Speaker 1 (00:00.078)
And at what cost? mean, what does this managed fund cost? Right? I mean, you can get a standard and porous 500 index fund for three basis points. there's 0.03%. And these managed funds, you know, they don't work for cheap. That could be, you know, easily 1%. So you're paying like 33 times the going rate for the sake of turning lemons into lemonade.
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 am Nate Renneke, Certified Financial Planner and Primary Advisor here at Physician Family Financial Advisors.
Thank
Speaker 1 (00:46.03)
I'm Bennett Lee, also a CFP and service team leader here at Physician Family. Today, we're gonna start off with a tiny little bit of personal banter. We're experimenting with this. If you don't like it, send your hate mail to podcastatphysicianfamily.com. But I like to break the ice sometimes with clients. And so I'm gonna break the ice with Nate today. So Nate, tell me, what'd you have for breakfast this morning?
It was a bad morning to ask me this question to be honest. Nice. So normally I will have like a protein shake or something. But this morning I tried something new, Ben. I got up with my wife because she gets up early to work out and I got up with her and then went on a walk because I needed some sun in my life. And so when I got back, I wasn't really that hungry. So I had coffee. That was it.
okay. you're sugar or no sugar? Okay, well at least you're not starting your days with a carbs kick. This is unusual day for me. Usually for me it's a Mufalata, which is a pickled olive mix, scrambled eggs and some kind of greens. And this morning, empty stomach, just raw dog in it.
No sugar.
Speaker 2 (01:55.074)
the podcast might, I don't know, maybe gives us a little nerves or something, but I like to come in with an empty stomach sometime. Yeah, I've been trying savory oats lately, though, and that's been really good.
Yeah, right.
Speaker 1 (02:06.636)
You know, I'm inspired by that. Someday I'm going to put chicken stock on my oatmeal, but not today. Okay, so you have a listener question for us, and we've agreed you're going to take this first one.
you
Speaker 2 (02:18.188)
Yeah, sure. So this is coming from a pediatrician in And she asked, can I consolidate all of my inherited IRAs and inherited workplace retirement plans into one inherited IRA? So the short answer is yes, you can. So if the workplace retirement plan allows, which I asked Kyle, he said most of them do.
basically the way it works is the original account owner and the beneficiary, if they match, then you can kind of stick it all in one place. So that's the short answer, answer yes. But the reason that this is worth the effort, I think, is that it just simplifies things when it comes time to do your RMDs. This person in particular, they had many accounts that they inherited, probably five or six.
that's kind of a pain to calculate them all separately. So if you can get them all in one place, get it balanced, you know, in the more accounts you have sometimes, depending on the type, it can be hard to keep your portfolio in balance too. So clean it up all in one place, one arm.
So what I like to call good financial hygiene, it's like it's like flossing your financial teeth, I guess there you go I have a little twist on this so about six or seven years ago, we helped the the surviving spouse of a physician kind of mop up what happened and this I'm familiar with the case you're mentioning because This person received an inheritance from not a spouse. Okay
But when you receive an inheritance from a spouse, there might be a reason to leave the 401k there because there are some special privileges that go with the 401k. Again, in 25, 30 years of practice, I've only seen this one time. So, if it happened again, I'd certainly go back and look up the rules, but I remember it being relatively complex when we did it. if you are the surviving spouse of a physician,
Speaker 1 (04:23.374)
This is something you really need to take into consideration before you kind of go rolling everything together. And we see that other financial advisors and salespeople that manage accounts are out for that 1 % and they can't have that 1 % unless they manage it. So they want to roll everything together. Whether it's great or bad for you, they want it all in one spot so they can bill for it. And that conflict of interest sometimes winds up with people losing
Rights and privileges or entitlements or tax breaks or or 1 %? Yeah, so be careful if you're if you're in that boat
Okay, good to know. Next question is from an interventional cardiologist in Oregon again. So I'm approaching retirement and I am currently starting to scale back my hours at work. However, I'm still paying expensive disability insurance premiums. Should I cancel my policy or do I still need the coverage?
