Speaker 1 (00:00.152)
big aha moment for me is that even over this last decade, I have put people ahead of money, but I put time ahead of people. And I realized that my connections with people may have suffered, or at the very least, not been as rich as they would have been if I had invested time in those relationships.
Thank you.
Speaker 2 (00:25.506)
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.
And I'm Ben Utley certified financial planner and the service team leader here at Physician Family Financial Advisors. Nate, you know, we were kind of off the air for a couple of weeks. I'm hoping nobody noticed because, know, we need to take a break around here, but it seems like when I'm talking with new clients and a lot of people more often, they're like, I listen to you on the way to work. And it just feels really good to hear that people are making their drive time more special with us on the air. So.
Yes, I hope they didn't miss as much because maybe they weren't driving to work during that time frame. But, know, we did take a break. In fact, we around the time before the holidays, usually every year for the two weeks preceding the holidays, we don't take client meetings and we don't take calls from prospective clients because during that time, sometimes we find that there's end of year stuff and some of that is emergent. And as you know, it's hard to get anything done during the holidays, particularly financial stuff. so we just.
Kind of go a little on hiatus. We keep working, we work on products and we kind of stand ready. This year was unusual in that we only had two things that were emergent. So it went really well. We got a lot of projects done and the team is just ready for 2025. So far it's looking like a huge year for us. So what did you learn while you were on break?
Yeah, we always learn something, right? mean, and by the way, you know, we talked about rest as if it's this thing that you get to give yourself. Like if you're in the right frame of mind, you give yourself some rest. But rest is so essential because I always come back with just some big thing. The funny thing was, was my what I learned was probably less than normal this year, which I actually took as a good thing. I like
Speaker 2 (02:34.324)
I don't need major New Year's resolutions this year. I must be doing something right. But it was interesting because my kids are getting a bit older, my oldest is six. And what I learned now that they're both communicative, four and six, I think that they really crave extended quality time with me and my wife.
Mm-hmm.
Like they don't get it very often. It's just like any anybody listening. It feels like it's all life is always rushed. Yeah, they get the weekends and things like that. And they get an hour of dedicated time with dad after work for bedtime. But like a week of dad's off at five and he could pick you up from school every day. then several days of holiday vacation. was just like
Man, these guys, they need a lot of you. If you'll give it to them, they will take as much as they can get. Read a lot of kids books.
question. Yeah. You're a boy dad. I'm a girl dad. And I have heard that with boys, in fact, I heard this analogy, it said that boys are a little bit like clams. You have to just sit around and wait for the clam to open up so you can slip in a morsel of information. And so I've heard that with boys, have to have quality, excuse me, you have to have quantity time in order to have quality time, because you kind of got to wait around for them to unclam.
Speaker 1 (04:11.052)
With my daughters, I feel fortunate because I can schedule quality time. Like I can go from working one minute or being out of the house and in five, 10 minutes later, it's like, boom, quality time into a deep conversation, work on a project. You know, we're cooking together, cleaning something out. And it's just like, boom, right there. So have you, have you experienced that? Have you, have you had the clam experience?
Definitely. You know, with one of my, with my four year old, he is very quiet. And my six year old, and this has been from the day they could make noises. My six year old is just lovey dovey, loud and excited and happy all the time. And my four year old is sort of a little bit of the opposite, but still, still very like polite at school. He's just so shy.
And so with my Shy one, it's like, don't get to just, he doesn't want to sit on your lap unless you've been in the room with him for like an hour. So that one was obvious to me. What I learned with my outgoing child is that we have a lot of stuff to do in his mind before it's time to open up about what happened at school. So we got to play enough Monopoly, like card games.
We have to play with Legos. We have to read a Dog Man book, which when I was a kid, it was Captain Underpants and now it's Dog Man. And then we get to talk about something important. And so I definitely have seen that. And you told me that before, so I tried to pay attention. And once I started paying attention, it became obvious that that was the case.
So hit me right between the eyes of what you learned on break. What was your takeaway?
Speaker 2 (05:57.294)
Well, it sort of just confirming that the boys need more time than an hour a day. Because, you listen, like, look, I'm a big podcast listener, too. You listen to podcasts and they're like, look, your kids should be able to play on their own. You're trying to make parents feel better about themselves. Your kids should be able to play on your own. My parents, you know, barely played with me at all. then
You
Speaker 2 (06:23.246)
They're like, look, if you give them 15 minutes, that's all they need. I'm like, okay, can, you know, I I'm exaggerating.
