've got more lined up after enjoying a nice summer up north in northern Michigan where we call home. We spent the first part of the year in Athens, Greece, and the island of Malta. We then spent a week in Sicily and then finished up with a week in Rome. I got back just in time to join many of you at WCICON22, which was fabulous. Then we returned to the cold for a couple of weeks before going down to Florida for the better part of March. We also took a side trip from Orlando to fly to Medellin in Colombia. We spent a week there and got to see a different culture and spend time in South America.

This next trip we've got coming up will take us all over the place. We're going to drive out to see family in Boston, fly down to Texas, and spend some time at the beach in Galveston. A cruise ship is going to take us from there down to Costa Rica, Panama, and Colombia. Then, we'll have a few stops in the Caribbean and back up to New York City. We'll see friends there in the city, head to Boston, and then our car will be waiting for us. We were going to road trip it back after doing some hiking, probably in Acadia National Park in Maine. We may end up spending a little time in Canada. Anyway, long story short – that's what FIRE life looks like for me now.

 

Why Dr. Dahleen Left Medicine 

I was going to talk a little bit about what really led me to want to FIRE. I figured out that the money part was all set. I discovered financial independence in 2014 and then retired five years later. We had much more money than we would need. What really led me to want to leave my position as an anesthesiologist? It really wasn't the day-to-day. I think I was pretty good at my job. I enjoyed the people I worked with. I had a lot of great patients. The days usually went by pretty quickly. We were rather busy. It could be stressful at times, but for the most part, it went really well. I wasn't burned out by the day-to-day job in the OR. It was bigger picture stuff that kind of got to me and had me thinking that I could do without this job.

There are really three things that stand out in my mind, and they happened over the course of several years. The first was I took a “permanent” job after doing two years of locums. It turned out to be a job at a hospital that was on very shaky financial ground. That hospital ended up declaring bankruptcy. I was the only anesthesiologist in the county. This was a small town in northern Michigan. Once there was no need for an anesthesiologist, I really had nowhere else that I could work, at least within a reasonable commute of where we lived—which, by the way, was probably the nicest house in town. It's one that we had built because I thought we'd be there for a good 20 or 30 years. It turned out to be three or four years, altogether. I had a baby and a toddler at home, and we had to find a new place to live and work. That was stressful and not fun for anyone, obviously.

During my time working there, I ended up accepting a volunteer position on the board of trustees by agreeing to take over as the president-elect of the medical staff. It's a bit of a misnomer because I was appointed to that position when the current president-elect left for another job because he could see the writing on the wall. I was too stubborn to see what he saw. I was on that board for about 10 months. I had a non-voting position. It was more of an observation-type role until I would become the president of the medical staff, which, of course, never actually happened. But what did happen one year and 364 days after the hospital officially went bankrupt is that I was named as one of several dozen people in a lawsuit against basically anyone that had anything to do with the board of trustees over the last 10 years or so. We did have a directors’ and officers’ policy and insurance policy that should have covered us. However, that policy did not cover us in the event of a bankruptcy.

Over the course of about 3 1/2 years, I had a lawyer that I sent monthly checks to who was in on phone calls, writing emails, following the lawsuit—which dragged on and on, like I said, for 3 1/2 years until finally I and quite a few others were dismissed because there was no wrongdoing and we were being sued for breach of financial or fiduciary duty. My role was minimal, but that didn't matter. I had a target on my back. I was an anesthesiologist and my name was on the board minutes and I was going to be sued for millions. I never thought that I would actually lose millions of dollars, but there was always that little specter out there, that little worrisome thing that I couldn't shake. That is one of the reasons that I was an anonymous blogger when I started out. I didn't want my name out there declaring financial independence while someone else was trying to take it away from me.

The third thing that happened—and this was a little bit later—I had settled into a new job in Minnesota. It was a great job. It was my last job and everything went well there, but this came from above. This was the American Board of Anesthesiology and the recertification process. I finished residency in 2006 and was board certified as soon as you could be by passing the written exam right away and the oral boards the next spring. About seven years after that in 2013 or 2014, I was told that I could go ahead and take the 10-year recertification exam. It's only offered twice a year, and they encourage you to take it as soon as it's available to you. I did well and I passed and I got my letter and it said, “You're good for 10 years.”

Then six or eight weeks later, I got another letter that essentially said never mind that exam you took. That won't count for anything. Thank you for your $2,100. We're going to start charging you $210 a year, and you're going to take MOCA 2.0. It was the Maintenance of Certification in Anesthesia. The new thing that we've been testing for the last year. It's been in beta, but now we're going to roll it live. You know darn well that they knew they were getting rid of the old plan. They went ahead and encouraged me to take the old test, spend probably 100-plus hours studying all for a 200-question, multiple-choice exam that I finished in 100 minutes.

It was just a huge waste of my time and my money—or I should say my hospital's money because I was reimbursed. But all for naught because they never planned to let it count for anything anyway. It was just so very frustrating to know that I was sitting in a library studying, spending all this time when I could have been hanging out with my family. I would've been OK with the transition to this other program. But no, they wanted me to do both. Eventually, a lot of us in the same cohort said, “Wait a minute, you just got this huge chunk of money. You're going to charge us annually for 10 years?” They did acquiesce on that but not on the question bank and all the other requirements of this new-fangled maintenance or certification.

Again, just to recap the few things that really didn't sit well with me was No. 1, having this permanent job taken away. That's just the reality of medicine, and it is a business. But then to be sued for trying to help right the ship by at least participating on the board. That was a volunteer position. I didn't get paid a dime. I skipped a lot of dinners at home and went in on evenings for these meetings. It cost me, I think together, about $14,000 in legal fees and 3 1/2 years of stress. Then No. 3 was the maintenance of certification and having the rug pulled out from under me after passing the exam and having it count for nothing.

Practicing medicine can be very rewarding, and if you see it as a calling, FIRE may seem like a non-starter. But I would encourage everyone to try and focus on the financial independence part, not so much the retire early part, because FI certainly gives you options if and when you do want or need them. Certain entities or employers, they see you as an asset, as a commodity. Maybe they aren't thinking about you as a human being. No one cares more about you than you. So take care of yourself. That means looking out for your mental and physical health—and also your financial health, which is where I try to help people the most.

Let's dive into reader questions now.

 

Health Insurance Between FIRE and Medicare Age

“What do you do about health insurance between FIRE and Medicare age?”

It's a common question, right? Medicare starts at age 65. I retired at 43. That's a 22-year gap to cover. That's a lot of ground. So, what you do is you buy it. You buy healthcare. Tens of millions of people do this. Now some of those people are self-employed. Some may not have a job by choice or not. But many people have to pay for their own healthcare coverage. How do you do that? Well, the first question is, do you want true health insurance? If yes, then you look for the best policy that makes the most sense for your family. If you are willing to pay for healthcare coverage that isn't necessarily insurance, there are other options that exist, and that includes healthcare sharing ministries.

