Speaker 2 (00:00.142)
even teed them up and said, when we do your plan, the cost of college is going to pop your eye. And then at the beginning of the call, Mike, look, college is really expensive, you're going to be shocked. Nothing I can do will prepare them even I hopefully they listen to the podcast, because we talked about this all the time here, but they are shocked, even though I told them they'll be shocked.
Welcome to the Physician Family Financial Advisors podcast, where physician moms and dads like you can turn today's worries about taxes and investing into all the money you need for retirement in college. Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
at least, also a certified financial planner and service team leader here at Physician Family.
So, Ben, I heard you moved into Newhouse. I know you moved into Newhouse. I've been there already. And I heard you, you know, you've had some moving into Newhouse stuff going on. I heard something happened with your roof. And I replaced my roof, I think last year. And what's funny to roofs about me is that everybody who's had to mess around with their roof, they all commiserate together. So I'm here to commiserate with you. What happened with your roof?
roof was, well, I bought this new house. The inspector said it had five years left on it. All the roofing guys looked at it and it said like three to five years. And so, you know, it got granule loss. I have no idea why they put granules on roof. If anybody knows a roofer, like somebody who engineers tiles for roofs, me know, I I want to know like, why don't you basically make the roof tiles out of tar and dirt? Yeah. Right.
Speaker 1 (01:39.702)
I asked the same questions when I got mine replaced.
Yeah. Why, like why do that? Why not just make them out of like glass? Right. So, so anyway, uh, looks like I'm gonna have to have a new roof cause I'm gonna live here a long time. Uh, uh, yeah. So I've been shopping for roofs, you know? And so I got one bid that had like good, better, best in it and four different optional add-ons. I got another bid that had good, better, best. And some of those add-ons were included in a good, better, best. Some of them weren't, some of them weren't even add-ons.
And of course, to make things more interesting, I don't know anything about the manufacturers of these, roofs. know something about the installers. They both have a great reputation, but you know, one roof is like by GAF. I've never heard of GAF. It sounds like GAF. That doesn't sound good to me. Another one is, is certain teed. I thought, certain teed, that's like certain guaranteed, but it's not really either one of those. And you know, I've heard of, and it's Corning and I'm like, there's all these names, right?
And I got to think about it. thought, you know, this roofing decision is, must be a lot like, somebody like maybe a physician who's making it an investment decision where they hear Vanguard and they see the little ship. You're like, what's, what's up with the ship? Right. Or worse T-Row price. And they got the, the male ram with the big curly horns. It's just like the mascots kind of cracked me up. mean, who's, who's heard of these things before? What's fidelity? They got this creepy.
like triangle I thing going on, right? then, okay, so like you hear that and then you look at the funds. There's like the Contra fund. Well, what, does that mean? What, what is the S and P 500? Why is it not the 600 or the thousand? And you know, it's like, it's just, it just goes from there. And so, you know, of course we know what all that stuff is, but you know, I'll be damned if I know the difference from a class four shingle from a class three single on
Speaker 2 (03:33.102)
composite and you know, a curve skylight versus a level and like what, what is a, a Cobra mount vent. So what ultimately did is I took these things and I put them in chat GPT and I said, teach me about roofing. And it was very helpful, but at the end of the day, didn't give me questions to ask the people who saw me this stuff. But at the end of the day, I couldn't tell if I needed it. Right. Cause I'm not a roofer. don't, I don't know. It's a new house to me. And, uh, you know, I'm not, I'm not handy in the first place. So I'm still lost and I'm just thinking I'm going go get another third bit.
None of these people have sat down to educate me about what this stuff means, right? They just sent me a bid with three choices in it. I mean, I'll kind of pick one and just go, I hope that we don't do that to people. Those guys need to start a roofing podcast so people know what they don't know about roofing.
No kidding
Speaker 1 (04:20.778)
Yeah, and know what they don't know about roofing, not talking about the roofing industry. Because the roofing podcast, which by the way, they are there, because it's funny, Owens Corning, Certain Teed, I did all the same research. like, I'm pretty sure the same warehouse or manufacturing plant makes all these. I'll be like driving down the road and I'll be like, they got them on that premium shingle. Those guys got got. And then I'll talk to someone else and they're like, no, the premium shingle is good. I don't know.
I think you're right about that.
Speaker 1 (04:50.968)
So I.
