Speaker 1 (00:00.448)
First and foremost, this might be a shock to some people, there are houses that are 10 times $10 million. It's easy to spend this money into nothing if you don't have a plan. A plan simply tells you how to optimize your situation.
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 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.
money you
Speaker 2 (00:41.258)
And I'm Ben Utley, certified financial planner and service team leader here at Position Family. You know, Nate, I try to get up for these podcasts, right? To put a little energy in my day. And so I listen to music. I'm curious, do you ever listen to music before we get rolling?
I do. It's either music or I'm already up from kids yelling at me. Nice. bring myself down. But yeah, I definitely do. man. You know, I feel like a lot of people, they just listen to music of their childhood. Yeah. I had a mixed childhood when it came to music. I when I was really young, I used to listen to punk music.
Nice. Okay, we're conned.
Speaker 1 (01:27.406)
because I wanted to play the drums and all my friends played the guitar. Pixies. Yeah, yeah, stuff like that. Pretty weird stuff, to be honest. I don't listen to it anymore. Yeah. But yeah, some other hip hop stuff if I really want to get into it, which I didn't start listening to all about high school. So.
Yo, yo, yo, it's the podcast, yo.
But the stuff I actually really enjoy listening to after I met my spouse we listen to a lot of country music, but that doesn't exactly get me up and at it.
I talked to a doctor the other day who's down in Tennessee and we had a music conversation. said, uh, what do you think about music? He said, only like, I only like two kinds country and Western. So for me this morning, it was like fifties jazz, big band getting ready for breakfast this morning. So, Okay, cool. So, uh, enough about us as they say, let's talk about you, the listeners, physician moms and dads who tune in.
every week to this fine show.
Speaker 1 (02:29.814)
Yeah, all right. Let's see, first question. It's coming from an OB-GYN radiologist in Virginia.
Wait a minute, Ob- Ob-Gun radiologist?
I think I'm, I think this is miswritten.
It would have to be. You don't need radiology for gynecology. Did you hear? Yeah, nice.
the question mark at the end of that? Sorry. Pick one.
Speaker 2 (02:59.05)
I remember this question coming in and I remember it being a radiologist.
Yeah, there you go. That was probably my bad. All right. So radiologists, my practice offered me a buy-in opportunity to become a partner owner in a medical office building. It seems like a solid opportunity to me. What do you think?
Yeah, that's a good question. first off, as a matter of policy, we don't have opinions about buy-ins. And the reason for that is the buy-in always comes with a P &L, profit and loss statement, or a balance sheet. And the balance sheet tells you a little bit of something. It tells you about the condition of a business at a moment in time. But the profit and loss statement tells you whether or the company made or lost money in the prior
year, three years, five years and how it happened. So with something as broad and diversified as an index fund, you can look at past performance and get a hint about what the future is going to be. With individual stocks, the big stocks, again, we don't pick stocks, but you get a hint about how things might go, right? With small, closely held businesses, the likes of which typically have maybe
Five employees, maybe 10 employees, maybe 20 employees. Typically, they'll run, they're run by young management, which is to say somebody has less than 15 years of experience. They're geographically isolated. They serve a population in a state or a city. This is buying a medical office building or a service center is the deep end of the deep end of the deep end of the pool. Right? So low risk is bonds.
Speaker 2 (04:46.246)
Bond funds, high risk is stock funds. Greater risk is publicly traded stocks. Greater risk than that is privately held companies. Greater risk than that is small privately held companies. So when you buy into your medical office building or your surges center, you are particularly surges center less so the medical office building because you know, there's a piece of real estate there. That's the deep end of the pool. So as not to say don't do it. Over my career, I've seen it work out.
in most cases, but only in those cases where a physician actually works in the medical office building that they own, which is to say that they rent a space in there, that's where they practice or that's where they do procedures. And surges centers, I've seen that work out pretty well for physicians who are actually doing cases in the surges center that they own, right? So the no-no is to invest in someone else's medical office building or investing in someone else's surges center.
or someone else's equipment leasing company. That's when we tend to get off track. you know, it's interesting. Recently, I had a client from who's been with us for over a decade. And I remember years and years and years ago, I kind of had this conversation with them and they bought in because they kind of had to as political. And recently, you know, they come to us and they said, well, we had this big meeting and they were throwing around words like bankruptcy and insolvency. And, you know, there's a big cash call in our
compensations being reduced and I just thought, wow, this is one of those situations where it's gone sideways. But in that particular situation, it was really because the practice was struggling, not so much that the ancillary businesses or the real estate was struggling.
