The 4% Rule and Saving for an Early Retirement

INTRODUCTION

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

Dr. Jim Dahle:
This is White Coat Investor podcast number 441.

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All right, welcome back to the podcast. Thanks for what you're doing out there. It's important work. A bunch of you, I apparently made an offhand comment a few weeks ago when recording the podcast about the fact that I got a non-union in my scaphoid, and I got a whole bunch of hand surgeons that emailed me and said, “Hey, I'll take a look and see if I can help.” You guys are awesome.

It's amazing what you will reach out and do for each other, for the White Coat community. It's really pretty awesome, and I appreciate getting a second opinion and knowing that what I'm hearing from my surgeon is probably the best advice I can get, and I do appreciate that.

And let's be honest, when I complain about my wrist not being functional, I can still do an awful lot of fun stuff. We just got back from a trip to Switzerland and the Dolomites in Northern Italy. We spent one day canyoning in Ticino, which I was thrilled about. This is like a Mecca. This is like Moab for mountain bikers. Ticino for canyoneers is a pretty cool place. A lot of you probably never have heard of the place, but it's a bunch of mountain streams, waterfalls, etc. that come into the mountains there. And so we had a lot of fun jumping off cliffs into pools and sliding down slides into pools and rappelling off stuff and hanging out in waterfalls. It was a great time in Ticino.

Then we spent another five days in the Dolomites doing via ferrata, which a lot of you might not know what a via ferrata is. This is an Italian phrase for the iron way. And basically in World War One, the Italians and the Austrians fought each other to a stalemate in the mountains in the Dolomites. And they got up and down in these peaks using ladders and cables and whatever they could to get to these high peaks. They dug into the mountains. They lived in caves. They literally fought inside of mountains during World War One. That front basically didn't move the whole time. For three years, they're all in the same place fighting each other in these mountains.

But afterward, there were all these ladders and cables in the mountains that you could go check out. And obviously those are all 100 years old. So they've updated them. And there's lots of cool places where you can go to the top of spectacular mountains past all these caves that people were fighting in and past all these trenches and lookouts and really explore.

And so, it's heaven for those of us who love mountains. The Dolomites are incredible. You look around and there's 50 peaks visible that are like the Grand Teton. And so we got a chance to go up some of those via these via ferratas. Instead of using a rope and rock climbing protection that you put into the rock, you're just clipping yourself into a cable as you climb along the whole way. And so, it's a way for people that aren't particularly skilled at rock climbing to be able to go to pretty spectacular places very safely. And so, we had a fun time doing that.

I'm pleased to say that in both the canyoning and via ferratas, my wrist worked perfectly fine to keep up with the group. And we had a wonderful time over there. It was kind of a couple's trip and had fun. I spent one day down in Venice, which is about all I can take in Venice anyway, but it's obviously a pretty cool place. If you've never been there, it's worth a day of your life for sure.

But I don't mean to complain too much about my wrist not working great since obviously I can do most of what I want to do in my life. In fact, I even went rock climbing this week, like real rock climbing. I told my son he better lead because I wasn't sure what my grip strength could really do on this particular route. And so he led the rock climb for the first time. It was a very safe, bolted rock climb. And he did great. And we're very proud of him. And he's very proud of himself. And he was thrilled because that day he got his braces off as well. So, it was a big day for him. And I hope you guys are all doing great out there in White Coat Investor land.

You guys are a community and maybe you don't feel yourself a part of that yet. One way you can is joining one of these online White Coat Investor kind of communities. Since it was founded, it has been bringing together this community of like-minded physicians and higher earners that are committed to financial success.

Whether you're celebrating a money win or navigating a financial setback or looking for guidance, you'll find a wealth of knowledge in the subreddit. If you're in the reddit, go to r/whitecoatinvestor. The Facebook group is White Coat Investors. It's a private Facebook group. You got to actually answer a couple of questions before they let you in there. You can't be a financial professional. It's supposed to be high income professionals like docs, et cetera.

You can come by the White Coat Investor forum. That's forum/whitecoatinvestor. Check that out. And we also have the FEW – Financially Empowered Women. This is an all-women’s community. If you prefer to learn in that sort of community. That's our smallest community, obviously compared to the others. But in some ways, there's a community we have on Instagram and X as well.

But we encourage you to engage with other White Coat Investors. A lot of the questions you have can be answered very quickly and very thoroughly. And you can get lots of different opinions just by posting them in one of those groups.

Don't be afraid to use those. They are there for you. They're all totally free. We don't make much money in any of those communities, to be honest with you. They're all pretty hard to monetize compared to a podcast or a blog or a newsletter or something like that. But we think it's important to maintain those because we think it does a great service for you. So take advantage of this.

All right, let's get into your questions. We're going to take some questions today. We also have an interview here with one of our sponsors. We're going to bring on a little bit later. But our first question comes from Nicole, who wants to learn a little more about saving for early retirement.

SAVING FOR EARLY RETIREMENT

Nicole:
Hi, Dr. Dahle. My name is Nicole and I have a question about saving up for early retirement. For context, my husband and I are both 35. We're pharmacists. We hope to retire in our early 40s. We currently have about two million dollars in investable assets and want to retire with somewhere between three and four million dollars in investable assets.

Our current situation is we have about $1.4 million dollars in tax-protected accounts and about $600,000 in taxable accounts, $67,000 of which is cash. To mitigate sequence of returns risk, I would like to have about $250,000 in cash when you retire to do the bucket method.

I am wondering how you would go about accumulating $250,000 in cash. Every year we max out all of our tax-protected accounts and then after that we have about $40,000 left over to save in our taxable brokerage account. In the past, we've just been investing that money in index funds and bonds, but now would you start just saving in a money market account? I don't really want to sell investments to accumulate this $250,000 dollars in cash. What are your thoughts?

Dr. Jim Dahle:
Okay, great question. First of all, congratulations. You're doing spectacularly. If this were the Milestones to Millionaire podcast, we'd be totally heaping congratulations on you. You guys are doing great. You're 35, a couple of pharmacists, you got a couple million dollars already. You're multi-millionaires. Awesome.

The only problem here is that you have a pretty aggressive goal. You want to retire, I think you said in the early 40s, right Megan? Early 40s? I mean you're 35. We're talking five, six, seven, eight years from now. You want to retire. And retiring that early in life requires you to save lots and lots of money.

Now, clearly, I don't know, maybe you got an inheritance or something. Maybe you won the lottery. I don't know, but I'm guessing you accumulated this by saving a whole bunch of money. If you go back and run the numbers and see how much you got to save to retire very quickly in life, you realize it's a pretty high savings rate.