How do you want to go? You want to this one? You want me to do it?
you know, this one is I'll let you go, but just to set the stage, it's very difficult for us to ever say cancel insurance policies.
Speaker 1 (05:39.778)
Yeah. So, in fact, not only is it difficult, it's against our internal policy to advise people to cancel their insurance policies.
I think it's important just to pull back the curtain about that. We don't know. We don't know if you'll need it or you won't. But I guess maybe we could start with what you should think about.
Yeah. Backstory on this, why we don't recommend people surrender policies is, it was about somewhere between 10 and 15 years ago, I had recommended that one of my clients get about $5.5 million in life insurance. And I was the one who originally recommended it. I think it was five years later after that, I mean was a period of time this person had done a good job saving, they piled up some resources, had some luck in business.
And I looked at it and I was like, yeah, I don't really think you need this life insurance anymore. I think you ought to let this go. And guy looked at me and he said, I'm pretty comfortable having it. Premium is not that much. I think I want to keep it. I was like, okay, it's your insurance. And about a year after that, he committed suicide. So I never saw it coming. I never ever had an inkling that there might be a problem, as is the case with suicide. You don't know.
But anyway, it kind of, through experience, I realized like, yeah, it's bad policy to tell people to get rid of their life insurance or disability insurance, any kind of insurance. And so I think the real answer to this question is looking at the need. Do you need the coverage? And that's something that we can assess, whether or someone needs it, and stop short of recommending that someone get rid of it. Because I think that is a personal decision, because if something happens, like if you turn off your disability insurance and...
Speaker 1 (07:25.026)
you year later you get disabled, you're going to miss out on a whole bunch of money. And I think the only person who can really run that risk and understand it is the person who's being insured, the person who stands to benefit. you know, so what are the factors here?
Right. you know, it's funny as I got this question almost, I, well, it was just the, I, should I reduce my disability insurance or should I get more? and there's from a much younger doc, but really the, the main question you should, you should ask yourself, I think, I mean, I think this is the number one, could you retire today? I mean, that it really boils down to that because
I hear people it's a you know feels expensive and right now the economy and everything it feels like you're kind of trying to look around and find extra money But you know when I think about it too. I'm like if you're close to retirement You're about to cancel the thing that maybe you haven't been paid out on in years Yeah, and you just got a couple years left. How much is it really benefiting you to cancel it? I do get it.
It's expensive insurance, that's because it happens more often than you would think. That's why it's expensive. People use it. Life insurance is cheap because people use it less often. So could you retire today? Meaning, and this is kind of industry jargon, but are you self-insured? Do you have enough money to where if you were to die for life insurance or become disabled or disability insurance that you could cover yourself and you just don't need it anymore? So could you retire today?
How far away is your retirement date? And then another option would be, can you just reduce it?
Speaker 1 (09:13.004)
Yeah, just reduce it. Yeah, rather than getting rid of it. Just reduce the one that has the the highest cost to benefit ratio, right?
Right. Like imagine you had just for easy numbers, $20,000 in coverage. Every month you get 20,000 bucks and you got that when you were young or 15 years ago or something and you would have needed that 20 grand. Sure. Maybe now you need 10. Right. You know, that would cover the quote unquote gap. Yeah. So don't just, you know, take ticket bit by bit.
look a little bit closer into your policy, see if you can reduce it. Look at your plan. We keep saying this, we'll keep saying this. Have a plan, look at it, see if you're there and you can retire. That's really what you need to consider to answer this question.
Exactly. Yep.
Okay, then we got a interesting question here. It's from an on we're getting a of organ calls today. Okay. oncologists in Oregon. So what do you think about this new investment strategy?
Speaker 1 (10:24.194)
I'm already worried.
I'm already worried, red flag, anytime new. So new investment strategy, a managed fund that approximates a particular index, but takes advantage of equities that are down on the year and harvests those losses while redirecting funds into a similar asset, into similar asset equities. This is straight from the...