I'm not a huge fan of those. While they do work for some people, they're not true insurance. There are annual and lifetime caps on the amount of coverage that they will provide you. They don't actually have a legal or true obligation to reimburse you for any healthcare needs that you have. Most of them have a religious affiliation, and they'll take a moral high ground on what they will cover. For example, certain immoral activities and the resulting health-related consequences may not be covered. Think anything related to alcohol abuse; accidents under the influence of alcohol or drugs; rehab to help you or get a family member, a child, out of issues with alcohol or drugs. Premarital sex can lead to other things such as pregnancies. They can say, ‘No, we don't believe this is fitting with what we want our members to be doing.'

If you are involved in one of these situations, you could have incredibly high healthcare expenses that will not be covered or reimbursed. That's just not enough of a safety net for what insurance is supposed to be, in my mind. I looked at those different policies, but I decided to go with true health insurance. To buy health insurance, you can use an insurance broker. There are people that will look around for you and see what they can find. There may be some kind of an association policy, a group policy, that you would be eligible for. I think most people will simply start at healthcare.gov. That's the nation's healthcare insurance exchange, and your state may have their own exchange set up. If you start at healthcare.gov, it will send you there. That's how I found mine. We're in our third year now with a high deductible bronze plan that has an HSA. We pay just over $1,000 a month for a family of four here in 2022. That’s gone up a bit from $950 or so to $980 to now I think $1,050 roughly per month. It's an expense that we will expect to continue to go up, and we planned for that expense before I quit my job. Make sure you're thinking about that before you consider early retirement.

More information here:

Health Insurance in Early Retirement

 

Giving to Charity

“Hi, Dr. Dahle. Thanks for your work and that of others like you, I’ve realized that based on our current financial plan, my wife and I are likely to have more money than we will actually need for retirement. And we want to make use of the remainder of that. We plan to give heavily to charities, and as such, I wonder what the best plan going forward would be for maximizing these two goals. If we put everything in retirement funds and then in taxable and then pull it out from there, I imagine we'll end up paying a lot more taxes than if we put money into things like Donor Advised Funds upfront, as we earn even in those earlier years. I wonder if there's some sort of good way to do the calculus on that and plan in advance how much we would give to things like Donor Advised Funds vs. taxable for our retirement. I know that you give to charities quite a bit yourself and thought that you would have some interesting insights on this. Again, thank you for everything you do.”

Randall has too much money. Congratulations, Randall. I really love where your head is at. There are so many charitable causes that can really use your help, both domestically and internationally. There are so many needs around this world, especially now with the situation in Ukraine, but there always have been and always will be lots of places where you can do good with your money. I like that you mentioned Donor Advised Funds. This is my 10th year now using Donor Advised Funds. What I like to do is donate appreciated assets from my taxable account to the Donor Advised Fund. Dr. Dahle does this as well. The two of us treat our Donor Advised Funds differently, though. He uses his as a pass through, puts money in and then takes it out by giving to charity. I use mine as more of an endowment for foundations that we can give to en masse early on but then give from for life. I kind of look at it as a charitable nest egg, and I can go ahead and maybe have a slightly higher withdrawal rate from that than I do with my own money. Something in the 5%-10% per year range is what we aim to give from our Donor Advised Funds, which now have grown to something north of $500,000.

 

How Much to Give to Charity?

Well, you want to consider your marginal tax bracket. Some people like to poo-poo tax-advantaged giving, like you're being greedy or something, even though you only get back 30 to 40 cents per dollar that you give away. I like to look at it as a way to make sure that the charitable organizations that you're supporting get the most money for every dollar that you actually part with. Look at your taxes, and if you can drop out of a marginal tax bracket into the next lower one by making grants to a DAF, that is one way to look at the “benefits” of giving some money away. This does involve some tax planning that needs to be completed before the end of the calendar year.

Now, also keep in mind, there are limits, especially when you donate appreciated assets. If you're going to donate, let's say a mutual fund or an ETF or an individual stock that you've owned, first make sure that you've owned it for more than a year so that you can deduct the current value of it and not the value at which you bought it. Once you've owned it for more than a year, you can go ahead and donate it. Your limit is 30% of your adjusted gross income in that year. Most years that tends to be what we give. I choose whatever mutual fund in my taxable account has the highest percentage appreciation. You can choose not only which fund or which stock to give, but which lots of that fund or stock.

 

Which DAF Company Should I Use?

A common question is which Donor Advised Fund should you use. There are many of them. I think some of the most common and popular are from Vanguard, Fidelity, and Schwab. They all work similarly. I'm not as much of a fan of Vanguard's. They don't like to send money electronically, which means money can end up in the mail. I've had a check floating around for six weeks now because they didn't want to do an electronic funds transfer for quite a large sum. Now, Fidelity and Schwab, I've heard many good things about. I've been using Fidelity Charitable for five-plus years, and I find their website very simple to use. Both Fidelity and Schwab have lower minimum grants than Vanguard at $50 compared to $500. They both let you make smaller additions to your Donor Advised Fund. I think Vanguard wants you to give at least $5,000 at a time. You don't have to do as much with Fidelity or Schwab.

There is a newer one that I've now moved most of my money to. I shouldn't say my money because it's already donated, I cannot take it back. It can only be given to other actual 501(c)(3) charities. Our donated dollars, most of them now lie with Charityvest. They have lower fees, 0.5% as compared to 0.6%, and it goes down from there. I think where we're at would be a quarter percent. But they're actually doing fee waivers for new enrollees right now. The only fees you might pay are the expense ratios, which across the board and any of the donor funds that I've mentioned are quite low, 0.11% and below if you go with index fund options. There are other options for donating as well.

Obviously, you can donate directly to charities, and they get the money and they decide how it's invested or how it's used. You could consider a charitable foundation. These have higher costs to set up and higher costs to maintain. There are some advantages. You can, for example, pay board members. Now that could be considered an advantage or a disadvantage. I feel it may run counter to my charitable mission to actually pay people to be on a board for a foundation. But maybe that's part of your plan. You also have more flexibility in who receives the money. You can maybe choose an individual scholarship recipient, for example, whereas you can't do that with a Donor Advised Fund. But personally, a Donor Advised Fund does everything that I'm looking for, so I haven't looked too closely at what it takes to set up a foundation or any other type of giving vehicle.

More information here:

Tax Benefits of Donating to Charity 

 

Saving for Retirement 

“I know you recommend saving 20% of your gross income for retirement. When I'm doing this math, may I include my annual employer 401(k) contribution and profit sharing in this 20%? Can I include my annual HSA contribution if invested? I've been omitting our 529 kids accounts, etc., from our savings and net worth calculations.”

There's kind of a lot there, so let's dissect it. No. 1, you can include or not include whatever you want. It's your calculation. It's just your numbers. You're not really comparing it with anyone else. This doesn't go to the government. This is just for your own purposes. As far as recommending 20% of your gross income as being saved for retirement, I think that's a good start. Personally, I think that if you can find a way to live on about half of your take-home pay—so, half of your net after taxes—and use the other half to either pay off debt and/or invest, that's a great way to achieve financial independence. You should have it within 15-20 years on average, give or take, if you can live on half of your take-home pay.

But either way, as far as the calculation, I believe that any kind of match that you get from your employer or profit-sharing should be included in both the numerator and denominator. The top and bottom of that fraction in that calculation. Because it's compensation that you're being given and you're saving 100% of it; it's going right into a retirement account. I built a savings rate calculator that does this. You can find that at my website physicianonfire.com. There's a calculator option in the menu. You can use that. That will automatically do what I said, which is to put that match or profit-sharing in both the top and the bottom of that calculation.

