Taxes in Retirement, Tax-Gain Harvesting, and Avoiding Probate

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:
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All right. Welcome back to the podcast. This one we're recording on February 20th. This is going to run out March 13th. It's almost a month, three plus weeks in between recording and publication. And usually what happens when we do this is something dramatic changes in the world. Who knows? There seems like there's something new coming out of Washington every week. So if you feel like this podcast is totally out of touch with what's going on in the world, that's why.

We got to work a little bit ahead of time, especially as we get close to our conference, which is the very end of February. We tend to get a little further out in recording these podcasts. So, please forgive us if something huge just happened this week, and I'm not even talking about it today.

All right. Let's get into some of your questions. This is interesting. The first one's about forecasting your tax liability in retirement.

FORECASTING TAX LIABILITY IN RETIREMENT

Speaker:
Hey, Dr. Dahle, hope that your healing is going well. Thanks to you and your team for keeping things going during your recovery. I'm trying to do some forecasting for my tax liability in retirement and specifically looking at my after-tax brokerage account.

When we think about an average market return of say 8 or 9 or 10%, that calculation is easy to do in a pre-tax Roth account because you can just use a compound growth calculator. But in an after-tax account, how do I calculate the tax drag on the non-qualified or qualified dividends and use an accurate growth rate to account for that? And also, how do I know at the end of the period, let's say 10 or 20 years, how much of the value of that account is going to be in gains versus an increased basis due to reinvesting my dividends? Thanks.

Dr. Jim Dahle:
Okay. Great question. First of all, my healing is going well. Those of you on YouTube, you can check out my wrist here. That's a pretty good range of motion compared to what I had a couple of months ago when I started my physical therapy. This is the only thing I'm really recovering from right now. I went skiing up at Snowbasin the other day and I went with one of my adventure buddies, actually the fellow who saved my life when we were climbing on the Grand Teton together.

And we hit it hard. There was a lot of new snow and it was pretty thick. And boy, I felt like a pretty lousy skier. Maybe I'm not completely recovered everywhere else, but mostly it's just about doing three times a day physical therapy on this wrist and hoping to get as much range of motion and strength back there as I can. But I appreciate your kind words.

Okay. Tax liability and retirement. This is pretty complicated. Your desire to forecast is commendable, but not realistic. There's only so much forecasting you can do here. You have no idea what your returns in the future are going to be. You don't know what the dividend yields are going to be. You don't know what the tax brackets are going to be.

You can only do this in a vague way anyway. So don't try to get too crazy about it. Yes, you know the money in your taxable, a.k.a. your non-qualified or your brokerage account, is going to grow slower than the money in your Roth IRA or the money in your tax deferred accounts. It's going to grow at a slower rate because of tax drag.

As it kicks out dividends every year, as it distributes capital gains, or heaven forbid, you're selling and buying and making capital gains, that's going to take some of your return away. That's just the way it works. It works the same way when you pay a financial advisor or you pay too expensive mutual fund fees and those sorts of things, your return is lower because that's the only place that money can come from is your return.

How much slower is it going to be? 1 to 2% is probably a fair estimate. Truthfully, if you're getting 10%, which you may or may not get, obviously, if you're getting 10% and you're in the top tax bracket, your tax drag is going to range somewhere between 1.5% and 4.5%. Instead of earning at 10%, you're going to be earning at something between 5.5 and 8.5%. And that depends on the tax efficiency of the investment. If it's a totally tax inefficient investment.

Now I use as an example for this, I use real estate debt funds. There's no depreciation in a debt fund and the entire return is paid out every year and taxed at ordinary income tax rates. It makes 10%. If your marginal tax rate is 45%, you're paying 45% on your entire return every year. It's completely tax inefficient. That's why it's a good asset class to have inside a retirement account. Let's say you have it in a taxable account. Well, that's a tax inefficient asset.

Now, the most tax efficient asset out there might be Bitcoin. There's no distributions whatsoever and you don't pay anything on it until you sell it. And when you do sell it, you get long-term capital gains treatment. So, it's as tax efficient as anything gets. Now, no promises you're going to have a positive return by any means. You can even tax loss harvest Bitcoin without having to worry about wash sales. You can sell your Bitcoin and buy more Bitcoin two seconds later and book that loss. And you don't have to wait 30 days like you would if you were doing this with stocks or mutual funds. So super, super tax efficient asset.

Not my favorite investment. I don't have any in my portfolio, obviously, but you got to give it up for its tax efficiency. It's pretty awesome. And so, that's as tax efficient as it gets. But even so, after 30 years, when you sell it, assuming it had a gain, you're going to pay out your capital gains rate. Now, in my case, that's like 28% plus because I got to pay state taxes on it. I got to pay the 3.8% Obamacare tax and I got to pay a 20% long-term capital gains rate. So, that adds up to over 28%. I think it's 28.6% or something. So you got to pay that out at the end on all the gains. That's going to take away from your return anyway.

But there's tons more that go into this. Because you don't have to sell your stuff evenly in retirement. You can sell the stuff that has the high basis. If there's an investment you just bought a couple of years ago and you bought it for $90,000 and now it's worth $100,000 and you sell it, well, guess what? $90,000 of that, you don't pay any taxes on at all. You get $100,000 to spend and maybe you only got to pay $2,000 or $3,000 in taxes to get it. So you've got some control over your tax situation in your taxable account there.

The other thing I think a lot of people don't realize is there's a whole bunch of people that are retired that just aren't selling stuff at all. They're living off the income. If the dividend yield on your investments is 1% or 2% or 3% and you're only taking 4% out anyway, well, you're getting most of that out of just the income. You don't have to sell to get that. Yeah, you're going to pay qualified dividends tax rates on a lot of that and maybe some ordinary income rates on some of that, but there's a lot of variability there. And the truth is there's a lot you can do to keep your tax bill down.

Now, some people are even in the 0% long-term capital gains and qualified dividend bracket. You might be surprised how high that goes. If your only income in retirement is some Roth withdrawals and selling some high basis shares, you might find you can spend $200,000, $300,000, $400,000 a year and still be in the 0% long-term capital gains bracket. It's pretty amazing in just the right situation, just how little tax you can pay in retirement. And of course, some people are constantly flushing their capital gains out of their accounts with big charitable contributions and that helps them to reduce their future tax liability as well.

There's all these factors out there that I don't think there's some easy rule of thumb where you can just forecast what your return is going to be after taxing your taxable account. I think it's highly, highly variable. And the more you understand about taxes, the more you can optimize that as you go along and when you start withdrawing in retirement.

I hope that's a helpful discussion on the topic. I don't think it's the answer you were looking for. I think you were looking for something much more concrete and I just don't think it exists out there. And I'm sorry for that, but that's just the way it is. Einstein said, “Make things as simple as possible, but not simpler.” I think I've made things about as simple as possible. If we make it any simpler, and I'm going to get a whole bunch of people calling in to complain that what I said doesn't apply to their situation and they'll be right. It won't apply to their situation because they're in a different tax situation.

QUOTE OF THE DAY

All right. The quote of the day today comes from Warren Buffett. He said, “Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.” I like that quote.

One thing I really like about Warren Buffett, he's a stock picker, obviously a pretty successful one. I'm not a stock picker. I just buy all the stocks, which is actually what he recommends people do. But I love his focus on businesses. And when you buy stocks, even if you buy them all like I do using index funds, you are buying profitable businesses. And the way you make money on businesses in the long term is just by owning them.

When Apple makes money, I make money. When Exxon makes money, I make money. When Nestle makes money, I make money. It's not by trying to buy and sell them and trade them. You own them. When you own them, you make money over the long run. So, quit worrying about the prices so much that you're buying them at. Quit worrying about timing the market. Concentrate on time in the market and you'll be successful as an investor.

Okay, let's take a question from Alex, who's a new attending and has some questions about how social security works.

SOCIAL SECURITY TAX

Alex:
Thank you for all you do. I'm a new attending. I started about six months ago. I have my income from residency and now I have my attending income. My attending income alone will not surpass the social security tax limit. But when you combine the two, I think it should surpass it pretty substantially from my residency income and my attending income.

