What Doctors Need to Know About Inheriting Money

Transcription – WCI – 495

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:
Welcome to the White Coat Investor podcast. Hope you guys have been having a wonderful fall. We certainly have here in Utah. As I record this, we are two days out from the BYU Notre Dame game, which has got everybody in this state pretty darn excited. Well, everybody except Utah fans, because they want BYU to lose every game they ever play, no matter who they play against, because that’s what a rivalry is all about.

But Katie and I were able to go down to the BYU Notre Dame game, and we were super impressed with Notre Dame. Notre Dame is an awesome team. To get to the end of the game and still be in the game and even eke out a win over Notre Dame, although there’s certainly a little bit of controversy about how the game ended, it was pretty awesome to see and go, well, maybe BYU is a good team too.

So who knows what’ll happen between now and when you actually hear this episode. But everybody in Utah is pretty excited about college football these days and excited to see a team in the state ranked number two in the nation.

But it was funny. My sister texts me. Many of you know my sister, Michelle, who does a lot of our social media stuff. If you follow us on Instagram, you know Michelle’s work. But she texts me halfway through the game going, you guys are not cheering loud enough. And I assured her that every person in that stadium was cheering just as loudly as they possibly could. Pretty magical college football game though, and maybe the best one I’ve ever seen. And I would have said the same if Notre Dame had won at the end. It was just a really spectacular game.

So that’s a little bit of an update of what we’ve been doing around here. I recently got back from the American College of Emergency Physicians meeting. I had four presentations there. It was great to meet a whole bunch of you there at those sessions. It’s always fun to help out those in your own specialty. Of course, you feel a little more kinship there. But it was great to be able to help you with your finances and hopefully help some of you that didn’t have a plan going into that meeting leave with a plan.

We did something new there we’ve never done before. It was about a two-hour, went a little bit long, two-hour workshop where we tried to help people do some basic financial planning and actually run the numbers on their own lives. And I think it was pretty successful. But good times anyway.

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QUOTE OF THE DAY

Dr. Jim Dahle:
Our quote of the day today comes from Robert Collier. He said, “Success is the sum of small efforts repeated day in and day out.”

 

DISCUSSION AROUND EPISODE 492: THE HEALTHCARE HEIST

Dr. Jim Dahle:
Okay, we got a lot of feedback about episode number 492. This is the one where I interviewed Jordan Grumet about his new book, The Healthcare Heist. And we talked about the problems in healthcare. And there’s no doubt healthcare is a mess. It’s embarrassing to be part of it sometimes. And it does have problems.

This is a problem I’ve thought about dedicating a significant portion of my life to. And you know what has kept me from doing so? The scale of the problem. It is such a huge problem to solve. It seems unsolvable at times. By comparison, fixing the physician financial illiteracy problem seemed like child’s play.

And so, I’ve focused most of my alternative career efforts beyond my clinical practice on that, more so than fixing the healthcare system. But it is a problem I feel strongly about and want to make some sort of contribution to.

It is not the main purpose of this podcast. I’m going to spend a few more minutes on it today due to all this feedback that came in about it. But we’re not converting the purpose of the podcast away from helping doctors to be financially successful so they can be better doctors to fixing the healthcare system. Maybe another chapter in my life will include a major effort on trying to solve that. But I do think it’s worth spending a few more minutes on the podcast talking about it. I think maybe we start with this comment, question, feedback that came in via the Speak Pipe. Let’s bring that up first.

 

CAN WE CHANGE THE SYSTEM?

Speaker:
Hello, Dr. Dahle. I enjoyed your episode with Dr. Jordan Grumet regarding who profits from engineering. I don’t use the healthcare system very much, but when I do and ask what the cash price is for an appointment, the staff looks at me as though I’m a mutant with three eyes and then quote some ridiculous price that’s trivial what my plan pays to the provider.

Furthermore, my dentist offers a prepaid program for a price that is higher than my UHC dental plan that offers the same benefits with the same dentist. That’s a terrible business plan by the dentist, seems to me.

Seems to me that doctors are either clueless or have no desire to eliminate the middleman parasites that stand between the doctor and the patient. Am I missing something? What would you advise for someone in my situation if my desire is to eliminate the parasites? Can we change the system?

Dr. Jim Dahle:
Okay, a good introductory comment. I think at the beginning when he said engineering, he meant healthcare. Maybe he is an engineer and certainly somebody with an engineering mindset that sits back and takes a look at this system and goes, “This is really screwed up.” And you’re right. It is really screwed up. And there’s lots of reasons why Dr. Drumet talked about him, not only in his book, but when he was on the podcast about some of these reasons.

And a big part of the reason is the fact that there are third party payers. It’s somebody else paying for your healthcare that you pay. It introduces this intermediary. It introduces a whole bunch of inefficiencies and a whole bunch of waste as the doctors in the hospitals try to increase their coding and billing so they can get paid more.

And while the insurance company is trying to keep their costs down so they can keep their profit up and patients feel like they’re caught in the middle. And so, it would be awesome to eliminate “the parasites.” To eliminate the middleman, but we forget there’s a benefit to the middleman.

The benefit to the middleman is a bit of cost smoothing that happens to us throughout our lives. For instance, most of you know, a couple of years ago, I had a little fall on a mountain. And I needed a helicopter ride from the base of that mountain to the hospital. It was about an hour flight, I think. I don’t really remember it, but I think that’s about what it was. And obviously there were some specialized healthcare professionals on the flight. And of course they stand around waiting for somebody to call them all day in case that flight is needed. And so, it’s an expensive service to provide.

My insurance company paid $44,000 for that one hour flight. The charge master price on that flight was $88,000. My maximum out of pocket on my insurance is something like $10,000 or $15,000 a year. Far less than the price of that flight, much less my ICU stay, my subsequent surgery, my physical therapy, the imaging I got, the emergency department care I got, all of that stuff just related to a single episode.

There is a certain amount of benefit to having insurance involved in that sort of a situation. And without that, a lot of people just don’t get care. Can you imagine them trying to do a wallet biopsy on me before loading me in that helicopter? I mean, it’s just ridiculous. It’s not going to happen.

There is a role for insurance. There is a role for third-party payers in the system. So the solution is not just to throw out third-party payers, even though inserting a third-party payer into the system is the cause of a lot of downstream problems we have with health care. So, it’s not an easy problem to solve. Anybody that thinks solving the health care problems in this country is easy doesn’t understand the problem.

All right, let’s get into a little bit more nuance. I had an email come in and I can’t remember if you wanted me to leave them anonymous or not, so I better leave them anonymous. Basically said, “I’m a full-time practicing pediatric intensivist at a large academic center.” Academic specialist.

“I want to start by saying I greatly appreciate everything you do. I’m reaching out primarily due to concerns with the Grumet episode because I think several statements were made on the podcast that were opinion and personal interpretation without actual proven data or support to back up the claims.”

Okay, this is an interesting email because it comes with five references, clearly coming from an academic. But let’s go through them because it’s good feedback, good discussion to have.

It goes on to say, Dr. Grumet claims that all the foundational publications providing evidence on patient harm through medical error, including to errors human, is based on BS. While some have debated that the extrapolated numbers in the original publications may have led to exaggerated impact of medical errors on morbidity and mortality, several studies since that time have highlighted that the original studies probably underestimated harm caused by medical errors.

We as physicians and healthcare providers, APPs, nurses, RT, etc., are a major contributor to harm, injury, and sometimes even death in our patient. This speaker undermined rigorous published evidence by claiming it is BS and stated his interpretation’s claims are fact, not opinion.

I think statements like that need to be immediately followed by disclaimers such as this is one speaker’s or author’s opinion. Also, similar unsupported statements were made about how EHRs are money-making products from greedy companies that have never demonstrated value towards patients. They claim the big EMRs have never shown value for patients, doesn’t match the research. A publication on this topic provided evidence that EHRs were linked to fewer medication errors, fewer adverse drug events, and better guideline adherence.

In pediatrics, Packard Children’s Hospital published some data demonstrating they had 36 fewer deaths over 18 months than comparable children’s hospitals, roughly a 20% drop in mortality after carefully planned CPOE, I think that’s an EMR rollout. Results like this depend on implementation. Since Pittsburgh saw a slight increase in mortality in Seattle, children saw no change when data was published.

Epic’s tools specifically have also shown benefits at four LENA Health EDS. Care Everywhere helped avoid 580 duplicate tests and procedures. Research reports its alerts prevented over 5.8 million potentially redundant imaging orders in one year with estimated savings of something like $500 million.

That figure comes from Epic, so it should be taken with a grain of salt, but is in line with the Care Everywhere data. In small practices, the average one paid back its EHR costs in about 2.5 years, though some faced serious financial risk. The fair debate is about pricing and implementation burden, not whether EHRs have ever helped patients.

As I said at the start of my email, I appreciate your podcast for all the value it adds, and I’ve rarely ever heard an episode that really made me question the accuracy of information being disseminated, but this episode is unfortunately full of unsupported personal opinions stated as fact.”