As far as HSA contributions, 529 contributions, any other money that you invest, that's money set aside to cover a future expense. I actually include those in my savings rate. I would also encourage you to count 529 money in your net worth calculation because it is money that you have and you will be spending it later. Just like I'm counting the $1 million-plus dollars that we're sitting on to build a house as part of our net worth. It will become part of our house eventually. I don't include the 529s, and I don't include the house in our retirement nest egg numbers. That's kind of a different calculation. You've got a net worth and that's pretty well defined what goes into that and what doesn't. Assets minus liabilities. But your retirement nest egg probably shouldn’t include the 529s. That money should be gone long before you are gone.

The house, give or take, it depends. Do you plan on living in that home forever? Do you plan to downsize, in which case some of the equity could be used toward retirement? You could also do a reverse mortgage. There are lots of options. I would go ahead and count what you've got in your net worth. Then it's up to you what you include in your net worth and retirement nest egg calculations.

 

Can I Start a 529 for a Child I Don't Yet Have?

“I have a $30,000 inheritance that I just received. I'd like to use it for my future (hopefully), child, but I don't currently have a child so I don't think I can use a 529.”

I'll pause here just to say that you actually can start a 529 now. You can put it in your name and then you can change the beneficiary from you to your child in the future once you have a child. As you say, you hope to have a child in the future, and then there is no guarantee. We all know that. There is some risk that you could have money in a 529 that you don't have another use for. If you have nieces or nephews that you'd be happy to give that money to or someone else that could use it or you might use it, then you might consider starting a 529 even now. But there is some risk there. You might end up having to take that money out with a penalty if things don't go according to plan.

“I also don't want it to sit in savings earning nothing. I obviously have a long-term time horizon on this. I was thinking of putting it in an I bond until the child comes, then transferring to 529 at that point, which I would assume would involve taxes.”

Understand that I bonds are limited to $10,000 per person per year. If you have a partner, you could each do $10,000 in 2022 totaling $20,000 and another $10,000 next year. But then that money is locked up for one year from the time that it's put in. When you withdraw it, if you take it out within five years of investing it, then you owe three months of interest back when you take it out. If you wait the full five years and leave it in the I bonds, you can take it out penalty-free. It may be a decent option, but again, recognize the limitations there.

“I could also just put it in VTSAX. That would be the Vanguard Total Stock Market Index Fund and pay capital gains when I transfer it to 529. Time horizon for this child is hopefully 1-3 years, if it all works out. Could you help me think through this? Thanks in advance for your help and all you do.”

I think this last one is a reasonable option for investing in the stock market. Some people prefer taxable investing to 529 investing, especially if your state doesn't give you any incentive to invest. Also remember that money is fungible, right? So, you can invest $30,000 now into an index fund. When you have the child, you can open a 529 and put $30,000 into it from ongoing cash flow, from money that you're earning as a physician or whatever your job is. It doesn't necessarily have to be the same $30,000. Now, if it makes you feel good to mentally account for that $30,000 as the inheritance being used to pay for college, that's great. But you can invest in the market and invest in the 529, and it doesn't necessarily have to be that this dollar has that job. You do have options. I think probably the smartest is to wait to open the 529 until you have that child, especially if you don't get any great incentive from your state, like a state tax credit or deduction for any 529 contributions.

More information here:

Best 529 Plans: Reviews, Ratings, and Rankings

 

Too Many Fees with My Employer-Sponsored Retirement Accounts 

“Hey, Dr. Dahle. Thank you for all that you do. I've benefited greatly from all your advice over the years. I'm a rural FP and work for a district hospital. I make around $400,000 per year and have both a 403(b) and a 457 account with my employer. My employer matches about 4% up to around $11,000 per year. Right now, my accounts have about $825,000 with the two accounts combined. The issue I have is with the fees. The company advisor charges about a 1% fee. The platform he uses adds 0.4% and then the funds he has to choose from add 0.4%-0.7%. So, this all essentially adds up to me paying about $1,400 per month just to manage the amount that I have now. And this will continue to increase as I add more. Right now, I'm adding around $50,000-$60,000 per year into each account. Over time, lots, lots, and lots of lost revenue with the $1,400 per month.

I would love to take the $825,000 out to manage all on my own. For example, with a Vanguard IRA where management fees would be around 0.05%-0.1% range versus the 2+% I'm paying now. But I can't do this without leaving my employer. And I really don't want to do that right now. I checked with the HR advisor, our accountants with the hospital, as well as my advisor. And they all say I can't do an in-service rollover. Is there anything I'm not thinking of? Would it be possible to leave my employer for, say, a month and roll this over and then restart employment? I know there are a number of issues with that personally, but I'm wondering if there's anything else I'm not thinking of. Thanks.”

On Dr. Dahle's behalf, you're welcome for all of his advice over the years. And I want to say, hey, great job on the salary as a family practitioner. That's really impressive and it does show the power of geographic arbitrage in medicine, which tends to be the opposite of many other professions where you can actually make more money in rural America than you can in the big cities. But let's go back to your question. You want to know how you can deal with these fees? My suggestion: lobby for a better plan. Those fees of 2% are egregious, and there are plenty of retirement plans for HR to choose from. I know you've talked to them, but have you talked to them about maybe ditching what you guys have for an option now and finding a better option? Because there are so many.

You may not want to fly solo on this. Try to get some other employees that are stuck in the same plan to complain with you to start making some noise and maybe start a petition if you have to. Educate your fellow physicians. Tell them why this is a bad deal and maybe put together a presentation to explain the role that investment fees play over a long period of time with a large sum of money, like the $800,000 that you've got. Maybe you could give a presentation at a medical staff meeting to show how you are all basically getting fleeced.

I personally wouldn't forgo putting away any money in these tax-advantaged accounts, the 403(b) and 457(b) in general. They're pretty good. The 457(b) would depend on what your withdrawal options are and whether or not this is governmental or non-governmental. I'm guessing a non-governmental plan, given these outrageous fees of approaching 2%. You said you wanted to maybe invest some money with Vanguard. Well, go ahead and do that. I'm guessing/hoping that with a $400,000 salary, the retirement accounts are not the only place that you're investing. Just because you're maxing out 403(b) and 457(b) or 401(k), it doesn't mean that you can't go ahead and invest in low-cost index funds with Vanguard or Fidelity or Schwab or wherever you might find them.

As far as maybe quitting and then rejoining and then trying to roll it over in between, you know there could be some unintended consequences there that I can't imagine would be worth it. You would want to have that really well thought out, planned out, and it still might come back to bite you. So, that would not be my first choice, but I suppose that could be an option.

 

Tax-Loss Harvesting 

“I'm an orthopedic surgeon in Florida and wanted to ask what happens after tax-loss harvesting. Let's say I sell VTSAX to book a loss and buy VFIAX, the S&P 500 fund. I am mentally bothered by having this S&P 500 fund in my portfolio. How soon can I exchange it back to VTSAX? Does it follow a usual 30-day wash sale rule? And can I exchange it back in 30 days?”