I guess I was curious, is there anything I need to do other than just file that during tax time? And then if I do wait until tax time to do that, do I just receive a refund on my tax bill? Is there any forms I need to fill out? Thanks again for all you do. And hopefully that's a pretty clear question to be able to answer.

Dr. Jim Dahle:
Thank you for your question, Alex. No, it's not a clear question to answer. But it's a good question because it's a question you have. And the reason you have it is because you don't really understand how taxes work yet. You're going to understand a whole lot more in a year or two how taxes work. I think the best way I can explain this is just by talking about how taxes work.

Let's start with social security. Social security is a tax that is used to fund a government benefit program for the disabled and the elderly. The way it's currently set up is that you and your employer, and you might be your employer, too. But you and your employer pay, what does it work out to be? 6.2% apiece of your earnings. 6.2% for you, 6.2% for your employer. 12.4% total of your earnings go towards social security.

But the cool thing about this is, at least for us who are high earners, is you don't have to pay that on all of your earnings. For 2025, you only pay it on the first $176,100 in earnings.

Now, if you have two jobs, that is paid from each job. You and your first employer pay that. You and your second employer pay that. Now, when you file your taxes, you get back your half of social security that's over this wage limit, but the employer doesn't. And so, it's possible that you could end up paying way more social security tax than you really need to if you're in a not ideal dual income situation.

For example, an S Corp does not work very well with W-2 income because of this reason, because you end up with your S Corp paying this other set of employer social security taxes that you're not getting any benefit for, because that's your situation as you're set up.

Typically, when you are an employee, when you're an employee attending or you're an employee resident, your employer takes care of all this, and you don't have to deal with it at all. They take the social security tax out of your paycheck, and they give you what's left.

They're probably withholding some other stuff. They're probably withholding maybe some 401(k) contributions, some premiums for your health insurance, your income taxes, as well as your Medicare taxes, the other big payroll tax. They take care of this for you, and you don't have to worry about it. And they'll send their portion in, they'll withhold your portion out of your paycheck, and they'll give you the rest. And that's how it works for most people.

I don't think you're in that situation, based on your question. I think you're self-employed in some way. Maybe you're a partner, and you're getting paid on a K-1. Maybe you are self-employed, and you're getting paid on 1099. You're an independent contractor.

When you're an independent contractor, you are the employer, too. So it's your job to pay both halves of that social security tax, or both halves of Medicare tax. Medicare works the same way. It's a little bit lower tax rate. It applies to all your income, but it basically works the same way. You pay half, and your employer pays half.

If you're self-employed, you have to pay both halves of the social security tax. But it all gets lumped in with your other taxes. If you're just an independent contractor paid on a 1099, this is called self-employment tax. But all it is, is those same payroll taxes that the employees are having withheld on their behalf. And so, you file Schedule SE with your taxes, and that totals up the amount of payroll taxes you should have paid or would have been paid if you were employed, and they go in with your other taxes.

And so, when you are paid on a 1099, there's nobody withholding your income taxes. There's nobody withholding your payroll taxes. The expectation in our pay-as-you-go tax system is that you will pay them as you go along. The way you do that is quarterly estimated payments. And the first one's due on April 15th, second one on June 15th. Yes, I know there's only two months between April and June, but that's the way it works. The third one on September 15th, and the fourth one on January 15th. So, you get four months for that last one, you only get two months for the second one.

I don't know, man, I didn't make the system. This is the way it works. It's really actually a pain for those of us who have big quarterly estimated payments to come up with just two months after the first one. But that's the system we're stuck with.

That includes your social security tax. When you send in those quarterly estimated payments, that amount should include the amount you're going to need to pay for your payroll taxes as you go along. I think that's the answer to the question you asked is that it just goes in with your quarterly estimated taxes.

As far as calculating how much that's going to be, that's really hard the first year. It's a big guess. But yes, you're going to owe some of those. It's hard to know exactly how much you're going to owe when you've never had this income before. And maybe you've never done your own tax return. You don't know how to calculate taxes. If you know exactly what you're going to make, you can calculate this all in advance. But most of us don't know exactly what we're going to make. So it's a guess.

And it's okay to guess. Because here's the deal. If you guess a little high and you pay too much in taxes, when you settle up with the IRS come April 15th, you get whatever you overpaid back as a tax refund. No big deal. They don't keep it. You get the money back.

If you underpay, you have to settle up with the IRS on April 15th. So, you have to write a check. That's fine as long as you have the money. The only problem is if you spent the money on something else and now you don't have it, because you don't want the IRS as a creditor. They are not a good creditor to have. They can garnish your wages. They can pull money out of your bank accounts. They can do all kinds of things that other creditors can't do. You don't want to owe the IRS money long-term. Pay them when you owe them in April and you've underpaid your taxes. Find some way to pay them if not immediately, just as soon as you can.

Now you can get penalties if you underpay too much. There's a concept called the safe harbor. And the first year you really get quite a bit of slack. After that, you can be in the safe harbor as a high earner by making sure you have withheld at least 110% of what you owed in taxes last year. That's how most people make sure they're in the safe harbor. Now that still means you're getting 10% of your taxes back if your income didn't change. You're getting 10% of your taxes back as a refund. And that might be a lot of money that you loaned to the IRS for free that year.

But the truth is the penalties are really just kind of the interest you earned on the money while you had it anyway. If you paid money seven months after you should have paid money to the IRS, well, theoretically you earned interest on that money over those seven months. And that's about what the penalty is. So, it's not like some crazy egregious penalty.

Now every year, we're either way over or way under. We don't get it right. Our income is highly variable. And we end up either having to write a check or having loaned the IRS way too much money. It's actually better to write the check, I think, because I at least got to earn something on that money in the meantime. And sometimes I'm in the safe harbor and I don't even have to pay a penalty for it. Whereas if I overpaid them, well, they're not going to pay me interest on the amount I paid over what I should have paid.

And so I would rather write a check in April, but you've got to make sure that you have the money to be able to write the check or you really end up in a situation you don't want to be in.

I hope that's helpful, Alex. I hope that explains the situation. And trust me, this is going to get way easier as the years go by. It's only tricky the first year or two, especially if your income is relatively stable.

All right, let's take a question from Tricia.

TAX GAIN HARVESTING

Tricia:
Hi, Dr. Dahle. My name is Tricia. I'm a dermatologist in Texas. I've heard you speak all about tax loss harvesting, but I've never heard anything about tax gain harvesting, if that's such a thing. Thanks to you, we opened up UGMA accounts for our kids years ago, and they've grown really well. We want to keep all the same investments, but I'm thinking that it would be best for them to pay any long-term capital gains while they have such little income.

Does it make sense to sell the stocks and buy them back immediately in order to pay less in capital gains before they finish college and start making money? I'm assuming this would reset their basis for how much they will owe when it's time to cash it in for their first home purchase. Are my assumptions correct? Does this make sense? Thank you for all you do.

Dr. Jim Dahle:
Yes, Tricia. Tax gain harvesting can make sense. The concept, as you've outlined it, absolutely works. The idea is that you're realizing capital gains while you're in the 0% long-term capital gain bracket, and then you have a higher basis whenever you sell those shares later.

However, this is pretty far out there on the optimizing scale. If backdoor Roth IRAs are 2% on this scale, this is like 10%. You're really trying to get things optimized when you are tax gain harvesting your UGMA account. Let me explain why. Most people are using these UGMA accounts like we are, some sort of a 20s fund. This is money we're putting away for our kids to use for something in their 20s. Maybe it's a house down payment, or maybe it's some money to spend the summer in Europe or go on a mission, or maybe supplement their 529 for their education, those sorts of things.

The truth is most of our kids are going to be using this money while they're in the 0% long-term capital gain bracket anyway. You can go through all this effort every year to tax gain harvest all these gains and file taxes for them over the years and try to optimize it perfectly so that they don't have any significant gains on these UGMA accounts when they go to sell the assets.

In the end, you might not save anything in taxes anyway because they're taking it out at 0%. That might not be the case, but you really know, you really don't know if they're six years old right now and you're trying to tax gain harvest their uniform gift to minors accounts. These are custodial taxable accounts essentially.