Horses, mouse, and her. Yep.
It generates a significant amount of tax lost harvesting. I'm going to keep going. Okay. We will likely want to sell our house in several years and we will have several hundred thousand dollars in capital gains. I'm wondering if it might make sense for us to build up some tax losses to offset future gains.
Okay, so I'm going to hit the technical and I'm gonna hit the big picture here. All right. So I heard the word us indicating that married, right? Okay, so we're talking about primary residence, what they call primary residence relief under the IRS code. And so for those of you who are not versed in this, if you're single and you sell your home,
Speaker 1 (11:33.782)
you can exclude up to $250,000 worth of capital gains on that home. If you're married, you can exclude up to a half million dollars worth of capital gains. That's the simple version of it. The devil is in the details, right? So, let's say they're married and they bought the house for a million and they sell it for a million six, they can exclude that $500,000 in gains from taxation and they have $100,000 worth of capital gains for which they'll pay probably $20,000.
23.8 % federal and here in Oregon 10 % more because Oregon loves his trees. So it says a $30,000 tax bill. So I can't blame somebody for wanting to defray that bill. However, I have a really hard time with things that sell themselves as loss generators. It reminds me of the Saturday Night Live skit I watched when I was a kid and that a guy who was like caveman, he was Tarzan.
And he said, Jane, good fire bad. Right. Okay. So what I would say is gains good losses bad. to my knowledge, there's, there's no place in the tax code where you can make money taking losses. It's always lemonade from lemons. I'll give you some examples. we used to be able to deduct some of the cost of our children, right? But you know, kids cost more than any tax break. You're going to get home mortgage interest deduction.
Yeah.
Speaker 1 (13:03.288)
You pay $10,000 worth of mortgage interest and you're going to get to deduct all that. And maybe your tax benefit is $3,000, but you're still out that other seven. Right? So you still have a loss. You can deduct capital losses on your stocks, right? So stocks goes down, you lose, I don't know, $10,000. You can either offset a gain with that, or you can use it.
use it offset of $3,000 worth of ordinary income in any given year and roll your losses forward. But you have a loss. have a loss. Losses are bad. And at the same time, I would not say taxes are bad. I'm going to go out on a limb here and just be totally open. I'm happy when I pay my taxes. I feel like I get a lot for it.
I don't have to worry about somebody dropping a bomb on my head. I open up a bottle of pills and I know it's not going to kill me. I drive down the freeway and there's not bumps in the road because I'm paying for interstate highways. I mean, the list goes on. So I'm happy with my taxes. I know it ain't perfect, but it's better than other places, right? So the thing I don't want to do, and I don't want my clients to do, is pay more taxes than they have to, right? So it makes sense to be careful, but anytime you get a tax break, it's because you lost money.
It's because money went out. So there's no way to gain that. Now with this quote unquote new investment, a managed account where maybe they own the 500 or 1000 largest stocks and one of those gown goes down. they sell it for a tax loss and they buy something similar. Right. So maybe, I don't know, Chevron goes down and Dutch Dutch petroleum goes up, Royal Dutch. Right. The question I would have is like, how likely is that? How likely is that?
one major company is going to have a loss while all the other major companies continue to hold ground. It seems relatively unlikely. Also, then you're kind of picking winners and losers. So at some point, you're going to be underrepresented versus the index, which we know for me search is bad. And then I look at the bigger picture. in our clients accounts, who have taxable accounts, our algorithm sweeps those on a daily basis to harvest tax losses. And so
Speaker 1 (15:22.574)
in your S &P 500 fund, if you bought it, geez, like last week, you already have a loss in that, right? And so, if that were with us, the algorithm would sweep through there and it might sell that and buy something that's similar. that's another kind of tax loss harvesting. I think tax loss harvesting is good. It's not something that's super valuable. It's more like a version of tax deferral.