Well, ortho surgeon in Florida, there's a simple solution. Stop being mentally bothered by owning an S&P 500 fund. Ask yourself why this bothers you? I'm no psychiatrist, but VTSAX and VFIAX are very, very highly correlated and will give you very similar results. I believe about 82% is identical. It's just that the S&P 500 fund is missing the mid-caps and small-caps that make up the other 18% of VTSAX. If it bothers you that much, just go ahead and buy some extended market index. That's the fund that holds those mid-caps and small-caps. The called letters are VEXAX. Get yourself some of that and maybe you won't be as bothered. I'm not sure.

One of my basic rules of tax-loss harvesting is never trade into a fund that you would not be comfortable holding indefinitely. If a stock market bounces back in the month after you sold any particular asset at a loss, if you sell the one that you exchange into and realize a gain a month later, you could negate the benefits of the tax-loss harvesting. Before you start and make that trade, be comfortable with what you're buying and understand that that could be in your portfolio for years until you decide to either sell it or donate it, or do something else with it. You can have what I would consider to be effectively a three-fund portfolio without owning exactly three funds. You're still going to get a return very, very similar to a three-fund portfolio even if you own 10 funds that are US stock market, international stocks, and bonds.

More information here:

How to Tax-Loss Harvest 

 

Index Bond Funds

“I continue to lose money in bond funds and would like to tax-loss harvest. What are potential tax-loss harvesting partners for bond funds at Vanguard or at Fidelity?”

You must have a lot of money in a taxable account invested in bond funds to be considering tax-loss harvesting them. As bond yields rise, you're going to find that owning bonds, especially any corporate bonds, basically any non-municipal bond funds, it's rather tax-efficient in a taxable account. Now that hasn't mattered as much the last 5-10 years, because yields have been so low. But in a rising rate environment, you're going to see higher bond yields and bonds are notoriously tax inefficient in a taxable account. I know that Dr. Dahle has a post that says bonds belong in taxable, but that's qualified with stating that it's only in this low-interest rate, low-bond-yield environment that that's really true.

Personally, I would take the opportunity to exit from any total bond fund, corporate bond fund you might own in taxable. Either buy municipal bonds in that taxable account or buy similar bond funds in your 401(k) or an IRA, some tax advantaged place where I typically recommend and personally hold my bond allocation.

More information here:

What Bond Fund Should You Hold?

 

Did you know that the White Coat Investor not only has a podcast and a blog but several books that will help you on your way to financial independence. These books cover topics such as asset protection and minimizing your taxes to keep more of your hard earned money. They discuss plans for insurance, housing, spending, student loan elimination, investing and estate planning. You can learn how to become a millionaire within 5-10 years of leaving residency and how to invest in a sensible low cost and effective manner with or without the assistance of a financial advisor. There is even a book geared directly toward medical and dental students so you can start optimizing your finances early in your professional journey. Find the book that is right for you at the WCI store at shop.whitecoatinvestor.com or on Amazon. 

You can do this and The White Coat Investor can help.

 

WCI Scholarship

The WCI scholarship is now accepting applications. Only professional students enrolled full time in a professional school, located in the United States for the 2022-2023 school year who are in good academic standing are eligible. More information can be found here.

 

Quote of the Day 

Dr. William Bernstein said,

“Investing is a game won by the most disciplined, not by the smartest.”

 

Milestones to Millionaire Podcast

#68 — Surgeon Builds Wealth By Living Like a Resident

This surgeon got back to broke 18 months out of residency. They continued to live like a resident, even living in their residency home. They went from $370,000 in debt to now $170,000 net worth. Maxed out tax-protected accounts and put the rest toward paying off the debts, 60%-70% of their income. Living like a resident works!


Sponsor: WCI YouTube Channel

 

Full Transcript

Transcription – WCI – 265
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.

Leif Dahleen:
Hello, this is Leif Dahleen, a.k.a. Physician on FIRE coming at you in place of the good Dr. Dahle and Dr. Spath because it is FIRE week here at the White Coat Investor and I happen to know a few things about FIRE. So, I was asked to come on and guest host and I'm happy to do so.

Leif Dahleen:
Today's podcast will be the Physician on FIRE Q&A. We'll talk about health insurance, giving to charity, savings rates, 529s and tax loss harvesting, to mention a few.

Leif Dahleen:

Did you know that the White Coat Investor not only has a podcast and a blog but several books that will help you on your way to financial independence. These books cover topics such as asset protection and minimizing your taxes to keep more of your hard earned money. They discuss plans for insurance, housing, spending, student loan elimination, investing and estate planning. You can learn how to become a millionaire within 5-10 years of leaving residency and how to invest in a sensible low cost and effective manner with or without the assistance of a financial advisor. There is even a book geared directly toward medical and dental students so you can start optimizing your finances early in your professional journey. Find the book that is right for you at the WCI store at shop.whitecoatinvestor.com or on Amazon. You can do this and The White Coat Investor can help.

Leif Dahleen:
Now the quote of the day comes from the esteemed Dr. William Bernstein, who has been at multiple WCICON events in the past, including the recent gathering we had in Phoenix, this winter in February. And he says “Investing is a game won by the most disciplined, not by the smartest.” So, keep that in mind. You don't have to be the smartest person on the block, but it does require some discipline to be a good and effective investor.

Leif Dahleen:
Now I'll take a quick minute to thank you for the work that you do. Whether you work in a hospital, a clinic, maybe a dental office, courtroom, or even the side of the road, you know the world needs ditch diggers too. So, thank you for whatever it is that you do.

Leif Dahleen:
The WCI scholarship is now accepting applications. Only professional students enrolled full time in a professional school, located in the United States for the 2022/2023 school year who are in good academic standing are eligible. More information can be found at www.whitecoatinvestor.com/scholarship.

Leif Dahleen:
Now, since this is FIRE week, I'd like to talk a little bit about my fire journey for those of you who don't know me, and maybe haven't heard my story. I won't belabor it too much, but I'd like to talk a little bit about the why of my FIRE.

Leif Dahleen:
It wasn't that I was burned out necessarily but there were a few things that kind of left me a little bit disillusioned with the career of medicine. So, I did retire from my job as an anesthesiologist in the summer of 2019, that was coming up on three years ago now.

Leif Dahleen:
I have continued to write on this blog Physician on FIRE that I started back in 2016. So, I'm not completely retired, although this life that I've carved out for myself, has me feeling much more free than the one that I had before when I was a practicing physician.

Leif Dahleen:
We're actually recording this episode in April, well in advance because my family and I are heading out soon on another month-long travel adventure. This will be the third month-long trip that we've taken thus far in 2022. And we've got more lined up after enjoying a nice summer up north in Northern Michigan where we call home.

Leif Dahleen:
But yeah, we spent the first part of the year in January, we took a week each in Athens, Greece, the island of Malta. We spent a week in Sicily and then finished up with a week in Rome.

Leif Dahleen:
I got back just in time to join many of you at WCICON 22, which was fabulous. Then we returned to the cold for a couple of weeks before going down to Florida for the better part of March. We also took a side trip from Orlando to fly to Medellin in Colombia. We spent a week there. We got to see a different culture, spend time in South America.