Pete Adeney, who started a blog a month before mine called Mr. Money Mustache, did a post, probably his most famous post from 2012. He called it the shockingly simple math behind early retirement. He built a chart in that post. He uses net savings rate, and I usually talk about savings rate as a gross percentage of your income, but he used net savings rate in this chart.

He basically said if you save 5% of your net income, you got to work 66 years until you can retire. If you're saving 100% of your income, well, you could retire right now because you don't need to save anything. If you're saving 90% of your net income, you'll be able to retire in under three years. If you're saving 50% of your net income, you'll be able to retire in 17 years, so on and so forth.

It's all dependent mostly on your savings rate because the more you save, not only do the more you have to invest, but the less you need to replace later because you're only replacing what you actually spend. What you save is not part of your spending.

That's the way the math of early retirement works. The more you save, the sooner you're financially independent, the sooner you can quit working if you want. It doesn't mean you have to quit working.

FIRE is financially independent, retire early, but you can be just FI. We've been financially independent for seven or eight years or something now. We're still working. We're still running White Coat Investor. Katie even ran for office. She's in a school board meeting this morning as we're recording this and I'm still seeing patients in the emergency department. Nothing says you have to retire, but you can retire if you want to once you're financially independent. In fact, a lot of the benefits of financial independence show up long before you actually hit that mark of being financially independent.

Your only question is, “Well, how do I get $250,000 in cash?” I'm guessing you're not going to find it in your couch cushions. You got to save it. You said you don't want to sell any investments ever to get it. Well, that limits a lot of ways you could get it, so you just have to save it. You said you're putting $40,000 into a taxable account every year and you got $67,000 in cash and you want $250,000 in cash. I figure that taxable account money has to go to cash for the next three or four years to get you where you want to be.

It seems like as easy as a method as any. Luckily, right now, cash is paying 4.2% or something like that if you have it in a high yield savings account or a good money market fund. I think it's gone down recently with some changes made at the Fed. If you want to retire very soon and you don't want to sell investments to get that cash and you want to have that much cash, which is not an unreasonable way to deal with sequence of returns risk, by the way. I don't have any problem whatsoever with your plan, but with the limitations you gave me, the only way to do is to save it. You got to start saving the cash.

Now, in your taxable account, you could also turn any dividend reinvesting off that you have. That might help you get to $250,000 sooner because that $600,000 you have in investments there, maybe you're reinvesting the dividends. Have those go toward cash and you'll get there. It might take you a few years, but you'll get to that $250,000.

You're not that far away. You want three or four million. You got two million already. Even if you do nothing, that two million is probably going to become four million in the next seven to 10 years. Now, you want to retire a little sooner than that, which is fine because you're still saving.

I think five years from now, five, six, seven years from now, you're going to make it. You're going to hit your goal of $3 to $4 million, $250,000 in cash and be able to have this early retirement you've been dreaming about. I think you're well on track to your goal. I think it's very reasonable for you to do what you're talking about doing. It seems to me like you're doing everything right. Congratulations. Keep going. You're almost there. We rejoice with you as you reach your financial goals.

Okay. Let's talk about Canadians for a minute. I love Canada. I thought about living in Canada. I visited Canada a number of times. Every one of those trips was one of the best trips of my life. Let's talk about somebody that got some money from Canada. I've never gotten money from Canada. I've always spent money when I went to Canada, but I guess it's possible to get money from Canada. Let's listen to that.

WHAT TO DO WITH AN INHERITANCE FROM A CANADIAN RELATIVE

Speaker:
Hi, Dr. Dahle. I am a 50-year-old subspecialty neurologist living in the South, married, no kids, no college funds to save for. I've paid off all my student loan debt, and there's no mortgage, no consumer loans. I have a net worth of $1.4 million, mostly in retirement. That does not count my house, which is my forever home. Not planning to move.

My question is regarding an inheritance from a deceased family member in Canada. It'll end up being approximately $100,000 in U.S. dollars. I'm not really pleased with the current administration's tendency to want to manipulate the Fed. I could bring the money into the U.S., or I could leave it in Canada as a currency hedge. I would have to make a personal trip to Canada in order to open a bank account there.

The question is, is it worth it to make the trip to Canada, or should I bring the money to the U.S. and stop being melodramatic about the potential decline of the U.S. dollar as a reserve currency? If I did bring it to the U.S., I would either invest it in my brokerage account or spend it on my house on some long-wanted but unnecessary home upgrades. Anyway, I’m just curious about your thoughts. Thank you so much.

Dr. Jim Dahle:
Well, you gave me the option of a trip to Canada, so I'm taking that. I think you should open a bank account in some place like Squamish or Revelstoke. Revelstoke, about January, you can tie it in with a pretty sweet heliskiing trip, or maybe Squamish come August or September, and you can go climbing on the Chief. It'd be a great trip. I think it'd be wonderful.

All joking aside, you don't sound like you're going to Canada. You're going to stay where you're at. You're in your forever home in the South. That's a long way from Canada, so I don't know what the big deal is about keeping money in Canada and hedging your currency risk. It sounds to me like you're spending dollars the rest of your life.

Yeah, it doesn't sound like you like the current presidential administration. Well, I got news for you. President Trump is on his second term, and as I record this, it's already September, so you got three and a half years left, and then you get a different president. Maybe you like this one more. Maybe you like this one less. I don't know, but you're going to get a different one in three and a half years, barring some real changes to our political system.

You sound young. You sound like you're not retiring for quite a while. You sound like you got a lot of life left to live. I don't think I'd make any big changes to my financial plan based on who's in the office of the White House, the Oval Office of the White House. So no, I think you are being melodramatic if you're like, “I better leave some of this in Canada because we got Trump going on.” I think that's nutty.

If it was a good idea to have money in Canada before President Trump, then yeah, sure, put some money in there, but it doesn't sound to me like it was a good idea before. It doesn't sound like it's a good idea now. If you just think the whole U.S. is going to implode, fine, go buy some property in Canada or Switzerland or New Zealand or wherever else you want to go, but it just seems a little melodramatic to make a bunch of changes to your financial plan every time a new party sweeps into Congress or a new party sweeps into the White House or a different judge gets appointed to the Supreme Court. Things change, but they don't change that much that you have to make huge shifts.

You've got $1.4 million, I think you said. If the right answer is putting some of that into Canadian dollars, why would $100,000 be the right amount. The right amount's probably $400,000. So, not only do you have to go to Canada with the $100,000 you've already got there, you need to take another $300,000 and put it in that Canadian bank and invest it in Canada. It just doesn't make any sense. You're panicking about who's in the White House – don't do that. That's not good for your finances.

