Speaker 1 (00:00.084)
If and a big big asterisk if you got a 10 % return that's super iffy. All right. Basically what that tells you is you have to have 10 times as much money in capital as you want an income. And that's going to take a long time to get a long time to get is another way of saying like when you retire. So the way you replace your income is by saving for retirement and at some point retiring.
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 and college. Hello, physician moms and dads. I'm Nate Renneke, certified financial planner and primary advisor here at Physician Family Financial Advisors.
And I'm Ben Utley, also a certified financial planner and the service team leader here at Physician Family. Welcome to the show.
Yeah, so Ben we need to start this episode with actually a couple corrections from past episodes
gotta eat a little humble pie today.
Speaker 2 (01:08.748)
some team members that helped us with this because they listened to the episodes and they caught a couple things. first one was is episode 87. So we talked about solo 401ks, who is eligible to have one, why they're so great, all that. And Chelsea pointed out a couple things. Chelsea's our solo 401k master. Yes. And so she said,
retirement planet guru, yeah.
there's a little mistake in here. And when I went back and looked, I think what happened here is we're sort of coupling a lot of scenarios into one bucket. And whether or not you're eligible for a solo 401k is, there's some very fine details that need to go into that decision, right? I think we talked about a few different scenarios and at the end I said something like, okay, so yeah, you're eligible. But so here's this, we need to say this, okay?
If due to controlled group rules and affiliated service group rules, if you are a partner of a medical practice and you are also a 1099 income earner, you are not eligible set of solar for one K.
if you're a 1099 earner of that practice.
Speaker 2 (02:25.478)
Yes, and a partner. Yeah, that was that was the nature of the question. And then we kind of went down a few different avenues. And then at the end, it was like, and you're eligible. So the nature of the question, you are not eligible if you're a partner.
A bit of a fine point. And just for the listeners, know, just so you know, there are some cases where it's clear cut that a person is eligible or not eligible for a solo 401k. But in practice, when we're doing this in our shop with live clients and real money, we actually have an ERISA attorney on speed dial. And so we reach out to them, give them the scenario, get an official legal opinion before I move forward. So it's not slapdash.
anywhere other than the podcast.
Even that isn't but Chelsea's just so in tune with this stuff. So I was glad she listened. We had another one that you were telling me a little bit a more minor correction. Yeah, what was that?
Speaker 1 (03:21.102)
think this is the last episode that we recorded or one before last where basically the question was can I have an HSA and an FSA and just at a public service announcement I'm going to tell you how the difference. So one of these can be rolled over. Another way is use it or lose it. Okay. So H is for healthcare, but H is for happy. So you'll be happy to know that you can roll over the health savings account from year to year. F is for fail, but if you fail,
to use all of your flexible spinning account, you lose it. Right, so use it or lose it with the FSA, roll it over, don't spend it with the HSA. Now, we're in the deep end of the pool here, kids, because we're trying to tell the difference between H and F, and it's been like since first grade since I did that, right? But with flexible spinning accounts, generally, you cannot have a flexible spinning account with an HSA, as we reported on the last show. However, there are
At least two different kinds of flexible spending accounts. One of those is an FSA for health care, also known as a health care FSA. And it is true. You can't have an health care FSA. And an HSA at the same time, OK, but you can have a flexible spending account for dependent care and health savings account. And so an FSA for dependent care is basically your child's going to a child care facility or you have a.
a nanny or other care provider and you're paying them, you're allowed to contribute to your flexible spending account and then reimburse yourself through that FSA. And basically it's a tax deductible thing. So it's just a straight up flat out tax deduction with a little bit of paperwork involved. They're really good. And this came up because I was working with a client who had a health savings account. We had the discussion about the FSA. Once again, Chelsea's like, wait, you know, if they do have a dependent care.
then they can have the FSA. So Chelsea, I'm just going to shout out to you. She is literally the technically sharpest person on our team. And if you come to me and you have a complicated situation and you want to use us, you'll get Chelsea.
Speaker 2 (05:33.996)
Yeah. Well, we know that we know that feature. use the DCFSA. This is actually my last year. Okay. So we'll get into our new questions. First one is from a vascular surgeon in Wisconsin. I have an old 403B with both traditional and Roth dollars in it. Can I move all of that into my new plan or can I move part of it into a Roth IRA?
Yep, nice.
Speaker 1 (06:02.55)
Yes and yes.
Yes and yes. So I'm going to go a little further than yes and yes, even though that's the answer. So, you know, you can do both. Basically the first one, yes, 403b to 403b if the new 403b has a Roth side, they accept Roth rollovers. But it's the same with 401ks. Do they accept rollovers? If they don't, or you want to transfer it into a Roth, you can transfer over the traditional to your 403b and the Roth into a Roth IRA.