Some people get really wrapped around the axle about tax loss harvesting genuinely is really not that big a deal, right? Because you have to have a loss first Right, but you know, I would say that if you see something that advertises Tax savings as the reason to get into it, especially generating losses even passive passive losses I Would look really hard before I jumped into that I would I'd be very doubtful about put money that because by definition
you're going to lose more than you'll gain in tax breaks.
Yeah. Yeah, you pretty much nailed it. I mean, I don't know if there's much to add it. It mainly for me, it's, you know, you make the best out of a loss, but it should never be advertised. mean, like, what are they going to go buy instead? And, you know, if there's a tiny little loss and they're trying to make, you know, make good on their promise, are they going to be buying and selling stuff unnecessarily when they're small? mean, it just
And at what cost? mean, what does this managed fund cost? I mean, you can get a standard and porous 500 index fund for three basis points. So it's 0.03%. And these managed funds, they don't work for cheap. That could be easily 1%. So you're paying like 33 times the going rate for the sake of turning lemons into lemonade. It's just, I don't know. It's hanky.
Speaker 2 (17:12.364)
Yeah, doesn't really pass the sniff test to me, yeah, okay. Good. Next question is from a urologist in Chicago. They said, recently inherited a few hundred thousand dollars from my dad's, from my dad and it was all in single stocks. He always talked about how well they were, how well they were growing. Should I keep them?
Ben, did you know, I looked this up, because this got me curious. Did you know that the average lifespan of a company in the S &P 500 is like 20 years?
I didn't know that. guess it's not really surprising because we didn't have Tesla 20 years ago. We had Nvidia, right? But they weren't where they're at.
Yeah. And over like the span of 50 years, that average has gone down obviously from new exploding tech companies. But even 50 years ago, it was something like 35 years. Yeah. So I was interested in that because it's like, dad could have picked some winners, but that doesn't mean this company will even be around by the time you retire. Sure. Maybe, maybe not. But the idea of picking single stocks
Yeah, exactly.
Speaker 2 (18:23.924)
is kind of inherently broken. Companies don't last forever. And no matter how well it's done, it's like good on him. He picked some good ones. Now it's time to choose a strategy that is much more time tested and works with your retirement plan. And so it works with your retirement plan. Like, what do I mean by that? I mean,
you
Speaker 2 (18:50.606)
your retirement plan should tell you how much stocks and bonds you should have. Right. Right. And then time tested. That's just diversification. That's that's what I mean here. And you are high. You are not diversified if you have a big chunk of your money and a few stocks.
Yeah. and you know, the other question is, stocks did well. Well, I mean, if you're holding the, you know, top 10 stocks that are in the, like I say, the US market index, which is what we see all the time, there's nothing magic about the S &P 500. keep referencing it because quite frankly, that's what we see all the time. mean, if I have incoming client accounts and Reddit, I mean, it's like, that is the thing de jour. Everybody wants it.
So there's a thing called closet indexing, and that's where a money manager will intentionally own most of the stuff that's in the S &P 500 and they'll try to add value around there by picking what they think are hot stocks. Most of time that doesn't work out, but they're never far from the mark. So when dad owns a fistful of stocks, he's not intentionally doing window dressing and this kind of chicanery, but the stocks that are doing well tend to be well-known.
Right? And so that's why people buy them and they tend to be the kind of stocks that you'd find in the top 100 stocks in a large index. that's the first thing. Second thing is when someone dies and they leave you money, unless they're leaving it to you in an irrevocable trust, there's a step up in basis, which means if they bought it for $10 and it's worth $50 when they die, you get it at $50. And if you sell it the next day for $50, then there's no gain.
