PFFAP-PYP-24-0620-Ben and Nate Questions 8 EP 75-v1
Voiceover: [00:00:00] 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 performance is no guarantee of future results. Read show notes for full disclosure.
Welcome to the physician family financial advisors podcast, [00:00:15] 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.
Nate: Hello, physician moms and dads. I am Nate Reneke, certified financial planner [00:00:30] and primary. And
Ben: I'm Ben Utley, a certified financial planner and the service team leader here at Physician Family.
Um, so Nate, what are you hearing from clients these days? What kind of questions are, are coming up in [00:00:45] just the ordinary course of our work with them?
Nate: Yeah, it seems like this time of year, we get some, some changes in people's lives. People like to, uh, make changes during the summer. So I got the, the first question comes from a [00:01:00] cardiologist here in Oregon.
Uh, and they asked, they said, I want to build a house. Big enough to take care of my family and my aging parents. Will this derail my retirement? [00:01:15]
Ben: I haven't, I have an answer on the tip of my tongue, but I'm curious. You, you are our, our housing guide here. So what's your initial answer to that?
Nate: Yeah, well, um, I'll save the a little bit.
Okay. So I'll play a little keep away with [00:01:30] the whole planning part of it. First thing that comes to mind when people say this is, uh, a little bit of professional fear, to be honest. Um, Professional fear for you, for me. Yeah. [00:01:45] And it's not necessarily because their retirement plan will be completely obliterated and maybe it will, maybe it won't.
That's where the planning comes in. But I hear all the time, I don't know about you, but people will, Do an add on to their [00:02:00] house. They'll buy a bigger house and hopes that everyone will come stay with them. And then no one comes and stays with them. I hear it all the time. And it's, it's, it's a nice thought.
And I would, I'd be lying if I wouldn't, if I didn't say like, I've had the same [00:02:15] thought with, with my parents or even. Right now we have, uh, my grandmother in law with us, but a lot of times at that age, they don't really want to leave their house and everyone's a little different. Sometimes they have to, but that's a first thing that comes to mind.
What [00:02:30] about you? Well,
Ben: so, um, when I saw this question on the question list, I didn't think of it as being as loaded as you're, as you're taking it to be. As you unpack it, I'm like, Oh man, there's a lot here. So, yeah. Uh, you know, this is gets to taking care of aging parents, right? Right. [00:02:45] You know, I, I think if I was talking directly with that client, the question I would have is whose idea is this, is this your idea, you know, Dr.
cardiologist, or is this your spouse's idea? You know, where, how did this idea come into your head? And how [00:03:00] involved were your parents when this happened? You know, are they, are they like, Hey, we'd like to come live with you? Which I just find really shocking and hard to imagine. That's I know that in some cultures that's true.
Um, I haven't seen it very often [00:03:15] though. So that'd be the first question I have is whose idea is this? And the reason I'd ask that is because I want to know whether or not this is going to work out right. I want to know whether or not grandma and grandpa are going to actually come live with the kids and the grandkids and how that's going to go.
And then [00:03:30] I'd also wonder like, what's the layout of this, of this home. So,
Nate: yeah, yeah, there's a whole, like you said, it's a lot to unpack. There's a whole nother side to this, which is just the actual act of doing it. Um, Big thing here too, is a lot of people want to [00:03:45] do an add on or the change their house.
And sometimes it's a lot easier, a lot cheaper just to go buy a different house. You know, uh, there's, there's things that go into building and adding on. Like, um, one of my closest friends [00:04:00] is actually my real estate agent. And he had to stop me one time and say, Hey, you need to be careful. And your neighborhood houses sell for X and you're building your house up, hoping it will sell for Y and it won't.
Ben: Yeah.
Nate: Like you can't overbuild your neighborhood. [00:04:15] Mm hmm. Um, so there's more than just, should I, can I afford this? There's, there's more to that, to it than that. Uh, will it be used? Or are you just putting a bunch of money into something that will never pan out the way that you hope? [00:04:30] Meaning people won't actually visit or move in?