Now, what should you do with this windfall you've received? Well, that's a totally different question. And probably the best thing to do with the windfall is nothing for a few months. And then you have to ask yourself, “Well, how big is the windfall compared to what I have?” If you inherit $5 million and you have a $500,000 portfolio, well, you're probably treating that a little bit differently than if you have a $1.4 million portfolio and you inherit $100,000. This is, I don't want to call it chump change because $100,000 is still a lot of money, but compared to what you have, it's a very small percentage of it.

I think it's reasonable to spend some of it, save some of it, use some of it to pay down debt. I think you said you don't have any debt, so that's not an option for you. Maybe give some of it away. But if you want to bring this money all down to your house in the South and you want to use it to update your kitchen and your bathroom, more power to you. Go for it.

Money is to be spent to make your life better. Yes, you have to take care of business, but you're taking care of business. You're doing great. You're already a millionaire. You've taken care of all these debts. You're not going to have a problem where you're out of money. I can already tell from the success you've had, you're on track to retire as a multimillionaire. What you do with $100,000 now is not going to change that. You're still going to be successful.

Now, if your goal were to try to retire in three years, well, maybe this $100,000 needs to go into your portfolio, but I'm not hearing that from you. So, it sounds to me like you can easily use some or all of this to do that home upgrade you've been wanting to have and more power to you. I think your relative would be very happy to see you use that money to buy something that brings you a lot of happiness. But I wouldn't feel like you have to go to Canada and just open a bank account because you don't like the person in the oval office. That's kind of silly, I think.

Okay, let's get one of our friends on here. We bring sponsors on the podcast from time to time to talk not only a little bit about what they do. They sponsor the White Coat Investor, but also just to talk about their area of expertise. And this is one of those interviews. So let's bring them on.

INTERVIEW WITH NATHAN CLAYBERG OF MLG CAPITAL

Dr. Jim Dahle:
I have a guest now on the White Coat Investor podcast, Nathan Clayberg, the Senior Vice President of Business Development for MLG Capital. This is a long term sponsor here at the White Coat Investor, and somebody I've invested quite a bit of money with, as well in their Fund 4. They're now raising money for Fund 7. But we thought we'd bring Nathan on and talk a little bit about today's market, especially for multifamily real estate. Nathan, welcome to the podcast.

Nathan Clayberg:
Thanks, Jim. Excited to be here.

Dr. Jim Dahle:
Now, we did a webinar not long ago, and we talked a little bit about how 2022, 2023 and 2024 were pretty unique for multifamily real estate investments. Can you explain why those years were so unique and what that means for the future?

Nathan Clayberg:
Yeah, that's an interesting question. I think there are a couple things that really played out over the last few years. The first and probably the biggest headline that we've seen is the historic levels of new apartment supply, particularly in that we saw really from 2022 through 2024.

It makes perfect sense when you think about it. Everyone started their development projects in 2020, 2021, early part of 2022, when debt and equity were available, and both were very cheap. Interest rates were low, and it was a time when there was a lot of capital chasing the real estate market. All of those projects started to deliver in 2022 through 2024, and that created a level of new supply hitting the market all at once that we hadn't seen in 50 years, in some markets even longer than that.

You had all of this new supply, and new supply tends to put downward pressure on rents. It increases vacancy. It increases concessions. Pretty quickly, it can make a pro forma that looked great in 2021 start to look really challenged here in 2024, 2025.

That was one big headline that we saw. New supply was at historically high levels. Then on the capital market side, all of the institutional capital or a lot of the institutional capital started to leave the market. Institutions are what drives a lot of the investing volume into an asset class. When rates ran in 2022, we saw a lot of the institutions rebalance their portfolios into bonds, which their values went way down during the interest rate run, and away from real estate.

The impact of that is, and here's the punchline, in 2021 and 2022, there was $34 billion placed into private real estate from the large private REITs out there. In 2024, that number was $6 billion. You have just dramatically less capital chasing real estate, which impacts the demand in the capital market side of the equation. You just have significantly reduced competition, less people chasing, which doesn't give us a way to as strong a pricing. That combined with the challenges operationally from all the new supply, it's been a pretty interesting couple of years.

Dr. Jim Dahle:
Let's talk a little bit about MLG specifically. Those interested in more information on MLG, you can go to whitecoatinvestor.com/mlg. As I mentioned earlier, they're raising for their Fund 7 now.

MLG has a very long track record compared to most private real estate companies and even compared to most of our sponsors. Can you talk a little bit about what having a track record that goes back to 1987 means and why that matters when it comes to investing in real estate that both you and I believe is best invested in long-term?

Nathan Clayberg:
Yeah, you said it. Real estate is a long-term game and having a long track record gives you experience that a lot of sponsors don't have. Our principal group that exists here at MLG today has been investing together for about 25 years on average, and you just see it experience a lot of different things when you go through that time.

And it's funny, we talked with our CEO, Tim Wallen. He often says that today feels a lot like the early 90s and just sees parallels in different market cycles. But for a lot of sponsors, this is their first go-around. This is their first cycle and the first time that they've really had deals not go exactly as planned.

And inevitably, if you're in this business long enough, you're going to see things not go exactly how you put them into your spreadsheet. And you've got to be able to run right at those problems and get them fixed. And we think we're well-qualified to do that.

That's why I think when you look back on this period of time in a few years, you're going to see as MLG emerging as a really strong sponsor because we continue to perform in challenging markets.

Dr. Jim Dahle:
Now, MLG allows you to invest in Fund 7 with as little as $50,000, but it offers two different types of funds. And I think this is a challenging thing for White Coat Investors to decide which side they want to invest in. On the one side, you can invest as in a typical partnership where you get a K-1 and you have all the losses passed through to you to use against your passive income. Or you can choose to be in the dividend fund.

The investments are all the same, but the dividend fund, you're not going to have any multi-state tax returns. You don't get those big losses passed through to you, but it's super convenient for a retirement account, for instance, because you get to avoid UBIT, this unrelated business income tax.

How can someone decide which one of these two options they should take when they're investing with MLG for the first time?

Nathan Clayberg:
Yeah, that's a great question. And I'll reiterate something you already said, but it's important to note that the investments that you're participating in and the business deal that you have with MLG is exactly the same on a pre-tax basis between these two options. The difference really lies in how the distributions you receive are characterized from a tax perspective. It's always best to involve your CPA in this conversation.

I think there are three important questions you need to ask your CPA. First is, “What's it going to cost me to file in multiple states?” In general, in these funds, we're invested in 10 to 12 states. Usually those states include Texas, Florida, and sometimes Tennessee, all of which don't have state income tax. So, let's say you have eight to 10 states that you may be filing taxes in. It's important to know what that's going to cost in your tax preparation. You have to factor that in.

The second thing you need to ask is, “How much would passive losses benefit my specific tax picture?” And it really varies depending on what's going on in your tax picture. If you have a very high W-2, but you don't have a lot of passive income, then the losses that we can provide may not be as immediate of a benefit than if you're someone who has significant passive income already going on in your tax picture.