Try that with your marriage and see how it works. Oh my god.
So throughout the year as things get busy for all of us you start to tell yourself these lies, okay, you know, it's fine It's fine. They'll be okay and they will be okay. But if you want to have a great relationship with them It's like you got to put in put in the time but in the hour put in the love So that's what I did What about you what did you learn?
Well, you know, it's cold and rainy here in Oregon around the holidays. And so we got out of town and we went down to Cabo San Lucas and spent some time on the beach, which was the intention. It was to get warm and relax. And we took one of our daughters with us. And, you know, while I was down there, I sitting on the beach and I was thinking like, I bet they have some good food here. And my daughter is a foodie. She loves to cook. And so I told my wife, maybe we can set up some kind of food tour.
And sure enough, they have like six different food tours. And one of those food tours was called Eat Like a Local. And it was put on by a woman who runs Avocado Tours. And when she said Eat Like a Local, I don't know if our listeners have been to Cabo or not, but there's kind of two parts to Cabo. There's the beach side slash strip. It's where the port is for the cruise ships come in and it's really built up. It's pretty much Americanized and
Speaker 1 (07:54.016)
It's a little bit Mexico, but it's not a lot of Mexico. And then literally on the other side of the street is downtown Cabo. And that is what I consider local, local, local, which is to say all the signs are in Spanish. People actually live there. They're going about their daily lives. there are homes there interspersed with businesses and, you know, just, kind of a neat place, no, nothing touristy in that area. And that's where the food tour was.
So on the tour, we went to five different restaurants and we had one, one part of the meal and each one of those restaurants. So when we had berrilla and we had, I ordered track tacos and they were out. Unfortunately, we had, mole, some of the best mole in Cabo. And in the process of eating that food, I became familiar with the culture. That's one of the things that tour guide talked to us about is the stark contrast between our Americanized culture and the Mexican culture.
What I learned is the people in Mexico are very warm, just warm. Everyone who came to our table, anyone who waited on us, greeted the three of us as family. said, hello, family, blah, blah, blah. They treated us as a unit and they regard family in a way that I seldom see here in the States. So that was, that was one thing that I observed. Another thing is that food is central to their, to their customs and their relations.
I learned that, for example, if you ask someone for their tamale recipe or their mole recipe, you can have it, but you have to marry into the family to get it. Whoa is right. Yeah. Yeah. No online recipes for, the mole. Yeah. You have to marry into the family and then be taught to do it because it's like passing on something in their culture. So, that was fascinating. And I was talking to my daughter. we had a conversation. She's a sociology buff.
Whoa.
Speaker 1 (09:50.094)
And we're talking about why men don't listen to women or why they listen less than they talk. Right. So women out there, we're talking all over the podcast, but I promise if we talk, I'll listen more. So I looked at it and it said that in individualistic cultures, like in the United States, that men tend to over talk women. But in collectivist cultures, men team seem to listen as much as they talk. So there's more gender balance in communications.
And I started thinking about that and I drilled down a little bit further and I found this concept of what's known as monochronic versus polychronic assumptions and understandings of time. So monochronic is the realm that you and I are in, which is to say time is linear and we're running out of it and it's scarce and it's always fleeting. It's going away. Hurry, hurry, hurry. Right. This is the realm that financial planners deal in and a lot of physicians, right? Polychronic.
cultures view time as abundant. Like they've got all the time in the world. So getting the task accomplished is not as important as treating the people well that are part of that transaction. Right? So you may walk into some place to get something and they talk with you. They ask you about your family. They ask you how you're doing. They ask you about your health and then you talk to them. And then, you know, after 30, 45 minutes, you get whatever you came for. And that's just their culture. It's just how it works down there.
So the big picture moment came for me as I was discussing this. I remember that when I turned 45, I was halfway through my life and about halfway through my career. And up to that point, I had kind of put money ahead of people, right? I was charging a percentage of AUM. I was getting as much money as I could. And something about that just didn't strike me as right. know, thinking about the golden rule, was like, if I was on the other end of that transaction, how would I feel? I decided, you know, that wouldn't be, that wouldn't be good.