Okay, I think that’s all the relevant information from that email. So, there’s this debate. Two topics here. One is, are doctors, hospitals, other healthcare professionals, etc., killing patients? Yes, they are. Yes, they are. If you’ve never killed a patient, you haven’t been practicing very long. That’s the truth of the matter.

Now, most of those patients that get killed by hospitals and doctors and nurses, etc., etc., are pretty darn ill anyway, let’s be honest. It doesn’t take very much to shove them over the edge. So, it’s hard to tease that factor out of the studies. Because sometimes they look at a study and they say, oh, there was an error made, and oh, there was a bad outcome. It’s not always that error causing the outcome. It’s complicated. It’s nuanced. And I think Dr. Grumet’s issues with it is that maybe a lot of those studies, a lot of those statements get boiled down to a soundbite that looks good or sounds good on social media, instead of really diving into that nuance.

So, it’s nuanced. Yes, we are all practicing. We all need to get better and better at what we do. But there’s a human element, both in the practitioners as well as in the patients. It is not engineering. It’s not even close. It’s far more difficult because you’re dealing with people.

And if you had to quantify the amount of doctor error versus the amount of patient error that leads to bad outcomes, I think the pendulum, we all know, swings dramatically toward patient error. Whether it was picking up that first cigarette, drinking way too much, not living a healthy lifestyle, not following recommendations, not taking your medication, not exercising, whatever.

Some of these studies that suggest, “Oh, the doctors are the most dangerous part of life as it is”, doesn’t really acknowledge the true nuanced point that there’s far more inputs to this than just what a doctor did on a given day.

So, let’s keep in mind that’s a nuanced topic. Let’s continue to discuss it, try to improve what’s going on in our clinics, in our hospitals, in our healthcare system as a whole, find the truth, and do all we can to minimize errors.

Second point, EMRs, EHRs, whatever you want to call them. These electronic health records. Boy, this has been the story of my entire career. I came out of residency where we had been writing charts, for the most part they were getting scanned in, I think, by the end of my residency, and so they were available in some sort of a computerized system, but we were writing charts.

And then I went into the military, and there was all this debate about who had to be using the military electronic health record and who didn’t. And while I was practicing, basically, the emergency department did not have to, and a bunch of the clinics did. And so, we wrote soap notes, just like we’re trained in med school to write, and that was the documentation we had.

Now, could you ever see those again? No. You couldn’t pull those back up and review what happened on the last visit. It made it really hard. We did not have any kind of a controlled substance database. We had no idea who was trying to scam us for drugs and who wasn’t. And so, some people erred on the side of giving out way too much narcotics, this is back in the 2000s. And some people erred on assuming every patient with pain was a drug seeker, and not giving them anything when they’re in terrible pain.

And so, having access to a database like that was a dramatic shift in emergency department work. Having access to an electronic medical record and being able to easily go back and see what happened on a prior visit was huge. But I’ll tell you what, one of the biggest disappointments of my clinical career has been how little the implementation of electronic records changed.

And the last five years have been much, much better than the prior 15 or 20. But for all the promise of electronic health records, the pace of change and the challenges of implementing them have been incredibly disappointing. There was this race for a long time, certainly more than a decade, between electronic health records. During my career, I bet I have used eight of them. And most of them were terrible. They were terrible to use. Their main focus most of the time was on generating a chart that could be coded and billed at the highest possible level, rather than communicating to the next provider what was going on, rather than helping to ensure care was great.

The writer talks about the alerts that come up. Well, the problem is that they don’t make the system well enough that everything’s an alert. Every time I prescribe a medication, an alert pops up. And so, it’s impossible to tell which ones really matter, because they’re so common. And so, I’m not sure that sort of system is really all that helpful.

For many, many years, and it’s better now in the last year or two, since just about every system, every hospital system in my state has implemented Epic, it feels like, in the last year. Now, they’re talking to each other a little bit better than they ever were. Patients were shocked for years when they’d come in, and I didn’t have records of what had happened in their clinic visit and what happened at another hospital. They were shocked that it would take me two to six hours if I could get those records at all. Their emergency department visit was long over before I’d ever get any records that were beneficial for me to be able to help them.

Could it implement in the controlled substance database in the electronic medical records? Still no. It still can’t do that. There’s all kinds of stuff that I expected electronic health records to be able to do, they have not been able to do. It has been incredibly disappointing how little they have changed the way I’ve practiced over the years.

And so, yes, I think there’s a lot of possibility of what they can do, but frankly, they should have done far more than that, especially considering the amount of money being poured into electronic health records.

Dr. Grumet provided some feedback as well to this discussion that was had offline. He pointed a few things out. He says, consider that the foundation of your argument was that to err is human was a part of the culpability myth, meaning it was one of the third party’s way of pointing the blame at physicians. That is exactly the opposite of what to err is human concluded. Instead, it concluded the system, not physicians, was the source of the problem that we needed to correct systemic flaws that allowed these errors to occur.

I am less interested in what the study concluded and more interested in how it was used. When I originally researched this manuscript, almost every medical malpractice website put up by a lawyer mentioned the study on the front page. And there were some deep flaws in methodology in which the report was put together. It goes into more detail on that in the book.

Another email that came in said, “Again, I want to start by expressing gratitude for your podcast website, everything you do, et cetera, et cetera.” Thank you so much for those comments. Then goes on. “I want to point out that the recent podcast episode on who brought profits from a broken healthcare system was heavily slanted. I appreciate your audience is primarily physicians. You need to cater to that perspective, but the content of this episode was misleading.

First, the growth in US healthcare costs is not coming primarily from admin or drugs. And this view doesn’t take into account the increased utilizations. Physicians would see if drugs disappeared due to hospitalizations, surgeries, et cetera. Puts a chart in his graph showing that the cost of physicians and clinics has also gone up dramatically, maybe even at a higher rate over the last 30 years than the increase in administrative and drug costs.

Second point was that while physicians understandably dislike third-party payers who create distance between providers and patients, physicians are nevertheless beneficiaries of this setup. Cost insulation, tax exclusion on employer-provided health insurance, low Medicare deductibles increases patient demand for healthcare and reduces price transparency.” Well, those are both certainly true.

“This insulation way, there’d be a lot more pressure on healthcare providers and physician compensation would decrease. By comparison if car insurance covered oil changes, we’d see auto service center wages increase. I’ve seen similar discussion dynamics where you claim there isn’t a US doctor shortage, despite strong evidence of this shortage from numerous authoritative sources. Whether or not there’s a shortage is an economic phenomenon rather than one that can be measured from direct physician experience. It would be helpful for you to invite some healthcare economists to your podcast who could discuss the system dynamics with more neutrality and broader perspectives.”

All right, well, we’re probably not bringing a bunch of healthcare economists on this podcast because that’s not the main purpose of the podcast. I do appreciate the suggestion, however.

Okay, let’s take the last point first. There is a doctor shortage. The bigger problem, which I’ve made numerous times, a point I’ve made numerous times, is the maldistribution of doctors. There is no shortage of emergency physicians in Salt Lake City. There’s plenty of us. And there’s probably 40 resumes sitting on my managing partner’s desk of people who would like to come here and practice emergency medicine.

Frankly, we’ve overbuilt the number of emergency departments in town. That’s why we have nobody in our waiting room ever. We pretty much always have open beds in our practice. It’s very unusual that people wait any significant period of time in our waiting room.

But I just came back from the American College of Emergency Physicians meeting. This is not even close to the experience that most people have across the country. Because guess what? Emergency docs like to ski and mountain bike and go canyoneering and hiking and rock climbing. And so, they all want to live in Salt Lake. So there’s no shortage here of emergency physicians and really probably any specialty along the Wasatch Front. Certainly not dentists. There’s plenty of dentists here as well.

But you go to some rural town two or three or four hours away, and they would love to have more physicians there. The maldistribution is a far bigger problem than the shortage. But yeah, I think the data, I agree, the data does show there’s probably a shortage across the country.

Physicians in particular, those gaps are being filled by non-physician providers in some ways and sometimes not adequately. But you don’t have to talk to very many patients to realize it takes a long time to get in and see an awful lot of specialists. If you want to get in and see a pediatric endocrinologist or you want to see a neurologist or a rheumatologist or some of these specialties, it takes a long time to get in and see them because there just aren’t enough for as much demand as there is.

Another point that he makes there is that introducing third-party payers increases costs. That is almost surely true. Look at me this year. I’ve hit my max out of pocket, hit it last year too, hit it this year. I had another surgery on my wrist this year. So no surprise, there is no disincentive whatsoever for me to not consume more healthcare.

If I want to go see my sleep doc and have another meeting, if I want to do more workup on the incidentaloma they found and they did scans, there’s no reason not to consume more healthcare. And that, of course, leads to increased demand.

When you have the ability to pay for your healthcare, you’re going to demand more of it than if every time you got to go do it, you go, “Would I like to have this follow-up visit, or would I rather have a really nice dinner out and a show with my spouse?” A lot of people are going to choose the latter rather than come to a follow-up meeting, and no surprise there.

And so, there are pluses and minuses to spending less to decrease demand for healthcare. But I have no doubt that insulating patients from the actual payment of healthcare does result in them consuming more of it.