If you've got $50,000 passive income, and you make a $100,000 investment and get a $50,000 paper loss from us, that could be $20,000 of tax savings right away. And I'd be confident in saying that you're not going to spend that much in tax prep. It really depends on what's going on in your particular tax situation.

And then the third thing I think you have to ask yourself is, “How much am I looking to invest, both right now and over time?” The tax prep cost is relatively fixed. It doesn't cost your CPA to add another zero to your K-1. But the potential savings that you can realize definitely grow as you invest more dollars.

So, if you're going to invest a significant dollar amount, sometimes we like to say the breaking point is roughly around $250,000, we start to see it make more sense for people to go with the private fund than the dividend fund. But especially if you're going to be ramping up your investment over a long period of time, and you intend to really get up into the $500,000, $600,000, $700,000 or north of a million, we think you're going to see more benefit over time from doing the private fund versus the dividend fund.

Now, we're talking all taxable dollar investments. If you're going to invest through a retirement account, the dividend fund is the only option for you because all these tax considerations don't matter. But if you're considering investing taxable dollars, I would take those three questions to your CPA. What's it going to cost me? How could it benefit me? And how much am I looking to invest?

Dr. Jim Dahle:
Yeah, great response. And I think that's so important to emphasize that the amount matters. You can invest in Fund 7 with just $50,000. But obviously, if you end up having to file in a number of states for that, the tax prep costs can eat up a significant percentage of your return that just wouldn't if you were investing a quarter million dollars.

Nathan Clayberg:
Yes, that's right.

Dr. Jim Dahle:
Yeah, awesome. Well, it's awesome that MLG offers both options, because I think there are people for whom both options can be right. As I mentioned earlier, if you're interested in more information about MLG, go to whitecoatinvestor.com/mlg to learn more. Nathan, thanks for being on the podcast today.

Nathan Clayberg:
Thanks, Jim. Thanks for listening, everyone.

Dr. Jim Dahle:
Okay, I hope you enjoyed that. Let's take a question from Pedro. I think we had one from Pedro a few weeks ago. But here's another one.

THE 4% RULE

Pedro:
Hi, Dr. Dahle. This is Pedro from the East Coast. I had a question about the 4% rule. The way I used to think about the rule is that you could withdraw 4% of your portfolio, and you would always use the 4% regardless of whether the stocks are up or down. But it looks like we have to adjust for inflation. But how do you actually adjust for inflation? Do you take an exact number that represents 4% in the first year, and then you add a percent that represents the inflation? And how do you figure that out? How do you know exactly what the current inflation is? I don't know, in practice, how do I actually do the 4% rule? How do I actually choose how much to withdraw?

Dr. Jim Dahle:
Okay, great question. There's a lot we can talk about with this. First of all, we got to be careful calling anything a 4% rule. A rule sounds like some sort of guarantee. The best way to think about the 4% rule is as a 4% guideline. It reminds me of that line from Pirates of the Caribbean, where it turns out that it's more like a guideline. You might remember this line from the movie, and of course, you don't always get your parley as they asked for in the movie. It's a guideline. There's no guarantee with the 4% rule.

But the way it works, if you look at the classic studies like the Trinity study from the 1997, the data has been updated since then. But the way it worked was that you take 4% of what the portfolio is worth as you retire. The next year, you increase that with inflation.

The most commonly used marker for inflation is the Consumer Price Index for Urban Consumers, aka CPI-U. And the place I usually go to get that is a website called inflationdata.com. And if you go there, it'll tell you what the current inflation rate is. And they have all kinds of fun calculators you can use to calculate what inflation was from one date to another. But if you go up there and you go to the top, they'll give you all kinds of options and data you can go to, like numerical inflation data.

You can go to the current inflation rate. If I click on that, well, I got to click through an ad. And then what pops up is basically a chart that tells me the current inflation rate for the 12 months ending in August 2025 is 2.92%. If I were going to actually withdraw money according to the 4% guideline, what I would do is say I retired on a million dollars and I took out 4% that first year, I took out $40,000. I would take out the next year, $40,000 times 1.0292.

That worked out to be 4% more than $40,000, whatever that works out to be. Let's add another $1,000 or $2,000 or something like that. It's like another $1,500, I think. The next year, instead of taking out $40,000, you'd take out $41,500. And that's what you'd live on that year, plus your Social Security or other sources of income that you had. That's how you would do that.

Now, most people don't actually do this. The real value of the 4% guideline is it tells you about how much you need to retire because you can reverse engineer it. If you reverse engineer 4% a year, you realize I need about 25 times what I'm going to be spending in retirement in order to retire. If that's $100,000 a year, you need $2.5 million. If that's $200,000 a year, you need $5 million. If that's $300,000 a year, you need $7.5 million. That's the usefulness of this 4% rule because prior to this coming out in the 90s, Bill Bangan talked about it first and then the Trinity Study authors popularized the concept.

But before then, financial advisors were telling people, well, if your portfolio makes 8% a year, you can spend 8% a year. The problem with that is the sequence of returns risk. That's the risk that despite having adequate average returns throughout your retirement, the crummy returns come first because if you're withdrawing from the portfolio and having terrible returns, you'll actually run out of money.

Telling people they can take out 8% a year was bad advice. They were causing people to run out of money even if they had 8% average returns if their first few years were 2000, 2001, 2002, or the early 70s or whatever, these bad economic periods where your portfolio gets crushed, especially if inflation is high, which is when most of those bad sequences happen.

That was the point of it was that you can really only take out 4%-ish, not 8%-ish. That's the message you should get from the Trinity Study, not that the right withdrawal percentage is exactly 4% or 4.25 or 4.7 or 3.7 or whatever. That's not the message. The message is it's not 8. You can't take out 8 because the sequence of returns risk might show up in your particular sequence of returns. That's the message you need to take from that.

So how do people actually withdraw money in their portfolio? Well, the truth is most people, it's like six out of seven sell nothing in retirement. Isn't that wild? Most people are spending dramatically less than 4%. If you were a good enough saver that you have a portfolio, you tend to not spend as much as you could. You tend to only spend like the income, 1 or 2 or 3%. And most people die with dramatically more than they started with.

Even if you follow the 4% rule, historically, after 30 years, on average, you have 2.7 times what you retired with. That's not even close to spending principle. That's almost three times as much money after the years as you started with. And I can tell you, that's basically what my parents are doing. They're probably halfway through retirement, and they don't spend as much as they could spend.

People that are savers for a long period of time, it's really hard to make that transition. And of course, you usually don't have a bad sequence. Usually the returns are fine, and so your money grows pretty well. They've got more money than they retired with right now, for sure. Sometimes they don't even spend their RMDs. In fact, most of the time, we just take them out of the IRA and reinvest them in the taxable account.