I gotta tell you,
Ben: let me jump right in here. Okay, so yesterday, literally just yesterday, I was on a live call with a client and what they described in their home renovation sounded like an episode of [00:04:45] HGTV. Yeah, where they start off with a home, home reno, they open up a wall and they realize that the home is not as structurally sound as they thought it was.
And in fact, it's a two story home and evidently somebody took a one story home, renovated it and added the second story. And in the [00:05:00] process they didn't do the earthquake proofing and the, basically it was, it was as if they just popped the roof off, added some walls and added another roof. They didn't do any of the structural stuff.
So when the structural engineer came in to certify it, he wouldn't enter the [00:05:15] building. Mm
Voiceover: hmm.
Ben: He was terrified to enter the house. They found that there were some, some wings that were added without the proper footing. And uh, basically, I mean, the house would not pass muster there. They're more than 200, 000 extra dollars [00:05:30] into this project than they thought that they would be.
Nate: Yeah.
Ben: And you know, I was just, well, it's literally looking around for the cameras, for HDTV. Like this looks like a bad episode, you know, they open the walls and everything's ultimately they cut this down. Everything's fine. But there was no cut this down. It was literally [00:05:45] just an extra 200, 000 on top of, I don't know what it was already six figure rentals.
So yeah, yeah, it was
Nate: a big one. I was on that call with you and oh, that's right. Yeah. Yeah. And uh,
Ben: yeah,
Nate: it's, it's been a long process [00:06:00] for them, but you know, one thing that. Uh, at least because while, uh, that client admittedly heard me say, you probably shouldn't do this. One thing that they did kind of get right was that their neighborhood could.
Could [00:06:15] hold up the, the, the money that they're putting into their house. So they could sell it for what it's for, what they put into it. They didn't wipe out their emergency fund to
Ben: do it and borrow to do it. And they've got, they're flush with cash. Fortunately. So it's, you know, the story's going to end well, but it's, it, it was [00:06:30] far uglier than they, than
Nate: they thought it would be.
And for most, they're not that flush with cash. Um, because really a lot of times if you're investing. Funny enough, if you're investing the right way, you would never be flush with that much cash, but true. Yeah. So it's, [00:06:45] it'll probably work out for them. Um, but the bigger thing is the big, why are you doing this?
And in the midst of aging parents, it's really easy to, uh, just lose yourself in the whole process of trying to take care of them. [00:07:00]
Ben: Okay. So let me play devil's advocate for a moment here. All right. So in the, in the nice scenario, you know, you go, you build this house, you're, you're on budget, you get a home, this, everything's rickety about it.
Just right. Okay. Your folks, uh, you know, [00:07:15] pack up all their belongings and they move in with you and you know, they, they die gracefully in their sleep 10 years from now. Okay. So that's, but you know, I've, I've had, uh, family members in longterm care, you know, older family members, I know how some things go.
So let's say that they move in [00:07:30] with you and then just, you know, within a matter of months they need memory care and now they're moving out or they move in with you in a matter of months, something changes about their health. And now you need, you know, uh, nursing care, like either in home or outside. I mean, there's so much can [00:07:45] change.
Uh, Or maybe they move in and it doesn't work out and they want to move out, you know, and so now you have this big home that you've put money into, you're locked into it for a while. So, but you know, I guess, so to answer the question, you know, is this going to derail my [00:08:00] retirement with all these things in mind?
I think the answer is still, at least for a cardiologist, the answer is no. And, and here's why. So, you know, I both know that, You know, people do buy a larger homes, but larger homes, you [00:08:15] know, homes appreciate over time, they, they grow at least the rate of inflation. Historically, it's been inflation plus about 1 percent is what we've seen home prices appreciate.
And of course, on bi coastal regions, you know, we've seen them grow faster in recent times with interest rates being at all time high. I don't know if [00:08:30] that's going to continue, but at any rate, you know, home prices do go up over time. So, you know, whether you put your home in. you put your money in stocks and bonds or whether you put them in a home, as long as it's appreciating, and as long as there's not a risk of a [00:08:45] large risk of loss, it's okay.
It's not like you're buying a pair of shoes that are going to depreciate or, you know, some, some user good that's kind of go away. It's in a home and it's in land and that's generally solid. So, uh, I think so long as. [00:09:00] You know, they build this home, things go well, and then they downsize in retirement. They move into an appropriately sized home.