You don’t have to look into very many systems to understand this. I was in the military where healthcare was free for military members. And guess what they came to the emergency department for? Tylenol. Yeah, they came in for Tylenol. I needed to give them a couple of Tylenol and probably write them a prescription for a bottle of Tylenol. It was worth it to them to come in.

And it’s the same thing that we see sometimes in Medicaid patients in our state; until recently, the co-pays on Medicaid were, I don’t know, $3 or $5 for an emergency department visit. There was basically no financial barrier to entry.

And so, of course, the demand was higher. You didn’t just bring yourself in when you had a cold. You brought your three family members that were also sniffling, and you had what we call a fourfer in the emergency department where we don’t put you in four rooms; we put you all in the same room.

And the doc has to do four exams and four histories and four sets of documentation, none of which is reimbursed any better than what Medicaid pays. And none of which the likelihood that anybody in the room is sick is inversely proportional to the number of patients in the room.

And so, that experience, of course, is another example of what happens when patients are insulated from payment. They do demand more health care. They consume more of it. And so, that point I think is absolutely correct. Does it increase physician incomes? Probably. If patients are consuming more health care, that likely leads to higher physician incomes. I’m not sure that’s the case if all of the increased demand is via Medicaid, but certainly insulating people from payment results in them consuming more, which means those who profit from them consuming more are going to have more profit.

Okay. The first point he made, though, was that growth in health care costs is not coming primarily from admin or drugs. And Dr. Grumet responded to this well with the point that I think we can all make pretty easily. Just because a charge is going to physicians or clinics does not mean it’s going to the doctor. There’s lots of overhead there.

And if you actually look at the salaries, the incomes of physicians and what percentage of the health care dollar that makes up, it’s about 10%. So even if the cost of physician clinics, et cetera, et cetera, is rising, that does not necessarily mean that’s going to the doctors. It’s like the argument made against trying to keep people out of the emergency department all the time. “Oh, we can’t have people going to the ER. That’s burning all kinds of money. It’s a super expensive place to get care.” Because people think, “Well, I went in there and my bill was $4,000. This must be a super expensive place to get care. So if we can just keep people out of there, have them going to clinics, then we’ll spend less on health care.”

Well, the problem is emergency department care is like, I don’t know, 2 or 3% or something of the health care dollar. It’s just not that big of a chunk. And a lot of the stuff that you’d want to have seen in a clinic. What are you going to do? If somebody walks in with acute chest pain to a cardiology clinic or to a primary care clinic or to urgent care, guess what happens to them? They get loaded in an ambulance, and they get sent over to the emergency department.

So, most of what’s seen in emergency departments, this has been studied extensively, most of what’s seen there belongs there. Not because the final diagnosis had to be in an emergency department, but because the chief complaint did, whether that was dyspnea or altered mental status or suicidal ideation or chest pain or whatever.

And the truth is, the emergency department is the availableologist. It’s there 24-7-365. And so if you think you need care now, you may not know because you don’t have a background in medical care. And so you go in and you’re like, “Oh, it turns out to be something I could have waited for.” But by then the medical care has already been provided.

And so, it’s just one of those things that it’s going to cost some money to have that availability and that expertise and that capability available 24-7-365. It’s just expensive. And there’s only so much you can cut out of there. But again, it’s only something like 2 or 3% of the health care dollar. It’s not a huge percentage. And likewise, physician incomes are only 10% of the health care dollar. So, if you made every physician make half as much money, you cut all of their incomes in half, you would only save 5% of the health care dollar.

There’s an awful lot of places to go looking for a little bit bigger chunks of that than to take it out of the pockets of physicians, especially when that seems highly likely to reduce the quality of people going into medicine as it is already. And let’s see what Dr. Grumet said about this point. I think he said basically about what I just said.

He points out that the increase in total spending on physician and clinics is driven by several factors that have nothing to do with the doctor’s personal income, including rising overhead. The cost of running a clinic, rent, staff salaries, malpractice insurance, electronic health record systems and medical equipment has increased significantly; increased utilization, an aging and growing U.S. population requires more frequent medical care and procedures.

Inflation, the general rising cost of goods and services over the last 30 years, and venture capital and private equity businesses have turned practices into profit centers. The grand majority of practices are no longer private, run by physicians. They might be private, but they’re not run by physicians, I think was his point.

I think there’s a lot to be said in that argument. It’s an important problem to work on. We’re going to touch on it from time to time, maybe on this podcast, but it’s not going to be our main purpose here. It is not our mission at White Coat Investor to fix the health care system. Although, like everybody else, we probably ought to do what we can from time to time because it’s such an important problem to work on.

Speaking of which, all of you working on it, thank you. Sometimes it’s embarrassing to be part of, but without you in the system, fixing it when it’s breaking down, covering it, filling those gaps in health care for what patients really need, we’d have a dramatically worse problem than what we have now. So, thank you for holding a flawed system together every day. If nobody said thank you for your hard work today, let me be the first.

Join me Tuesday, November 17th at 06:00 P.M. Mountain for a free virtual class. I’m going to be walking you through the simple path to becoming a multi-millionaire in medicine. We call this a crash course, multi-millionaire in medicine.

One person who attends live will get a free registration to WCICON, the Physician Wellness and Financial Literacy Conference, and five others will win our best-selling Fire Your Financial Advisor course. We think this is so good and will be so helpful to you that we’re bribing you to attend.

You have a chance to not only come to the conference free, but five of you are going to get Fire Your Financial Advisor, the course that helps you get a written financial plan absolutely free just for attending.

Dr. Scott, the President of Financial Planning at White Coat Planning, is going to join me for live Q&A at the end. His team is going to be in the chat answering your questions as we go, and then Tyler and I, of course, are going to answer a bunch at the end as long as we can stay.

Getting out of debt, becoming a multi-millionaire is easier than you think, especially on a physician or physician-like income. But you do need a plan, and I’m ready to help you make yours. Register for this, whitecoatinvestor.com. That is November 17th, 06:00 P.M. Mountain. It’s going to be great. Looking forward to seeing you there.

 

WHAT HAPPENS WHEN YOU INHERIT DIFFERENT TYPES OF ASSETS?

Dr. Jim Dahle:
All right, let’s take a question out of my email box. This one is about inheriting various assets. “What are the nuts and bolts for inheriting various assets? I know you talk about step-ups and basis and how accounts could be taxed, but how do things get transferred into the next person’s name for items such as deeds to real estate property, usernames to access bank accounts or is money transferred out, permission to get into retirement accounts at various institutions, 529s, HSAs, what paperwork, death certificates is needed to be filed, how are beneficiaries notified about what comes next?”

Oh boy, that is a lot of questions. It’s a good question, though. Practically speaking, this takes time, effort, usually months. This is the job of the executor. When you select an executor for your will, this is their job to sort through all this and get all the assets where they’re supposed to go.

The first thing they’ve got to do is get a bunch of copies of the death certificate. Those of you who sign death certificates, as I do, know that most of the time the family doesn’t care what you put on the death certificate. It’s a big faux pas, apparently, just to put cardiac arrest because every death is a cardiac arrest.

But sometimes we have no idea what killed the patient, and the family doesn’t want an autopsy, and nobody else is willing to sign the death certificate. So I end up signing the death certificate and I put something stupid on there like cardiac arrest. I don’t know. They came in and their heart wasn’t beating. I don’t know what killed them. We couldn’t resuscitate them, and now the family wants them to go to the mortuary and they want to bury them next week and they want death certificates so they can get going on distributing assets and all that kind of stuff. So, you sign a death certificate.

Well, the executor needs those death certificates because they take them to all these institutions, to the banks, to the brokerage accounts, to the retirement plans, 529s, HSAs, etc. And they implement a plan for that account. Each of these accounts generally has a plan and hopefully as part of your estate planning, you’re making sure that successor advisors for your donor advised funds, beneficiaries for successor owners for your 529s, beneficiaries for your HSAs and retirement accounts and your annuities and your life insurance policies and all this stuff is actually named.

Because if you haven’t named it, it gets even more complicated and you end up in the probate process trying to sort it out according to what your state’s plan is for stuff that doesn’t have a beneficiary name.

So, name your beneficiary so the executor can just go, “Okay, we know this money is supposed to go to Johnny, so I’m going to show the death certificate to this 401(k) provider” and then they’re going to allow this to be rolled over into an IRA for Johnny. And that’s going to take time, like every IRA rollover does. It’s going to take a matter of weeks from the time they get all the paperwork done, but you got to get all the paperwork done. That’s kind of how most of these things happen is someone’s literally got to call up and email and fill out forms for each of these accounts and provide a death certificate to prove that the person whose name’s on the account actually died and it’s time to send the money to the beneficiary.

Similar thing for real estate property. Most of that does not have a beneficiary, does not have a co-owner. The downside of putting a co-owner on there is you may lose a significant part of that step-up in basis at death. You don’t want to lose that. You want someone to actually inherit it.

So what does that mean? It means it’s got to go through probate. The will says my second home is going to go to Susie. Okay, that’s great. It’s now the executor’s job to take the death certificate and change the title to Susie with the county and pay the fees or whatever out of the estate that the county needs in order to change the owner of that property to Susie.