Leif Dahleen:
And then this next trip we've got coming up we'll take us all over the place. We're going to drive out to see family in Boston, fly down to Texas, spend some time at the beach in Galveston. A cruise ship is going to take us from there down to Costa Rica, Panama, Columbia, again, although Cartagena this time on the coast.

Leif Dahleen:
And then we'll have a few stops in the Caribbean and back up to New York City. We'll see friends there in the city, head to Boston, and then our car will be waiting for us and we were going to road trip it back after doing some hiking, probably in Acadia National Park in Maine. We may end up spending a little time in Canada. We definitely will be driving back through.

Leif Dahleen:
Anyway, long story short. That's what FIRE life looks like for me now. But I said I was going to talk a little bit about what really led me to want to FIRE. I figured out that the money part was all set. When I discovered financial independence in 2014, we had that by the time I left five years later. We had much more than we would need. And that comes into play a little bit later in today's episode when someone in a similar situation is asking about charitable giving. And so, we'll talk about that some more.

Leif Dahleen:
But what really lead me to want to leave my position as an anesthesiologist? It really wasn't the day to day. I think I was pretty good at my job. I enjoyed the people I worked with. I had a lot of great patients. The days usually went by pretty quickly. We were rather busy. It could be stressful at times, but for the most part, it went really well.

Leif Dahleen:
So, I wasn't burned out by the day-to-day job in the OR. I liked the people I worked with. I had some really great patients. It was more bigger picture stuff that kind of got to me and had me thinking that I could do without this job.

Leif Dahleen:
And there are really three things that stand out in my mind and they happened over the course of several years. But the first was, I took a permanent job after doing two years of locums. I'm doing air quotes around permanent, if you can't see this, but it turned out to be a job that was at a hospital that was on very shaky financial ground.

Leif Dahleen:
And that hospital ended up declaring bankruptcy. I was the only anesthesiologist in the county. This was a small town in Northern Michigan. And once there was no need for an anesthesiologist, I really had nowhere else that I could work, at least within a reasonable commute of where we lived, which by the way, was probably the nicest house in town. And it's one that we had built because I thought we'd be there for a good 20 or 30 years. It turned out to be three or four years all together. I had a baby and a toddler at home, and we had to find a new place to live and work. And that was stressful and not fun for anyone, obviously.

Leif Dahleen:
Now, as a thank you for the time I spent there, and that time included, accepting a volunteer position on the board of trustees by agreeing to take over as the president elect of the medical staff. It's a bit of a misnomer because I was appointed to that position when the current president elect left for another job because he could see the writing on the wall and I was too stubborn to see what he saw. So, I stuck around to the bitterr end, at least as long as I could.

Leif Dahleen:
I was on that board for about 10 months. I had a non-voting position. It was more of an observation type role until I would become the president of the medical staff, which of course, never actually happened.

Leif Dahleen:
But what did happen one year and 364 days after the hospital officially went bankrupt is that I was named as one of several dozen people in a lawsuit against basically anyone that had anything to do with the board of trustees over the last 10 years or so. And we did have a directors’ and officers’ policy and insurance policy that should have covered us. However, that policy did not cover us in the event of a bankruptcy.

Leif Dahleen:
And so, over the course of about three and a half years, I had a lawyer that I sent monthly checks to who was in on phone calls, writing emails, following this lawsuit, which dragged on and on, like I said, for three and a half years until finally I and along with quite a few others were dismissed because, well, there was no wrongdoing and we were being sued for breach of financial or fiduciary duty.

Leif Dahleen:
But again, gosh, my role was minimal, but that didn't matter. I had a target on my back. I was an anesthesiologist and my name was on the board minutes and I was going to be sued for millions. And I never thought that I would actually lose millions of dollars, but there was always that little specter out there, that little worrisome thing that I couldn't shake.

Leif Dahleen:
And that's one of the reasons that I was an anonymous blogger when I started out. I didn't want my name out there declaring financial independence while someone else was trying to take it away from me.

Leif Dahleen:
Now, the third thing that happened, and this was a little bit later, I had settled into a new job in Minnesota. It was a great job. It was my last job and everything went well there, but this came from above. This was the American Board of Anesthesiology and the recertification process.

Leif Dahleen:
I finished residency in 2006 and was board certified as soon as you could be by passing the written exam right away and the oral boards the next spring. And so, about seven years after that, 2013/2014, I was told that I could go ahead and take the 10-year recertification exam. It's only offered twice a year and they encourage you to take it as soon as it's available to you. Because you can retake if you happen to fail.

Leif Dahleen:
Now I didn't expect to fail, but I also didn't want to take that chance. So, I skipped the summer testing period, but I went ahead and signed up for the winter testing period. So, the second out of six potential opportunities over a three-year period. And I did well and I passed and I got my letter and it said, “You're good for 10 years.”

Leif Dahleen:
And then six or eight weeks later, I got another letter. And it said, never mind that exam you took. That won't count for anything. Thank you for your $2,100. We're going to start charging you $210 a year, and you're going to take MOCA 2.0 that's made it Maintenance of Certification in Anesthesia. The new thing that we've been testing for the last year, it's been in beta, but now we're going to roll it live.

Leif Dahleen:
Well, you know darn well that they knew they were getting rid of the old plan. And they went ahead and encouraged me to take the old test, spend dozens of hours, probably a hundred plus hours studying all for a 200 question, multiple choice exam that I finished in a hundred minutes.

Leif Dahleen:
It was just a huge waste of my time, my money, or I should say my hospital's money because I was reimbursed, but all for not because they never planned to let it count for anything anyway. And it was just so very frustrating to know that I was sitting in a library studying, spending all this time when I could have been hanging out with my family. And I would've been okay with the transition to this other program. But no, they wanted me to do both.

Leif Dahleen:
Now, eventually a lot of us in the same cohort said, “Wait a minute, you just got this huge chunk of money. You're going to charge us annually for 10 years?” And they did acquiesce on that, but not on the question bank and all the other requirements of this new-fangled maintenance or certification.

Leif Dahleen:
Again, just to recap, few things that really didn't sit well with me was number one, having this permanent job taken away. And that's just the realities of medicine and it is a business. But then to be sued for doing what I thought was what I could do to try to help bright the ship by at least participating in the board.

Leif Dahleen:
And by the way, that was a volunteer position. I didn't get paid a dime. I skipped a lot of dinners at home and went in on evenings for these meetings. And it cost me I think together about $14,000 in legal fees and three and a half years of stress. And then number three was the maintenance of certification having the rug pulled out from under me after passing the exam and having it count for nothing.

Leif Dahleen:
So just realize that even though practicing a medicine can be very rewarding, and if you see it as a calling, FIRE may seem like a non-starter, but I would encourage everyone to try and focus on the financial independence part, not so much the retire early part, because FI certainly gives you options if and when you do want or need them.

Leif Dahleen:
Certain entities or employers, they see you as an asset, as a commodity. And maybe they aren't thinking about you as a human being. No one cares more about you. So, you take care of yourself. And that means looking out for your mental and physical health, also your financial health, which is where I try to help people the most.

Leif Dahleen:
Onto the reader's questions. Let me reach into the mail bag here and let's see what we got for our first question. Okay. “What do you do about health insurance between FIRE and Medicare age?”