And that's the truth, what most retirees are doing. Most people who actually save up a seven-figure amount to retire on need to be talked into spending more of it during their retirement. It's not that they're having to limit themselves to 4%. They limit themselves to less than that, even though they could spend more.

Most people don't save up a seven-figure sum for retirement. That's the bigger problem. Most people are retiring on Social Security or Social Security plus a little bit. I think 40% of Americans that are retired are solely on Social Security. So, if you can save up a seven-figure nest egg in addition to that, you're way ahead of almost all retirees. So keep that in mind but that's how the 4% rule works.

Now, there are lots of different ways to spend money in retirement, determine how much to spend and where you spend that money from and all that. And there's lots of different ways, lots of very reasonable ways to do it. But if you are starting at something around 4% and you're adjusting somehow as you go along, you're probably doing it right.

We got all kinds of posts on the blog about this. If you want to go to the blog and you want to search “retirement income” or “safe withdrawal rates” or the “4% rule”, you will find endless numbers of blog posts discussing these issues and all the different ways you can use to calculate exactly how much you can spend.

But the truth is most of us end up having enough money that we're not spending anywhere near 4%. And I suspect that's the way it's going to be for Katie and I and most White Coat Investors is you're not going to even get to your 4% and you're going to leave out behind way more money and end up saving.

If you're one of those people that's getting close to there and you realize you're a pretty good saver, you need to start working on those spending muscles a little bit too and see if there's some things that you can spend money on that would bring yourself and those you carry about a little more happiness.

QUOTE OF THE DAY

Dr. Jim Dahle:
Our quote of the day today comes from Jack Bogle, who said “The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” I love that quote. Costs matter. They have to come from your returns. There's nowhere else for them to come from. Whether they're commissions or loads on your insurance policies or your loaded mutual funds or whether they're expense ratios on your mutual funds or whether they're advisory fees you're paying, they have to come out of your returns. There's no other source of funds to pay those costs.

Pay attention to your costs. It's okay to have a financial advisor. It's okay to pay them a fair price for good advice. But recognize that if you can learn to operate without them, that will be the best paying hobby you ever have. Likewise, you ought to pay attention. If you can cut your investing costs in half, that boosts your returns, your money grows faster, you have more money you can spend or give away, and your costs matter.

So, pay attention to your costs. You don't have to get crazy about them. You don't have to rejigger your whole portfolio to go from an average expense ratio of five basis points to an average expense ratio of four basis points. But pay attention to them enough that you recognize that 1% is a big number in the investing world. And that should be enough for you to get what you deserve.

Okay, another question. This one from John on the Speak Pipe.

CAPITAL PRESERVATION WHEN YOU WANT TO WORK LESS

John:
Hi, Jim. Quick question. I have listened to your teachings and read all the books, and it's done me super well. Can't say thanks enough. I'm debt-free with a seven-figure net worth and barely turned 40. I try to ignore the news as much as I can, but my question is I can't help but read about how much money keeps getting pumped into our economy and the PE ratios of stocks.

For the most part, I do index funds. Pretty boring. It's a written plan, but I'm not trying to retire early, but I am trying to work a lot less to curb burnout. And I'm wondering if you have any advice on just capital preservation, knowing that I don't really have any more years anticipated where I'm going to be able to max out my savings. I think my savings rate is going to be a smaller percentage of my annual income as my income is going to decrease since I'm working less.

Maybe I'm overthinking things and should just take the hit on the nose when the market resets a little bit and just don't worry about it. But I was curious if there's any capital preservation strategies or if I should start investing like a 60-year-old normally would, even though I'm 40, since I'm anticipating working less. I hope that makes sense. Thanks again.

Dr. Jim Dahle:
Okay, great question, first of all. Lots of successful people calling in today and leaving questions. I don't want the message of this podcast to be if you're not a gazillionaire already, you shouldn't be listening.

We got questions from successful people, but we take questions from people who are not yet successful. It's okay to call in here and leave us a question. The way you do that is you go to whitecoatinvestor.com/speakpipe and you can ask us how to invest your first $1,000 or you can ask us how to deal with the fact that you have a negative net worth or you can ask us how to sort out your first few insurance policies or how to budget your money. We'll talk about all that kind of stuff as well. Don't feel like this is only a podcast for people who are already super wealthy.

John, congratulations to you, like some of the other questioners we've had today. You've done great. We told you how to do it, but that's the easy part. The hard part is actually doing it and you have actually done it. Congratulations to you. Seven figures and debts paid off at 40 is awesome.

As burnout strikes in mid-career as it does for a majority of physicians, you're in a position to do something about it, which is awesome. Work a little less, earn a little less, save a little less and you're still okay because you got seven figures of money working alongside you. That money is going to double every seven to ten years. Even if you just work for the next 20 years and don't put a thing in there, that's probably four or five million dollars, even if it's barely seven figures now by the time you're 60.

You've got a lot of little employees. Every little dollar you saved along the way is now your employee. It works 24-7, 365 and you've got them all working for you now. Nice work on that.

What you are recognizing though is that your relationship with risk is now changing because your asset allocation, your mix of investments should be set up according to your ability and need and desire to take risk. A few years ago, you didn't have that much money. You're working hard. You needed your money to really grow and you needed to get that seven figure portfolio that would work alongside you. You had a relatively high need and ability and desire to take risk. You took risk. You had an aggressive portfolio.

I don't know exactly what your portfolio asset allocation was, but presumably fairly aggressive. Maybe it was 100% stock. I don’t know. And now you are going “Maybe I don't need or want to take that much risk anymore.” That's a very reasonable thing to do. I love that you're looking at your life and going, “My life is changing. I don't need to necessarily take this much risk.”

Yes, you're also looking at the markets. I want you to look less at the markets and more at your life though because it makes sense in your life to maybe dial back the a little bit. I wouldn't necessarily do that because of the markets. It's just too hard to predict future market returns. You're like, “Oh, PE ratios are high.” Well, PE ratios have been high for a while. If you just dialed it back when PE ratios first got high, you missed out on a bunch of really great returns in 2023 and 2024 and so on. The fact that you stayed invested over those years really paid off for you.

I wouldn't necessarily try to predict the markets. Your crystal ball is cloudy just like the rest of us. It's time in the market, not timing the market that builds your wealth. Don't do it in response to market changes. It's too hard to do. Do it in response to changes in your life.

You're cutting back. You're going to be saving less. Effectively, yes, your financial life is looking a little more like a 60-year-old than it is a 40-year-old. Maybe you ought to invest a little bit more like that.