And then, of course, if Susie wants to sell it immediately, she’s got the step-up in basis. If she wants to live there, have it as a second home or whatever, that’s up to her. I think that’s a good general description of the nuts and bolts of the process, but it’s more trouble and more painful and more hassle, I think, than most people imagine.

If you haven’t functioned as an executor, then expect it to be a significant commitment and to take some time. For most estates, this probably takes a year to work through. That wouldn’t be unusual at all. So not only are you dealing with grief, but you’ve got a whole bunch of hassle in your life as well.

And if the executor is your spouse that can be a particularly difficult time for them to sort it out, but at least they hopefully have a pretty good handle on everything they need to do in the meantime. But some thought in advance before you die about how all this happens is worthwhile and, of course, picking the right person as your executor.

But yeah, how do the beneficiaries get notified? The executor tells them. They send them, I don’t know, a letter. I don’t know if that’s to be a certified letter or whether you can just email them or you can call them and document the call. But all that is in the duties of an executor. And so, that’s your job. If your name is the executor of somebody’s will. Thankfully, my parents are both alive because I’ve been named their executor and I’m not looking forward to anything about that whole process. But I hope that’s helpful.

If you look up articles on the internet about how to be an executor, there’s a whole bunch of good ones out there. I see one that MetLife put out there that talks about it. What are the roles of the executor? Well, you’ve got to obtain the death certificate. You got to file a copy of the will. You got to notify the appropriate parties. You got to settle debts and taxes. You might have to appear in court. You probably have to submit an inventory of the estate’s assets. And then, of course, you supervise the distribution of assets.

And so, it’s important to choose the right executor. Hopefully you’ve taken a bunch of these assets out of the estate, whether that’s through an irrevocable trust for some sort of asset protection or estate planning reason, or whether that’s just a revocable trust to avoid probate. But it’s usually a whole lot easier to administer them via a trust than it is to go through the probate process with the executor.

So, keep that in mind. I think there’s a good case for lots and lots of people before they die to have most of their assets owned in a revocable trust. Varies by state how beneficial that is, but something to think about at least.

 

INHERITED IRAS

Dr. Jim Dahle:
Another question comes out of my email box. This one is about inherited IRAs. The emailer writes, “My mother unfortunately passed away. I now have an inherited IRA with approximately $350,000 in it.” My condolences and my congratulations on these two events.

“My mother was not getting RMDs, so I have 10 years to empty the account. My current situation, I’ve got income over a million dollars a year.” Well, congratulations on that. “$5 million in brokerage and $1 million in retirement accounts.” Well, congratulations on all that too. Clearly this $350,000 isn’t going to make a big difference in your life.

“I don’t have any current immediate need for the funds. So I’m wondering what your thoughts are on approaches on how to invest these funds while in the inherited IRA and how and when to withdraw the funds. Given that any withdrawals will occur at the top tax bracket, I want to make sure I have a plan for this unexpected windfall. This sits in a separate category from my other savings. I also want to best utilize the tax advantage status of these funds while they still exist in the IRA.”

Okay, well, this isn’t that complicated, actually, because it’s a pretty straightforward situation due to this person being in the top bracket no matter what, as well as already being wealthy.

So, tax-wise, this inheritor might as well just take the RMDs from tax-deferred accounts. So there are RMDs you’re required to take, but no more than that each year. And then at the end of 10 years, take it all out that year. And that’s going to maximize the tax-protected growth and the asset protection available from this account. So super easy answer to this one.

These questions are not always easy. It matters whether the person was withdrawing from it already or wasn’t withdrawing from it, taking the RMDs from it already. That matters, age matters, and all this stuff matters. Whether you’re the spouse or not, what kind of an heir you are, it’s super complicated. I’ve got a good post on it on the website all about inherited IRAs. You can look that up just by searching for that on the White Coat Investor website if you’re in a situation like this.

But in this situation, it’s really quite straightforward. Just leave it all in there as long as you can. It’s only $350,000. If you need some more money to spend, go spend some of the $5 million you’ve got in your brokerage or some of the million dollars a year you make. You don’t have to touch this. Just let it ride.

Now, how to invest it? Well, you invest it just like everything else. Just like your retirement accounts and your brokerage account, this is all part of your long-term money. You put it in the same pot, and then you just invest it across your accounts into one single asset allocation.

So, what you should invest it in depends on what your investments are. Because it’s a tax-protected account like your retirement accounts and you have a huge taxable account, it’s probably some of the less tax-efficient asset classes that are going in there. If you’ve got some debt real estate, or publicly traded REITs, TIPS and other bonds tend to be pretty tax-inefficient. They tend to go in people’s retirement accounts.

And so, the real question when you’re doing tax location, asset location, whatever you want to call it, is you ask yourself the question of which of these asset classes I want to own in my portfolio should go into taxable next. But if your ratio is 5 to 1 already taxable to tax-protected, you’ve got most of the really tax-efficient stuff in taxable already. You’ve probably got, if you have a total stock market allocation or total international stock market allocation, that’s probably already all in taxable. If you’ve got bonds in taxable and you’re in the top tax bracket, it’s probably a municipal bond fund. And so, it may end up being something else in your portfolio that ends up being in that inherited IRA.

But you just treat it like all your other retirement accounts until it’s time to take it out and reinvest it in taxable after 10 years. And again, I’m sorry for your loss; inherited money questions always have mixed feelings about them. It’s great to have more money; not so great the cause that resulted in you getting more money.

 

WHAT HAPPENS TO YOUR HSA WHEN YOUR KIDS INHERIT IT?

Dr. Jim Dahle:
Our next question comes off the WCI forum, preparing for when your kids inherit. “My wife and I created a revocable living trust recently, just in case something happens to both of us, our infant son is taken care of. Our state attorney mentioned that a trust cannot own an HSA. I understand that if a spouse inherits an HSA, it is not a taxable event. Plus, they can roll over those funds into their own HSA or create a new one for themselves. If someone else inherits, the HSA is fully taxable income for them. If something happens to both my wife and me, I’d like to know what my best options are.

I currently pay for medical expenses out of pocket using after-tax money. We use my HSA as a stealth IRA until the law changes, and we’re required to be reimbursed the same year for medical expenses. I plan to pay myself back later for my medical expenses for my HSA. So it earns some compounding growth.

If both my wife and I die, can our trustee go and get reimbursement from HSA accounts for the amount of medical receipts saved up over the years? This way our beneficiaries would inherit a much smaller HSA.”

Okay, this is a hyper optimizer asking this question. And when I say hyper, you’re probably going too far. Let me give you my perspective on this. We did this for a long time. We kept receipts, and we just spent money from our earnings for our healthcare expenses.

I kind of regret it. We lost a whole bunch of receipts, and now our HSA is so big that we literally cannot spend it on healthcare. It is growing faster than our maximum out-of-pocket spending on healthcare. And trust me, we’re trying to spend it, including a number of things that our health insurance doesn’t cover.

But I think it’s grown to $300,000 or something. Because we started in 2010 when I got out of the military. We always had a high deductible health plan. We always maxed out the HSA. We always invested it aggressively. There’s a lot of money in our HSA.

And if you optimize this too much, you’re going to have the same problem I have. And it’s going to be money that you literally can’t spend on healthcare because you just can’t spend that much.

Now, maybe if there’s some long-term care, you could spend it eventually. But right now, it’s just compounding faster than we can literally spend it. So, we have changed our approach in the last couple of years. We just spend from the HSA as we go along. If we have a healthcare expense, we spend from the HSA. I’ve still got to go back and find the receipts we do have and pull money out equal to those. But the amount we have of receipts can’t be more than, I don’t know, we might have $20,000 or $30,000 worth of receipts at best. I’m not sure I can find that many of them. And if a $300,000 account grows at 10% in a year, that’s $30,000 right there.

So, I would encourage you to not make this more complicated than it needs to be and just spend your health savings account money as you go along. Now, if you don’t spend it all in a year, great, wonderful, invest it. Long-term money, you can invest, and it’ll grow. And eventually it’ll be a big sum of money that you can use to pay for Medicare premiums in retirement and healthcare expenses in retirement and so on and so forth.

But the ideal use of a health savings account is to spend it on healthcare.

Now, it’s great to spend it on healthcare later if you know you’re actually going to spend it on healthcare, but you’re far better off spending it on healthcare now than spending it on a sailboat later. You can do that. After age 65, there’s no penalty to taking it out and spending it on whatever you want. You have to pay taxes on it if it’s not spent on healthcare, but there’s no penalty to take it out after age 65.

So, you can do that, but the better use is to spend it on healthcare because then it’s triple tax-free. Tax break going in, grows tax-protected, comes out tax-free because it was spent on healthcare. And they are lousy accounts to inherit.

As soon as you inherit an HSA, it’s not an HSA anymore. It’s just a big, fat pot of taxable money taxed at ordinary income tax rates. It is the worst of all the accounts to inherit. If you want to leave something to charity, the first thing you should leave to charity is your HSA. Because it’s just cash and the charity won’t have to pay taxes on it.