I don't think it's going to, I don't think it's going to demolish the retirement.
Nate: Uh, agreed. Uh, the, the big, the big thing there is the willingness to downsize if you need [00:09:15] to, may or may not need to, and you may plan to never, but if you had to, would you downsize and think about how your parents are now and someday that will be you and do you really want to.
Yeah.
Ben: And I guess [00:09:30] it also depends on how tight retirement is. You know, if, uh, if you're just way ahead for retirement and you buy this home and you keep it forever, no big deal. But if you have a borderline retirement and you're squeaking this home in, and that's a whole different story. So I, yeah, again, you know, the answer is going to [00:09:45] be personalized, but here are all the factors that I would consider if we were looking.
Right.
Nate: Yep. Okay. General surgeon in Virginia. Okay. Uh, they, they are approaching retirement. So the retirement's kind of around the corner and they're looking at their health insurance [00:10:00] options and they want to know, does a high deductible health plan, an HSA eligible plan makes sense for older physicians?
Okay. And, um, I actually have been getting this question more and more because we, you know, are at the top of [00:10:15] a mountain screaming about HSAs all the time. So they want to know, is it right for me? And, uh, once again, it is personal to you and your, your own health costs. So if you're, if you're not all that healthy, then it may not work for you, but [00:10:30] let's say you are.
You are a reasonably healthy person, even in your old age, a high deductible health plan can work for you and be super beneficial for retirement. It's not as beneficial as if you were to start saving early, but nothing [00:10:45] is right. Right. A Roth IRA isn't as beneficial the later you are, but it's still great.
It's the best you can do at the time. So I would say, uh, be careful that you're not going to run into some big health bills, but if you're, if you, Can reasonably expect not to [00:11:00] then high deductible health plan can work for you even as you're approaching retirement. Yeah, right
Ben: if you're if you're generally healthy and you're not expecting, uh, You know, care that you is optional, then I think it's a, it's a good way to go.
Um, there's an interesting twist [00:11:15] here. So when you turn 65 and you become Medicare eligible, you can no longer contribute to health savings account. So of course, most people turn 65 somewhere around in the middle of the year. And so in those years, you can make a pro rata partial. [00:11:30] So, you know, if somebody's 64, it might not be worth all the hassle of it, but if they're in their late fifties and certainly it's worth it provided that their health care situation is, is appropriate.
Yeah. That's huge tax savings. I like to say [00:11:45] that HSAs are the best, the best tax savings vehicle that physicians have because they have all the growth characteristics of a Roth or backdoor Roth. They all have all the tax deduction characteristics of an IRA, but you do not require a Roth. Required to take the money [00:12:00] out and you can spend it on, on healthcare, which is gonna be your greatest, uh, you know, your greatest expense in retirement.
So it's kinda like the stealth backdoor Roth. IRA also called the health savings account 'cause they're, they're triply tax free or tax deferred.
Voiceover: Mm-Hmm. .
Ben: So it's just, [00:12:15] um. It's amazing how long it takes people to wake up to these things. I remember with 529s it took me almost a decade to get people to jump on board with 529s once they came out.
But HSAs are very similar in that regard, so, uh, you know, if you don't have one of these, we're coming up on [00:12:30] open enrollment, you need to take a good hard look at this because there's a big tax break in there for you worth thousands of dollars. Yes.
Nate: Okay. You asked me what people are talking about. Uh, this time of year, people love to talk about housing.
So they end up moving or changing jobs a lot. [00:12:45] And part of this is, uh, changing states. So a lot of times this time of year, you know, kids get out of school and they think, all right, are we going to do it this year? So that's what's happening with this, uh, double doctor family in Pennsylvania. So they're changing jobs, changing [00:13:00] states.
And they asked me, Okay. How do I buy a house a few months before selling our current?
Ben: Yeah, this is the, this is the old don't want to move twice problem, right? Yes, exactly.
Nate: I think they have four, uh, [00:13:15] four children, four girls. Wow. And they have some au pairs in the mix too. Okay. So, um, how this normally goes, Is when people think or when they get started.