Right. so I kind of had this aha moment, this epiphany. And it was at that moment that I began restructuring the business to what we have right now, which is a level recurring monthly fee, not based on assets under management, not based on wealth, not even based on how much time things take really. So, um, that's how we got here. And, know, it took us a decade to get this far. And so now I'm 55. So I'm going to, I'm going to can it here for you. The big aha moment for me is that even over this last decade,
Speaker 1 (12:19.242)
I have put people ahead of money, but I put time ahead of people. And I realized that my connections with people may have suffered or at the very least not been as rich as they would have been if I had invested time in those relationships. And I'm pretty sure that those relationships would have been more fruitful and that as a human being, I would have gotten more out of those relationships over time.
by being patient and being engaged and really caring about the person on the other end. You know, being on the getting end of that while I was down there from the people who approach others that way, I felt, I felt seen, I felt cared for, I felt loved. And when they would touch us or they would guide us places, it was like being among family. And I just thought, I love this. I love the way this feels. And I want the people in my world.
to receive that from me. And so my kind of my new leaf that I'm turning over for the next decade is to put people ahead of time and money.
Yeah. You know, in our culture too, even the people who quote unquote seem to get it. I mean, you and I probably have both fallen victim to this, but people who seem to get it, they say they value time. that's not really well defined. Sometimes they mean time with others. Other times they mean kind of a, and maybe not in a terrible way, but like selfish time, like doing something for fun. That's just for you.
Yes.
Speaker 2 (13:59.941)
I think when when most of us if if we break it down like you just thought we would most people would say time with others but yeah, we're in this culture that is just rush hurry hurry hurry and so you know my I don't know if I've ever said this on the podcast, but my wife is Mexican and so when I go over to she's from California when I go over to family in California and you know It's
grandpas and grandmas are around, they are exactly as you just described.
Okay, so I totally spaced on that. I sat across from your mother-in-law and we talked about cooking and somehow I did not make that connection until this very moment.
Yeah, and it is something that when you're, you you're from America, you just can't believe how much you love it. my gosh. It's just like everything you ever you never knew you wanted. they're really they really care about me. And then you look over and you're like, they care about them too. And then and funny story about food. First time I went over for Thanksgiving dinner, it was just an amazing spread.
food I never heard of, food I've maybe only been told about from my spouse. And I started trying and of course, like you have to try everything. They just spent 10 hours making all of it. And I started with what I thought was like, know, the tamest thing. It was just like some soup. And all those sweet people that listened to me talk for, you know, a long time and saw me and made me feel, you know, heard. They all started to take notice that I was about to eat the soup.
Speaker 2 (15:40.846)
And sure enough, it was the spiciest thing I've ever eaten in my life. And I just kept going because I thought, I'm not going to not eat it. they all by in about 10 minutes, the whole table was laughing at the white guy. Yeah, the spicy soup. Yeah, it was great. I had a story.
that is hilarious.
Speaker 1 (15:59.15)
Yeah, I just I felt like I learned something about how to be human. Yeah, I was down there something that we're probably all born with that our culture beats out of us. Yeah, you know, and I mean, of course, there are lot of great things about the United States, but I feel like that those people in Mexico and indeed other collective cultures, India, some of the Asian countries, maybe some of the African countries, I feel like they have wealth that
that we can't begin to comprehend here.
I, in my thoughts about this, it's just about the closest you can get is just your family. You know, you can give that right now today. If you decide you can give that to your family, probably not going to get it when you go to the grocery store. You probably aren't lucky enough to work in position family and get it at work. Right. But like in your house with the friends you select, you can give that and get it from them. So do our best.
Yeah, yeah, it's a real gift. This goes to your point about how physicians can get the things that money can't buy. You know, the ultimate currency, the ultimate...
token of exchange, I guess, is attention. It is truly the only thing that we have that is 100 % ours that we can give that makes others feel special. It's a privilege to love. And it's so rare these days. It's so rare unless we dig down and just take the time to put into those relationships. Kind of makes me think about how things probably were in medicine back in the 60s or 70s.
Speaker 1 (17:44.322)
where physicians were able to spend more time with their patients before we had managed care. So I guess that's my segue. We do still have listener questions, so we are gonna get all financial up in here, folks. I appreciate your patience while we wax philosophical. All right, so Nate, what's our, you know, I remember what our first question is. That's unusual, isn't it?