Interesting. Yeah, they're basically we were not, I don't know who would be, but equipped or qualified to say yes or no. What are some things that they can think about? I I have a couple things.
Speaker 2 (06:46.862)
Yeah. The first thing I think about is liquidity. How are you going to get out of it? Second thing I think of is leverage. So I have another position that we serve that is in one of the Western states. Their buy-in is $337,000 and they don't have it. So they're going to have to go borrow from a community bank. And it makes me a little nervous to borrow to buy into a business that, you know, you can't see the future of it. Right. And it is entirely possible.
probably not very probable, but entirely possible that they borrow to buy into that business that may be poorly managed at this moment, where there might be deceit or fraud and wind up owing the bank all that money for a business that doesn't work and they're out of a job. So this is one of the things where you have to be careful. And I think the defense that you have is simply to know your partners very well, to ask a lot of questions.
of the practice manager talk with the certified public accountant who prepares the financial statements. And if those statements aren't compiled or reviewed, or maybe audited, which would be rare, then you have to have your hackles up. You know, if it's just a print out of QuickBooks, then I would take that with a grain of salt. So, you know, probably a CPA would be the best person to look at this, but it's just, it's the deep end of the pool.
Yeah, and if you get that loan, a lot of times they want more than one person on the loan. Yes. And you do not want to add your spouse to that.
Yeah, they'll ask for it. But if you push back and you say, why should my spouse sign this? A lot of times they'll say, oh, my boss asks you to ask for that because you're dealing with the salesperson, the person who's selling the loan at the bank and they want to close the sale. And so if you push back and it looks like you're not going to borrow there, maybe you're going to borrow at another bank, then they'll back down on some of the collateral, like having your spouse sign it or maybe taking a lien against your home or an interest in your life insurance, that kind of thing. Sometimes they're insistent on that.
Speaker 2 (08:48.024)
But the beginning of issue negotiation is a nice request. And so you should always ask for better terms, particularly on a loan this size that is being delivered by a
All right. Okay, next question from a psychiatrist in Virginia. Is there a specific net worth I should think about or should start thinking about umbrella insurance? How much should I get if my net worth is $1 million? So umbrella insurance, you know, it's something a lot of physicians have heard they should get. It's a little unclear maybe about what exactly it does. So essentially,
really simplistic explanation of this is umbrella insurance is designed to protect you above and beyond your other insurance, know, auto insurance, homeowners insurance, and particularly in the case of lawsuits, right? So if your car insurance or your homeowners insurance has a limit, your umbrella insurance should cover you beyond that limit.
but not medical malpractice lawsuits. Correct. Yeah. And in fact, if you have a pending lawsuit against you, whether it's medical or non, you will have difficulty getting an umbrella liability policy. In fact, you may be denied.
Mm-hmm. Yeah, and in the as far as the amount it is a reasonable idea I mean the minimum would be to get an amount that is equal to your net worth Your net worth is probably going to go up so you'll need to update this policy every so often It's also not the only thing to consider I mean you could get away with just getting a policy for the amount of your net worth and be done with it It does come in million dollar increments
Speaker 1 (10:32.128)
So one or two million. but another, another piece of this, I guess the urgency to get it would be kind of how your life is structured. So you own rental properties. You definitely need some, have a swimming pool. Probably needs water. Yeah, stuff like that. So definitely a good idea, but,
Water
Speaker 2 (10:53.72)
Trampoline in the backyard if you have dogs that are you know could bite your neighbor? So think of think of umbrella insurance as malpractice insurance for everything else in your life everything outside of Medicine right yeah, you know the one way is so a million is the kind of the least you can get I believe half million might be able to get but you know the cost of the stuff is so ridiculously low
I believe the all-in premiums is usually less than $500 a year. I've even seen as low as a couple hundred dollars a year. But there's another answer here, which is to get as much as they'll give you before you have to go through underwriting. And that might be a couple million. And so they'll ask you questions. They're looking for risk exposures like a boat or a trampoline, that kind of thing. They'll ask you those questions. But the wrong answer in how much to get is zero.
Agreed. Ben, tell him the red car story. You remember that one? The Porsche? Yes.
red car story.
Speaker 2 (11:57.225)
my story?