And so, it’s even better to inherit for a charity than a tax-deferred retirement account. For your spouse, obviously, it’s still an HSA, but for anybody besides your spouse, it’s kind of a lousy inheritance. Don’t get me wrong. People will still appreciate it. They’ll pay the taxes on it. They’ll get to keep two-thirds of it or whatever. But if you’re going to leave something to somebody, leave them your Roth IRA. Even your tax-deferred IRA is better than an HSA.

But the best things to inherit, of course, are Roth accounts and then taxable accounts because you get a step-up in basis at death. There are some benefits of inheriting a tax-deferred account. You can stretch it out over the next 10 years. But as you spend that money, you’re going to be paying ordinary income tax rates on that, just like the HSA. It just takes a little bit longer to take the money out.

So, I don’t know how wealthy you are. I don’t know how much money you have in your HSA already. But if you’re getting to the point where you’ve got tens of thousands of dollars in your HSA, I’d quit playing this goofy game where you’ve got to keep the receipts.

I get it. Tax-protected growth is valuable. If you leave it in there and play this game properly, you’ll probably end up with a little bit more money. But behaviorally speaking, I think it’s harder to do this than you think. Some of the HSAs do have good tools that allow you to scan in the receipts. No matter whether you use those or whether you keep the receipts yourself, you do have to scan them.

All that ink and paper that receipts are put on is not good. It does not last for years. Trust me. I’ve got a whole bunch of these health care receipts that you can’t even read, and they’re worthless. So, I don’t know if the IRS would audit this very often. They probably don’t. But you’re supposed to have receipts equal to the amount you pulled out of the HSA.

And so, I think this is kind of a hyper-optimizer game. I’ve stopped playing it. I think most people should stop playing it because personal finance is 90% personal and only 10% finance. 90% behavioral, only 10% math. And the math, yes, shows that if you can leave it in there as long as possible, this is going to work out really well for you. But behaviorally speaking, this is an awful lot of your mental headspace that could go toward doing something else that’s probably going to make a bigger difference in your finances than this will, or maybe in your happiness. So, I would probably recommend against doing this most of the time, for most people.

Okay, don’t forget about our crash course coming up, Multi-Millionaire in Medicine. This is November 17th, 06:00 P.M. Mountain. Obviously, that’s 05:00 P.M. Pacific. It’s 08:00 P.M. if you’re on the East Coast. It’s 07:00 P.M. Central.

Sign up at whitecoatinvestor.com/millionaire. It’s going to be awesome. We’re going to show you the path to becoming a multi-millionaire in medicine. It is not that complicated, but you do need a plan to get there. You can do it. We’re going to show you how to do it.

It’s been wonderful to be with you on this podcast. We appreciate you being here. Without you, it’s not much of a podcast. So, we love your feedback. When we get something wrong, or you think it just needs more nuance injected into it, send us an email, [email protected]. You might be surprised to hear your email read on the show.

Clarifications and corrections are important to us. We want to be putting out accurate, balanced information that is helpful. We will follow up on discussions where you feel like maybe that didn’t happen as well as it could have. Try to give you the straight scoop because we want you to be successful.

We know if we can help you get your financial ducks in a row, you’re going to be a better partner, a better parent, a better physician. Your life’s going to work out better. You can get to the point where you quit worrying about money, where it is a non-entity in your life and almost doesn’t affect the decisions you make at all. We want to get you to that place because we think it’s going to help you have a better life and contribute to the other people whose lives you impact day in and day out.

 

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/whitecoatinvestor 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.

Thank you for sharing this podcast with others and for leaving five-star reviews wherever you download your podcasts. A recent one came in, said “All docs, high earners, or just typical income optimizers should listen. Thank you all for what you do. Amazing knowledge.” Five stars. Thank you so much for that.

Keep your head up and shoulders back. You’ve got this. We’re here to help you. There’s a whole community here standing behind you that wants you to be successful at this stuff. Even though nobody taught you anything about it as an undergrad or as a med student or as a resident or as a fellow, you can learn it. It’s not that hard to learn. You can implement it and you can be successful.

We’re here to help you pay off your debt, build wealth, and find the financial freedom so you can spend your life doing what you were meant to do. See you next time on the podcast.

 

DISCLAIMER

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

Transcription – MtoM – 298

INTRODUCTION

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

Dr. Jim Dahle:
Welcome to the Milestones to Millionaire podcast. We’ve got a great guest today. A couple of weeks ago, we had an orthopedic surgeon who was kind of at the tail end of his career and had built substantial wealth.

Today, we have an orthopedic surgeon at the beginning of his career. Maybe hasn’t even started his career yet, but also a substantial net worth, given where he’s at in his career. So, let’s talk with him and talk about what he’s done so far and learn a little bit more about what you can do earlier in your career to really get set on the right pathway.

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 get this critical insurance in place, contact Bob at whitecoatinvestor.com/protuity today. You can also email [email protected] or you can call (973) 771-9100.

Most of you have probably heard of the Physician Wellness and Financial Literacy Conference. We do this every year. Last year, as I was sitting there on the second or third day, I started realizing I have been underselling this conference. It’s awesome.

At the end of last year’s conference, we asked the attendees if they thought it was worth it and what they would tell their colleagues about WCICON. The most common answer was absolutely, followed closely by 100% recommend.

We’re doing this again in Orlando, February 24th through 27th. It’s one of my favorite weeks of the year, mostly because of you. I get to be with you face-to-face. I get to hear about your triumphs, which is awesome because you guys have had a lot of triumphs lately, it feels like. I also get to hear about your challenges.

That drives the content we make. That drives the content we make on this podcast. It drives the content we make on the blog for the next year. That’s my favorite part. I just like meeting you guys. I think that’s awesome.

I don’t think that necessarily meeting me is everybody’s favorite part of the conference. Most people do try to; it’s a pilgrimage to WCI Mecca, I guess, for some people. That’s fine. I’m more than willing to meet you and take pictures with you and do that sort of stuff.

But I think what people really appreciate about it is that it’s a very unique experience to go to a medical conference with other specialties. There’s oncology there, and there’s orthopedic surgery, and there’s pediatrics, and there’s emergency medicine, and there’s dentistry, and all these other people that aren’t even docs.

You haven’t sat next to these sorts of people since med school, if you’re like most of us. That part’s really cool. But the other part that’s cool is most of you don’t actually have people in your life that you can talk to about anything financial. That makes me feel a little bit bad, but I’m trying to increase the number of people out there who are willing to do that.

At WCICON, they’re highly concentrated. The person next to you is paying off student loans. The person on the other side is a decamillionaire. Both of them are willing to talk to you about every little bit of your financial plan that you want to talk about. You want to talk about estate planning for your kids; they’ll talk to you about that. You want to ask questions about what they did to increase their pay; they’ll talk to you about that. It’s really fun to have a couple of days where you’re just absolutely liberated on financial topics.

The other thing that’s been shocking over the years: when we first started this thing back in 2018, we were in Park City that year. It was kind of a fun conference. We’d do classes in the morning, then we’d go skiing, and then we’d do classes in the evening. It made for a long day, but it was pretty unique to be able to ski in the middle of a conference. But it was that first conference, I was like, “Oh, we got to make sure some of these talks qualify for CME, because I know people have CME funds that they want to use them for.” So, we threw in a little bit of burnout wellness stuff that qualified.

What I’ve been shocked about as the years have gone on, and of course, the burnout pandemic has gotten worse, is just how important those sessions are to people. Now it’s about half the conference. We think we’ve gotten the balance just about right. That’s about what people like; they give us feedback that this is about the best way to do it. About half the content is about wellness, is about practice management, about finding that balance in your life.

The other half is kind of more hardcore financial topics. But that sort of balance has been really surprising to me: people love those sessions, and oftentimes their favorite sessions have been some of those. So we’re going to continue to have that focus at the conference as well. It really is the physician wellness and financial literacy conference.

You guys should come. Again, Orlando, February 24th through 27th. Register at whitecoatinvestor.com/wcicon. I hope to meet you there.

 

INTERVIEW

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

Nick:
Thanks for having me. Excited to be here.

Dr. Jim Dahle:
Okay, let’s give us some background information. Tell us a little bit about your family status, and what part of the country you’re in, and what you do for a living, where you’re at in your career.

Nick:
Yeah, I’m currently a fifth-year orthopedic surgery resident down in the southeast. So for family status, I’m married, have a beautiful wife. We’ve been married for about six, seven years now. We just welcomed a brand new baby to our family about three months ago, which from a financial standpoint has definitely turned things upside down a little bit, but it’s still absolutely been the greatest thing that’s ever happened to us.

Dr. Jim Dahle:
Okay, so give us a sense. You said you’re still in training. Are you doing moonlighting at all?

Nick:
No, I’m not doing any moonlighting, but yes, I’m in my last year of orthopedic residency, and I have a fellowship coming up next year.

Dr. Jim Dahle:
Okay, what’s your income as a resident?

Nick:
Yeah, resident salary down here, we make around $76,000 a year pre-tax. I’m bringing some of that home, and I do live in Florida, so we are lucky with the fact we have no state income tax, which always helps a little bit.

Dr. Jim Dahle:
Is your wife working?