But here, Ben, I'm going one step further. You need to be careful here. Because a lot of people, they will end up rolling their 401ks into their IRAs. So we're talking Roth 401k or 432b into Roth IRA. Correct. And the reason I'm explaining this is you'd be surprised at how many times I've seen people do this because an asset manager is trying to their hands on them.
Okay, right.
Speaker 1 (06:59.35)
Yeah, that's right. So the way to picture it is like this. Imagine that you're holding an Oreo cookie, right? And if you're me, the stuff in the middle is the stuff you really want to eat. That's a special stuff. And the stuff on the outside of like what you eat second, right? Okay. So the stuff in the middle is your Roth money. The stuff on the outside is your traditional money, your pre-tax money. So if it's me and I'm looking at this and I have both in my 401k or four three B plan, I'm going to take the good stuff, the white
Creamy stuff in the middle. I'm to roll that over to my Roth IRA. Right? And then the other stuff, which is good, it's just not as good. I'm going to take that to my new plan in the traditional part. Now, the reason for that is this. I could take both of them to the new plan. Probably if I wanted to, I can take both the, the cookie and the cream. I can take both of those, but the way I want to do this is I want to take as much out of my 401k as I can because typically 401ks have a carrying cost.
So in addition to the operating expense ratio on mutual funds, sometimes there's a carrying cost in terms of like a fund level fee. Maybe it's a fourth of a percentage point or 0.4 % or something like that. In my IRA, I don't have to pay those icky fees. So the cream tastes better, right? So I'm going to roll that money over into my Roth. So that's, that's basically why I would do it. Yeah. And you're right. And you're right. This, uh, this can be a, uh, revenue grab for an advisor who does rollovers and
As a result of that conflict of interest, they can screw up not only this rollover, but they can screw up your backdoor Roth.
That's right. That's right. see it all the time. Okay. So this question was from actually from a webinar that you and I recently hosted. How should my college investment strategy change if my child is only five years away from college?
Speaker 1 (08:49.87)
Yeah, so this question came to us after we presented just a couple days ago, we presented a webinar called retirement planning for doctors with kids. And we led this on physician on fire. had about 120 doctors who actually showed up for that. So it was really pretty cool to have that turnout. What's funny is it sounded a lot like our podcast because we basically rolled with questions and invited people to podcast. So, hey, listen, if you are showing up today as a result of being on that webinar,
Welcome, we're happy to have you and on with your question.
Yeah. Okay. So should your investment change or investment strategy change during five years away from college? So in a 529, you know, just like in a 401k, you have a lot of different investment strategies or investment options, but usually the best strategy for college is just an age-based or years to college investment strategy. So, you know, this is the take more risks when your child is young, have good stocks.
and less risk as they get older, heavier in bonds and cash. And as you get closer to paying for college five years out, you should probably be in a less risky asset allocation.
Yeah, you know, in my case, when I went through this with my kids, which are now in college, I finished filling up my 529 plan four or five years before my first kid went off to college. And I decided at that time that I don't want to take any more risk. And so I put it in a safe investment option. I believe it's their guaranteed interest bearing option. Now I gave up some return on that because, the market kept going, but I slept very soundly and some of this happened before COVID.
Speaker 1 (10:36.406)
And so when COVID struck, you know, I had my college money, quote unquote, invested in something safe and the value didn't bounce around. And so that was great for me. It felt really good. A little bit of regret about not getting, getting the gains after that. But, know, when you, when you finish the race, it's okay to stop running.
To answer this question, if you're in an age-based option, then your investment strategy does not change. It doesn't change at all. Obviously, if you're in that strategy, your asset allocation would change, but your strategy does not change. We didn't get a whole lot of details because this is just a question from the audience.
Yeah, that's right.
Speaker 1 (11:10.072)
Yep, it does.
Speaker 2 (11:20.972)
But if you're in a static investment strategy, let's say you're 80 % stocks, 20 % bonds or 70, 30, then I think it would be appropriate to take less risk. that's, you know, I would look at in a years to college option. But then that's kind of the straightforward answer. I kind of want to get into the reason I think people ask this question.
Yeah, okay, far away.
I believe that no one's ever said this to me. What I kind of get from this is that they see that a years to college investment strategy is going to be a lot of bonds, a lot of bonds, a lot of cash. And they're sort of sitting there wondering, I try to squeeze a little bit more out of this, squeeze a little more juice out of these investments? And the reality is that I don't think you should.
Yeah.
Speaker 2 (12:15.47)
Even if you're short on college, that doesn't mean that you need to take more risk and risk what you've already built up in those accounts just to try to get all the way there. Your goal hasn't changed.