Yep, neurologist in Oklahoma.
Yeah, urologist in Oklahoma basically is doing the backdoor raw thing, contributed to their traditional IRA, and then the account grew a little bit before they did the conversion. And so the question was, I contributed $7,000 to my traditional IRA, non-deductible, and when I converted it, was worth $7,092. Have I broken a rule or am I going to be penalized?
Yeah, and I think they're going to be in for a rude surprise when they pay taxes on that 92 bucks. No, this is no big deal. If you pay your $20 or something in taxes and move on. Easy peasy.
Yeah, that's it. That's it. Better to have the 92 that's taxed than just the 7,000, right? Yeah. But the best is do your conversion immediately, right? You put your money in traditional IRA in the high yield savings account or some cash account and then turn around and go boom, immediately convert it to the Roth. And so it doesn't have any time to grow and you don't have to invest it before all this happens. But once it gets in the Roth IRA, you want to make darn good and certain it's invested so that all that growth is tax free forever.
Speaker 2 (19:19.246)
Yes. Okay, next question is from a vascular surgeon in New York. My wife and I are 37 years old. She currently stays at home with our three children. Does she need life insurance? I think that she does need some life insurance.
I think she probably needs a pedicure in some time at the therapist. That's a lot of work, man.
That's right. Yeah. But a little bit of life insurance and by a little bit, I mean, probably a million, $2 million worth. But I'll tell you why. Your stay at home spouse, they may not bring money in, but they sure as heck save you a lot of money. Yeah. There's childcare to be paid for. there was only one parent in the house, assuming you don't have a cleaner now,
Taking care of three kids and cleaning the house and cooking dinner and watching them while you're at work. That is expensive.
Okay, hold on, we can keep going. Chauffeur, fashion consultant, ER doc, pharmacist, psychologist, what else? Playmate? What other hats do moms wear? Come on, help me out. I don't look like a dope here.
Speaker 2 (20:29.998)
All right.
Speaker 2 (20:36.777)
man, the chauffeur is the biggest one for me right now.
personal assistant, know, executive assistant, a lot of them get things done.
It's, know, the new term in the nanny world is called house manager. They're a nanny, but they're also a house manager, which is like, they're going to keep the house on schedule.
wow.
Speaker 1 (20:55.534)
We're gonna go all the way back to home economics.
Speaker 1 (21:11.918)
I've heard a nanny's actually getting that in New York City, $100,000 a year. So you think about it, like, so this person is in New York, right? Vascular surgeon in New York, and nannies up there, you know, the really, really good ones fetch a higher price. Let's say that they're fetching $100,000 a year, which is, in a lot of cases, that's not a whole lot different than the cost of private school up there. So $100,000, let's say you have a newborn and you're busy and you can't, you know, you can't, whatever, spouse dies.
Right. Then what are you going to do? Stop being a physician and take care of a newborn all the time. You're going to have somebody quote unquote, manage your house. I house manager. Right. So let's say that goes on until they're 10 years, 10 times a hundred thousand, that'd be a million bucks. Right. but they can't drive it down. They can't shop for groceries. I mean, you're looking at having help until that child is 16 years old, maybe 18 years old. You probably still want somebody at the house to
uh... be there during part of the day and and uh... take care of them so i mean we're talking about easily a million and a half dollars
Yeah, easily easily. Yeah. So life insurance is made to replace whatever you lose if that person were to die. Yes. That's how to think of it. And there's lots of things to consider for the person who is earning money because there's a lot of saving and spending. But yeah, someone who's not earning money, you are not there making it so you don't have to spend on things. So.
toast
Speaker 1 (22:43.038)
Sometimes when people do life insurance needs analysis, which we have done in the past, now we have life insurance guide that gets a of this done, but they do what's known as income replacement, right? And so some advisors will say, well, your spouse is not earning an income, so you don't need to insure them, right? I think income replacement is not the right lens to look at this through. think that economic value,
Replacement is probably the way to look at it because those quote unquote services making your quotes here have value. have economic value. Whether or there's an income, there's an imputed income or at least an imputed payroll cost.
Yeah, I've done that a few times for people who are deciding whether or not they want to stop working while their children are young. Yeah. A lot of the time, if you don't make six figures, it just doesn't make economic sense. So, yeah, get some life insurance. OK, next question. Double doctor family in Pennsylvania. We only spend about $10,000 a month.