Nick:
She is, yeah. She’s been working full-time since she graduated from undergrad, which has certainly helped us. It’s been a massive help with it. She works a standard job. She makes around $50 to $52 a year, which definitely is a substantial addition to a resident’s salary and has kind of made a lot of our financial situation possible.

Dr. Jim Dahle:
Yeah. Okay, we’re talking the last few years, low six-figure income, and what we’re celebrating today is a net worth milestone. So, what’s your net worth now?

Nick:
Yes, sir. Yeah, net worth as a whole is around $150,000. The biggest milestone I think that we hit recently was our combined Roth IRAs reached over $100,000, and that was probably our biggest milestone that we’ve had recently.

Dr. Jim Dahle:
Awesome, awesome. Okay, well, give us a little bit of background. How’d you pay for med school?

Nick:
Medical school was entirely government loans. I’ve been on the PAY program since I started. I take out four years’ worth of loans, and then the big pause obviously has been pretty helpful with keeping those down for a few years.

Dr. Jim Dahle:
Okay, so how much do you owe in student loans still at this point?

Nick:
Student loans, as of when I looked this up last night, is $133,000.

Dr. Jim Dahle:
All right, and tell us about your assets that add up to this net worth of $150,000, $175,000-ish, whatever it is.

Nick:
Yeah, assets we have is around $275,000, $280,000. That’s a combination of both of our IRAs, which combined for about $100,000. My FICA alternative plus the 403(b) that I have through my employer is around $50,000, and she has a 401(k) currently from her employer as well as one from a previous employer, which I think adds up to around $75,000.

We have a brokerage account, which has about $20,000 in it, and then we have some cash and emergency savings account around $30,000. So, all that combines to be around $275,000 plus the $133,000 of debt. Takes us to around $150,000 in the positive.

Dr. Jim Dahle:
Yeah, pretty awesome. I tell you what, it’s been a few years. I’m a little older than you. It’s been a few years, but we walked out of residency not owing any student loans with a low five-figure net worth. I don’t know what it was, $15,000 or $20,000, something like that.

So I’m shocked when I keep running into all these residents who are already building wealth in residency. I basically tell people tread water in residency. Just figure it out. Get your insurance in place. Have a good student loan plan. Be ready to hit the ground running when you’re in attending, but this isn’t the time to get rich. A lot of people would say you’re not rich yet. But you’ve made substantial progress here. That’s a lot of money to have to not even be out of residency yet.

Nick:
It does. It feels good to have. I think, honestly, you are probably a big reason for a lot of that, for a lot of these people that you have coming onto the podcast with just raising awareness for it because it’s not really something that gets discussed in undergrad if you don’t do a finance major.

In medical school, it’s maybe one or two lectures over the course of four years. Especially in residency, I’ve had probably 30 lectures about how to fix broken ankles, but I can count on one finger how many finance lectures we’ve had, and it was the grand rounds that I gave last year to our residency program. I think a special thank you to you and everybody else.

Dr. Jim Dahle:
Well, thank you for doing that. Better coming from you than from an insurance agent from Southeastern Mutual or whatever.

Nick:
Yeah, definitely.

Dr. Jim Dahle:
Okay. Well, tell us why you guys got interested in this. Clearly, it sounds like you’re on the same page. You guys are saving a lot of money and or paying off debt with it. Your income is only a low six figures, and a lot of that has gone toward building wealth, especially a lot of the net income on that. So, why is this important to you? How did you get on the same page? How do you guys decide how much to save and how much to spend? Tell us a little bit about how this has happened.

Nick:
Yeah, I think a lot of it just started when I was young. My parents were very passionate about teaching me about money, even though I didn’t have anything more than an allowance early on. They really stressed the importance of saving money from their end, and at least teaching me the basics of finances, and at least stressing the importance of it.

And then once I went through undergrad, I had small jobs in undergrad, and they would focus on saving money. That was when they taught me at least about opening a Roth IRA, even if I wasn’t contributing more than a couple hundred bucks at the time. But then really, it was once in medical school, I had a really great group of friends that we at least just started talking about money. It was when we got the White Coat Investor book, and we started listening to the podcast, and at least trying to teach ourselves about it.

And funny, I think it was when we got the stimulus packages during COVID was the first time that any of us had any sort of money to do anything with. And I think some of us were like we should probably learn about stocks. And so, we started just putting money into a trading app, and at least learning what it felt like to buy and sell stock. And then once we had an actual income, all of us again stayed in touch, and we were like, maybe we should do this the right way. Because we definitely learned the wrong way of buying and selling stock, any money that we put in there.

Dr. Jim Dahle:
At least it was stocks which were mostly going up at the time. It wasn’t prediction markets.

Nick:
Exactly. No, it wasn’t. Some of them went up, some of them went down, but that was when we pretty quickly learned that picking and choosing was the wrong way to do it. But yeah, and then my wife and I were pretty set, and we wanted to save pretty heavily for retirement. So we focused on getting somewhere between 15 and 20% of our income into some sort of retirement account. Roth IRAs was the one that we really focused on pushing, and she does her employer match to make sure we can maximize it. And so just living frugally and living like a resident has really been successful for us.

And I think that was what I wanted to stress is that you don’t always have to have been struck by lightning to become wealthy. It’s like some people have a huge inheritance, some people have a side gig, some people have moonlighting opportunities available, but we’re pretty people with pretty standard incomes, and we found a way to make it work. And I think a lot of that has just come from the education of talking to people about it and learning about the importance of finances.

Dr. Jim Dahle:
Now, you’re still close to two years away from the big bucks. Do you guys already have a plan for where that money’s going to go once you start making it?

Nick:
It’s not necessarily a drawn out plan, but I think we know where we want it to go first. I think that’s going to be getting my loans paid off. And then once the loans are paid off, I think we’re going to attack loans pretty aggressively. But once loans are paid off, I think that’s probably when we’ll start trying to put more towards the house, more towards still investing heavily for retirement, putting money for a new girl for a 529 plan in school in the future. We don’t necessarily have a drawn out plan, but we have a good idea for what we want life to look like.

Dr. Jim Dahle:
Tell me a little bit about what you chose to do for insurance.

Nick:
That’s a good question. So luckily, our health insurance is covered through our residency program. We have health insurance covered by the hospital. I did get disability insurance after my third year of residency. It was something I wanted to at least get on top of, which was obviously another monthly expense. But I’d heard about the importance of it. So that was another one that I wanted to tackle early and at least get on top of.

Dr. Jim Dahle:
How about any life insurance now that you’ve got a baby depending on you? Have you bought any life insurance yet?

Nick:
I need to. That’s next on my list of things that I need to do, especially now that we’ve got a baby girl. It’s tough with adding daycare into the cost of our monthly living has thrown a wrench in the money that we have available for it all. But that’s next on my to-do list.

Dr. Jim Dahle:
A couple of weeks ago on this podcast, we had an orthopedist at the opposite end of his career from you with a net worth of at least $8 million. He wasn’t even counting the value, I don’t think, of his practice and his entrepreneurial pursuit. So, it might have been twice that. Is that just astounding to you that at the other end of this career, you could be a decamillionaire? Or do you see yourself pretty readily on just earlier on the same pathway to that sort of place?

Nick:
A little bit of both. It certainly is astounding to think that like any, not just myself, but everybody that’s in the career of medicine is on a great path, especially if you take it seriously early on. So it’s exciting. But I also think it’s not necessarily a complete shock, especially when you start learning about the importance of getting money into the market early, investing early, and taking it seriously.

I think that was just the biggest thing for me was I started really talking to other people about it. I feel like money is not really something that’s discussed amongst people for the most part. Once I started talking to people about it, I realized a lot of us have the same questions. And I started asking people questions. They taught me. People started coming to me with questions that I didn’t have the answers to. So, I learned a lot. It’s kind of the education of all of it, I think, really kind of promotes this culture of everybody being serious about their money and taking it seriously.

I think in some aspects, yes, it’s exciting. And it’s awesome to hear that people get to that point. But also, I just started taking it seriously and I encourage others to do the same because it makes it a lot easier, I think.

Dr. Jim Dahle:
Now, you gave a grand rounds on kind of financial stuff. And I want to encourage that sort of behavior. I want you to tell people how shocked you were by the ease of the questions you were given at the end of the grand rounds from your fellow colleagues and that you really don’t have to be an incredible expert to be able to give that sort of a lecture. Can you tell us a little bit about that experience?

Nick:
Absolutely. And it really was, I don’t want to say shocking to me, because I think I realized that it’s a big gap that’s in our field of medicine, which is obviously where you’ve come into play to really fill that gap. But you’re exactly right. After the grand rounds, people ask me questions during it, because a lot of people that I’ve talked to, they don’t have more than a checking account or maybe a savings account. And those are the only accounts that they have really for themselves.

So people are asking me, “How do I set up an IRA? That sounds like a really complex thing.” And I’m like it’s really not that complex. But some people are really asking about how to read their paychecks. And some people didn’t even know that our hospital offers FICA Alternative that 7.5% of their paycheck is getting put into a retirement account.

And so, that’s why I just really wanted to stress, exactly like you said, the importance of it and getting it out there. And I encourage most people who are listening to this podcast, at least have some baseline financial literacy, or they’re probably learning from this podcast, which I think is great.