Right? You don't pay taxes on that $40 in gains. So that's a step up in basis. So if your basis is stepped up and if you could sell this without paying capital gains and if the performance is likely to be comparable to the index or perhaps worse, and if it's easier to own an index, why would you bother to continue to hold those stocks except for maybe you have some
Speaker 1 (21:03.694)
maybe that has some sentimental value to you. In which case, you know, you could keep one share or ten shares of each one of these, or maybe your favorite, the one that, you know, dad talked with you about, and you could pass those down over the years, right? But there's no reason to, you know, risk your retirement or your kid's college on something that has sentimental value in a major way, right? Of where it's 25 or 50 % of your portfolio. If it's 5%, I mean,
Gosh, you can swallow arsenic in small quantities and it won't hurt you. This happens all the time. So it kind of depends on the amount, right? But I think there is something to honoring the heritage, maybe wanting to pass these stocks down for years and years. And if it's a small amount and the company expires, no big deal, but there's a chance that it will be some new technology and it will explode and it'll make a great family story. great family stories are part and parcel to kind of handing them
down the torch of investment culture and savings culture.
Right. Yeah, I really appreciate that answer. In fact, I have a personal story about that. My grandpa did something similar, but some stocks did well. He would talk about them sometimes. But funny is he bought him when he was really young and he also told me he bought some real stinkers too. So he was pretty open about it. But the hard part for him was
As he got older, they had so much gain, he didn't want to sell them, despite the fact that he had learned a little bit more about investing and his new purchases were all diversified. So the point wasn't that he thought this is going to be the best company, you know, for a hundred years. The point was he didn't want to pay taxes. So that step up in basis is a beautiful thing. And, you know, in a way it was honoring him by selling the positions.
Speaker 2 (23:03.05)
once the taxes were no longer owed with that step-up in basis. Exactly. I like that idea though. If it's sentimental, hold a little bit. But in this case, it was a few hundred thousand. So depends on if that's.
Even grandpa knew better. Yeah.
Speaker 1 (23:20.76)
I'd like to say, I'm going make this up right here on the spot. Anybody can beat the index for a little while, but only God can beat the index over the long haul.
Yeah. Nice. OK. Last question here. Dermatologist in Pennsylvania says we're moving. Looking at mortgage rates, should we consider using an arm?
This is all you, baby. This is all you. You're our housing dude.
Yeah. you know, it's depends on which day you're listening to this, but at the very, at this very moment, interest rates are down a bit. and so they were sort of like, is it worth it to use an arm? So I'm going to start with what an arm is. It's an adjustable rate mortgage. And as soon as I say arm to anybody I'm talking to, I feel them sort of clam up a little bit. Yeah. And the reason they clam up is because of the 2008 housing crisis.
When arms were completely used and abused. It was a disaster. People would get these arms. They weren't even really the arms you're looking at now. I they would just give a loan out to anybody. One of my favorite movies is Big Short. It details all of this out and they're giving loans out to people's dogs.
Speaker 1 (24:19.883)
Absolutely.
Speaker 1 (24:39.342)
You get a loan, get a mortgage.
So I get it, adjustable rate mortgage sounds scary, but in the end of the day, this is just a tool. And sometimes if the tool is right for the job, you can use it. So consider your goals for this house. think an arm sometimes makes a lot of sense for first time home buyers. know, they have 15 year arms, which means it doesn't, the rate doesn't adjust for 15 years. And in my experience, people don't stay in their first house for 15 years.
Right. So hold on a second. let's assume for a moment that a 15-year arm is the right fit. So I know there's also 15-year conventional mortgages, right? Just amortizing mortgages that are fixed rate. So why would a person finance their house with a 15-year arm as opposed to just a 15-year fixed rate mortgage?
Yeah, well the fact that it adjusts takes risk away from the bank. The bank says, okay, well if you'll let me adjust this in 15, 10, 7, 5, whatever arm you choose, you'll let me adjust this in 15 years, well then we're not at risk of giving you a rate that's really low for 30. Now if you scale all the way down to five-year arms, they're like, we get to adjust this in five years. So if we give you
years. I see.
Speaker 2 (26:03.182)
a rate that's better, we'll give you a better rate now than the posted rate for 30 or 15 year mortgage. But we're taking risk off the table because in five years we get to adjust to whatever rates are at the time. And so you can sort of, I mean, assuming you know your future, which you don't, but you know better than the bank, you can sort of game the system a little bit here. If you know you're going to move within 10 years, you can save on your rate and get a 10 year arm.