Yeah.
Speaker 2 (23:50.446)
We have $3.5 million in our IRAs and 401Ks and all the money we need for college. At 52 years old, we are totally burnt out. Is there any reason we couldn't retire now? So I sort of, I'm going to just be honest with the audience. I sort of created this question out of an hour and a half call. Okay, so I took an hour and a half with this family. The woman physician,
is has some really high up position in a big hospital. she told me I never even really wanted it. Somehow she took time off when her children were young. She got an administrative position and now she's in a super high up administrative position making more and working more than she ever thought she ever would. And she's just like, I didn't really want, I didn't know what I signed up for here. This is a lot of work.
And they've done a great job saving. And I believe them that they don't spend a lot of money because she didn't work for a long time and they still have money. So she, well, she wasn't working, um, husband making $300,000 a year, their early fifties, and they got a few million dollars that requires some saving. Um, and so you look at this and you say, spend 10 grand a month, you have three and a half million dollars, uh, seems simple enough. You know, you could do the 4 % roll Ben.
Yeah, I can do the 4 % rule on my sleep. let's do that. So 4 % rule. So let's say they got $3.5 million. And if we multiply that by four, then we take 1 % of it. So 3.5, 7 million, 14 million, 1 % of that is $140,000 a year. By the way, somebody's managing $14 million for you and they're charging 1%. You're paying $140,000 a year. Shout out to my guy in New York who
We've brought in recently, iGuy, and more than that, and was paying that. It's incredible. So anyway, I digress. So $140,000 a year is what that would provide. $140,000 is greater than $10,000 times $12,000. So, can check the box on can retire or can you.
Speaker 2 (26:07.661)
Yeah, where can you? So I think that's what a lot of people will do. You get sort of a sort of stock jockey type advisor. They might just do that 4 % roll in the back cocktail napkin. Here's the problem though. Here's where kind of physicians are unique, right? Physicians need a plan because of these little differences here. Most people don't accumulate three and a half million dollars until they're in their 60s. Correct.
So there's really not a lot of math to do. It's just how much we spend. But there's a few things that would get in the way of these people retiring. And honestly, I haven't finished their plan, but I do not think that they can retire today. here's the things that get in the way. One, social security doesn't start until mid to late 60s.
And if you're doing the 4 % rule, it's not even factored in. it's a positive factor. It's coming. that will, so, you 4 % assumes you'd make those withdrawals forever. But when you hit 65 or 67 or whatever it is these days, then you'd have the ability to take some out. that would actually, you'd be in their favor. Yeah.
true.
Speaker 2 (27:14.638)
That would be in your favor of you. So, but here's the here's a big one is health insurance. Whenever people say how much they spend, health insurance is just taken out pre-tax. They don't include that. That's right.
Because the employer pays. Right? mean, it's like, there's so many things that physicians, particularly physicians that are like in partnership, I've seen physicians deduct the cost of their cable, their modems, their phone bills, all kinds of travel related stuff, quote unquote vacations, which aren't really vacations, their work, especially if you're the spouse. Yeah. And health insurance. mean, geez, you know, I'm 55.
And if I look at the health premiums that our firm pays for me, it's on the order of like $1,200, $1,400 a month.
That's right. So add that to the 10 grand. And then, you know, with your IRA and your 401ks, I mean, maybe not IRAs with the Roth, but your 401k, you have taxes. You got to pay a bunch of taxes still. Yeah. Not as much as you pay now, but all of sudden, you are, well, not to mention the penalties.
Yeah, totally.
Speaker 1 (28:18.19)
Hmm.
Speaker 2 (28:31.136)
right? You can't withdraw from an IRA until 59 and a half. There's a new rule with 401k's where you can start withdrawing at 55. Special little rule there, but these folks aren't even 55. And so taxes, health insurance, the way I think of this, our system is built so that the vast majority of society is a contributing member.
until they're sick in their 60s. And if you want to sidestep that system, you need a brokerage account. There's just really no way around. And so if you're a young physician and you think, you know, hey, I'm gonna have $4 million by the time I'm in my 50s. You know, all I need to do is just do this, this set amount of savings. Well, if you want to retire in your 50s, you need to be
Right.
Speaker 1 (29:11.392)
a taxable account is what you're saying. Yeah.