So I really encourage them to spread the word to their classmates, their residency classes, or talk to their attendings about getting lectures on their perspective of it all from when they were in their shoes, because you’re exactly right. Some of the questions that you get, it’s surprising what people do and don’t know.

And after the grand rounds, I had one person tell me a couple weeks later, they opened up their IRA, and they put $20 in. And I was like, that’s the coolest thing ever. Good for you. Even if it’s a start, anything is a start and just getting in the habit of it and being consistent is so important.

Dr. Jim Dahle:
Well, give it a few years, and I’ll email you and tell you they paid off their student loans. And then all of a sudden, they’re on your podcast telling you they’re decamillionaires. And it is pretty gratifying to see just a few kernels, a few nuggets of wisdom passed out and the difference they can make in the life of a doctor.

Now, I think one of the things you’ve been mentioning is unique enough that it deserves a little more explanation. Tell us about the FICA Alternative available at your hospital.

Nick:
Yeah, that’s a good question. I kind of mentioned it that through our university hospital and instead of money going towards Social Security, 7.5% of our paycheck comes out pre-tax and gets put into a retirement account. Ours is through Fidelity, and it gets automatically invested into a target date fund that you can pick which target date fund it goes into. I chose 2060 because that’s around the time that I’ll be turning 63 to 65. And it just allows it to grow.

We don’t have much control over it, but it’s money that we at least have access to. And then my understanding is that once we finish our employment or I finish my residency, I have the option either let the money sit there or I can roll it into an IRA. I’ll just have to pay the tax bill up front. But it’s a great thing. It’s money that we can see and it’s money that I can actually see grow. I think it’s been a great thing.

Dr. Jim Dahle:
Now, this might have been before your time, but a few years ago, there was this whole big legal to do about whether residents or students or residents were employees. And there was people getting refunds of the Social Security taxes they paid during residency and all this kind of stuff.

And it sounds like this kind of grew out of that, I suspect, and gives an alternative for people to be doing that, because a lot of times I think they’ve decided residents. I think the final decision, I can’t remember, someone’s going to call in with a correction on this probably because I’m going to screw it up. I think they decided in the end that residents don’t pay those payroll taxes. But it sounds like that’s what this has taken the place of for you, at least at your university hospital.

Nick:
Yeah, I might have. I’m not sure where it stemmed from. But I know that since I got here, it’s just been giving your paycheck and deduction your pre-tax amount. And once you get the log in for your FICA, you can see where your money is sitting and watching it grow.

Dr. Jim Dahle:
Well, for most docs at least later in their career, Social Security is not an awesome investment for them. The actual return on investment. So, given the alternative, it’s probably a nice thing to avoid for you, given the opportunity. Very cool. Well, congratulations to you. You have been very successful compared to the vast majority of your peers. And you’re, most importantly, on track to accomplish, I think, all your other financial goals in your life. So, well done. Thank you for being willing to come on the podcast and inspiring others to do the same.

Nick:
Thank you, sir. I really appreciate it. I’d just like to echo again that I think talking to other people about it and finding ways to learn more and taking your financial future seriously is so important. I feel like I’m a minor person in this grand scheme of the world. And I think people like you that are getting the information out there have made a big difference in a lot of people’s lives. So thank you.
Dr. Jim Dahle:
It’s our pleasure. Okay, I hope you enjoyed that. I want to talk for a few minutes. I gave some wrong information a few minutes ago about this FICA Alternative.

Dr. Jim Dahle:
Let me give you the background history here. After refreshing my memory on this, I’ve got a little better information. If you were a resident before 2005, like me and the rest of us old people, you actually had your Social Security taxes, your FICA taxes refunded to you. Anything that was paid prior to 2005. And that was kind of rolled out in like 2012. I thought it was just a couple of years ago. How time flies when you’re doing the White Coat Investor here. Apparently that was 2012.

But basically in 2010, the IRS announced it would honor refund claims for periods ending before April 1st, 2005. Basically, the Supreme Court ruled in January of 2011. This is Mayo Foundation versus the United States. The residents aren’t students moving forward. So, residents are employees. They actually do have to pay FICA taxes. But apparently prior to that, hospitals were arguing these are students. They shouldn’t have to pay. They should be refunded. And so, the hospitals got their portion of the payroll taxes refunded. And those refunds were you’re also eligible as a doc having been in residency prior to 2005 to have that refunded as well.

But what he is talking about, what our guest is talking about is an alternative retirement plan. Some public hospitals, some state institutions offer a state pension or a specific 403(b) Safe Harbor plan in lieu of Social Security.

And this is actually pretty uncommon. It’s heavily scrutinized. And non-resident aliens can also have some temporary FICA exemptions. But this is different from that. But basically there are some government employees, basically, they don’t have to pay Social Security tax. Instead, they pay into a totally separate program.

And given that Social Security isn’t an awesome return, it actually is the first few years you pay into it. But over the course of your career, you will certainly have years that it’s not a great return for you. This is probably a good thing for docs. So, take advantage of that sort of thing. And in this case, it sounds like he’s just going to be able to roll it into his Roth IRAs, convert it when he leaves residency and have a little bigger Roth IRA and at that point will start paying into the Social Security system.

I hope that additional information is helpful on what we were talking about there. Otherwise, I thought it was a great interview. It’s pretty amazing what people are doing in residency these days. It really isn’t the time when you have to build wealth. But you can start building wealth in residency if you want to. Just make sure you find a balance.

All through your life, you are balancing the needs and desires of current you with future you. Retirees struggle to spend. There’s people that are pentamillionaires and decamillionaires that are struggling to spend it in their 60s and 70s and 80s. It’s okay to spend some of it as you go along. Learn how to spend as you go. Yes, you need to save some money. Yes, you need to be financially responsible, but it’s okay to spend some too. Find that balance.

I do recommend a period early in your career we call live like a resident period. You get to define how long it is. You get to define how severe it is. About a period of two to five years where you’re really not spending as much as you could as an attending physician in order to kind of front load your financial life.

But even with that, I’m not telling you to live like a student. Try to enjoy yourself a bit as you go along. Find a balance, moderation in all things, be financially responsible, but also be sure that you may not have a retirement. People get sick, they die, they get injured. Even if you have a retirement, you still want to balance it. You don’t want to just buy nothing until you’re 65 and then find it difficult to spend your money at that point. So, find a balance as you go along.

The problem is when I recommend a book like Die With Zero, the wrong people read it. I want the decamillionaires to read it and apply its lessons. I don’t necessarily want the person a year out of residency to be reading it and applying his lessons, but we always apply the wrong lessons because that’s just the way we are as humans. When we’re young, we hear the advice to spend more. And when we’re older, we hear the advice to save more instead of vice versa. But I guess that’s just the way life is.

At any rate, it’s wonderful to have you here. We’re grateful for what you’re doing with your lives. Thank you. Thank you for being a pre-med. It sucked, didn’t it? Competing with everybody in biology and organic chemistry, it sucked. And taking that MCAT prep course, that stunk as well. And taking the MCAT and applying to med school and worrying if you’re going to get in and getting through med school. And it didn’t smell very good in gross anatomy lab.

Thank you for doing all that. You’re making a difference in people’s lives. I’m grateful for you every time I got to go see a doctor, which seems to be more and more frequently as the years go on, but we appreciate what you’re doing. So, if nobody’s told you thank you today, let me be the first.

 

FINANCIAL BOOT CAMP: DISABILITY INSURANCE

Dr. Jim Dahle:
Sometimes people wonder whether their group disability insurance policy is good enough, especially when they find out that individual disability insurance generally costs quite a bit more than group disability insurance.

But there are some downsides that come with that lower price. The main one is a weaker definition of disability. The most important thing about a disability insurance policy is that it actually pays you if you get disabled. And sometimes it’s very obvious you’re disabled. You’ve lost an eye or you’ve lost the ability to hear, or your arm was chopped up in a farming accident.

It’s very obvious you’re disabled, but there are plenty of causes of disability that are a little bit more gray. Like chronic back pain, like anxiety or depression or a head injury or something like that, where maybe there’s not a radiological finding that can definitely say this is the disability.

And so, it might be a little harder to claim disability if you have a weak definition of disability. And as a general rule, you will have a weaker definition with the group insurance policy. It’s interesting. Some of them also offset benefits. If you’re getting workers comp disability benefits, or you’re getting social security disability benefits, this group policy will reduce how much it’s paying you to offset those. It might even offset your individual policies that you bought. And so, keep that in mind that if you’re not actually going to get what you think you’re going to get, it’s not nearly as valuable and maybe not worth even paying for.

Another huge downside of a group disability policy is it’s not portable. If you change jobs, you can’t take it with you. And maybe you’re going from a job that offers group disability to one that does not offer group disability. And now you find yourself at age 45, having to buy an individual disability policy that costs way more than the one you could have bought at 30. And also maybe now excludes some of the medical conditions you’ve discovered in the meantime, or they won’t sell you a policy because you’ve developed some medical conditions, or you’ve taken up some particularly dangerous hobbies. And so, not having portability on that policy really matters.