Okay. So they're searching for houses and they find the one they [00:13:30] want and almost a hundred percent of the time they will come to me and say, this is the one. Yes, this is the house that we desperately need. It has everything. We're never going to find another one. Like how charming. Yeah, lost
Ben: my slipper.[00:13:45]
Nate: Yeah. Yep. And it, uh, over, over the years I've gotten more and more bold with just flat out saying, You That's not true. But, uh, nevertheless, they, uh, they think it is. So, uh, if you want to buy a [00:14:00] house in a different state and you can't line up the sale of your current home, you cannot, you don't have the luxury of going to some, uh, I don't know, rocket mortgage or something like that, that maybe has [00:14:15] the very, very best rate, but they're not going to be flexible with the financing.
Ben: Yeah.
Nate: Okay. Um, and for these folks, they had plenty of equity to make the down payment on this upgrade in home. It's a more expensive area, all that, but [00:14:30] they don't want to move twice. Just like you said. Yeah. So they got a decent quote from a, uh, Traditional mortgage company, and I stopped them in their tracks and said, you need to find a mortgage broker who can help you be flexible.
And so [00:14:45] this is just, this is about as complicated as it gets, but I would just want to show you what's possible. Um, and, and this is one, uh, uh, with a mortgage broker, kind of a, I call him boutique. He's really not, but it's just not an enormous company. You've [00:15:00] worked with them for years. Um, and So we get on the phone and we, and we found out that he can get, they should go get a HELOC, the home equity line of credit on their current home.
Um, and then at that point, maybe you have enough for a down payment, but if [00:15:15] you don't, you can get approved for a bridge loan on the next home. So there will be four loans in play for a couple of months. There'll be a HELOC on their current home. A mortgage on their current home, a [00:15:30] HELOC or bridge loan on the second home, and a mortgage on the second home.
And then they'll have to float all four of those loans until they sell. Okay, so you have to be careful in the planning of this, because you need to make sure you have enough equity in your current home to clear The two HELOCs in the [00:15:45] old mortgage. Right. But in their situation, they did. So, uh, the story here really is you need to find people who can understand your situation and work with doctors all the time.
They know about contracts and do the math to [00:16:00] see if you have enough of a down payment and, uh, and you can find someone that can be really flexible with the financing. You can get this done. So that's what they'll be doing. They're, they're moving in, in phases. One, one doctor's moving first, next doctor's moving second.
And, [00:16:15] uh, by the time they get there, it'll be super clean. But in the process, you kind of got to get in the mud with your mortgage broker a little bit. Have, um, did this couple, did they consider
Ben: a lease back?
Nate: They did. And, uh, Because the home is so special. [00:16:30] You
Ben: wanna unpack that for a second
Nate: so that Yeah, yeah, yeah.
So, uh, lease back or rent back, you can negotiate that in a contract. So when you're selling your home, you can, uh, tell the seller you need to rent back from them, which is like you're renting the house you [00:16:45] used to own for however months. You dec many months you decide. A lot of people are scared to do this because they feel like they won't be able to sell their home.
If they want this rent back, but I haven't actually seen many deals go South because you [00:17:00] ask for rent back. Yeah. Um, it were not two years ago. Maybe it was impossible. You had to be all cash and your deal had to be perfect. Uh, cause there was so much competition, but that's softening and most people need some time to [00:17:15] move out of their house.
So even the person you're buying from might want some rent back. So just understand that rent back is an option. And here's what I would say. Um, Oh, sorry. I didn't say the last part. When you're buying a house, the house you're buying from [00:17:30] that, you can tell that person, we want to move in three months later.
Would you be willing to rent back from, uh, to us? For three months they can say yes or no. But the key here is if you have [00:17:45] a good real estate agent, you just tell them what you want. Yeah. Tell them what you want. And they should be able to go make that happen. It's not all on you here. So I am an advocate for real estate agents, no matter how much some people [00:18:00] don't like them.
Yeah. A lot of times they will know how to negotiate your deal for you. You just have to tell them what you need.