No, remember the doctor that...
yeah, yeah right. Yeah, so there's a physician that was driving, this is not a joke actually, it sounds like the beginning. Once upon a time there's a, yeah, so there's a specialist who's been a client of mine for at least 15 years and he got in an accident and the license plate alluded to the fact that he was a physician and he did not have this excellent umbrella policy, he just had auto and she found out that he was a doctor and he
she attempted to take him to the map. And so if he'd had umbrella liability policy, it would have taken away some of the fear and loathing. The other way I've had it explained to me by a, it was an insurance agent over 20 years ago. He said, you know, if you've got a million dollar policy, the insurance company is going to send someone to your defense. He says, if you've got a $3 million policy, they're going to send the A team because they're going to be on the hook for up to $3 million.
Right. Yep. Exactly. Yeah. You got a big target on your back as a doctor and this is just like one bill you got to pay.
Speaker 2 (13:00.938)
Absolutely. Yeah, you need to think like when you put MD in your email address or you put doc whatever on your license plate You know, you're just enhancing the target. It would be better to not be known in those places where it's so obvious
Okay, next question comes from Critical Care Physician in New York. At what net worth should I begin a financial plan? If my net worth continues to grow, do I still require a financial plan?
stunned. I'm stunned by that question. Yeah.
Yeah.
Yeah, and it's sort of just the way that it was asked essentially is alluding to them not having much money yet. mean, net worth technically has nothing to do with whether or not you need a financial plan. Right. Right. mean,
Speaker 2 (13:54.35)
It's not about the money you have, it's about the money you are going to have or want to have.
Yeah, so if you don't have any money, I mean, or just getting started, you certainly need a plan. You need to figure out how much you need to invest, how to invest, what your goals are. mean, that's the best time to get a plan. That's right. In the beginning, sometimes you'll speak with physicians who maybe they have a million dollars and they feel like they're doing pretty well and they're wondering if they need a plan. You still have
goals that cost well over a million dollars. College and retirement will bleed you dry if you're not careful. But even if you had a larger amount, a larger net worth, let's say five to $10 million. First and foremost, this might be a shock to some people. There are houses that are 10 times $10 million. I mean, so not saying that you would ever do that, but
It's easy to spend this money into nothing if you're if you don't have a plan, right? But even if you're not going to buy that House in sunny, California for 10x your your net worth. Yeah, you're not a big spender A plan simply tells you how to optimize your situation Yeah, I don't move for I mean what yeah, it could tell you how to manage that ten million dollars in a tax-efficient way
how to move forward. To do next.
Speaker 1 (15:23.402)
It could give you some ideas and put those ideas down on paper and how you might give some of your money away.
I got one for you. Okay. So when I hear this question, I think, well, zero, zero net worth, right? And by the way, net worth is like all your everything you own 401k house, cars, whatever, minus everything that you owe. So student loan debts, all that stuff. So I got one for you. You think of zero is like minimum net worth. That's not right. You know, we have young physicians who come to us and they have a combined net worth of negative half million dollars.
because of student loans and mortgages and car loans and stuff like that. and you think they don't need a plan? I mean, really, you know, paying off student loans, getting out of debt, everybody knows that that requires a plan, right? So I would say that there is no level of net worth at which you don't need a plan.
Yeah on that student loan example that that seems to be the thing that causes most stress for young physicians when they speak with me Yeah, and they need a plan for half a million dollars a retirement plan represents sometimes a ten million dollar plan, right? so
Yeah, it's funny that, you know, it's easy to get wrapped around the axle about a half million dollars of debt. But by the same token, that person is likely to have to pile up five million dollars in assets. These are liquid assets beyond the house. Right? So that's 10 times as much. And maybe it's not 10 times as hard because you're getting interest rather than paying interest. You're getting returns rather than paying somebody else's returns. But still, it's a huge mountain to climb.
Speaker 1 (17:00.558)
Yeah, yeah a plan. I think this is confused a lot. So I'm actually really Grateful that someone asked this question I Just don't see a world where you're trying to accumulate five million dollars and you don't have a plan on paper Yeah, doesn't have to be with us, but you should have one down on paper
Absolutely.
Okay, this is the OB-GYN question, OB-GYN in Virginia.
I'm sorry, you're going to be hearing about this for a while. I'm going to bring this up in the huddle.
Hopefully the camera caught my eyes squinting knowing that that's not a thing. That's good Okay, we have the money to purchase a mountain house in cash. Can we make an offer?