I wouldn't spend a lot of time doing this. I don't do this for my kids' UGMA accounts. They all have significant UGMA accounts now. They have six-figure UGMA accounts. I don't do any tax gain harvesting. I did quit tax loss harvesting them though. The first year or two, I had one, I tax loss harvested it. I'm like, “Why am I carrying this forward?” I've been carrying losses forward in that account. I still don't think they've been used by my 20-year-old, but this year they'll probably get used in 2025. These losses I harvested in 2008.

Tax loss harvesting probably isn't worth it. Tax gain harvesting probably isn't worth it, but it could be. If you want to do it, go ahead, but just make sure you're doing everything else financial that you need to be doing first. Most people out there, even most White Coat Investors, there's something out there that's going to give them more on a net basis than tax gain harvesting their custodial accounts. But the ideas you've outlined, it certainly works. It just might not be worth much.

All right. Reminder to all of the first year medical, dental, and other professional students out there. If nobody has handed you a copy of the White Coat Investor's Guide for Students yet this year, that's because there is not a champion in your class that has volunteered to do so.

Please volunteer. You can do so at whitecoatinvestor.com/champion. You don't have to pay any money. You get a free book and everybody else in your class gets a free book. You'll even get a little bit of swag. This is not hard to do. All you have to do is walk up to the dean's office and they have to sign a paper saying, “Hey, there's 105 students in the class, so send us 105 bucks.” Then you have to give us your mailing address so we can send the books to you.

We'd love to send these out individually. It's too expensive and it's too much of a pain. We don't have the staff to send them out individually, but we'll send them out to your entire class in bulk if you're willing to pass them out. That's what the White Coat Investor Champions Program is.

This knowledge early in your career is worth millions. Multiply those millions by the 100 or 200 people in your class and that's a lot of value you provided to your classmates. Thank you for doing that. Sign up at whitecoatinvestor.com/champion.

Let's take a question from Casey.

MAXIMIZING TAXES, INCOME, AND INVESTING DURING RETIREMENT

Casey:
Hi, Jim. This is Casey from Texas. Here's a hypothetical situation using hypothetical numbers to make the math easy. Let's say I plan to retire next year at age 50 with a portfolio of $2.5 million and I'll need about $100,000 per year in today's dollars for my family's spending needs. I might also choose to work for fun after retirement in a relatively low-paying teaching job such as teaching AP chemistry at a high school or something like that.

Let's say this job would pay me $50,000 per year. Which is the more tax-savvy way to work this? A. invest the bulk of the $50,000 salary in our IRAs and 401(k) and then withdraw the entire $100,000 of living expenses from my taxable brokerage account. Or B. use the $50,000 salary to satisfy roughly half of our living expenses and then withdraw the other $50,000 from our taxable brokerage account.

In short, if I use the $50,000 salary to satisfy half of our living expenses, am I missing out on a golden opportunity to save more in our 401(k) and IRA? Although I'd have to withdraw more from my taxable brokerage. Or does the math work out roughly the same either way? Admittedly, I think I know the answer to this, but I'm curious to glean your wisdom on it as well. Thank you kindly.

Dr. Jim Dahle:
Well, this is really fun to be out in the weeds. This is fascinating. I recorded two episodes of the White Coat Investor podcast today. The last one ran a week ago and then this one today. A week ago, I've got questions from doctors who are being swindled by people selling them whole life insurance and selling them annuities they shouldn't have bought. And I'm just trying to get people into the realm of reasonable. I'm just trying to save doctors so they're not in that 25% of doctors who get to retirement age and they're not even millionaires.

Then this week, I've got these questions from super optimizers, and we're talking about tax gain harvesting their custodial accounts and who are talking about trying to figure out how to live their lives during those FIRE years in the most tax optimal way. This is way out there on the optimization scale. It's probably not as far out as tax gain harvesting on your UGMA accounts, but it's got to be an eight on that scale anyway. It's way up there.

So, what would I do? Well, most people that FIRE have a substantial taxable account because, if you save enough money to get to financial independence by age 50, it's probably not all in your retirement accounts. Some of it is in your taxable account. But the truth is money grows faster in retirement accounts than it does in taxable accounts most of the time. Someone's going to write in and talk about exceptions and yes, there are exceptions, but most of the time your money grows faster in retirement accounts than it does in a taxable account because of tax drag.

And so, the idea is the more of your money is in retirement accounts, the better as far as your taxes go. If you FIRE at 50 and you go from your doctor job to your AP chemistry job, maybe we should make an AP Bio job. I don't know how many of you are out there watching AP Bio on Netflix, but I've certainly enjoyed that show on TV. So if you want to enjoy a show that I'm enjoying, you can check that out.

But anyway, what should you do? You should be living on the taxable account while putting as much money into retirement accounts as you can. Essentially what you're doing is you're moving money from taxable into retirement accounts. So that's a good thing.

That's almost surely going to be the right answer in this sort of a hypothetical situation. If the school district is letting you put $23,500 into your 401(k), especially if you get some sort of match in there, well, that's clearly going to be the right thing to do.

Number one, it helps you get your entire salary. That match, if you leave it on the table, is like not taking your entire salary. So yeah, put the money in the 401(k) or 403(b) and live on the taxable money in the meantime. I think that's pretty clearly the right answer mathematically, and that's what I'd do.

The other benefit of having more money in retirement accounts is you get better asset protection. Now, I don't know that most AP chemistry teachers have a lot of asset protection concerns, but it never hurts to have a little bit more asset protection if it's also giving you tax benefits at the same time. I think that's what I would do in your situation, Casey.

INTERVIEW WITH ANTHONY MORENA OF MORTAR GROUP

All right, we're going to bring on one of our sponsors. This is a company called Mortar, and they do real estate syndications out of New York. We're going to talk for a few minutes about the current real estate market.

Our guest today on the White Coat Investor Podcast is Anthony Morena, the principal of the Mortar Group and a longtime White Coat Investor sponsor. Anthony, welcome to the podcast.

Anthony Morena:
Thank you for having me. I appreciate it.

Dr. Jim Dahle:
People are bailing. They're bailing out of bonds. They're bailing out of small cap stocks. They're bailing out of international stocks. They don't want anything to do with real estate. Everybody wants large cap U.S. growth stocks these days, it seems like. What are people forgetting about as they do this performance chasing when it comes to investing in other asset classes?

Anthony Morena:
That is the million dollar question. I think everyone needs just to look at things in the long term. Stocks, bonds, real estate, everything is going to go have its fluctuations, its ups and downs. Right now the stock market is doing well, it's fantastic. My indexes are doing well, everyone's happy.

Real estate is more about a steady approach to investing in the longer term, where it's not a quarter by quarter asset. It's a year by year asset where you slowly grow your wealth, your income, your savings over a three to five year horizon. And when you annualize it out, you shoot for those high teens, low 20% returns, which I think compound and really kind of help build a solid base for investors.

Dr. Jim Dahle:
Now, your focus, your expertise for the last quarter century has been in the New York City, a multifamily real estate market. What do you see that's particularly unique about that market? We've talked earlier and you mentioned, for instance, a vacancy rate of like 1.5%, which is like one sixth of what you see in other areas of the country. What other things are unique about New York real estate?

Anthony Morena:
New York is scary sometimes to investors or just people in general because of the high price points. Once you remove the price points aside, to what you were saying inventory is low. The last time inventory has been significantly high has been probably 15 years ago, prior around the Lehman crash or right before. Rental rates are high, rents are high. It costs a little bit more to do business, but it's a stable market.

Ultimately New York has 8 million people. And for Mortar, for us, we work in multifamily development in established neighborhoods that are not the edges of gentrification in some outskirt of town. We are in the areas where people want to be, where there's schools, retail, galleries, bars, where you've got a demographic from 20 to 50 is probably the most fluid and most growing, where there's jobs, there's tech hubs. Those are kind of the places you want to work.

And when you work in those kinds of areas and you bring a product to market, a rental project or a condominium development, the inventory is low. We lease up quick, we lease up at high prices and you execute and you deliver quickly.

For us, we try to do deals in about a three year term. It's a 30 month turnaround on average that we try to shoot for, because once you understand the parameters of working in New York, the ins and outs and how to navigate it, it's really about finding good deals in good locations, executing and then exiting as quickly as possible. And that's the goal and the main principle behind what we do.