I think I to my dad. Ultimately, I did the phone a friend thing, right? So I called my dad and I was like, he lives in a part of the country where they get a lot of hail damage. so I think he's had, oh gosh, I think they'd lived in that home for 30 or so years. And I can't count the number of roofs he's had, many of which the insurance companies had to pay for. But I said, dad, all the roofs you had, have you ever had like a bad roof? And he said, no, never had a bad roof. said, have you ever had a crappy installation? And he said, no.
I've never had any troubles with the roof. And I just thought, wow, a roof is not like plumbing or electricity. just you lay some stuff out on top and you make sure that things don't leak. And in the end, I just was like, yeah, I'm probably going go with the lower cost one here, but I'm still having it in my mind.
Yeah, I know. It is terrible. think I got, and I'm almost ashamed about this, I think I got 10 quotes. And sometimes it feels like when people are shopping around, you know, for an advisor or trying to pick an investment or something and you're like, I sort of get it. It's just, you have 15 minutes with this person who's trying to tell you the best thing ever. And you're just out there trying to make a decision. And then the only other thing that I got from that for as far as finances goes is I had a
$13,000 bid, a $20,000 bid, then a bunch in between all the way up to like a $30,000 bid. Same roof, same stuff. And I'm like, okay, roofs are worth getting three or four quotes for.
Speaker 2 (06:20.782)
Okay, so I'll have to go and get it on because I only have two and they're both from people we trust, people they trust, and it's like, So anyway, if you're out there looking for a financial advisor, you're trying to pick on financial fund, you know, I'm sorry that my industry has done this to you. that's That's right. with the show. Sure.
Okay, and if you ever think about buying rental property, remember this moment.
Dude, I've had like six or seven tradespeople on the property here doing various things. have so thought about that.
All right, we'll get to our questions. First is from an ENT in Ohio. We are concerned about our college fund plan and overfunding our 529 account. Multiple calculators, which include room, board, books, et cetera, suggest that we are headed toward overfunding. When you wrote our plan, did you intend on overfunding the account for when we have our second child or am I missing something? So I write college plan.
If I I if I ever start like a tech metal punk rock band, I'm gonna call it the multiple calculators. Yeah Yeah
Speaker 1 (07:29.182)
Yeah, well, this was to me and I wrote this plan. you know, the real answer here is the, I guess the inputs if you're into the calculator talk. So, you know, when you're coming up these calculations, a lot of the times it's not really the calculator that is a problem. It's the well-informed inputs that you put into these calculators. So even my, you know, we got this question.
And I answered the question on the call, then when I decided to use it for the podcast, I thought, I'm going to go use a calculator. I'm going to go actually to a calculator and I'm going to choose the most charitable calculator I can find, which is at a website that I do a lot of college research on. So I went to my favorite college, saving for college, I went to the website and I said, and I looked and I said, put in their situation. right off the bat, before I even entered any numbers, I thought,
So this is assuming a seven or eight percent of return for investments and a three percent inflation rate. So there's an issue with both of those. you know, and this is not, I don't know exactly what your rate of return will be, but I can say as you approach college, it's going to be difficult to get a great rate of return because you'll be, lot of your stocks,
will turn into bonds. know, you're choosing a drive, be more conservative.
Be more conservative and bonds right now are yielding somewhere in the like the short-term bonds are yielding around four. Right? So four is not seven or eight. Four is, you know, it's usually half of seven.
Speaker 1 (09:11.982)
Yeah. And, you know, because it's your, if you follow years to college investment target date fund, essentially, you'll, you're like 50, 50, 50 % stocks, 50 % bonds by freshman year of high school. So, you know, you look at this and you have to kind of do some sort of averaging of your return over time. And to just write it off, like you're going to get seven or 8%, you just, there's a good chance you'll show up unprepared.
The other piece of this is a 3 % inflation rate for the cost of college. That is just, at least in the last several decades, that is just patently false, have not had a 3 % inflation rate in the cost of college. It's more like 7.
Wait a minute, wait a minute. So, uh, I'm almost getting like that the, that the inputs are flip-flopped here, right? They have put in that the cost of college rises at 7 % and the rate of returns more. I'd be three or four. Yeah.
That's right.
No, no laughing at the user. I'm just thinking like, I wonder if they've, if they've swapped the numbers, know, or you're saying this is saving for college.com, right? So they're, they're assuming, I don't know why they assume 3 % inflation rate though, because that's not real.