Now, I have been basically 20% or 25% bonds my entire investing career. The reason for that is because I've been constantly weighing that fear of missing out with the fear of loss. I can remember in 2008, we lost a whole bunch of money. I was really glad I didn't have all my money in stocks that fall and the next spring. The third week of March 2009 was painful, I can recall. I was really glad I didn't have it on the stocks.

I think it's a mistake to put all your money into stocks or into a very aggressive asset allocation until you've been through a bear market, whether that was 2008 or 2000 or 2020 or 2022, whatever your bear market was that you can relate to in your life.

Until you go through that, you don't really know how much panic selling you're going to do when the market drops. I'd encourage people to actually dial it back a little bit until they go through a bear market and see what their temperament is as an investor, because the investor matters way more than the investment.

Being able to stick with your investments through thick and thin is far more important than exactly which investments they are. You don't want terrible investments, but as long as you have a reasonable asset allocation of reasonable investments, sticking with it matters a lot more than exactly what it is.

Should you dial it back? Almost surely. You're going to be saving less. You have less need to take risks. You have less desire to take risks. Frankly, you now have less ability to take risks.

Should you dial it back? Yeah, you should. Now, what does that look like? I don't know. You're going to have to personalize that. Maybe if you're 80-20 now, maybe you're 70-30 or maybe you're 75-25 or maybe you're 65-35 or maybe you're 60-40. I don't know, but it probably means a change in your ratio of stocks to bonds, of risky to less risky assets.

As you start recognizing that you're achieving your financial goals and you don't need to take as much risk to reach them, really the game of investing is how little risk can I take and meet all my financial goals? Now that you've been so successful, you can take less risk and meet your financial goals. You probably should take a little bit less risk. I hope that's helpful to you.

SPONSOR

Dr. Jim Dahle:
As I mentioned at the beginning of the podcast, SoFi could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.com/whitecoatinvestors to see all the promotions and offers they've got waiting for you.

SoFi student loans are originated by SoFi Bank, N.A. Member FDIC. Additional terms and conditions apply. NMLS 696891.

All right, don't forget about our communities. You really ought to check them out. Even if you don't feel like you need much help, get in there and make a contribution. Help somebody else. Answer some questions on Reddit or Facebook or the White Coat Investor Forum or the Financially Empowered Women's Group. Other people could really use your expertise. You can find all links to all of that at whitecoatinvestor.com.

Thanks for telling your friends about this podcast. It really does help us move the needle on improving financial literacy and financial success among high-income professionals like docs.

Thanks for leaving us five-star reviews. That also helps get the word out. We had a recent one come in from Chad who said, “Life lessons. I look forward to listening every Thursday. This is vital information. I'm glad I stumbled upon this while still in training. We'll have a career to benefit from these financial lessons. Dr. Dahle's breadth and depth of knowledge amazes me. I learn something new every episode.” I hope that keeps up, that you continue to learn something new every episode but I suspect it's like most things, that there is a law of diminishing returns.

I have a partner who started reading my blog as an intern. He didn't even recognize he was working with that blog's author for about six months after he joined the group. He told me a few years later, he's like, “I don't read much anymore because I've got a plan.”

That's the point. The point is, this stuff's not that hard to learn. Yes, you'll continue to learn some curls here and there if you find this stuff interesting, but really the beginning is where the bang for your buck is. Let's get you a financial plan in place. Let's get you going. Then all you got to do is stick it on autopilot and stick with it for a decade or two and You wake up, you pick your head up, you look around, you realize you're a multimillionaire. Your financial ducks are in a row and you can really concentrate your life on what matters most, which is your practice, your patients, whatever business you're running. It's your family. It's your own wellness.

We've got a pandemic of burnout among doctors. I think the last statistic I saw was something like 57% of them. It's incredible, but you know what? You get your financial ducks in a row and all of a sudden you can put all these changes into place in your life that allow you to stave off burnout and go from feeling like you can't do this anymore to “This is one of my favorite parts of my life.” We want to get you into that place and oftentimes the only difference between those two places is just making a few changes in your financial plan.

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

DISCLAIMER

The hosts of the White Coat Investor 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.

INTRODUCTION

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

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 246 – A one doctor couple pays off their student loans in six months.

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

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

All right. You need some extra money? Want to be paid for your opinion? Here's where you go to do it. whitecoatinvestor.com/surveys. Companies are willing to pay for your opinion. Yes, it also lets them tell you about their product, but hey, if they want to pay you to advertise you, that's fine too. But if you go there, you can sign up and take these surveys and they send you a check.

One of our columnists made as much as $30,000 in a year from taking surveys. Now, some specialties can make more money than others. No doubt about it. If you prescribe expensive medications, your opinion is more valuable than my opinion. I'm talking about neurology. I'm talking about rheumatology. I'm talking about oncology. When you sit in the ER and you mostly prescribe Keflex and Percocet, apparently that's not as valuable. The only reps that ever come see me are like the Xarelto reps.

But for those of you who are prescribing expensive stuff, this can be a side hustle and maybe it helps you open up a solo 401(k) or something you need to open up. But even if you just want a little bit extra cash while you're zoning out watching TV at night, these surveys don't take a lot of brainpower to fill out most of the time. So, check them out, whitecoatinvestor.com/surveys.

All right. We got a great interview today with a couple who's accomplished something pretty remarkable. So, let's get them on the line and talk about it. Stick around afterward. We're going to be talking a little bit about health insurance.

INTERVIEW

Dr. Jim Dahle:
Our guests today on the Milestones to Millionaire podcast are Kaylee and Josh. Welcome to the podcast, guys.

Josh:
Thank you. Great to be here.

Dr. Jim Dahle:
Okay. Let's introduce you a little bit. Tell our listeners what you do for a living. And as I talked to you before we started recording, I know one of you is a doc. Tell us how far you are out of training, what part of the country you live in.

Kaylee:
I am in internal medicine and pediatrics. Dual trained. We are in New Braunfels, Texas. Kind of between Austin and San Antonio. I'm about four years out of training. I started a private practice here in New Braunfels in about April of 2023.

Dr. Jim Dahle:
Okay. And Josh, tell us what you do.

Josh:
I'm a home builder here in the New Braunfels, San Marcos area. Yeah, just building houses, man. That's it.

Dr. Jim Dahle:
Okay. Now what have you guys accomplished?

Kaylee:
We paid off my student loans, which was about $205,000 in six months.

Dr. Jim Dahle:
Six months?

Kaylee:
Yes.

Dr. Jim Dahle:
Now you said you're four years out of training. Did you pay it off six months out of training? Or was there some point in the last four years that you're like, “We got to do something about these student loans?”