Dr. Jim Dahle:
Yeah. 8 million people is not that many. We got 8 million people out here as long as you count all of Montana and Idaho and Wyoming and Utah and Nevada and Arizona and New Mexico, that's like 8 million people. I don't see why you think New York City is so special there.

Anthony Morena:
No, it's a little crowded at times, but it works for real estate.

Dr. Jim Dahle:
Yeah, for sure. Now, the two approaches you've taken to these syndications you've done have been ground up construction, where you build it from the ground up. And this is one of the unique things about your firm that you're vertically integrated, including your architecture background. And then others that are the classic value add, you go in, you buy a property, you renovate all the units, you increase the rent substantially and fill the units and then sell it for a significantly higher price. Which of those two do you think is most attractive in 2025?

Anthony Morena:
In 2025, the deals that we do are kind of syndicated portfolios, fund hybrid, where we will buy usually vacant assets that are prime for rehab or rehabilitation. You'll take smaller assets, basically to what you were saying, gut the inside of that building. We'll add on usually a small extension, maybe add on to the rear, but we'll do these in small tranches and pools of assets that we bring to the market at the same time in an exit.

But I think that's where the efficiency is. The efficiency in New York is because there's so many people, you're buying a 25 by 100 piece of land with a 10 by 10 piece of grass in the backyard. That's all we're getting in New York as far as greenery. Maybe one tree, but the goal is to buy a few of these assets, pull them together, renovate them and max them out for what zoning allows us in New York.

Understanding the rules of the game and how to really maximize your price per square foot that you're building for and you're really being able to squeeze out of an asset. And that's kind of become our specialty.

Like you were saying, my background is architectural. When I started in my career, finding the missing links in development was easier because I understood zoning. I understood the technical aspect of it and I knew construction, whereas, okay, traditionally everyone's doing X, but if I did Y and I just tweaked something here, I can get an extra 5 to 10% of square feet on a deal, which 5 to 10% of extra square footage on an asset boosts the exit by 10 to 15%.

That was the game that we started to play. It's like really leaning into that. And with these rehab renovation value-add type deals, you can really maximize it. And I think that's kind of become the formula for what we do and where we could do it well, where we'd have the construction teams, the in-house teams to kind of move in as quickly as possible.

With any deal that we start the minute we sign a contract to buy an asset, our office is running at full steam to get that place fully funded. The day investors' money is put to work on acquisition and the bank interest meter starts running, we are ready to start work. The day we close, we've got a bulldozer coming through the front of that building. Ideally, it doesn't always work as close, but that's kind of the objective, just to be efficient. And that's what we try to really do well.

Dr. Jim Dahle:
Yeah. Now, private real estate is available generally only to accredited investors who often have substantial non-retirement account money. But you've been seeing an increase in people using retirement account money to invest with you, not just self-directed IRAs. There's also self-directed 401(k)s, which have the additional bonus of not having to deal with unrelated business income tax that the IRAs do.

Anthony Morena:
Sure.

Dr. Jim Dahle:
The nice thing about that is you don't have to worry about exchanges to avoid capital gains taxes, because it's all inside a retirement account. But what do you see as the main driver behind so much interest among retirement account investors in a private real estate syndication?

Anthony Morena:
Sure. No, I think over the last few years, it's gotten more and more popular as word has kind of gotten out. Earlier on, I would say four or five years ago, there were just a handful of people that would do it, a handful of companies that would offer it to be third-party administrators. But now it's one of those issues that comes up in conversation quite often with every investor, whether they're asking about which third-party administrators we've worked with, who we feel comfortable with.

And just because it allows an investor that kind of ease where it's like, okay, if I have $10 in my IRA, I can allocate $1 or $2 towards private real estate to really blend my portfolio a little bit. They put that $1 or $2 into with a third-party administrator. They invest in one of our offerings, the project goes full cycle over the two or three years, the initial investment plus the returns goes back to the self-directed IRA, navigating the taxes, and then they have an option where they can roll it and do it again, or they can take it and just keep their portfolio more conservative. So, it gives you a chance to really grow it in a unique way.

Dr. Jim Dahle:
Very cool. Anybody who is interested in learning more about Mortar and what they do with multifamily real estate in New York City, you can go to whitecoatinvestor.com/mortar. Minimum investments currently is $50,000. And the current projects tend to be two or three property syndications, really. It's almost kind of a mini fund model is what you're doing these days.

But that's nice, because it gives you a little bit of diversification. A couple of different neighborhoods, a couple of different properties, and you're not dependent on just one for your return. But you still have that control of being able to evaluate the properties and the individual deals here, rather than just giving it to a fund manager and hoping they do a good job picking properties.

Anthony Morena:
Exactly. You have a little bit more of a blended portfolio where you're investing in New York City, but you're spreading your risk across a few different assets, which is nice and gives you a little bit more comfort. The idea is to have a blended portfolio where each one of these deals does well on similar timeframes with a similar exit, but you're spreading your risk about which I think is good and investors seem to enjoy.

Dr. Jim Dahle:
Well, very good. Thank you, Anthony, for what you do, and we appreciate your sponsorship of the podcast.

Anthony Morena:
All right, thank you.

Dr. Jim Dahle:
All right, I hope that was helpful to you. Let's take a question from Tim. I don't know if this is Tim from Salt Lake City. It sure is, Megan tells me. All right, Tim, well, it's good to have you back. You might be our most frequent questioner on this podcast. Everybody likes a good question from Tim, so let's take a listen.

DOES EVERYONE NEED TO AVOID PROBATE?

Tim:
Hi, Jim, this is Tim in Salt Lake City. You've talked about how sometimes you want to avoid probate. Why is that? How much does it cost? Does it really make sense for the average high earner to go through the trouble and complication of making an estate plan that avoids probate? Thank you.

Dr. Jim Dahle:
That's a great question, Tim. Probate is a state-specific process. There are really three purposes of estate planning. The first one is to make sure your stuff and your kids go where you want them to go. Your minor kids, of course, goes where you want to go when you die. And that's mostly done with a will. It can be done with trust as well, but it's mostly done with a will. You're naming a guardian, you're naming the person who's going to manage the money on their behalf, and you say who your stuff's going to go to.

The second purpose is to avoid probate. Probate is the process whereby the will is, I don't know what the phrase is, adjudicated or something, where they go through the will and they read it and they determine what's going to happen with your stuff.

This process can take as long as a year. I suppose it's potentially even longer. It can be expensive, but it's very state-specific how painful it is. In some states, it's really painful. In some states, it isn't. I understand California is pretty bad. I'm told in Alaska, it's not bad at all. When I asked my parents' estate planning attorney about this, they're like, “Oh, probate in Alaska is no big deal. You don't need to put together a revocable trust to try to avoid probate. Just go through probate. It's going to be way easier for you.” And I'm the executor of their will. That was the advice I got. And so I think it does vary by state. It varies by how wealthy you are and how complicated your estate is.

The third purpose of estate planning is to minimize taxes. And those might be estate taxes, federal estate taxes. Most of us aren't going to be rich enough that we have to worry about those, at least not under the current law, which is scheduled to change at the end of 2025, but I think it's probably going to be extended given the party controlling Congress and the White House.

But there's also state estate taxes. There are state inheritance taxes, and there are some income tax implications to your estate planning as well. Those are the purposes of estate planning. But probate is this process. It can be timely. It can be expensive. It could cost $20,000, and it might be dramatically less expensive to just put a revocable trust in place that's going to distribute those assets faster and with less overall costs than putting a will together and then having that will go through probate later.

I can't tell you exactly how expensive probate is going to be for you or how long it's going to take to go through it. I don't know. I didn't even look all that much into Utah's laws despite living here of how painful our probate is.

But is it worth the cost and trouble to do something to avoid probate? I think so. It's just not that hard to put a revocable trust in place. That's all you have to do to avoid probate. It's revocable, so you can take your money out anytime you like. You can take your assets out anytime you like. You pay taxes on all of it anyway, so there's no trust tax return or anything.

It's pretty simple and straightforward to use a revocable trust. And I think most White Coat Investors are probably going to want one by the time they pass away. You probably don't need to put it in place at age 32 though, just to avoid probate 50 years later. But I think it's probably worth it for most people.