And so for this family in particular, the cool thing was they already wanted to get a 15 year mortgage. Cause they got to pay this house off before they retire. They're a little nervous, like maybe it'll take 18 years, but definitely under 20. I thought, well, the rate was a full percentage point lower on a 15 year arm. So they can save a thousand dollars a month.
Speaker 2 (27:00.59)
And let's just say worst case scenario, they don't hit that 15 year goal and they paid off in 20, well, 15 years from now, that mortgage is going to be really tiny. So even if they had to go with a terrible rate or they couldn't refinance this, which by the way is a whole nother
It's going to be tiny.
Speaker 1 (27:19.03)
another strategy
Just refinance before 15 years is up. So if they got to that point and they had to take the adjusted rate, know, they might have in this situation, they may have a couple hundred thousand dollars left on this mortgage, which if they really buckled down, they could pay off really quickly.
Okay, cool. Okay, so I have some global mortgage trivia for our listeners today. Gather around the fire, because we're going to... Uncle Ben is going to roll out the mortgage trivia. Okay, so did you know that fixed rate mortgages are a uniquely American thing?
In most countries, mortgages are variable rate. They're adjustable rate mortgages, pretty much like across the globe. It's just, we're just weird. We have these fixed rate mortgages, really unusual.
That is interesting I actually did not know that that's right Yeah, I mean So, I mean what does that say about us it says that I'm trying to protect all the debt. willing to take out
Speaker 1 (28:27.602)
Well, you know, I think it says that our, you know, most of our mortgages are backed by the federal government. that, you know, that the lenders are not going to have a crisis on their hands. That's what it says. It says that we have a strong government for a variety of reasons, good and bad, right? But I mean, that's where we're at today.
interesting. yeah, to kind of wrap that up, I think it's right in certain situations. There's basically a small risk involved. And if you pin it or measure it up against your life and your plans, it could be a
Good. was waiting for you to say plan. We're have to have it. We're gonna have to have an on air drinking game where every time you say plan, I take a shot of kombucha and we laugh and it's just like coming out of our noses.
Yeah, there you go. Right. Yeah. Well, hey, it dictates a lot of things in your life. So, you know, if it works with your plan, go for it. If it doesn't. And really, another big one. A couple years ago, the rates weren't really all that much better.
Right.
Speaker 2 (29:32.544)
So take a look at your options. it's a good savings, works with your life and your plan, then go for it.
You said virtual drinking plan again. Okay. All right. I'll take us out. So thanks for listening to the Physician Family Financial Advisors podcast today. As usual, we're open for business. So if you go to physicianfamily.com and you click on start, then you'll have a chance to schedule an interview with me. Here's how it goes. If you are a closet DIYer, you're reluctant DIYer, you're a person who should be doing this yourself, but you're not sure.
Sign up for a call with me. Give me a ring. I promise I will not bend your ear. In fact, if you're a DIYer, we're not interested in serving you. We want to serve people where they want good advice, they want counsel, they want outcomes, and they still want to understand what's going on. But if you're a DIYer, we will get to the bottom of that and I will give you encouragement and tell you to keep going. So that's probably about half the calls that I have. I say, hey, you should keep doing this yourself. So...
and about one out of four people that we actually take on as clients. So have no fear when you call. I promise it will be no more salesy than what you get on these podcasts. So if you're not ready for that and you have a question, send us your question at podcastatphysicianfamily.com or call us at 503-308-8733. I got to warn you, you'll be talking to our answering machine, so there's no sales pressure, no live person there, okay?
So thanks again for listening. Until next time, remember you're not just making a living, you are making a life.
Speaker 2 (31:08.91)
Thank for listening to the Physician Family Financial Advisors podcast. Are you getting all the tax breaks you really deserve? To find out, get your copy of the Overtax Doctors Retirement Investing Checklist, available at PhysicianFamily.com forward slash go.
This show is for educational purposes only and is not advised. 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.
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