Let me, let me slam a little math down on this for a minute. Okay. So let's say that you should be, you should be 50, 50 at this moment, you know, maybe five years from college, 50, 50. Okay. Let's say that's where you should be. And you want to be aggressive and scoop up that extra return. So you're 70, 30 instead. So you've got 20 % more stocks and let's say that, uh, stocks get like 10 % return. All right. And bonds get like 5 % return.
So you're by by being over allocated equities, you're gaining one more percentage point return for that year. And for every year that you're 20 percentage points over in stocks. All right. So and even if it's even if we're looking at our private college fund, right, where the terminal value is going to be about two hundred thousand dollars right before you start stroking those checks, what's one percent of two hundred thousand dollars? It's two grand.
It's too grand. And I'm looking at this and I'm thinking, compared to a $200,000 bill that may be more than that or maybe less than that, it does not matter. It doesn't matter. And it's not worth perseverating over it. I mean, you've lost the kind of the time value of money compounding because you're five years away from blowing all this money. Right? So it's not even compounding. the, you know, an extra percentage point in return makes a difference over 30 year career saving for retirement, but over five years on a couple hundred thousand.
Next to no difference at all. Yeah. So I don't think I would bother. just, I'd ride the rails on a target date strategy, you know, let her rip.
Speaker 2 (14:09.186)
You're just in preservation mode and a lot of people can't get out of that mode in their brain. Well...
For some people, they don't know how much is enough. that's really what a plan is about. It's knowing how much is enough so that you'll know where the finish line is you can stop running once you've reached it.
Okay, next question. Nephrologist in Iowa. He asked me actually. That's right. How can I start replacing my income now so I can no longer have to work 15 hours a day? So there's some backstory here, but I'm going to give high level and then maybe give backstory if it's appropriate.
low kidneys.
Speaker 1 (14:43.544)
Hmm.
Speaker 2 (14:53.486)
I don't think replacing income is a thing for physicians in their working years. mean, think about what that actually means. You're going to put money into an investment to try to replace income during your peak earning years, which is another way of saying peak tax paying years. So let's say you take a hundred grand and you try to buy something that's going to give you 10 % return.
In income, you just had to go earn 180 grand to put 100 grand into something that's going to pay you 10 grand. That's going to get taxed down to 6 grand. So you had to spend $100,000 to make 500 bucks a month.
Right, right. That doesn't make sense. The other way to look at it is if and big big asterisks if you got a 10 % return that's super iffy. All right. Um, basically what that tells you is you have to have 10 times as much money in capital as you want an income. And that's going to take a long time to get, um, a long time to get is another way of saying, like when you retire.
So the way you replace your income is by saving for retirement and at some point retiring. And the 15 hours, mean, geez, I mean, all I can think of is that maybe they're an academic nephrologist with some very expensive habits. So I'd look at the spending first. I'd look at the backstory on that. I'm sure you probably have already done this because they're clients, I mean, really, mean, pretty much any physician can become financially secure.
With a regular work schedule, regular savings, if they don't have a gigantic house and 17 kids and super expensive habits.
Speaker 2 (16:45.986)
Yeah, they are pretty average, maybe slightly above average spending, but not anything crazy. This is a guy who's taking care of people that are dying. I think that's really what was going on. And I do see this where they kind of come to me and they say, hey, look, I really want to stop. they blame the money. Okay. Blame the money and story.
There's the box.
Yeah, there's the backstory. I mean, they make 700. It's a double doctor family making $700,000 a year. They got a $9 million net worth. And he's trying to figure out a replace his income. What I do understand they have been making great money for 20 years. It's hard to understand. It's hard to pull the plug, or even halfway out. They just right away without understanding the numbers. But it's the numbers that allowed him to realize this really wasn't about the money.
Yeah, I was just thinking this is not a financial problem.
It is not. And talking through this has, I believe, has helped him avoid really just not great investment options for their situation. They don't need to go buy income generating assets no matter how much everybody at his work says that they'd be a good idea. But at the end of the day, I think what physicians need to hear here is
Speaker 2 (18:14.946)
that if you have, this job is very important to him. Taking care of his patients is very important to him and he feels like I can't get in any help and I can't let these people die on my watch. That's really what's happening. If you work 15 hours a day, you're going to have to cut your career short. And so you can look at this as I'm going to work another 10 years at a more reasonable pace so I can make it to 10 years or you're going to fall flat on your face in five years and not be able to keep doing it.
Yeah, that's right. It's really do you want to run a marathon or do you want to run a sprint and you have a finite amount of energy for both of those? And you know as I'm hearing you talk about this person who's deeply concerned about their patients and I get that. That makes sense to me because we're deeply concerned about our clients. By the same token, I mean it doesn't do them any good if you burn yourself out and then there's one less nephrologist in the world. And you know, by the way,
That kind of stress kills doctors. I've seen so many physicians with heart attacks. I have a close friend, not a client, ER doc dropped with a heart attack in his own ED, survived because he was in his own ED. They took good care of him. But mean, this is a stressful job with a lot of sacrifice and man, you have to pace yourself. And like said, this is not a financial problem. think this is a kind of life quality problem that might require some counseling.