Leif Dahleen:
It's a good question. It's a common question, right? Because Medicare starts at age 65. I retired at 43. That's a 22-year gap to cover. That's a lot of ground. So, what you do is you buy it. You buy healthcare. Tens of millions of people do this. Now some of those people are self-employed. Some may not have a job by choice or not. But many people have to pay for their own healthcare coverage.

Leif Dahleen:
So how do you do that? Well, the first question is, do you want true health insurance? If yes, then you look for the best policy that makes the most sense for your family. If you are willing to pay for healthcare coverage, that isn't necessarily insurance, there are other options that exist, and that includes healthcare sharing ministries.

Leif Dahleen:
Now I'm not a huge fan of those that do work for some people, but they're not true insurance. There are annual and lifetime caps on the amount of coverage that they will provide you. They don't actually have a legal or true obligation to reimburse you for any healthcare needs that you have.

Leif Dahleen:
And most of them have a religious affiliation and they'll take a moral high ground on what they will cover. So, for example, certain immoral activities and the resulting health related consequences, may not be covered.

Leif Dahleen:
So, think like anything related to alcohol abuse, accidents under the influence of alcohol or drugs, rehab to help get you or a family member, a child, out of issues with alcohol or drugs. Premarital sex can lead to other things such as pregnancies. And they can say, “No, we don't believe this is fitting with what we want our members to be doing.”

Leif Dahleen:
And so, if you have a few drinks and get in a car accident, if your son or daughter gets in with the wrong crowd, you could have incredibly high healthcare expenses that will not be covered or reimbursed. And that's just not enough of a safety net for what insurance is supposed to be in my mind.

Leif Dahleen:
I looked at those different policies, but I decided to go with true health insurance. And to buy health insurance, you can use an insurance broker. There are people that will look around for you and see what they can find. There may be some kind of an association policy, a group policy that you would be eligible for.

Leif Dahleen:
But I think most people will simply start at healthcare.gov. That's the nation's healthcare insurance exchange and your state may have their own exchange set up. And if you start at healthcare.gov, it will send you there.

Leif Dahleen:
That's how I found mine. We're in our third year now with a high deductible bronze plan that has an HSA. We pay just over a thousand dollars a month for a family of four, here in 2022. That’s gone up a bit from $950 or so to $980 to now I think $1,050 roughly per year.

Leif Dahleen:
It's an expense that we will expect to continue to go up and we planned for that expense before I quit my job. So, make sure you're thinking about that before you consider early retirement. But again, you just pay for it.

Leif Dahleen:
Let's move on to another question. This one is on the Speak Pipe. So, we'll go ahead and play that.

Randall:
Hi, Dr. Dahle. Thanks for your work and that of others like you, I’ve realized that based on our current financial plan, my wife and I are likely to have more money than we will actually need for retirement. And we want to make use of the remainder of that.

Randall:
We plan to give heavily to charities and as such, I wonder what the best plan going forward would be for maximizing these two goals. If we put everything in retirement funds and then in taxable and then pull it out from there, I imagine we'll end up paying a lot more taxes than if we put money into things like donor advised funds upfront as we earn even in those earlier years.

Randall:
So, I wonder if there's some sort of good way to do the calculus on that and plan in advance how much we would give to things like donor advised funds versus taxable for our retirement. I know that you give to charities quite a bit yourself and thought that you would some interesting insights on this. Again, thank you for everything you do.

Leif Dahleen:
Randall has too much money. Congratulations, Randall. I really love where your head's at. There are so many charitable causes that can really use your help, both domestically and internationally. There are so many needs around this world, especially now with the situation in Ukraine, but there always have been and always will be lots of places where you can do good with your money.

Leif Dahleen:
I like that you mentioned donor advised funds. This is my 10th year now using donor advised funds. And what I like to do is donate appreciated assets from my taxable account to the donor advised fund.

Leif Dahleen:
And Dr. Dahle does this as well. The two of us treat our donor advised funds differently though. He uses his as a pass through, puts money in and then takes it out by giving to charity. I use mine as more of an endowment for any foundations that we can give to and mass early on, but then give from for life.

Leif Dahleen:
And so, I kind of look at it as a charitable nest egg, and I can go ahead and maybe have a slightly higher withdrawal rate from that as I do with my own money. But something in the 5% to 10% per year range is what we aim to give from our donor advised funds, which now have grown to something north of $500,000.

Leif Dahleen:
So how much to give? Well, you want to consider your marginal tax bracket and some people like the poo-poo tax advantage giving, like you're being greedy or something, even though you only get back 30 to 40 cents, maybe per dollar that you give away. But I like to look at it as a way to make sure that the charitable organizations that you're supporting get the most money for every dollar that you actually part with.

Leif Dahleen:
So, look at your taxes and if you can maybe drop out of a marginal tax bracket into the next lower one by making grants to a DAF, that is one way to look at the “benefits” of giving some money away. And this does involve some tax planning that needs to be completed before the end of the calendar year.

Leif Dahleen:
Now also keep in mind, there are limits, especially when you donate appreciated assets. So, if you're going to donate, let's say a mutual fund or an ETF or an individual stock that you've owned, first, make sure that you've owned it for more than a year so that you can deduct the current value of it and not the value at which you bought it. But once you've owned it for more than a year, you can go ahead and donate it. And your limit is 30% of your adjusted gross income in that year.

Leif Dahleen:
Most years that tend to be what we give, it’s 30% of our adjusted gross income. And I choose whatever mutual fund in my taxable account has the highest percentage appreciation. And you can choose not only which fund or which stock to give, but which lots of that fund or stock.

Leif Dahleen:
Now a common question is which donor advised fund should I use? There are many of them. I think some of the most common and popular are from Vanguard, Fidelity and Schwab. And they all work similarly. Vanguards, I'm not as much of a fan with. They don't like to send money electronically, which means money can end up in the mail. And I've had a check floating around for six weeks now because they didn't want to do an electronic funds transfer for a quite a large sum.

Leif Dahleen:
Now, Fidelity and Schwab, I've heard many good things about. I've been using Fidelity Charitable for five plus years, and I find their website very simple to use. Both Fidelity and Schwab have lower minimum grants than Vanguard $50 compared to $500. They both let you make smaller additions to your donor advised fund. I think Vanguard wants you to give at least $5,000 at a time. You don't have to do as much with Fidelity or Schwab.

Leif Dahleen:
There is a newer one that I've now moved most of my money to. And I shouldn't say my money because it's already donated, I cannot take it back. It can only be given to other actual 501(c)(3) charities.

Leif Dahleen:
Our donated dollars, most of them now lie with Charityvest. They have lower fees, 0.5% as compared to 0.6%. And it goes down from there. I think where we're at would be a quarter percent. But they're actually doing fee waivers for new enrollees right now. So, the only fees you might pay are the expense ratios, which across the board and any of the donor funds that I've mentioned are quite low, 0.11% and below if you go with index fund options.

Leif Dahleen:
There are other options for donating. Obviously, you can donate directly to charities and they get the money and they decide how it's invested or how it's used. You could consider a charitable foundation. These have higher costs to set up, higher costs to maintain.