Speaker 2 (17:48.11)
So, Nice. I didn't, I don't know. I've only been to like Washington DC. Mount Vernon, right? That's a mountain.
Yeah.
Speaker 1 (17:55.18)
Well, it's a bit of a drive, but. So this, you know, lot of questions today that requires more details. So here's the questions you need to ask yourself if you want to buy a vacation home. This is just maybe you can come up with more. Of course, are you on track for your goals? So on track for college and retirement and certainly doesn't stop there whether or you're on track.
After you buy the house will you be able to stay on track is a big one, right? There's taxes upkeep and HOA fees that nobody really thinks of Insurance they they don't think about them because they don't think a whole lot about them in their in their own home Because it's sort of wrapped up in your mortgage and all it's just part of doing business But you will you will think about them when it's at a home that you visit maybe ten times a year, right?
insurance.
Speaker 1 (18:52.046)
I mean, HOA fees don't go down just because you visit less.
Yeah, and condos oftentimes have deferred maintenance and you buy in you get that surprise. Yeah, how about the gold plated couch? Right? mean, I don't know how much you can spend on a couch. I saw one one time this like $30,000. Mike. No, that's a couch. Yeah, does it have wheels and a steering wheel? Right? Because that's almost approaching the cost of a car. But this is the stuff that goes in the house as it costs as well.
Exactly. Another question asked, this family that asked me this question, they actually had $500,000 cash ready to go. you know, before, when we were talking about it, I thought, well, let's make sure that this doesn't belong in your plan. Some people have cash and they want to take it from their taxable account or something. And it's like, well, that's for your future. That's not for this vacation home.
Ready to go.
Speaker 1 (19:46.35)
And another one that is particularly important, essentially, let's say you're going to spend this 500,000. You think you're close to your goals, but you don't want to spend $500,000 on a vacation home and then go back, fall short on your promise to send your children to college. Yeah. Right. So those are some of the obvious questions. I think you would ask yourself to get to a yes or no answer. Can I buy this house? Some not so obvious questions you might ask yourself.
in just the decision whether or not it's a good idea, you can ask yourself why not just rent in the mountains?
Yeah, right. These mountains and other mountains and other places.
Yeah, how much time are you actually going to spend there and will family actually visit? This is a big one I don't think I think people have these great ideas that people will come and maybe they're not Their work won't allow it. They can't go up there ten times here with you. Yeah
I got one for you. Will this be part of your plan? Will it be a funding asset? Which is to say, you get the mountain home now and you hit retirement. Are you going to keep both of your houses? Are you just going to keep one? And to me, that's a game changer because when you buy a house, typically they appreciate over time and that's a good thing, right? So if you buy this house and it's an appreciating asset and you count it toward your retirement,
Speaker 2 (21:15.502)
That's almost like an investment, right? That's not really the intention, but it's likely to hold value as opposed to like buying a shoe, which is going to lose all of its value over 30 years. So I could see buying a second home as part of the plan for retirement, maybe part of the plan for college, but it's usually a shoe too short a timeframe. But where I see difficulty is when a family wants to own a second home and they have no intention of selling that home when they retire.
It's just another house. And that tends to impair people's progress. So I think that the future intention for this home has a lot to do with it.
I agree and I think kind of the you can ask yourself these questions see if you're on track and everything but when when I'm speaking with the position engaging their interest in selling if they said I would absolutely sell this if I needed to you need the money to retire a lot of the times it will work yeah it will and whether or not I mean maybe it's not a great investment right you're buying a condo and condos don't go up as fast that's not
It of depends on where it is.
That's not really the issue. The issue is 500 grand if you needed it would you sell? This family would and this family had great answers to all these questions I mean it was a choice between moving closer to family leaving the jobs that they really liked pulling their kids out of school or Buying a house in between them and their family right and they they made it as a whole family decision and by the way it I I've been talking to them about it for three years so
Speaker 1 (22:53.378)
They waited, waited for the right time on track for everything. did it right.
It's funny that when you have the cash, it takes a long time to make the decision. And when you don't have the cash, it's an instant decision. There's a lesson in there. And I like to see people save for stuff because it tends to make you a smarter consumer when you do buy.
Absolutely. They had they they've literally do have 500,000. The house is 495. They're negotiating because they they want to do it all in cash. And there's a couple things that need to be done to the house. Yeah. Right. And if you don't have and I don't see that if it's all on a mortgage. It's good to do.