Speaker 2 (29:29.518)
ready with probably with a big brokerage account. The answer for this family, uh, I believe is going to be to adjust their work. They don't need to save a lot more money, right? They don't need to put six figures in a brokerage account. They need to, I mean, this is kind of a, it's a dirty word in the physician culture, but they need to coast. They need to coast a few years.
I love it. Just get your tax breaks. Don't save like crazy. Back down on your work schedule a little bit so that makes this doable or tolerable for what? Maybe five more years or something like that and give the money time to grow by 50 % 60%. That's a game changer. That's a game changer.
That's right.
Yeah, and then I have to quit their jobs. Exactly. And you know, there's you could get even more creative to the husband in this situation. He has figured out work life balance. He told me and that he could retire. He would enjoy it, but he could also work six, four years.
Let me jump in. Let me jump in. Okay, so we've been talking about this 4 % rule. Okay. Now I remember when the 4 % rule came out. I've been in practice that long. People credit Bill Benyon for his work on this, what he calls, I think it's Retire Max or something like that. His good work. The original study of this was known as a Trinity study because it came out of Trinity University. And the gist of this thing is you have to know what's behind it. It's a rule of thumb, but you know, it's that's all it is. Rule of thumb.
Speaker 1 (31:04.462)
So the gist of it is basically if the portfolio was invested about half stocks and half bonds, and if the stock portion was invested about half small caps, then the 4 % rule applies. But most people are invested just in the S &P 500 and you know, small caps have not had an outsized performance in a long time since the seventies. Right. So that small cap effect may not be present.
But if we look at where we're at today, there is thought of inflation coming from possible tariffs. So if we get inflation, you know, that 4 % rule is based on historic inflation, which runs around 3%. If we get 6%, 7%, 8 % inflation again, and that's sustained, that shoots a big hole in the 4 % rule. The other thing is the 4 % rule came out at a time when stocks were more reasonably valued.
And if you look at the Schiller PE ratio, also known as the Cape 10 right now, you can see that stocks relative valuation are at their third highest valuation in US history. And I see you out there. I see you, the person has all in the S and P 500. You have everything in VTSAX and you're feeling pretty tidy about that. And it's all in stocks. Your day's coming. Your day's coming because the market is fully valued at this moment. Right. And that's not my call. The last time we saw it was.
Peak was we saw it back in 2000 for the tech bubble popped. We saw it back in 2008. So, um, don't know if the corrections coming, but the point here is that stock valuations in the United States are high. And so the expected returns from those stocks are going to be lower over the coming decade and two decades while you're, planning your 4 % withdrawal. That's right. So, uh, I like 4 % cause it's back of the napkin. It lets us know if we're in the ballpark.
But it is not going to be a line drive. It's not going to be a home run. It's not going to be any of those other nice baseball analogies. You really have to sit down and reach for your kombucha cup, do some planning.
Speaker 2 (33:07.894)
Yeah, that's a, that's a, want to take that point and, and ask our clients, actual clients are listening. This is why you show up to annual progress checks. It's not just to say, did you get all your 401k money in, which is that's important too. But these things change. Yes. You know, expected returns change.
Yeah, so if you're annual progress check.
Speaker 2 (33:32.798)
And expected returns are almost certainly going to be wrong. They might be close, but they're going to be wrong. And so we need to adjust as we go.
out of the no plan, right? And while we're beating that APC horse, the annual progress check, the other reason you come is things change in the tax code. We have a whole raft of new things that came out this year that were passed in Secure Act 2.0 that just became law effective this year. Some catch up provisions for people over 60 to contribute to their retirement accounts, just things like that. changed all the time. So we have a huge checklist that we go through in the annual progress check and make sure that you're getting all the tax breaks that you rightfully deserve.
Speaker 1 (34:12.58)
On to the APC.
Yeah, so I think the answer for young docs is save something into a brokerage account if you want the chance. These folks, get creative with your work schedule. If one of you works and one of you doesn't, I know they can survive on one of these salaries and survive well. yeah, so we're really close. We just need a bit of a shift probably.
Yeah, it's not about making money. It's about making your life last longer, making things happier for you at work. Yeah.
That's right. Okay, last question is from a nephrologist in Iowa. What is a donor advised fund and should I use one?