Leif Dahleen:
There are some advantages. You can, for example, pay board members. Now that could be considered an advantage or a disadvantage. I feel it may run counter to my charitable mission to actually pay people to be on a board for a foundation. But maybe that's part of your plan.

Leif Dahleen:
You also have more flexibility in who receives the money. You can maybe choose an individual scholarship recipient, for example, whereas you can't do that with a donor advised fund. But personally, a donor advised fund does everything that I'm looking for. So, I haven't looked too closely at what it takes to set up a foundation or any other type of giving vehicle.

Leif Dahleen:
Now this next question comes from email. It says, “I know you recommend saving 20% of your gross income for retirement. When I'm doing this math, may I include my annual employer, 401(k) contribution and profit sharing in this 20%? Can I include my annual HSA contribution if invested? I've been omitting our 529 kids accounts, etc, from our savings and networth calculations.

Leif Dahleen:
All right, there's kind of a lot there. But let me dissect it. Well, number one, you can include or not include whatever you want. It's your calculation. It's just your numbers. You're not really comparing it with anyone else. This doesn't go to the government. This is just for your own purposes.

Leif Dahleen:
And as far as recommending 20% of your gross income as being saved for retirement, I think that's a good start. Personally, I think that if you can find a way to live on about half of your take home pay, so half of your net after taxes, and use the other half to either pay off debt and or invest, that's a great way to achieve financial independence and you should have it within 15 to 20 years on average, give or take if you can live on half of your take home pay.

Leif Dahleen:
But either way, as far as the calculation, I believe that any kind of match that you get from your employer or profit sharing should be included in both the numerator and denominator. The top and bottom of that fraction in that calculation. Because it's compensation that you're being given and you're saving 100% of it, it's going right into a retirement account.

Leif Dahleen:
So, I built the savings rate calculator that does this. You can find that at my website physicianonfire.com. There's a calculator's option in the menu. So, you can use that. That will automatically do what I said, which is to put that match or profit sharing in both the top and the bottom of that calculation.

Leif Dahleen:
As far as HSA contributions, 529 contributions, like any other money that you invest, that's money set aside to cover a future expense. So, I actually include those in my savings rate. And I would also encourage you to count 529 money in your net worth calculation, because it is money that you have and you will be spending it later. Just like I'm counting the million plus dollars that we're sitting on to build a house as part of our net worth. It will become part of our house eventually.

Leif Dahleen:
But I don't include the 529s and I don't include the house in our retirement nest egg numbers. So that's kind of a different calculation. You've got a net worth and that's pretty well defined what goes into that and what doesn't. Assets minus liabilities. But your retirement nest egg probably shouldn’t include the 529s. That money should be gone long before you are gone.

Leif Dahleen:
The house, give or take, it depends. Do you plan on living in that home forever? Do you plan to downsize in which case some of the equity could be used towards retirement? You could also do a reverse mortgage. There are lots of options. To have equity in your house to live in retirement. So yeah, I would go ahead and count what you've got in your net worth. And then it's up to you what you include in your net worth and retirement nest egg calculations.

Leif Dahleen:
Another question. “I have a $30,000 inheritance that I just received. I'd like to use it for my future (hopefully), child, but I don't currently have a child so I don't think I can use a 529.”

Leif Dahleen:
Okay. This goes on for quite a while. I'll pause here just to say that you actually can start a 529 now, and you can put it in your name and then you can change the beneficiary from you to your child in the future, once you have a child.

Leif Dahleen:
Now, as you say you hope to have a child in the future, and then there is no guarantee. We all know that. So, there is some risk there that you could have money in a 529 that you don't have another use for.

Leif Dahleen:
Now, if you have let's say nieces or nephews that you'd be happy to give that money to, or someone else that could use it, or you might use it. Well, then you might consider starting a 529 even now. But there is some risk there. You might end up having to take that money out with a penalty if things don't go according to plan.

Leif Dahleen:
Back to the question. “I also don't want it to sit in savings earning nothing. I obviously have a long-term time horizon on this. I was thinking of putting it in an I bond until the child comes, then transferring to 529 at that point, which I would assume would involve taxes.”

Leif Dahleen:
Well, yeah. Understand that I bonds are limited to $10,000 per person per year. And if you have a partner, well, you could each do $10,000 in 2022 totaling $20,000 and another $10,000 next year.

Leif Dahleen:
But then that money is locked up for one year from the time that it's put in. And when you withdraw it, if you take it out within five years of investing it, then you owe three months of interest back when you take it out. If you wait the full five years, leave it in the I bonds, you can take it out penalty free. It may be a decent option, but again, recognize the limitations there.

Leif Dahleen:
She continues. “I could also just put it in VTSAX. That would be the Vanguard Total Stock Market Index Fund, and pay capital gains when I transfer it to 529. Time horizon for this child is hopefully one to three years, if it all works out. Could you help me think through this? Thanks in advance for your help and all you do.”

Leif Dahleen:
Yeah, I think this last one is a reasonable option for investing in the stock market. Some people prefer taxable investing to 529 investing, especially if your state doesn't give you any incentive to invest.

Leif Dahleen:
Now, also remember that money is fungible, right? So, you can invest $30,000 now into an index fund. And when you have the child, you can open a 529 and put $30,000 into it from ongoing cash flow, from money that you're earning as a physician or whatever your job is.

Leif Dahleen:
So, it doesn't necessarily have to be the same $30,000. Now, if it makes you feel good to mentally account for that $30,000 as the inheritance being used to pay for college, that's great. But you can invest in the market and invest in the 529, and it doesn't necessarily have to be this dollar has that job.

Leif Dahleen:
So, you do have options. I think probably the smartest is to wait to open the 529 until you have that child, especially if you don't get any great incentive from your state, like a state tax credit or deduction for any 529 contributions.

Leif Dahleen:
Next, we have a question from the Speak Pipe. Let's go ahead and play that.

Speaker:
Hey, Dr. Dahle. Thank you for all that you do. I've benefited greatly from all your advice over the years. I'm a rural FP and work for a district hospital. I make around $400,000 per year and have both a 403(b) and a 457 account with my employer. My employer matches about 4% up to around $11,000 per year.

Speaker:
Right now, my accounts have about $825,000 with the two accounts combined. The issue I have is with the fees. The company advisor charges about a 1% fee. The platform he uses adds 0.4% and then the funds he has to choose from add 0.4% to 0.7%.

Speaker:
So, this all essentially adds up to me paying about $1,400 per month just to manage the amount that I have now. And this will continue to increase as I add more. Right now, I'm adding around $50,000 – $60,000 per year into each account. Over time, lots, lots, and lots of lost revenue with the $1,400 per month.

Speaker:
I would love to take the $825,000 out to manage all on my own. For example, with a Vanguard IRA where management fees would be around 0.05% to 0.1% range versus the 2+% I'm paying now. But I can't do this without leaving my employer. And I really don't want to do that right now.

Speaker:
I checked with the HR advisor, our accountants with the hospital, as well as my advisor. And they all say I can't do an in-service rollover. Is there anything I'm not thinking of? Would it be possible to leave my employer for say a month and roll this over and then restart employment? I know there are a number of issues with that personally, but I'm wondering if there's anything else I'm not thinking of. Thanks.