Yeah. Do you feel like a little Debbie downer? Cause I feel a Debbie downer. feel like, like, you you invest in your business and it's going to explode and you buy your house and you can't afford it and your umbrella insurance and you're going to get sued. mean, it's like, usually we kind of have a balance for today. Just seems dour. Maybe it's because falls coming.
Maybe I you know, I sometimes I feel like that when I'm when I'm talking to families as well And I'll just call it out. I'll say hey, I feel like I'm saying I'm I'm the I don't know the Debbie Downer in this situation and they're like well, that's why we called you because it's nothing but Sun's sunshine and rainbows over here when we're talking about mountain homes.
Speaker 2 (24:10.318)
Maybe this is like Facebook versus evening news. All the bad news is on television. All the good news is on Facebook. And you kind of have to scroll Facebook while you're watching the evening news to get a balanced perspective. you know, nobody complains when things go well. They only are upset when something doesn't work out. And I think it's part of our job. Just let people know like, yeah, sometimes this works out. Most of the time it works out. But when it doesn't work out, here's how it looks. That's the...
That's the experience that we have. really the only thing we truly have.
Exactly. mean, but but here's there's there's another lesson in that that at least in this situation That's actually why I told the ending which they're gonna buy it. Yeah a good decision a wise decision is made slowly Right and If you if you can answer all these questions in the quote-unquote right way the right way is the one that gets you the house Yeah, and you are ready you will feel great about the decision and so
Mm-hmm.
Speaker 1 (25:11.916)
you know, is what it is. You gotta go through the tough
I like to say there's never been a fiduciary decision that was made in a hurry.
There you go. Yeah, exactly. OK, last question of the day. Spouse. This is the spouse of an internal medicine doctor in New York. She said, is not able to contribute to my 401k this year due to some time away from work. How can I make up for my lost savings? So the really short answer is save more in a taxable account, right? Yeah, but.
Hmm.
Speaker 1 (25:45.27)
Really what's going on here is this family are stair savers and they're sometimes warriors. And so, to your warriors out there, I just want to say, I don't believe that in the span of a physician family's career, that missing one year on your 401k is going to really hurt you all that much. This is about getting back on the horse and staying consistent. the, important thing is to this.
right.
Speaker 1 (26:15.114)
In personal finance in life, I really think the important thing is to control what you can and this person actually lost their job. Right. She could not control that. Yeah. And so there, you know, there is no sense. There's no wisdom in worrying about this. The important thing is to have an emergency fund for this happened. They did weather the storm and then get back into the workforce when you're ready and do what you can next year.
And that's the soft side. here's the other thing about 401ks. know, everybody thinks 401k is a way to save a bunch of taxes. And that's not right. Contributing to a 401k is a way to defer taxes. So you get a tax break this year, and you get a tax bill when you take the money out, right? And it has everything to do with the, with the tax rate you defer at. So if you're in the top bracket,
then it's a good idea to defer taxes. And then maybe when you're in retirement, you're in a lower bracket, that's when you pay taxes. So you want to avoid taxes at the top and pay taxes at the bottom, right? Taxes are kind of the opposite of stocks, you know, buy high, sell low, right? So, but I mean, the spread between the top marginal bracket and the average bracket the physicians experience is about 13 percentage points. You know, it's 13 percentage points on
about 30 grand. mean, it's, it's not the beginning and the end, you know, that's $4,000. So it's not worth getting upset about. And I think it's important to remember that again, you know, 401ks cash balance plans, deductible Roth IRAs, those kinds of things. Those are, you don't really save taxes, you defer taxes, and maybe you save taxes. And there are actually circumstances where you can be bitten.
by putting money in a 401k at a low tax bracket and then taking it out in retirement at a higher tax bracket. That's actually, that does happen and it's not a good circumstance. So again, like everything else in personal finance, there are a million nuances to this stuff and it's situation dependent. And okay, so your turn to play the drinking game this week. It goes back to your plan. Careful consideration of all the moves that you're going to make and how they fall in together.
Speaker 2 (28:34.67)
Yeah. So that's five questions. That's what we usually do, right? Yeah. Yeah. Okay. So I'll take us out. So we are financial advisors and we are open clients. We love working with physicians who have children. So if you'd to work with us, visit PhysicianFamily.com and click get started. If you have questions, you can send your questions to podcast at PhysicianFamily.com. You can call our answer line at 503-308-8733. And until next time.
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Speaker 2 (29:25.624)
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