Speaker 1 (10:24.716)
The 7 % rate of return, I give them a pass because you don't know what investments people are going to choose. Okay. The 3 % is shocking to me. They know the cost of college. mean, it's a big website that, I mean, that's all they do is talk about college. So I think the issue here really comes down to when you look at the rising cost of college, it's complex because you're looking at probably
70 years of data?
Yeah, and and I go back and forth on this, right? Because historically it's been 6.8 % over all at a time. But, you know, in COVID years and past, it's been a little bit different. seems like they're bending the cost curve, but you never know. you know, so it's hard to know what it's going to be, but I'll bet you it's going to be a lot more than inflation. That's what I'd put money on.
So, me too, and that's why I wholeheartedly recommend a large contributions. And so there's two things that come out of this. One, if they are bending the cost curve, and you have a plan that you're following up with, you can adjust and you could save less. But you should probably have several years of data before you do that. And the worst thing that can happen is you get a bunch of tax-free growth. you stop and
thing that can happen. You know what the worst thing that happen is? That the federal government could defund a portion of colleges, right? Because they put grants and loans on hiatus for a little bit. I guess while they review them, I don't know what this regime's doing. at any rate, mean, let's say that, you know, they've got a college 100 % of its funds, right? You have a pie that's 100 % of the funds. Now, let's imagine that
Speaker 2 (12:13.538)
The federal government makes a move that just slices just enough that the college is coming up empty handed to the tune of maybe two or three percentage points, right? Like they're, need, they need a hundred and they get 97. Well, that would be enough for them to raise the cost of college that has to come from the participants, you know, from the students. I would expect them to raise that by 3%. Right? So if that was the case, then.
you could easily see college rise at a rate that's more expensive than inflation. I there are certainly worse things that can happen, and they're totally conceivable. It's a new world.
Yeah, definitely.
Save save save save save. Yes.
Yes, exactly. there's one more piece here which is heavy saving upfront gives you a better chance at tax free growth. And a lot of new families that I work with, see this number and it sounds crazy, but the important thing to know is that if you start high, it'll start to get more more comfortable because there's a good chance that if you started $1,000 or $2,000 a month, 10 years from now could be $1,000 or $2,000 a month. So it's different than
Speaker 1 (13:20.51)
maybe a 401k where you're trying to max it out and it goes up all the time.
You know what I find shocking about the college thing? What I find shocking is how shocked the parents are about it. I'm shocked about their shock-edness. Is that a word? Shock-edness? So, know, I sit in on planning calls sometimes with Chelsea, sometimes with you, I review plans occasionally. But when I hear those, I've been at the calls where the parents like basically get the bill from us for college. Like they're told to save, I don't know, you're the college guy. A thousand. Yeah. Two grand.
They're like, nah, this can't be right. And we go through the numbers and they're like, yeah, that's right. That's right. And I've even teed them up and said, look, when we do your plan, the cost of college is going to pop your eye. then at the beginning of the call, I'm like, college is really expensive. You're going to be shocked. Nothing I can do will prepare them. hopefully they listen to the podcast. Cause we talk about this all the time here, but they are shocked. Even though I told them they'll be shocked. Maybe it's, maybe his problem is fulfilled. Maybe I'm just a.
You know, I'm a straight up guy and I promise they'll be shocked when they are no matter what, but I'm, yeah, I'm surprised by how shocked they are. Yeah.
I have the same experience. You know, it's what's, I try to reframe this and find something positive about that shock goodness. And that is, they, there's an immense, feeling of, wow, my parents really didn't did something great for me when their parents paid for their college. And so they, I've gotten the question like, wait, so, but my dad had four kids and he paid for my, all of our colleges.
Speaker 1 (14:54.222)
I'm like, yes. Good man, it sounds like you saved a lot of money.
Well, it was doable back then though, because the real cost of college, know, inflation adjusted cost of college was much, much less back then.
Well, a lot of it's, it seems like that, you get-
It has to be I paid like a big chunk of my college. I paid for playing. was like 3 eighths of my college. Yeah, okay. for the other five eights
Yeah, but you're talking about you. I'm talking about people who are 32. You know, and was college wasn't that long ago. They're like, what? It's $60,000 a year for private school? I'm like, yeah, your parents paid that bill.
Speaker 2 (15:28.536)
Yeah.