What is it about kidneys? What is it about kidneys that they're so exciting for nephrologists? Yeah. I'm just kidding. You know, one time I had a nephrologist ask me, he said, why do you specialize in physicians? And I've gotten that question so many times. I can answer it seven different ways. They're all good answers. And I just asked her back, said, what is it about kidneys? And you know what she said? It's fair.
Speaker 2 (35:21.804)
Yeah.
Yeah. Okay. Donor Advice Fund. This is, this is just such a hot buzzword. hear about this a lot these days. Um, first off, it's not a way to make money. It's a way to save taxes. Okay. But more to the point, a donor advice fund is for, for charitable giving. All right. So a donor advice fund is a 501 C three charity so that when you give money or appreciated securities to this charity.
You get a tax write off during the year when that charity receives your contribution. Okay. So that's the beginning of it. The next thing you can do with your donor advice fund, which I say you're in air quotes, it's not actually yours. It's a fund that is owned by the charity that you get to advise how it goes. And the word advisor does not mean investment advise. You don't get to pick the stocks and all that good stuff that's in there. You get to pick.
how the donations are made. You get to advise about where the money goes. So let's say you put the money in the donor advised fund and next year you decide you want to benefit your school, right? So a school is a charity as well. And so you write to your donor advised fund or you log in and give instructions and you make what's known as a grant request. Okay. So what's a grant? Grant is free money for somebody. And it's typically money that comes from a charity.
and goes, it comes from a person who goes to another charity. In this case, it's going from one charity to another. It's going from a donor-advised fund to the charity of your choice. Okay? So that is a grant. What's a request? Well, a request is not a demand. A demand is do this. A request is will you please do this? Right? So when you have a donor-advised fund, you don't have all the power. You have a voice. And so the donor-advised fund will consider your voice. And in most cases, they say, yes, this is the business they're in.
Speaker 1 (37:18.082)
But they'll look at that charity and if it's a good charity and they, you know, they agree with it, then what they'll do is they'll grant that request and your grant request goes in and they ship the money to the other charity until your donor advice fund runs out of money and you recharge it or, you know, run it runs out. Yeah. So that's, that's your donor advice fund. That's, that's how they work.
Yeah, so that's kind of what it is. And obviously you said save on taxes. There's a couple more benefits and this this kind of gets into I guess strategy on how people use these. But I will I won't say necessarily if this is always right or wrong, but this is what people talk about or why you would use it. So there's something called bunching, which is you can put all your donations in one year. So let's say you know
We have several Muslim clients and they have very specific rules on how they give money. a lot of them, I've noticed they set aside money and it's sort of like the money's there, it's a giving account. I don't know exactly when I'm gonna give it. And to be honest, I'm not sure why they don't know exactly when they're gonna give it. But if you know you wanna give the money and you want the tax break, rather than finding a charity or finding a church or something to give the money to,
You can put it in this fund, the donor advice fund, then get the tax deduction while you wait. another reason would be, let's say get a big bonus and you don't want to pay so much in taxes. You can give money that you plan on spreading out over the next five years, but you're going to put it in.
Let me talk about bunching for just a second. Yeah. Okay. So we have a thing called an itemized deduction, right? Or standard deduction. All right. So you get a standard deduction and that's whether or not you don't have to itemize. So the government just says, Hey, you live here. You know, we're going to reduce your taxable income by the amount of your standard deduction. Now, if you want to itemize, which is to list off all the things that are tax preference items,
Speaker 1 (39:24.178)
and you do this in your tax return, if your deductions exceed the standard deduction, then you should itemize. However, many people out there give money, but they don't give enough money that it makes sense for them to itemize. And so it's almost as if the tax benefit of that contribution goes to waste because it's lower than the standard deduction. So let's say you're right at the standard deduction this year and you want to get the benefit, but you haven't. So what you can do is you can do bunching.
So you take your 2024 contribution and you push it over the line into 2025, which is to you just wait. And in 2025, you basically give twice as much as you would have given in 2024. So you're basically contributing every other year. So you're bunching up these contributions and by bunching them, you're more likely to exceed the standard deduction. That's right. That's the bunching strategy. And the DAF is one of the tactics and tools that you can use in a bunching strategy.
That's right. Okay. Thank you. You put that a lot better. And then I wanted to add one more thing. I mean, this is what people talk about. You donate appreciated securities. Yeah. So you got a bunch of gain on your stocks and you donate. This is the one I'm not comfortable saying whether or not it's a good idea or a bad idea. But if you think your stocks are expensive right now, which we said that's kind of what we think right now.