Group disability policies can also be cancelable. There are non-cancelable policies, there are cancelable policies, and you’re much more likely to not have a non-cancelable policy when you buy a group policy.

Most group policies also don’t offer any sort of a cost of living adjustment. If you get disabled at a young age of 40, that amount of money is paying you at 60 after inflation has wreaked havoc for 20 years on the economy. It’s not going to be nearly as valuable at 60 as it was at 40. It’s much easier to buy a cost of living adjustment rider on an individual policy than it is to get that added to a group disability policy.

Disability policies also often exclude what they call mental and nervous disorders. We’re talking about things like anxiety, depressions, schizophrenia, bipolar, those sorts of things. And if you think you can’t develop one of those, it is not the case. Many, many people have developed those that they did not have at 25 or 30 or 35, well before retirement age.

If your disability falls into that gray area and the company doesn’t want to pay, you stand a better chance of making them pay with an individual policy than a group policy. You basically have fewer legal rights with the group policy because you’re not the one who bought it, the employer is.

Also note that the premiums on that employer policy were probably a tax deduction to the employer, their business expense. And so, the benefits when they’re paid out to you are taxable benefits. Whereas if you pay for your individual disability policy with after tax money, the benefits are generally after tax as well, and you don’t have to pay tax on the benefits.

So, does that mean you should never buy a group policy? No, absolutely not. In fact, for a good chunk of my career, I owned a group policy. The main reason I bought it was not only because it was cheaper, and it was, than my individual policy, but because it did not have a rider that excluded rock climbing on it. They didn’t ask me any of those questions when they issued the policy.

And so, if you have a dangerous hobby, or if you have a medical condition that’s giving you problems getting a good individual policy, you might still qualify for the group policy through your employer or some other professional association. So, that is less expensive and of course, if you’re the employer, the fact that you can take a tax deduction on it might be valuable to you as well when you’re buying those premiums. So that might be a reason why you might want to get an employer policy as well.

You may also be in a long-term job and the portability doesn’t matter to you because you don’t think you’re leaving this job until you’re 65, in which case that’s not as much of a benefit. It is also convenient to get it through the employer. You often have no medical underwriting and the premiums get taken out of your paycheck automatically. You don’t have to write any checks. So, sometimes it can be a really convenient place to buy insurance.

You might also find that you want to mix and match. You want to have an individual policy for the portability and the stronger definition of disability. And maybe you want a group policy for the lower cost and because it doesn’t exclude some of the things you might already have. And so, lots of doctors have more than one policy and maybe one of them is a group policy and two of them are individual policies or whatever. That’s fine to mix and match them, but understand that there are benefits of an individual policy over a group policy. There’s a reason it generally costs a little bit more to get an individual policy.

So, anytime you want more information about this, we have agents standing by that we’ve vetted for years. The White Coat Investor community has vetted for years. If you go to whitecoatinvestor.com and go to the recommended insurance agent tab, you’ll be able to find that information and find somebody who has helped many other White Coat Investors to get this critical insurance in place.

 

SPONSOR

Dr. Jim Dahle:
This podcast was sponsored by Bob Bhayani of Protuity. One listener sent us this review. “Bob has been absolutely terrific to work with and has always 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 and the underwriting process in a clear and professional manner.”

Contact Bob by calling (973) 771-9100, emailing [email protected] or going to whitecoatinvestor.com/protuity.

Get this insurance in place. If anybody’s depending on your income, including you, you need disability insurance.

All right. We’ve come to the end of this podcast. I want you to keep your head up. I want you to keep your shoulders back. Have confidence that you can do this. You can do this. We’re here to help you. The whole White Coat Investor community is standing behind you. There are a whole bunch of people just like you. If they can do it, you can do it. We’ll see you next time on the Milestones to a Millionaire podcast.

 

DISCLAIMER

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

This is the White Coat Investor Podcast Financial Bootcamp, your fast track to financial success.

Dr. Jim Dahle:
Long-term care insurance is a topic that often comes up in the White Coat Investor community. The idea behind long-term care insurance is to pay for a financial catastrophe known as requiring long-term care for years. Long-term care can be really expensive. Whether it’s being put in a nursing home or some sort of assisted living, memory care, or the most expensive type, which is being able to stay in your home and having multiple people take care of you, especially if you need somebody 24/7, 365 in your home, it can be very expensive.

A nursing home varies in cost by where you are in the country, but the last time I priced it out in my area, it was close to six figures per year. And so that can be a lot of money, especially if you’re in the nursing home for a long time. $100,000 a year times five years is $500,000. That’s going to devastate a portfolio of $700,000, for instance.

But what you need to keep in mind is there are a lot of white coat investors who can self-insure long-term care because $500,000 just isn’t that much money to them. If you’ve got $5 million and one spouse has to end up in the nursing home, and they’re in there for five years spending $100,000 a year, well, that’s probably okay because you have $4.5 million other dollars out there that are continuing to earn money and to grow in value as time goes on.

And besides, that spouse in the nursing home is now not spending money on other stuff. They’re not going on flights to Europe while they’re in the nursing home. They’re not buying boats, and maybe you can get rid of a car. There are other expenses that tend to go away.

So whether you need long-term care insurance or not depends on where you are in life. Most people are not in the range of income and assets where long-term care insurance makes sense. For example, if you’re retiring with $20,000, you can’t afford long-term care insurance, number one. And number two, you probably don’t need it because if you go in a nursing home long-term, you’re going to spend down that $20,000 relatively rapidly, and then you’re going to go on to Medicaid, which is going to pay for your long-term care.

On the other hand, if you have $3 million or $4 million or $5 million, you can afford to self-insure this cost, and so you also don’t need to buy long-term care. So it’s really only some sort of a group in between, and where the exact numbers on that are varies with the person. But perhaps generously would be somebody retiring with a portfolio between half a million dollars and maybe $2 million that is married.

Because keep in mind, if you’re not married, you can just spend down your assets and then go on Medicaid. Very few people that spend all their assets on long-term care are ever going to live outside of a long-term care kind of situation. It’d be unusual for you to need eight years of long-term care and then go back to living independently. So you can spend all of your assets on long-term care and still be okay.

But what you’re trying to do is not impoverish a spouse that doesn’t need that long-term care. You’re going to blow it all while you’re going through your long-term care situation and really hose your spouse. So that’s who long-term care is really for: a married couple that doesn’t have enough retirement assets to fund long-term care out of their pockets.

There are qualifications, like any insurance policy, that you have to actually be requiring the long-term care before that policy is going to start paying benefits. If you don’t need long-term care and the insurance company can show you don’t need it, then it’s not going to pay.

And so this also brings in another great reason to self-insure it if you can. You don’t have to fight with the insurance company, right? Trying to provide the documentation that you actually need long-term care, especially since this often happens toward the end of life when people’s capacity, both physical and mental, is reduced. Is that really the time you want to be fighting with an insurance company anyway? You’re almost surely going to need help from your children or a friend or some sort of an advocate for you to get the insurance company to pay for the care anyway.

Now, you can buy all kinds of different types of long-term care coverage. The most straightforward product is a simple long-term care policy that pays for nothing but long-term care. But there are other types of ways to get that coverage. Sometimes it’s a rider on an annuity or even a permanent cash value life insurance policy. The ins and outs of this go beyond the level of detail we’re looking for in this particular video about long-term care insurance. But be aware that those are options as well if you find yourself in that asset range where it actually makes sense to buy something to help pay for long-term care.

The factors that go into what the premiums are are generally your age and your health, as well as the claims experience that the company has had. As a general rule, people tend to buy this about the time they’re dropping their disability insurance. So as you become financially independent and get toward the end of your career is when long-term care insurance is typically bought. You know, 55, 60, 65 years old. Those sorts of ages tend to be the ages when people are shopping for long-term care insurance if it’s something they should need.

So the downsides of long-term care insurance are that it’s a relatively new insurance product, and so a lot of companies that offered it actually went out of business as soon as their clients started needing them to make payments because they didn’t price it appropriately. Other downsides, besides the company going out of business, are that the premiums can increase.

And of course, it’s insurance. So there’s a good chance you’re just not going to need very much long-term care. You paid thousands and thousands of dollars in premiums over the years, and then you died a month after you needed long-term care. You’re not going to get your money’s worth out of that policy. It just isn’t going to be the sort of thing that is going to pencil out for you. It’s insurance. You’re trying to protect against a risk that might or might not show up.

But if you do decide to buy long-term care insurance, I would suggest you at least buy enough to pay for the cost of the long-term care you would like to have. Now, that might be a memory care facility in your area or a long-term care facility in your area, or it might be the cost of actually having people come into your home to care for you. But frankly, if you can buy enough long-term care insurance to pay for that sort of an expense, you probably have enough assets to be self-insuring long-term care risks in your life.

So when comparing long-term care insurance policies, go to an insurance brokerage or an insurance broker that focuses on selling these things. Recognize which of the policy features matter the most to you, which ones may not be worth paying anything extra for, and then compare them and buy the one that you think is most appropriate for your situation.

But for most white coat investors, I encourage you to save and invest enough money that you just grow your assets beyond the amount needed to self-insure for long-term care.

 

DISCLAIMER

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