Ben: I think
Nate: we
Ben: could do a whole show on how to pick a real estate agent. Cause I think so. And I, you know, I could, right now I can whip out three tips about like how not to pick out a real estate agent.
Cause I've, [00:18:15] I mean, this is, this is the deep end of the pool. I mean, it's, it's gotta be a six off and seven figure transaction and getting that right. I mean, the, the swing in there could be easily a hundred thousand dollars, a couple hundred thousand dollars, [00:18:30] depending on how things go. And it's, it's worth it to have a real professional on board at that time.
I've just, I've seen a lot of situations where it didn't go well, and you know, there's always the, the, the hedge cause here that if you have a good agent, and so picking out a [00:18:45] good agent is important and pro tip here, hint, there's, there's a small probability that your best friend is going to be the best real estate agent.
Nate: Very small. Yeah. Yes. Or your aunt or anything like that. And that's hard for people because [00:19:00] I feel like it's just like any other profession, but you know, good real estate agents are hard to find. Yeah. So, but if it goes south, you don't want to have
Ben: to sue your aunt or your best friend. Right.
Nate: So, yeah, that's true.
All right. Um, let's see. [00:19:15] Next question. Is it for, uh, interventional radiologist in Utah. And they asked, should I be more aggressive with my college investment strategy? So full disclosure, they are in a target date years to college [00:19:30] investment strategy. And, um, they've been hearing from family and friends that maybe they should get aggressive.
What do you think then?
Ben: Uh, I think the devil's in the details.
Nate: Yeah. I think,
Ben: uh, here are the factors I would consider number children. [00:19:45] The type of college that they're looking at attending where it's public or private, whether or not grad school is in the mix, um, how old the children are, which is to say how close they are to college, uh, how much mom and dad makes such that if they, if they get [00:20:00] more aggressive and they have a loss, can mom and dad bail them out?
Proclivity towards grandchildren. So that if we overshoot, you know, we've got, we can do the dynasty five to nine thing. Uh, I would think also the, uh, the client's flex factor, [00:20:15] you know, like, are they, are they liable freak out if the market goes down or the liable to hold on? Um, you know, I would, I would weigh in the factors like, uh, mom's risk tolerance versus dad's risk tolerance, you know, um, Yeah.
A lot of moving [00:20:30] parts. Those are all things I think about.
Nate: Yeah. That's the only, um, fair answer when you're talking about how to invest. It's not, it's not one size fits all. Like maybe index funds can be great for everybody, but like how [00:20:45] much of which one and you know, and when, and there's so many questions, but the big thing here is understanding the consequences, just like with any investment.
And, um, Seeing if you're comfortable with that and if worst case [00:21:00] scenario happens, what are you going to do? Is it going to derail everything else? And so here it is, uh, do you want to take more risk? One, you should ask yourself, why, why do I want to take more risk if I don't need to? Um, but two would just be if [00:21:15] things went south right before college started, how are you going to cashflow college?
Yeah. And that could be, like you said, grandparents could be a large income, but, um, just because your friends are doing it doesn't mean it's right for you. Maybe your friends have a rich uncle and you don't. [00:21:30] Right. So. Tough question to answer that high of a level, but those are the, you're right. Do we have time that I can take
Ben: a tiny detour and riff on the difficulty of planning for college?
Nate: Yeah.
Ben: Yeah. So I think people underestimate the difficulty of planning for [00:21:45] college. They, maybe they think about it like retirement. So the difference between college and retirement is this with retirement, you can push out your retirement date. You don't know when you're going to die. You can invest aggressively for years and years and years.
With college, you have an 18 year runway. And for most of those [00:22:00] 18 years, you're saving. So there's not a whole lot that's invested. So in the early years, you don't have that much that can accrue and you're shooting at a moving target. So, you know, your kid might wind up going to Harvard grad school. They might wind up going to a Juco.
They might not go at all. Uh, the more [00:22:15] kids you have, the easier their problem is because you can spread these, uh, uncertainties across more kids. You have more options to use your five to nines, but it's a moving target. I've heard that a, I heard a file, a fighter pilot say one time. That landing on the [00:22:30] deck of an aircraft carrier is the equivalent of laying a postage stamp on the floor with the gummy side up, sticking out your tongue and diving at the floor to lick the postage stamp.