Speaker 2 (15:39.854)
I was at lunch today, talk with my wife. She's helping one of our friends, kids pick out a college. And well, this college was $84,000 a year. And I thought, you know, if I'm going to pay the equivalent of $330,000 or something, I better be able to live in it or fly it around or something. Sure. Like a psych degree. So I'm thinking, Whoa, hold on. Stop the truck. Yeah. Unfortunately there were scholarship stuff there. Yeah.
Okay, yeah, get your savings in, use the right inputs. All right, family medicine doctor in Vermont. I'm currently on my employee's high deductible health plan, insurance at work, paired with an HSA. But we'll retire next year and be on Medicare. When should I stop my HSA contributions?
Yeah. Yeah. Well, okay. So I've, I've been through this before with a client who retired. Went on Medicare and whether you retire or not, it's the getting on Medicare part that matters. So, you know, the year before you got on Medicare, you can contribute the full year's contribution. But let's say that, that you get on Medicare and starting in on July 1st of this year. Well, that's halfway through the middle of the year. You can contribute half of the HSA limit this year because you've
You've been eligible for it for half the year, second half of year you can't. So if you're in the habit of front loading your HSA contributions or maybe letting them go on autopilot, the year that you are going on Medicare, that's the year that you need to stop front loading them and take things off of autopilot. It's just that simple. Yeah.
Yep, get your final tax savings in there.
Speaker 2 (17:19.34)
And it gets more fun when you have a spouse and kids, right? Cause there's different limits and we run those rapids too. I think it's just, it's too deep to go on this podcast, but we've seen that.
books about that stuff and they're they're thick.
Speaker 1 (17:37.262)
Chelsea, think has, so.
Thanks. Yes. She listens. Chelsea listens to the podcast. Yeah. Yeah.
Okay, next question is from a cosmetic surgeon in New Jersey. started working with real estate agent this weekend to start looking at homes. Our agent connected me with someone regarding the physician home loan program. Notice she said the physician home loan program.
on the Physician Home Loan Program.
Yeah. Wanted to ask you if you knew anything about the program and if you recommend something else or no lenders that have the best offers. So I used to work at the Big Evil Bank. used to talk about the Big Evil Bank a lot early in the podcast. And you know, not all banks are evil, but most banks have a physician home loan program. And they say that they're so unique for having this physician home loan program. And in reality,
Speaker 1 (18:34.2)
They're usually all the same. So, then they're not all bad, by the way. Basically what you get with a physician home loan is they offer no or very little, maybe 5%, but sometimes no money down, sometimes 5 % down, and what they'll do for you is drop that pesky private mortgage insurance, or PMI. And, you know, so in...
Basically they're saying you're a terrific borrower, we know physicians never default on their loans, so we're going to drop this PMI and give you a low down payment. The problem is that that usually comes with a higher interest rate. so really physician home loans are for sometimes first time home buyers if you really need to buy a house and you don't have a big down payment. And it's fine to go get this quote and see if they have some special sauce that I've never heard of.
But the best way to do this is to use the lender that your real estate agent referred you to so you don't burn any bridges there, but then go get some quotes. You just need to go get some quotes. And usually if you have a down payment, you can beat the physician home loan rate. And even better than that, if you don't want to go all over town, maybe you just want to shop at a couple of different places, just ask that bank to quote you side by side with a 15, 20 % down mortgage.
and the physician home loan just to make sure they're at the same rate. Because honestly, the banker, doesn't matter to them. They're trying to do what you need. And when their real estate agent who doesn't know much about the loan stuff says, it's a physician and they want the physician home loan, they're just going to give you that. So shop around, get multiple quotes. And it's kind of one of the only things in life that I preach no loyalty, which is getting mortgages.
The lawyer banker. That's what I like to say. Star of your banker. Yeah. Well, you know, there is a sunny side to the PMI. So I'm to talk PMI for just a second. PMI stands for principal mortgage insurance. It's insurance that you pay for in case you screw up and it makes the mortgage issuer. So basically if you've got a very tiny amount of money in this house and you decide to walk off the loan to the bank is stuck with that house.
Speaker 1 (20:37.528)
Let's do that.