Kaylee:
Yeah. We had the benefit of the whole COVID pause thing. And then we actually, we were pregnant with our son. And so I was doing some just online stuff before I started my practice. We weren't really putting anything to the loans. And then once I started my practice, it really ramped up pretty quickly. And as soon as that income started coming in, we were able to just knock it out. So it was January of 2024. That was the first payment. And then we paid it off by July of 2024.

Dr. Jim Dahle:
Okay. Was it the same payment every month or did you send in a big lump sum at some point?

Kaylee:
Our first payment was $3,000. And then our largest one was close to $40,000. A wide range, we started off small, just doing what we could. And then as business started ramping up, we were able to put those larger chunks.

Dr. Jim Dahle:
Okay. So how'd you do it? Tell us how you did it.

Kaylee:
I think we kept some of that “live like a resident” mentality. We did buy a house during that time as well, but we're very modest with it. It's kind of a small house. We weren't going on trips or anything. Josh is very debt adverse. He was the one pushing us to get those paid off. And so, yeah, we really just kind of went hard at the debt and actually total, we paid off $330,000, which included his student loans in 15 months.

Dr. Jim Dahle:
Awesome. Josh, what was your degree in?

Josh:
I was in construction science.

Dr. Jim Dahle:
This was an undergraduate degree or this was a master's or what was this?

Josh:
Yeah, this was just bachelor's. As soon as I graduated, I just started working construction and then we got married. She was in residency. And then after that, after we moved back here to Texas, we looked at how much debt we had, $205,000 for her, $65,000 and some change for me, cars and all kinds of stuff. And we were like, “Man, this is not going to end well if we don't do something about it right now.”

Dr. Jim Dahle:
Whose idea was it at first?

Josh:
Man, I want to say me, but it was really her. It took a while to get her on board and realize that, “Yeah, this is not good.” But once it clicked for her, she was full steam ahead. She took it over from there. She was like, “Let's get it done. Let's knock it out.”

Dr. Jim Dahle:
Kaylee, why do you think it took you slightly longer to get on board?

Kaylee:
I just thought student loans, it was part of it. I would pay them off at some point. And I guess the whole interest being paused, the full impact of it hadn't hit me. And so, once I was unpaused, it opened my eyes to, “Wow, this can add up very quickly. I don't want to be 60 and still paying on my student loans.”

Dr. Jim Dahle:
Very cool. Well, you certainly didn't make it to 60. You only made it six months since you got serious about it. How did it feel to send in $40,000 at once?

Kaylee:
It hurts a little bit especially when you're working really hard for that income. It definitely hurts. But at the end of it, they actually sent me a check for like $37. I guess I had overpaid. And so, it felt good seeing that check from the IRS like, “Oh, you overpaid.”So that was nice.

Dr. Jim Dahle:
Very cool. Have you guys celebrated this yet? Have you done anything to celebrate whacking your student loans like this?

Josh:
We keep talking about taking a big trip somewhere. We haven't done it yet. We are in the process of building our own house. We just bought a lot, nice piece of property here in town. We are in the process of building the house. But as far as something immediate, no, we keep talking about it, but we should probably do that.

Dr. Jim Dahle:
Yeah, I think you should for sure. Because this is quite an accomplishment. You should be super proud of yourself. I like this combination. A home builder and a doc. You got somebody that makes pretty good cash. And you got somebody that can keep the most expensive thing you ever buy in your life relatively low cost. This is a good combination.

Kaylee:
We like to think so. Yeah.

Dr. Jim Dahle:
Tell us about your upbringing and kind of how it affected your views on money.

Kaylee:
Yeah, definitely growing up, I saw my parents struggle but they always worked super hard. So, I didn't necessarily want to share in those struggles. But I feel like my parents also helped me to realize the importance of working hard to not have debt. So, I think that really helped. What about you?

Josh:
Yeah. Growing up, my parents were big Dave Ramsey people. I remember, I was like 10, 11 years old, driving home from school, my mom always had him in the car.

Dr. Jim Dahle:
It works. It works. She brainwashed you and it worked.

Josh:
Took a long time for it to work. But I didn't really understand it until I was at a school and she was in residency. And I was looking at how much debt we had. And I was like, “Okay, I'm going to start listening to him again, see how that works.” And then obviously, she found you. So, we started listening to you. And just the combination of those two, man, just really inspired us to knock it out.

Dr. Jim Dahle:
Yeah, that's pretty awesome. What was the hardest thing while you're paying off the student loans? What was the hardest thing you denied yourselves in order to knock this out in six months?

Kaylee:
I think there's a lot of things that we wanted, or even things like I maybe wanted for the practice, bigger purchases. And we just had this unspoken rule between us that we were going to avoid those big purchases until we had all of our debt paid off. So just keeping things very minimalistic, the necessities. We never felt super denied, we still ate well, and all those things. We had two kids. I feel like we had a good balance of things. We just kept the necessities but didn't necessarily do any excessive spending.

Josh:
It was definitely hard, because we saw how much money we were bringing in. Just our agreement between ourselves is we weren't going to spend it, it was just all going to student loans. It was hard seeing how much money we were bringing in, but then not being able to actually enjoy it. I would say that was really difficult. But now that we're free, we are very blessed, we can do what we want now. It's a pretty cool spot to be in for sure.

Dr. Jim Dahle:
How much that money that was going towards student loans is now going toward investments? And how much of it are you going to spend?

Kaylee:
Most of it is going towards investments now. It's that dilemma that a lot of people have, to invest or pay off debt? I think for us, we did the debt first. And we didn't necessarily focus too much on investing. Josh has a 401(k). And so he was doing that. But more recently is when I started getting more of my retirement, we opened up the kids 529. So I feel like that opened up the doors for us to do more investing. Now we both have our 15% of our income towards retirement and the kids school. So it feels good to be able to diversify a little bit and not just putting all that money towards debt.

Josh:
We're building for the future instead of paying for the past. So it's really cool. Even though there's still a lot of money going out, it's going to what we want it to go to instead of student loans.

Dr. Jim Dahle:
And it's nice when you see those balances going up as opposed to the student loan balances going up.

Josh:
Absolutely.

Kaylee:
Yes.
Kaylee, did you pay for med school basically entirely with borrowed money? Or was there an inheritance or some help from parents? Or was that you borrowed the whole cost?

Texas is notoriously cheap for med school. I took out $180,000 for all four years. By the time I got finished, the balance was close to the $205,000. And then obviously that stopped during residency, the interest. It wasn't really too bad. It feels like a lot of money. But I know compared to some people, it's a lot less.

Dr. Jim Dahle:
So, how did you feel in med school when you were signing for $40,000 or $50,000 every year? Did it feel like monopoly money? What was that like to in debt yourself in that way?