Leif Dahleen:
Okay. On Dr. Dahle's behalf, you're welcome for all of his advice over the years. And I want to say, hey, great job on the salary as a family practitioner. That's really impressive and it does show the power of geographic arbitrage in medicine, which tends to be opposite of many other professions where you can actually make more money in rural America than you can in the big cities.

Leif Dahleen:
But let's go back to your question. You want to know how you can deal with these fees? My suggestion, lobby for a better plan. Those fees of 2% are egregious, and there are plenty of retirement plans for HR to choose from. I know you've talked to them, but have you talked to them about maybe ditching what you guys have for an option now and finding a better option? Because there are so many.

Leif Dahleen:
You may not want to fly solo on this. Try to get some other employees that are stuck in the same plan to complain with you to start making some noise and maybe start a petition if you have to.

Leif Dahleen:
Educate your fellow physicians, tell them why this is a bad deal and maybe put together a presentation to explain the role that investment fees play over a long period of time with a large sum of money, like the $800,000 and some thousand dollars that you've got. Maybe you could give a presentation at a medical staff meeting to show how you are all basically getting fleeced.

Leif Dahleen:
I personally wouldn't forgo putting away any money in these tax advantaged accounts, the 403(b) and 457(b) in general. They're pretty good. 457(b) would depend on what your withdrawal options are and whether or not this is governmental or non-governmental. I'm guessing a non-governmental plan, given these outrageous fees of approaching 2%, it sounds like depending on what you're invested in.

Leif Dahleen:
You said you wanted to maybe invest some money with Vanguard. Well, go ahead and do that. I'm guessing/hoping that with a $400,000 salary that the retirement accounts are not the only place that you're investing. Just because you're maxing out 403(b) and 457(b) or 401(k), it doesn't mean that you can't go ahead and invest in low-cost index funds with Vanguard or Fidelity or Schwab or wherever you might find them.

Leif Dahleen:
As far as maybe quitting and then rejoining, and then trying to roll it over in between, you know there could be some unintended consequences there that I can't imagine that would be worth it. You would want to have that really well thought out, planned out, and it still might come back to bite you. So, that would not be my first choice, but I suppose that could be an option.

Leif Dahleen:
Here's a question from the email. “I'm an orthopedic surgeon in Florida and wanted to ask what happens after tax loss harvesting. Let's say I sell VTSAX. That's the Total Stock Market Index Fund from Vanguard to book a loss and buy VFIAX, the S&P 500 fund. I am mentally bothered by having this S&P 500 fund in my portfolio. How soon can I exchange it back to VTSAX? Does it follow a usual 30-day wash sale rule? And can I exchange it back in 30 days?”

Leif Dahleen:
Well, ortho surgeon in Florida, there's a simple solution. Stop being mentally bothered by owning an S&P 500 fund. Ask yourself why this bothers you? I'm no psychiatrist, but VTSAX and VFIAX are very, very highly correlated and will give you very similar results. I believe about 82% is identical. And it's just that the S&P 500 fund is missing the mid-caps and small-caps that make up the other 18% of VTSAX.

Leif Dahleen:
So, if it bothers you that much, just go ahead and buy some extended market index. That's the fund that holds those mid-caps and small-caps. The called letters are VEXAX. Get yourself some of that and maybe you won't be as bothered. I'm not sure.

Leif Dahleen:
But one of my kind of basic rules of tax loss harvesting is never trade into a fund that you would not be comfortable holding indefinitely. So, if a stock market bounces back in the month after you sold any particular asset at a loss, if you sell the one that you exchange into and realize a gain a month later, well, you could negate the benefits of the tax loss harvesting.

Leif Dahleen:
Before you start and make that trade, be comfortable with what you're buying and understand that that could be in your portfolio for years until you decide to either sell it or donate it, or do something else with it.

Leif Dahleen:
You can have what I would consider to be effectively a three-fund portfolio without owning exactly three funds. You're still going to get a return very, very similar to a three-fund portfolio even if you own 10 funds that are US stock market, international stocks and bonds.

Leif Dahleen:
So, let's take a question from the Facebook group. We've talked about tax loss harvesting and index funds. What about index bond funds? “I continue to lose money in bond funds and would like to tax loss harvest. What are potential tax loss harvesting partners for bond funds at Vanguard or at Fidelity?”

Leif Dahleen:
Well, you must have a lot of money in a taxable account invested in bond funds to be considering tax loss harvesting them. As bond yields rise, you're going to find that owning bonds, especially any corporate bonds, basically any non-municipal bond funds, it's rather tax efficient in a taxable account.

Leif Dahleen:
Now that hasn't mattered as much the last 5 to 10 years, because yields have been so low, but in a rising rate environment, you're going see, higher bond yields and bonds are notoriously tax inefficient in a taxable account.

Leif Dahleen:
So, I know that Dr. Dahle has a post that says bonds belong in taxable, but that's qualified with stating that it's only in this low interest rate, low bond yield environment that that's really true.

Leif Dahleen:
Personally, I would take the opportunity to exit from any total bond fund, corporate bond fund you might own in taxable. And either by municipal bonds in that taxable account, or buy similar bond funds in your 401(k) or an IRA, some tax advantage place where I typically recommend and personally hold my bond allocation.

Leif Dahleen:

Did you know that the White Coat Investor not only has a podcast and a blog but several books that will help you on your way to financial independence. These books cover topics such as asset protection and minimizing your taxes to keep more of your hard earned money. They discuss plans for insurance, housing, spending, student loan elimination, investing and estate planning. You can learn how to become a millionaire within 5-10 years of leaving residency and how to invest in a sensible low cost and effective manner with or without the assistance of a financial advisor. There is even a book geared directly toward medical and dental students so you can start optimizing your finances early in your professional journey. Find the book that is right for you at the WCI store at shop.whitecoatinvestor.com or on Amazon. You can do this and The White Coat Investor can help.

Leif Dahleen:

Now I'd like to make a quick call out to any potential conference speakers that would like to speak at WCICON23 in Phoenix next year, which will be held from March 1st to March 4th of 2023. You can apply to speak to the audience at www.wcievents.com. I better get on that actually. I didn't realize we were already looking that far ahead. Good for you, Dr. Dahle.

Leif Dahleen:
Please leave this podcast a five-star review and tell your friends about the podcast too. I'd like to read one recent review that was left on Apple podcasts. And I quote, “If you are a high-income earner, there's no better place to start and maintain financial literacy. I started from knowing nothing to feeling quite competent just by listening to the podcast alone. Also, recently they added Dr. Spath as a co-host, and she's been a great addition to the team.”

Leif Dahleen:
Now where's my co-host? I didn't get a co-host. Dr. Spath you’re too good for me. Well, anyway, wasn't that fun? Come visit me sometime at physicianonfire.com. You can also find me on Facebook, Twitter, and Instagram. Just search for Physician on FIRE.

Leif Dahleen:
I've also got a few Facebook groups now. One is for medical doctors only. That's Physicians on FIRE. I've got a group for dentists. That's Dentists on FIRE. And another group for all comers, simply known as fatFIRE.

Leif Dahleen:
So, head up, shoulders back, arms resting comfortably at your sides. Feet about shoulder width apart, knees unlocked. That's it. You're looking good. You've got this and we can help.

Disclaimer:
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.