You could consider at this point, like, well, I know I'm going to make this donation, take some of that taxable account money and put it into a donor advice.
Yeah, right. So here's an interesting thing. Let's say that you have five charities that you want to benefit. And let's say that you want to give each one of them $2,000. Okay. So that's a grand total of $10,000. Now let's say that you bought a share of, I don't know, Apple, Tesla, favorite stock of the decade, and you bought it for $1,000 and now it's worth $10,000. If you sell that stock, you sell that stock,
Speaker 1 (41:22.538)
you're going to have a gain of $9,000 and you're to pay capital gains tax on it. Okay. So what do do? You donate those appreciated securities to the charities. But if you do that directly, then you're sending $2,000 worth of stock to five different charities. And that's a direct transfer of stocks. You have to fill out five transfer forms and you have to make sure that the securities go over because they're transferred in kind. can't sell them. And as you're transferring them, the value of them is moving because they're marketable securities.
And so at the end of the day, you don't know if the charity is going to get 2000, 2200 or $1,800. Right. It varies. And you're to have to go through this with all five of those charities. From a paperwork standpoint, it is absolutely a total pain, but a DAF makes this super simple. If you can link a DAF to your brokerage account, which spoiler alert, you can through the accounts that we work with clients on.
You can transfer those appreciated securities directly from your brokerage account to your donor advised fund. And then the donor advised fund sells those securities, no taxes are due. And then they make that distribution directly to all five of those charities. And there's another really cool twist to this. So when you make that contribution, sometimes they find out that it's that is you, right? If you write a check, they know it's you. And then they hound you for more money and they waste their resources. But you can use a donor advised fund to give anonymously.
So they don't know that it's you. You might do that for other reasons, political reasons or whatever, but it is a way to give anonymously. And it's also painless. You just name the charity and the DAF, make sure that they get the money.
One more thing too is, I actually witnessed this in my hometown. Someone wanted to give something to the church. They couldn't accept it. They couldn't even accept, in this case, the apple stock. They didn't have a way of accepting it. That's right.
Speaker 1 (43:17.656)
They didn't have their own brokerage account. That's what happens. They have to open up a brokerage account at the same institution where you've got your account so they can be a transfer.
That's right. So you probably are helping them out too. what's the only couple of bad things about this I can think of? I mean, it costs money to have the account.
Yeah, yeah. Well, donor advised funds are kind of like, in a way they're a little bit like mutual fund companies in that they charge a management fee. And they're kind of like another financial advisor in a way. Some of them charge one and half percent. Some of them charge 1%. You know, the places like Fidelity and Vanguard and Schwab, they charge less than others. There's a place that we use that's predominantly online that charges very low rates. And, you know,
The races they charge, they're not charging you. They're charging the charity that you gave the money to. So in a way, the more they charge, the less your target charity gets. I think that would be a downside. I guess setting up the DAF is a little bit of a hassle, I mean, so it's giving money. So I think that the, um, the expense, you know, through of the donor advice fund, to me, that's really the only downside of giving through a DAF.
Yeah, so just like any other financial sort of product, find one that's low cost and
Speaker 1 (44:42.766)
Yeah, yeah, yeah, pick a pick a good one where you get real value, you know, where you get a lot for what you pay and move ahead.
Alright, you wanna take us out?
Yeah, yeah, I'll take us out. So, you know, welcome to 2025. I hope you guys are having an awesome year for us. We love your listener questions. You can send those to us. Podcasts at physicianfamily.com. If you want to kind of check out and see where you're at in the new year, then you can go to physicianfamily.com forward slash quiz and take our retirement readiness assessment. It'll kind of help you figure out where you're at and kind of how things are going for you. So you go grade and a little report.
And of course, if you have questions you can ask us about that. If you want to start the new year right, and you want to make sure that 10 years from now you also have good years, then I encourage you to reach out to us. Go to PhysicianFamily.com, click on the Get Started button, and then take the little quiz to see if you might be a match for us. And if you are, we can chat on the phone, we can talk about next steps, no commitments, call. So just reach out to us and we'll see if we can help you. And until next time, remember, you're 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.
Speaker 2 (46:12.398)
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.