Kaylee:
I feel like I was pretty responsible about it. I had a budget, I never took out the full amount that was offered. We definitely had lectures about it how the $20 pizza turns into $1,000. All of that. I felt like I did pretty well. And just took out the minimal amounts. I wasn't spending excessively. I had three roommates so I definitely didn't take advantage of the money.

Dr. Jim Dahle:
Yeah. Who's teaching those lectures?

Kaylee:
Someone at our med school, we had some financial classes. I know your book was thrown around too in med school, for sure.

Dr. Jim Dahle:
Very cool.

Kaylee:
Doing a good job of getting that out there. Definitely helps a lot of people.

Dr. Jim Dahle:
Yeah, excited to see that message getting out to more medical students for sure. All right. Well, there's somebody out there that's in the situation you were in a few years ago, and worried about their debt or trying to figure out what they're going to do with it. What advice do you have for them?

Kaylee:
Yeah, I would just say tackle it as soon as possible, try and get it down and pay it off as soon as possible so you don't have that burden over you, find a healthy balance between living within your means and paying down your debt.

Dr. Jim Dahle:
And how's it feel? Your student loans are gone, these other debts are gone. How do you feel? Do you have a different outlook on life?

Kaylee:
Yeah, I think it definitely feels a lot better. You don't worry about as much about the day to day spending or things for the practice, I'm able to buy the ultrasound machines and things that I want to have. I feel like in the long term, it's going to definitely benefit me and the whole family, our kids get to grow up with not seeing us have a bunch of debt. And hopefully, we can teach them that way.

Josh:
I think the coolest part for me is before we started this journey, looking at our net worth, we were in the hole. We were in the red like $300,000. And now we look at it, and it's completely flip flopped. And just seeing that, seeing that happens, it's very cool, man. Very cool feeling.

Dr. Jim Dahle:
Love the black numbers much better than the red numbers, for sure.

Josh:
Yeah.

Dr. Jim Dahle:
Very cool. You guys should be very proud of yourselves. What you've done is no small feat and you have gotten yourselves off to a fantastic start to your financial lives. So thank you so much for what you're doing on a day to day basis, as well as coming on this podcast, inspire others to do what you've accomplished.

Kaylee:
Yeah.

Josh:
Absolutely. Thank you.

Kaylee:
Thank you for all you do. Definitely been a great inspiration. And I want to give Andrew at studentloanadvice.com a shout out too because he definitely helped get us on the right plan to help prevent that interest from occurring. I appreciate that. Thanks for all you do.

Dr. Jim Dahle:
All right, that was a great interview. Those guys have done so well. They took advantage of that 0% time period $0 payments. They got good advice from studentloanadvice.com. And when they figured out their plan, they went after it full bore. $200,000 in six months.

And they make good money, but they don't make incredible money. That was a whole big chunk of their income that was going toward those student loans. They really made some sacrifices, and they really knocked it out of the park.

I love the acceleration they had as well. They started off with a $3,000 check, and then they're writing a $40,000 check. And you know what? When you send $10,000, $20,000, $30,000, $40,000 a month to your lender, your student loans go away very quickly. Figuring out how to keep your lifestyle down to a level where you can write those checks is the hard part. But you're really not done with medical school until you pay for it. So you might as well get done with it as soon as you can.

FINANCE 101: UNDERSTANDING HEALTH INSURANCE

All right, I promised you at the top of the hour, we're going to talk a little bit about health insurance. Understanding health insurance is surprisingly challenging, even for doctors who accept payment from health insurance all the time. But it's important to understand there's very important health insurance.

First of all, the most important point is this is one of those financial catastrophes. I fell off a mountain a year ago. And when I fell off, I got two helicopter rides. One was covered by the National Park Service. The other one was covered by my health insurance. My health insurance paid $44,000 for that helicopter ride. I get my annual out-of-pocket maximum before I ever got to the hospital.

And when something bad happens to you, whether it's a diagnosis of cancer, a diagnosis of some chronic disease, like MS or something, or whether it's trauma, like in my case, that bill can run up very quickly and put a huge dent in your financial resources, or even keep you from being able to get the healthcare you need.

So, health insurance is a critical type of insurance. You've got to have it. Don't go bare. There are some health insurance alternatives out there that might be worth considering, but you need some sort of coverage. Don't ignore this insurance you need to have.

But let's try to understand the different pieces of it. What's the deductible? Deductible is the portion that you pay. And sometimes there's a whole overall deductible per year for the policy. You pay the first $500. You pay the first $2,500. Sometimes there's a deductible for each doctor visit. Maybe you pay $50 every time you go see the doctor. Whatever. Every policy is a little bit unique, but a deductible is your portion to pay before the insurance company starts paying.

There are also co-payments. And this is like the payment you make to a doctor every time you go. If you got to pay $50, or maybe you got to pay 20% of the cost, that's the co-payment. And you not only pay your deductible before the insurance starts paying, but then you pay along the way with the insurance company.

And then eventually you hit an out-of-pocket max. Once you've hit the out-of-pocket max, the insurance is the company's on the hook for the rest. Like in my case, my ICU bill was $106,000. My helicopter was $44,000. I got a surgery on my wrist. I don't know how many thousands of dollars that was. But when you have all that happen to you in one year, you hit your max out-of-pocket, and then you're not responsible for additional payments above and beyond there.

There's also another term that's thrown out there a lot called co-insurance. And all that is, that's the percentage of costs of your covered healthcare insurance that you pay after you've met your health insurance deductible. So, it's a lot like a co-pay, but that's what co-insurance is. Just like your employer might make you pay 20% of the premiums for your health insurance, your insurance company might make you pay 20% of what it's paying or what the costs are until you hit your maximum out-of-pocket. But once you've hit your maximum out-of-pocket, that's all you pay for the year. Everything else is free.

Now, why is health insurance set up this way? Health insurance is set up this way so you have some skin in the game. If there were no deductibles, if there was no co-pay, if there was no co-insurance, there's nothing to keep you from just spending willy-nilly on everything.

The reason they put these in place is to help you to be a little bit wiser consumer of healthcare, to maybe think twice before you buy something that maybe you really don't need or even really want. But it not only keeps your premiums, what you pay for your insurance down, but it allows the insurance company to be able to make sure you have some skin in the game and that you're making logical decisions when it comes to what you're consuming.

But at the end of the day, when things get really bad, what you really need is that catastrophic coverage. You need them to take care of the amount above your out-of-pocket maximum. So, buy health insurance, understand how it works. Not only will it help you to be a wise consumer of health services, it'll help you to be a better doctor so you can explain how these things work to your patients.

SPONSOR

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

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

All right, that's it for today's episode. If you want to come on this podcast, you can. You just apply whitecoatinvestor.com/milestones.

Until next time, keep your head up, shoulders back. We'll see you next time on the podcast.

DISCLAIMER

The hosts of the White Coat Investor 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.