Yeah, you know and you can so once you realize it's not about the money you can start actually solving the problem and I think exactly he's looking to get a partner Yeah at work and start to lighten his load a little bit and that is a great solution I mean spend the next year thinking about that and if look if you need to put the screws to work Work less. Yeah, get me it. Let's get a partner then because I can't keep doing this Yeah, right, you know if you keep showing up every day 15 hours a day. There's not a whole lot of
reason for them to help you find someone. yeah, anyways, thinking about him a lot this week and how money is not usually the problem in these situations.
Speaker 1 (20:21.4)
Yeah. Okay. Question four.
Yeah, question four. This is a listener question from Rich.
Rich, hello Rich. Rich emailed me.
Yes, yes, medicine doctor in New York. So I'm to read his whole his whole question with some backstory here and let you take a crack. So he said, our present stock bond ratio is 80 to 20. Since I plan to never stop working until someone tells me I should. Is it OK to stay more aggressive in my stock bond allocation for longer than usual as I get older? So Rich is married.
Let's get granular.
Speaker 2 (21:01.538)
He's 53 years old, family medicine doc, who plans to never completely stop working. Retirement, he said, would look like five days a week, kind of in the morning, so 9 a.m. to 12 p.m. He said he enjoys his job, just not working 16-hour days. Two questions in a row. We have 2.5 million in our 401k, another half a million spread out across taxable, raw, and HSAs.
Four boys who are all their colleges paid for or it's about to be paid for. And several rental properties.
Thanks, dad. Nice job.
Speaker 1 (21:41.568)
Ooh, several rentals. Good.
Yeah. So, it okay for Rich to stay 80-20 longer than normal?
Can we let the old guy take a first crack at this? Okay, so I'm in my mid fifties, right? I'm a little older than Rich. And, um, you know, if you, if you were looking at a target date strategy, you know, just garden variety, target day strategy, any, any glide paths out there, what you would find is that somebody who's that age, 75 % of their stocks, excuse me, 75 % of their portfolio would be in stocks. So like, if we're looking at that strategy, you'd see like a 70, 30, close to 80, 20.
split. So, you at this moment, I wouldn't say that he's over allocated equities. It doesn't strike me as aggressive. Now, if that were the case, you know, 10 years from now, maybe aggressive, but he's also saying he basically wants to work forever. And I think that, you know, if you have six rental properties, unless they're leveraged to the hilt, that's a lot of a lot of cash there as well and income. So sounds like he's pretty darn close.
to being able to retire but doesn't want to. So I'm kind of thinking the asset allocation doesn't really make that big a difference, honestly. And you know, when we were on the webinar at Physician on Fire, a lot of the follow-on questions we got were asset allocation questions. I have to let you know, folks, there is no exact answer to asset allocation. There's simply not. Whether it's 80-20 or 60-40 or 70-30,
Speaker 1 (23:18.51)
Those are all kind of about the same. You won't know if you made the right decision for a decade plus when you get the results, right? What matters is that you have an asset allocation that you're comfortable with such that when things go up and down in the markets, that you're able to hold on to it. That's the key. It's like, if you're 100 % equities and you can hold onto that thing, that's fine. If you're a pussycat and you have to be all in bonds, if that's the only way you can hold, then that's the asset allocation for you. It's the asset allocation that you can
remain invested in because staying in the saddle is the key to winning this game. That's the big deal. And if you're off by 20 % in equities or 10%, it's really neither here nor there. the last example I gave about getting an extra percentage point in overall returns, it's just not going to make a difference.
Yeah, but what would make a big difference is if you had too much stocks for your own, I guess, risk appetite, and you pulled it all out when the market went down.
Yes, that's terrible. That's terrible. Because then that little edge you get by being over allocated, it all gets consumed and then some by being out of the market at the wrong time. Yeah.
That's right. Okay, that's it. Ben, you want to wrap this up?
Speaker 1 (24:36.238)
Yeah. Okay. Thanks to Rich. We love your questions. Love, love, love your questions. We'd love to hear them. So if you're interested in working with us, you can check us out at PhysicianFamily.com. Click the big Get Started button and then click Apply for an interview. You can chat with me and we'll talk about what you need. Zero pressure, just figuring out if we're a match. If you're not ready for a relationship with a financial advisor, maybe just shoot us a question. It's podcastatPhysicianFamily.com.
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. Thank you for listening.
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