But you might want to talk with your estate planning attorney about how bad it would be for your estate to go through probate and whether it's worth trying to avoid it. You may find it's really not worth it in your case. That's basically what my parents found. We'll be going through probate with their estate and hopefully that's not anytime soon. But if it is, I'm sure you'll hear about it on the podcast.

I hope that's helpful, Tim. But I think most people are going to want to do a little bit of estate planning to avoid probate. And the typical method of doing that is anything that's not in some sort of a revocable trust, for other purposes, you try to put as much of it as you can into a revocable trust because none of the stuff in the trust has to go through probate. That's all distributed according to the terms of the trust.

All right, another estate planning question we've got from Ken.

SPOUSAL LIFETIME ACCESS TRUST

Ken:
Hi, my name is Ken. I'm from New York. I'm a long time listener. I have a question about which financial institution to use for a SLAT trust, Spousal Lifetime Access Trust, whether or not you'd recommend using Fidelity, Schwab, Vanguard, or some other institution. Which one offers the best service? Have you encountered any difficulties in dealing with the institution? I am basically going to invest the money in an index, but just more in terms of the paperwork needed to run the trust. Any advice would be appreciated. I thank you for all your work.

Dr. Jim Dahle:
Okay, Ken, let's talk about this for a minute. First of all, I'm not an estate planning attorney, and I'm not in New York. Estate laws are state specific. You need to see an estate planning attorney in New York if you want to do this. All I ever do in New York is watch a few Broadway shows and go up to the Shawangunks and go climbing. I don't know anything about finances in New York. So, go see an estate planning attorney in New York and discuss this with them if you think you want to use this sort of a trust.

He's talking about a SLAT trust. This is a Spousal Lifetime Access Trust, which is a type of intentionally defective grantor trust. Trust law varies by state as well. So you need to understand your state's laws as to whether this type of a trust would accomplish the purposes you wish to accomplish with your estate plan.

Now, I happen to know a lot about SLATs because it is the mainstay of our estate plan. And the purpose for most people who use this type of a trust is to get appreciating assets out of their estate as early in their life as possible.

What's in our SLAT trust? Well, the White Coat Investor is in our SLAT, as is our taxable brokerage account. These are assets we expect to grow substantially that produce substantial income every year, and they're now out of our estate. Our estate, what will be subject to estate taxes at the time of our death, does not include the assets that are now in this trust, nor any appreciation that occurs in them or any income that comes from them between now and the time that we die.

That was very attractive to us. It's not awesome for income taxes. As it grows, we just pay the income taxes on our personal return, basically passes through for our personal return. And in fact, our heirs won't get a step up in basis on all of the assets that are in this trust. We're basically betting that the estate tax savings is going to be worth the loss of that step up in basis at death on those assets. That's kind of how a SLAT works.

But when you ask about what financial institution to use for it, I'm not sure exactly what you're talking about. And I'll tell you why, because I don't have a financial institution running my SLAT trust. The trustees of this trust are Katie and I, we're the investment trustees, and we have a distribution trustee that is another family member. That's it. We are the financial institution running this trust. We run it.

Now, where do the assets sit? Well, our taxable brokerage account sits at Vanguard. And it's under the name of the trust, but they're not running the trust by any means. The other big asset in this account, now we have a few real estate assets in the account as well. But the other big asset in the account is the White Coat Investor. Well, the White Coat Investor is run by the White Coat Investor staff. It's not run by some trust fund person, whatever at a bank or something.

I think you're mistaking the idea that you have to use a financial institution to run your trust. You do not have to do this. And now if you want a trustee, a professional trustee that works for a bank to be the trustee for your trust, then I guess you'll have to choose a financial institution.

I have no idea if Fidelity is a good choice for that. I think shopping it around is probably a good idea. And I'd be very careful if you're wealthy enough to need a SLAT, not to pay some egregious asset under management fee for the contents of that SLAT. That would be my big concern in hiring some sort of professional trustee.

But I think most people using this, the trustees are themselves, at least until the time that they die. And obviously we've got a family member that stands there in case we die to take care of that. And we would probably hire some professional help and that's okay. I think a good financial advisor can probably help dramatically with running this sort of a thing with a few consultations with an estate planning attorney as needed. I don't think you have to go to some financial institution, some big bank and hire their trust department to run this thing. You certainly don't while you're alive and competent to run it yourself. I hope that's helpful.

SPONSOR

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All right, I hope that has been helpful to you. We've talked about lots of stuff today. We've been out in the weeds and we've gotten into some basics as well. Wherever you are in your financial journey, please, please, please become financially literate. Be financially disciplined. The combination of those two things in our current society is like a superpower.

When they do surveys of physicians and ask them, “What is your net worth? Everything you own minus everything you owe.” And they ask this to doctors in their 60s, 25% of them say they have a net worth of less than a million dollars. 11 to 12% of them have a net worth of less than $500,000.

I think this is a tragedy. I think it's terrible to get through 30 years of physician level paychecks and have less than a million dollars of it left. I want to help you not have that happen to you. And that's what we do here at the White Coat Investor. We teach you how money works and try to give you some inspiration to help you be disciplined to manage it well.

And the truth is you really only have to save about 20% of your gross for retirement. If you'll do that, you can spend the other 80%. Granted, some has got to go to taxes, so less taxes. You can spend the other 80% on anything you like. And you can have a very nice life on 80% of a physician's income. You can go on some awesome trips. You can see this incredible world we live in. You can have a beautiful house. You can't have it all at once, but you can have all this stuff eventually and still be financially secure and have a comfortable retirement at the time of your choosing. That's what we want for you.

Keep your head up, keep your shoulders back. You've got this. We're here to help you. See you next time on the podcast.

DISCLAIMER

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

INTRODUCTION

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

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 213 – Resident acquires a six-month emergency fund.

With Weatherby Healthcare, you choose your own healthcare career path. Our locums experts then support you every step of the way, helping you find the right opportunities at the right times.

We understand your professional and personal goals and are experts at helping you achieve them. Let's keep your career interesting with new locations and settings and diverse patients and cases. And just as importantly, let's make sure you get more free time for your hobbies or to just relax. We'll help you find that balance. With more jobs and more locations, Weatherby gets you where you want to go. whitecoatinvestor.com/weatherby to learn more.

Let's talk for a few minutes about taxes and tax prep. It's March as you're listening to this, and lots of people are doing their taxes now or about to, or maybe recently finished them. And for many docs, particularly employees, your tax situation can be very straightforward. And I think it's pretty cool actually, especially in the beginning of your career, to learn how to file your own taxes, whether you're doing it by hand or using software. You can use something like TurboTax or a similar program to do your own taxes. And you only have to learn the parts of the tax code that are relevant to you. In my experience, that meant learning about one new form a year. For many years, I did my own taxes.

For those, however, who desire professional help, there are two sides of tax aid. There's tax preparation, which is the actual filing of the forms. And there's tax strategizing, which is the planning in advance to lower your tax bill. We've tried to revamp our tax professional page in a way that we can provide both of these services to White Coat Investors.

Tax strategists, they are not as cheap as tax preparers. In fact, they're often dramatically more expensive, but may still be very much worth the cost. Especially if you have a complicated tax situation and you'd help putting in retirement accounts and those sorts of things into your practice, it may be very well worth hiring a tax strategist. Others, they just want someone to help prepare their taxes. And maybe they have a question or two about their tax life and don't necessarily need the services of a comprehensive tax strategist.

We've got both of those people on our recommended list. You can go to whitecoatinvestor.com under the Recommended tab and check those folks out. Or you can go directly to whitecoatinvestor.com/tax-strategist. That will get you directly to that page. And you can check out whatever you need for your tax situation.

All right, we have a great interview today with a resident. I love talking to multideca millionaires and I love talking to people with negative net worths on this podcast. We run the whole gamut here in the White Coat Investor community. Hopefully all moving forward on our own individual pathway rather than moving from multideca millionaires to negative net worths.

But we've all been there. Most of us started out our careers with a dramatically negative net worth. And so, let's hear how this doc has been sorting it out in the first year or so out of medical school. And then stick around afterward. We're going to talk for a few minutes about two physician or two professional households.

INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Cameron. Cameron, welcome to the podcast.

Cameron:
Hi there, nice to meet you.

Dr. Jim Dahle:
Tell us what you do for a living, what part of the country you're in and where you're at in your career.

Cameron:
Yeah, I'm an internal medicine resident up in the Northwest. I'm in my second year. And hopefully going into cardiology, applying later this academic year.

Dr. Jim Dahle:
Awesome, that's exciting. All right, what milestone are we celebrating today with you?

Cameron:
Yeah, we're celebrating a fully funded emergency fund around six months as a resident, which notoriously is pretty hard, but I think is actually a pretty reasonable one.

Dr. Jim Dahle:
Yeah, very cool. Are you single, married, kids? What's your situation?

Cameron:
Yeah, I'm in a relationship with my girlfriend. We live together currently and no kids.

Dr. Jim Dahle:
Okay. And renting, owning? What's your housing situation look like?

Cameron:
Yeah, intern year, I'll get into this a little bit later, but intern year, I was in a one bedroom, one bath for pretty high rent, around $2,500-ish. Now we are a little bit further out paying around $1,000 each for two bed, two bath.

Dr. Jim Dahle:
Very nice. Okay, well, it's the classic drive till you qualify. The further away you're willing to be, the cheaper rent or mortgages tend to get.

Cameron:
Yes.

Dr. Jim Dahle:
Okay. Now I'm assuming that you're managing finances separately at this point, is that the case?

Cameron:
That is correct, yes.

Dr. Jim Dahle:
Okay, this is your emergency fund. You have a six month emergency fund of six months of your expenses.

Cameron:
Yes.

Dr. Jim Dahle:
How did you decide on six months?

Cameron:
I think it was more just like you go online to read what is a safe emergency fund? And for people outside of medicine, the general wisdom is around six months from what I've heard in medicine or in residency specifically, there's a little bit more job security and things like that. I've heard anywhere from two to three months is reasonable, but I just wanted to more or less challenge myself a little bit, I guess, and see if I could actually do six months and do what the average person in America is “recommended” to do.

Dr. Jim Dahle:
Very cool. Now, where is your emergency fund? Is this a stack of hundreds you have in your bedside table or what are we talking about?

Cameron:
It's in a high yield savings account that I have associated with my checking account. I have my checking account and then the savings associated with that. I can easily transfer back and forth as needed.

Dr. Jim Dahle:
What bank did you choose to use for that high yield savings account?

Cameron:
I ended up using Wealthfront. They had a pretty decent high yield savings rate a year ago. Obviously it's a little bit lower, but it's still pretty decent.

Dr. Jim Dahle:
Yeah, very cool. So, if you needed to turn that into cash, cash in your hand, how long would it take you to have the cash in your hand?

Cameron:
I'd say probably, I don't know, it's under a week easily, probably a couple of days if that, because I could transfer it to a checking and then go to the local bank and pull that out.

Dr. Jim Dahle:
Okay. Well, let's talk about your finances in general. If you had to estimate your net worth as a resident, approximately what would it be?

Cameron:
Yeah, if I am not acknowledging the loans, it would be…

Dr. Jim Dahle:
We got to acknowledge the loans.

Cameron:
With loans, it's around a negative $200,000. Without loans and just acknowledging investments, assets and savings, it's around $35,000.

Dr. Jim Dahle:
Very cool. Well done. That's pretty awesome. As we're recording, this is February of 2025. And so, you've been in residency for a year and a half or so at this point, and you've already accumulated $35,000. I assume you didn't bring any of that out of medical school.

Cameron:
I had maybe a couple, maybe $2,000, $3,000 coming out after paying for all the moving and everything, all those expenses.

Dr. Jim Dahle:
Just leftover loan money from med school.

Cameron:
Basically.

Dr. Jim Dahle:
Yeah, yeah. Okay. And what did you graduate owing? How much did you owe when you came out?

Cameron:
I want to say it was around $225,000 and then roughly is around like $235,000 now.

Dr. Jim Dahle:
Okay. Well, that's pretty good actually.

Cameron:
Yeah, yeah.

Dr. Jim Dahle:
How did you keep it down that low? I guess the average right now, if we look at the surveys from the AAMC, they'll tell us the average for an MD school is $205,000 and for a DO school, like $240,000, $250,000 and dentists, $275,000 or $300,000. But $225,000 sounds really low to me based on all the doctors I'm talking to. Did you borrow the entire cost of your education?

Cameron:
Yeah. Small context is I grew up in a low middle-class family, family of four, had bankruptcy issues near the crash and all that stuff. I already grew up thinking a little bit more careful about finances growing up. And so, in high school, I intentionally chose a state school that was roughly around $7,000 a year for just tuition. And I got merit-based scholarships to fund and I was on a full ride for the last two years.

Dr. Jim Dahle:
Like lots of people smart enough to get into medical school. Undergraduate was well subsidized by merit scholarships. Okay.

Cameron:
Yeah. And I came out with only a few, like maybe two or $3,000 in loans for that.

Dr. Jim Dahle:
Awesome. You did better than I did. I came out with $5,000.

Cameron:
And then I intentionally applied to only two schools for med school, just because I was potentially going to take a gap year, but also just applying to see if it was going to happen. And between the DO and the MD school that I applied, per year, the MD school was around $40,000 cheaper. Everything included. I think tuition was probably close to $60,000 at the DO school and around in the mid-$30,000 for the MD.

Dr. Jim Dahle:
And you got in there to the MD school.

Cameron:
Yeah. Yeah.

Dr. Jim Dahle:
Very cool. Relatively inexpensive school and add some living expenses on top of it and you come out with $225,000. So what's your student loan plan? What are you doing with your student loans and what do you expect to do with them going forward?

Cameron:
Yeah, good question. I know the whole safe plan is all up in the air and there's a lot of questions to continue to ask going forward. I think I still am very likely going to do the public student loan forgiveness plan, whatever repayment plan that they have in place. There's a financial person that's associated with our program, thankfully, and working through it with him to try and figure out when I can reinitiate those payments that count to the 120, given that I'm going to be in residency because I want to do adult congenital cardiology and that's roughly around eight, nine years.

Dr. Jim Dahle:
Oh, yeah. You're going to make 10 years of payments before you ever get out of training in the way you're headed.

Cameron:
Exactly. It's just like, well, might as well. Only one year of an attending income paying that much. It's totally reasonable. Still working on it, essentially. Everything's obviously in deferment, but at some point, hopefully the next month or two, I can switch over to a different payment plan.

Dr. Jim Dahle:
Now, you mentioned you had something like $35,000. I assume a pretty big chunk of that is this six month emergency fund.

Cameron:
Yeah.

Dr. Jim Dahle:
What else have you done with your money?

Cameron:
Yeah, I did six months, so $2,500 to $2,800 per month, coming into roughly $18,000 to $20,000. I've since surpassed that since I applied. And then the other $15,000 is kind of a mixture of my own personal Roth IRA. My program is 457(b), which automatically gets 3% per year. Around $2,000 in that. My personal Roth has around $9,000, a little over. And then I also have a 403(b) Roth that has almost $2,000, I think.

Dr. Jim Dahle:
Very cool. Right at the beginning, man. It's all so exciting.

Cameron:
It is, yes.

Dr. Jim Dahle:
Yeah, this is the money that's going to have the longest period of time to compound though in your career. The money you save when you're 55 doesn't get nearly as many compounding cycles as this money is going to get. So, it's pretty exciting.

Cameron:
I just really wanted to get the ball rolling on a lot of that because that's the number one thing you hear is time is the most important thing. And not making income at all, you can't contribute to a Roth, or maybe there is, I just didn't know a certain way or I didn't have really the income to do it. That was like one of the most important things I really wanted to initiate at some point.

Dr. Jim Dahle:
Yeah, very cool. Well, your income, you're a typical resident. Your income is what? $60,000, $65,000, something like that?

Cameron:
Well, acknowledgement is I am in a unionized residency. There are some benefits with that, obviously. The biggest one is with a housing stipend and our salary, I make roughly around $75,000.