Speaker 2 (20:58.848)
And this mortgage insurance, basically kind of protects them against that. the reason docs don't have PMI in these loan programs is physicians are known to have the lowest default rate on mortgages of, of any profession. Right. So in a way they're kind of doing you a favor for being a standup person. I didn't say standup guy, standup person, right? so, but if you did have to pay PMI, it's not the end of the world because you can't.
deduct PMI, the cost of the PMI, but you can deduct the interest, right? So I guess what I'm trying to say here is if you get a doctor loan, have to pay a little bit higher interest versus paying for PMI. That's preferable because you can deduct the mortgage interest. Sure. Whereas you can't deduct the PMI payments. And also good to know here that if you're buying a big house, then
The interest that's deductible is only on $750,000 worth of the mortgage, right? So if you had a 5 % loan, then your interest would be, let's see here, about $37,000, $38,000 a year. You could deduct that. But if you had a million and a half dollar loan, that's still all you could deduct, right? Because you'll only deduct the interest attributable to the first $750,000 worth of the loan. So keep that in mind as you go forward as well.
You know, Nate, I'm glad that you're on the team because you know, homes, home loan specialization. That's one of the things that you do. Um, you do a sweet job of that and you can get a whole bunch of people in that, department. So it's good to have that kind of just at our fingertips. No.
You know, what's so strange is I actually didn't do any home loans. did like equity loans at the bank. have a weird interest in home loans because it's such a huge expense and I just hammered and hammered mine. I would, even before I was in this industry, I was calling up the bank and I get a better rate. Can I get a better rate constantly? And so I've actually experienced PMI. and I was lucky enough, but you know, kind when I was young and dumb with no money down.
Speaker 1 (23:06.582)
Lucky enough that the market skyrocketed, so it's not always advisable, but I did it when I was young. you know, what I did was when the mortgage got low enough and the value of my home got high enough, I dropped the PMI. So you can call your mortgage company and drop it. If you have a specific type of loan, you can refinance, you can shift money over to an equity loan and drop, you know, there's a bunch of different ways to do this.
It's not the end of the world. People tend to see a couple hundred bucks on a PMI and think it's lost money or wasted money. It's not. It's just like, just think of it as part of your interest rate a little bit. You you talked about deducting it and all that, but it's not the end of the world. Try to just do your best with the overall payment and mixing some tax. That's right.
Yeah, at end of the day, you got to have a place to live. That's right. A safe place for your, for your kids and your spouse. Relax, be comfortable, be safe. Yeah. warm, happy family. Speaking of which warm and happy. I want to give a shout out to Omar and Craig. You know, you know, you're driving to work right now. I know you listen to the podcast because I talked to you. You said you listen to the podcast. I am mentioning you Omar and you Craig. Hello. Hello. Hello. Thanks for listening.
That's right.
Speaker 1 (24:08.855)
Omar you
Speaker 2 (24:20.834)
Hello to all the other unidentified souls who listen to us. That's right. Occasionally call me and say, you know what? sound just like on the phone as you do on the podcast. That is true because, I don't know how to fake it. Yeah.
Then I think we started this podcast like maybe two, three years ago.
So you got about three years.
And you know in the beginning like nobody listens to any podcast. And now people call me and they're like, hey, I love the podcast. And I'm like, my gosh, I feel pressure. They're like, I'm like, I better do a good job. then, you know, getting into the swing of things. it's so, it's so, it warms my heart. Put some pressure on you, but it warms my heart so much when people listen to this. It's fun to put together, but it takes work and get value out of it. So.
Yeah. and by the way, you know, I've told, have a voice for radio and sometimes, sometimes I say yes. And I have a face made for radio just as a joke, right? but if you want to see our faces, we are on camera right now. You can, you can catch us on YouTube. We're making a YouTube right now. And we just strip out the images so that you don't have to like look at your phone while you're driving to work. That's right.
Speaker 1 (25:29.496)
Do us favor and watch the video because my water heater went out yesterday and I boiled water to wash my hair for this podcast today. yeah.
Ring light and I got a cool new backdrop. This is a step and repeat on it. So yeah, check us out on YouTube because we're fun there too. So, endo show call to action. you, you know us, we're the physician family guys, right? You can check us out at physicianfamily.com. All of our prices are spelled out there. Everything you get is spelled out there. All the disclosures of fun stuff, including the physician family blue color in the background. So go there or you can take our retirement well check at physicianfamily.com forward slash.
quiz and until next time kids, not just making a living, you're making a life.
Thank you for listening to the Physician Family Financial Advisors podcast. Are you getting all the tax breaks you really deserve? To find out, get your copy of the Overtax Doctors Retirement Investing Checklist, available at physicianfamily.com forward slash go.
This show is for educational purposes only and is not personalized advice. Consult your tax advisor before taking action. All investments involve risk of loss, past performances, no guarantee of future results. Read show notes for full disclosure.