And that image is what comes to mind when I think about planning for [00:22:45] college. It's a tiny moving target and you need to get it right.
Nate: Yeah. Agreed. Yeah. And I think, uh, with retirement, there's a lot of flex. See you again. You could do a lot of things, you know, retire later, change your [00:23:00] investment strategy.
Um, it's hard to flex your children. If, even if you wanted to, when that college bill
Ben: comes, they want payment in 10 days and they want actual cash, no promises, no woulda, coulda, shoulda. And if you got the money, it's super nice to skip the [00:23:15] entire eight hour conversation about, you know, borrowing and student loans and all that good stuff.
I mean, there's a whole session in parent intro day. That's all about how to pay our bill, right? If you've got a full five to nine, then that's [00:23:30] the day you just get to spend with your kids in the backwoods of the restaurants, you know, have that conversation. It's nice.
Nate: Yeah. That's, that's also what's happening this time of year.
I hear, I heard someone say. They've been to 12 college visits. Yeah. [00:23:45] Whew. Yeah. Yeah. Okay. So here's our last question. Orthopedic surgeon here in Oregon. I have enough disability insurance to, to just cover my normal monthly expenses. Uh, but I was just [00:24:00] offered more. Should I take more disability coverage?
The answer is absolutely yes. Okay. Tell me more. Tell me why.
Ben: Okay. So, here's how it goes. You know, this, this guy or gal, uh, is cruising along. They get disabled. [00:24:15] They can't stand in the OR anymore. They can't hold a, a, an instrument. And they get disabled, you know, 120 days later. They get a check. They pay all their bills.
That's cool. All right? So, let's say they're in their mid forties or mid fifties. [00:24:30] And then they get out to retirement. And that payment drops off at age 65 when social security picks up and I've never seen a physician be able to retire on social security. So then you have this big gap around retirement.
So the reason I would take that, that [00:24:45] bump or that, that extra amount is to be able to cover other costs like retirement and college, other goals besides just feeding yourself today.
Nate: Yeah. Got it. Yeah. Yeah. That's tends to be four positions. Uh, You've [00:25:00] pretty much most of the time have to take whatever you can get.
I mean, it's not like life insurance. It's hard to be overinsured with disability.
Ben: And what I find is there's, there's a thing in a lot of these policies called a future benefit increase or [00:25:15] future benefit option, or, you know, inflation, whatever it is that a lot of times there's a thing that makes it so that if you earn more money later on.
Then you can bump up your coverage. What a lot of physicians fail to understand is that [00:25:30] this is a feature, not a bug, and that they're paying for the privilege of getting more insurance in the future without. It's literally a writer and it literally increases the amount of premium that you pay every month [00:25:45] to have this writer.
So if you get this letter in the mail that says, Hey, you can increase your coverage. One way to look at that is, Oh man, this is just another sales ploy. I don't want to pay for more insurance. The other way to look at this is. Uh, it's, it's keeping my, my stuff up to [00:26:00] date. It's keeping my, my policy in place and, uh, making the benefits richer.
And this is something I paid for. So if you're one of those folks and you get that letter and you ignore it, at least contact your agent and say, can we drop this writer because I'm, [00:26:15] you're paying for that privilege. It's not just a sales come on.
Nate: Yeah. That's good. Okay. You
Ben: want to take us
Nate: out?
Ben: Yes, I'll take us out.
So, um, how to reach us, uh, Nate and I are both financial advisors. We are both accepting clients. Uh, [00:26:30] we love to work with physicians with kids, so you gotta be, you gotta be a doctor, MDDO, you gotta have kids. Uh, beyond that, we, we love to work with you so you can reach us at physicianfamily. com. If you have a question, you can send your [00:26:45] question to podcast at physicianfamily.
com or call our podcast question line at 503 308 8733. So as always, remember, you're not just making a living, you're making a life.
Voiceover: Thank you [00:27:00] 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 Doctor's Retirement Investing Checklist, available at PhysicianFamily. com forward [00:27:15] slash go.