Dr. Jim Dahle:
Oh, wow, that's pretty good.

Cameron:
Yeah, it is very helpful in that regard. But it is also in a pretty high cost of living city as well.

Dr. Jim Dahle:
But even so, with you making $75,000, in the last year and a half or so, you've made $100,000 or $125,000 or something. And you've still got $35,000 of it, which is a pretty awesome savings rate for a resident. I'm impressed.

Cameron:
Yeah, after tax and everything, I've made $55,000 as of in the last 12 months, $55,000. And I've only spent $35,000 of it.

Dr. Jim Dahle:
Very cool. Other than getting into a cardiology fellowship, what's next in your financial goals?

Cameron:
Yeah. I have a savings rate of 35%. And it's kind of, I don't want to say excessive because it's still good to still work on that. My initial plan was to start saving for an unspecified down payment for something or just extra cash. And now I'm like, “Well, I probably should at least increase my 403 contribution and re-initiate more into my Roth IRA”, just given that this money is not going to be doing a whole lot otherwise. And so very likely that. But I don't anticipate I'll be purchasing a house or a car or anything like that anytime soon.

Dr. Jim Dahle:
You say an unspecified down payment, I'm like on a boat, what are you going to buy? Usually the goal comes before the down payment.

Cameron:
Usually, yeah, I don't know. I don't really necessarily have a whole lot of wants per se. And so, I imagine it might be for five, 10 years down the road when I might be more interested in purchasing a house. But as of right now, it makes a lot more sense to rent and have the current situation that we have right now.

Dr. Jim Dahle:
Yeah, for sure. Yeah, it's exciting and cash is helpful. There's no doubt about it. And the nice thing these days is you can make 4% on your cash. So, it's not like just a few years ago when cash basically paid nothing. And you always felt like you had a big cash drag on your money when you didn't have it invested.

All right, there's somebody out there that's a year and a half behind you. They're just coming out of med school and they owe $200,000 or $300,000 or $400,000 in student loans. And they got $1,000 left over of their student loans that are going to residency with. How can they be like you in a year and a half?

Cameron:
I think for me, it really comes down a lot to lifestyle, finances, intermixing with that. In residency in med school, you have this concept of delaying gratification. And with that, there's an implication that you might not be satisfied with your current lifestyle or how you're currently living. I think that phrase can maybe predispose you to maybe a little bit more of a negative mindset, in my opinion.

And just the understanding that life and everything around you can be fun and meaningful without having to spend tons of money is very possible. It's like a fine balance of treating yourself for working hard and being in this rat race to finding meaning and comfort without those “treats” maybe.

There's also the other side, you shouldn't feel guilty for spending what you do, but just being very, very mindful and what things like truly bring you value. For me, I'm really big into the outdoors, hiking, things like that, playing piano, going to the gym, cooking food. Those things bring me so much meaning and quality time I have with my partner.

But those things bring me so much joy. And it's like, I can go onto Amazon and scroll, but I don't necessarily need anything. I'm very happy with how things are right now for me. It's just that simple mindset shift, I think has been the most helpful for me. And with that, you can do quite a lot.

Dr. Jim Dahle:
Well, Cameron, congratulations on your success. You're doing great. Yes, you're coming here with an earlier milestone than many of the people that have been on this podcast, but it's not going to be that long before you're taking off all the other ones I can tell.

You've got a good head on your shoulders. You're becoming financially literate and managing your finances intentionally. And when you combine that with a physician income, whether that's an internist income or a cardiologist income, great things happen in not that long of a time. So, congratulations to you, and thank you for coming on to inspire others to do the same as you've done.

Cameron:
Of course, thank you. I appreciate it.

Dr. Jim Dahle:
I hope you enjoyed that. I love talking to residents right in the beginning. Residency was actually my favorite job ever. I loved being a resident. I mean, yeah, it stunk what it did to the rest of my life. I basically put a whole bunch of relationships and hobbies on hold for three years, but I loved the job. I loved learning. I loved new stuff every day. I loved seeing how the other half of society lived. I loved finally being able to use what I'd spent eight years studying. It was great. I loved residency, but it was hard. It's a hard time and it's financially not that easy, especially when you have a negative net worth.

FINANCE 101: TWO DOC HOUSEHOLDS

All right, I promised you at the beginning, we're going to talk about two doc households. I got an email recently, said “My wife and I in the past three years have gone from both being in training to an attending and a trainee to now two attendings. I know Dr. Curtis, one of our columnists here at the White Coat Investor has previously written a blog post on this, which we read and we have your current blog post, probably old by the time you get around to this email, which I read as well in the past few days.

I think it would be helpful for those of us who are in dual physician couples to have a podcast episode where you get questions asked from physician couples and have maybe an early career and a later career couple discuss.

I think it's about 15% of docs now are married to another doc, let alone another high income professional. I know you always say 90% of personal finance is applicable regardless, but some of the idiosyncrasies may make for an entertaining podcast for me and I imagine others to listen to. No question that needs to be answered, just the thought of something I thought might add value.”

Well, often on this Milestones podcast, we get both members of a couple and I think that's really helpful to really talk about what their challenges are, what their successes are, what they're working on. And so, we try to include when you want to bring your spouse on or your partner on to the Milestones to Millionaire podcast. We try to bring you on and we think that's great. But I don't know that I can round up a whole bunch of you to come on and talk about two doc couple situations. So, let's talk about some of the things that come in when we're talking about this stuff.

I replied back to this doc and I said, “Well, what's different for you? What do you think we really need to cover on this topic?” And this is what he wrote back. He said, “I think the biggest things that were different for us were more the idea of going through the job selection process and looking into career options as two subspecialists. That being said, I think the blog post covered things quite well. Mostly different was our decision-making on life insurance. We chose a smaller amount each in a shorter term. Loans, I paid mine off during residency and now timing on children waiting until we're attending to consider it played into our financial lives.

I also don't know what the crossover is from the podcast and the blogs. I would guess the blog tends to run older in the audience while the podcast is more of the current med students. So, don't know how many of them would have heard about it.”

Anyway, it goes on. Yeah, I don't know that that's actually the case. Podcast listeners are not necessarily blog readers. We've definitely learned that over time but I don't know that one audience skews older or younger. The only real skew we've noticed in the White Coat Investor community is older docs tend to be on Facebook and younger docs tend to be on Reddit. That's definitely a trend we've noticed. But otherwise, I don't know the podcast skews particularly old or young. I think you guys are a pretty good swath of White Coat Investors.

Okay, dual income. What's different? Well, first of all, it's mostly good to have two incomes. You got this big huge shovel. If the average doc these days is making something like… I think it's something like $363,000. Something like that is the average. It's there in the upper $300,000s. Well, that means now you've got an income if there's two of you and you're just average, you've now got a $700,000 or $750,000 income. That's well into the top tax bracket. That's a lot of money. Yeah, you're going to pay a huge tax bill each year. Newsflash, when you make a lot of money you got to pay a lot of taxes.

But you can do a lot with $750,000 a year. Imagine you're living like a resident. Residents are making $60,000, $75,000 a year. Even if you give yourself a big raise coming out of residency and you're living on $100,000. Let's say you're paying $250,000 in taxes. That still leaves you $400,000 a year that you can use to build wealth. And you can do a lot with that. Let's say you both owe $400,000 in student loans. Gone in two years. It's pretty awesome to have that sort of a shovel.

Let's say you want to become millionaires as fast as you can. Well, shoot, how many years is that going to take? You wipe out your student loans in the first year or two and three years after that, four years after that, you're millionaires. If you really keep your spending down you could easily be financially independent within a decade of coming out of school on a two physician income.

That's a lot of power to have that big shovel. And almost any problem you encounter because of your dual income status can be managed with that bigger shovel. What often happens, you get a family, you're running a household, whatever. There's a whole bunch of things that nobody has time for because you're both working 60 hours a week. And so, you got to hire those out. You got to hire somebody to clear the driveway. You got to hire somebody to mow the lawn. You got to hire somebody to clean the house. You got to hire somebody to watch the kids. All this stuff you got to hire out.

But guess what? All of that costs a lot less than a physician gets paid. So you're still coming out way, way ahead. Take advantage of your bigger shovel. That's the huge advantage you have as a dual income couple is that dual income.

Okay, what else is unique? Well, you might have two sets of medical school loans. That's a problem. Instead of owing $200,000, now you owe $400,000 or $600,000 or $800,000. We have certainly run into couples. Andrew at studentloanadvice.com tells me all the time that he's seeing couples that owe a million dollars between the two of them. It's not that unusual. Particularly if you don't manage your medical school costs or your dental school costs or the loans afterward very well. And especially if you're like a dental subspecialist or if you're both dental subspecialists, it's not that hard to get over a million dollars between the two of you.

Now with the dual income, can you knock that out? Yes, you can. But it's a bigger challenge for sure to owe a million dollars than to owe $200,000 in student loans. So you need to be very intentional about your student loan management plans. Meeting with Andrew and paying $500 or $600 for student loan advice seems like a very good investment, especially if it results in hundreds of thousands of dollars in public service loan forgiveness that you wouldn't have gotten otherwise. So, that's another issue.

Okay, insurance is different. Lots of people wonder, “Well, do I need disability insurance at all? Should I buy less insurance? Should we both buy full insurance?” Because here's the deal. When I came out of med school and especially after my intern year, when Katie started staying home with our oldest, we had one income. Our family was very dependent on my physician income and so we insured it. We got disability insurance on me enough that we could live some sort of a comfortable life on it if something happened to my ability to earn.

But for lots of dual income couples, they're like, “Well, if one of us got disabled, we'd just live on the other one's income.” And they decided not to buy disability insurance at all. They just viewed each other as their own disability insurance policy. Obviously some things can go wrong with that. One, maybe you're spending enough that you actually need both incomes.

And so, obviously things are going to be nicer if one of you gets disabled as there's still some income coming in from that person. And of course, if you are spending more than one income, that can be an issue that you don't have enough to meet your actual spending needs. Some people put a little bit of insurance on each person so they'd have something in the event that one of them got disabled.

You can get divorced too. All of a sudden that income goes away when you get divorced. And now what? Now you're 45 and you got a medical problem and you can't get disability insurance. Well, that's a problem too. So maybe it's better to have something in place that you can take with you in the event something happens to the marriage.

The other thing that often happens is one of you stops earning. Dual income does not mean dual income forever. It might only be dual income for a year or two. And maybe one of you wants to be a stay-at-home parent or something. Well, all of a sudden your dual income family just went to a single income family, maybe just for a few years, maybe for the rest of your lives.

And so, you've got to look at your situation. What happens if one of you gets disabled? What happens if both of you get disabled? What happens if one of you gets disabled in five or 10 years. Think about all those things. And if the plan doesn't work without disability insurance, buy disability insurance until the plan works.

Same issue with life insurance. If you don't have any kids, well, if your partner's a doctor, they're probably going to be fine without any life insurance. If you do have kids and you both get wiped out in a traffic accident or something, well, you're probably going to want to leave something for the kids.

But is your need for life insurance as big as it was when Katie and I were a single income family with hardly anything in assets back in the 2000s? No, your need is not as big as ours. Could you get away without life insurance? You could, you probably could, particularly if there are no children. If you've got enough assets to bury yourself and your spouse is going to be fine without your income, you don't need life insurance. You don't have to own this stuff. Just because other families need it doesn't mean you need it.

Okay, what else have we not talked about? Okay, there's career planning. This is a big issue for dual income people. They want to live in one town and one of them can get a good job there, but the other one can't. Well, now what? Well, do you go to a different town? Does one of you stop working? Does one of you commute? Does one of you start doing locums? There's all these options out there.

But I think what generally happens is you end up having to go someplace else, someplace where both of your careers work. But that usually means some sort of a sacrifice. Somebody is making less than they otherwise could. Somebody has a job they don't like as much as a job they could get somewhere else. That's just part of being married. That's just part of making a relationship work is you have to make some sacrifices and you have to make some compromises. And that includes with your careers when you're a dual dock couple.

And so, I don't think that's a newsflash to anybody out there, but it's not an easy situation to deal with. And certainly if somebody wants to come on the podcast and talk about their successes as a dual income couple, we'd welcome you. We'll celebrate any milestone with you. And so, we'll share some of the strategies maybe that you've learned doing that. Katie and I are now a dual income couple, I suppose, but we're not the classic dual income couple that most people think about when they think about dual dock couples.

One thing that will be cool to know if you're in a dual physician couple is that your divorce rate is actually way lower than you might think it is. The typical divorce rate in the United States is 45 or 50%. If one of you is a doctor, that drops to about 25%. If you're both doctors, it drops to about 10%. You're actually much less likely to get divorced in a dual physician income household. I suspect that applies to other dual high income earners.

And this is actually a lot more common, I understand from the statistics, for women physicians to be married to another high earner than it is for men physicians to be married to another high earner. There's some benefits there.

Okay, some other things that are unique about you if you are in a dual physician couple. Well, you don’t need two doctor houses. One doctor house is enough, so you save a lot on your incomes. You're probably driving two doctor cars, sure, and you're going on a doctor vacation, but you're not going to go on twice as many of them as you otherwise would, so your expenses actually may not be as bad as you might think. A one doctor couple and a two doctor couple may live pretty similar lives, and you can save a lot of money. And so, a lot of that second income can go toward wealth building activities.

Okay, taxes. You've heard of the married tax penalty. That's not really a married tax penalty. You actually get a benefit for being married. You get to use the higher married tax brackets. It's a benefit. There is a penalty for dual incomes. That's where the penalty is.

If you're both working, then all of a sudden, you may find that you're paying higher taxes, and there's not a lot that you can do about that. The tax code is what it is. There are some benefits to being married, there are some benefits to being single, and I wouldn't necessarily let the tax tail wag your life.

Some people are like, “Oh, we're not getting married because it would cost us more in taxes.” Really? Come on. You're a dual income couple. You're going to have an awesome financial life either way. Don't let the financial issues behind marriage really make your decisions about how you're going to live your life. That's like deciding not to have kids because kids are really expensive, and we're going to have to save for college for them. Well, you don't get kids for financial reasons. You want them for other reasons. Same thing when you get married to somebody.

Another great thing that's really cool about being a dual income couple is you get more retirement accounts. Instead of just having your backdoor Roths and maybe your 401(k) at worst, well, now your spouse is over at the university, and they got a 403(b) and a 457(b) and a 401(a). Yes, it's going to be more complicated retirement account management, but you got all these great benefits and maybe some matches and a lot more options when it comes to saving for retirement and withdrawing from those accounts in retirement. That's a good thing, especially if one of your accounts isn't that good. Well, maybe you can prioritize the other person's accounts.

Student loan management gets a lot more complicated. It is almost always worth paying for some specific student loan advice from somebody like studentloanadvice.com. When you have two physicians, maybe one of them is going for PSLF and the other one isn't, and you're trying to figure out, “Well, how should we file taxes? What kind of retirement accounts should we use? Which IDRs should we be in?” This is a no-brainer. Go spend $600. Both of you sit down. You don't both pay. Yeah, it's not $600 each. It's only $600 total to go in and talk with Student Loan Advice about your student loan situation. A great benefit there.

Another thing you can do when you both have separate jobs is you can really work the benefits. You don't need two health insurance policies for your family. One of them is fine. So, figure out which one's best. Go on that one, and you don't have to pay the premiums on the other one. In fact, you might be able to negotiate depending on the employer or partnership or whatever. You might be able to negotiate a higher salary for the person that's not using the insurance.

And so, work those benefits. If there's one that offers really great disability coverage, well, take advantage of that. If there's one that offers better retirement accounts, take advantage of that. Health insurance, whatever. Child care, who knows what the benefits are from your employers. But you got two sets to pick from when there's two of you.

Okay, I think that's about all I can think of that's applicable to dual income couples. But if there's a bunch of stuff I missed, well, shoot, volunteer. Come on the podcast. Tell us about how you've been successful as a dual income couple, and we'll get into more of it.

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If you want to be on the podcast, you can apply at whitecoatinvestor.com/milestones. And until then, we'll see you next week on the Milestone to Millionaire podcast. Keep your head up and shoulders back. You've got this.

DISCLAIMER

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