PFFAP-PYP-24-0501-Ben and Nate Questions 5 EP 72-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, 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 and primary advisor.
And
Ben: I'm Ben Utley. I'm the service team leader and a certified financial planner here at Physician Family as well.
Nate: Okay. So today we have more questions from listeners, prospective clients, and clients of our own. So Ben, the first question is, am I on track for retirement? Yes, you are. Yeah. So wait, no, you're not.
Yeah. Right. Um, you know, this, uh, this is a great question. We get this question all the time, at least a [00:01:00] few times a week. This is the question we answer. Yes. So, you know, a retirement fund plan is meant to tell you what to do, how to get to a successful retirement, uh, how much to save, where to save, uh, what to invest in.
But I think sometimes people miss that it also serves as a measurement of how At any given time for if you're on track. Yeah. Like I think they see it as a roadmap. Uh, that roadmap also tells you like where you are in the map and where you should be. Yep. Right. Um, so without a plan, you'll never really know if you're truly on track and with the plan, you'll know exactly where you're at.
Yeah. So get a plan and you'll know. And I think a lot of people, uh, who have one, they tend to stay on track because they just set it and forget it.
Ben: I don't want to lead people astray. I mean, we're financial planners, right? So for us, every, every problem needs a plan. [00:02:00] Um, I I'm certain that people can get to retirement without a plan.
Sure. Uh, the thing about it is you won't know when you're going to arrive. Right. So, I mean, you know, back to the trip analogy, if you plan a trip and you're going from, you know, one coast to the next coast, Unless you've done, you've been on that trip before, you won't know how long it takes. You won't know what it looks like as you're going down the path.
You won't know when you get there and you know, you'll have a bunch of kids in the back on. Are we there yet? Are we there yet? You know, you're going to be holding your pee pee and you won't know when the next stop is. Right? It's, it's, it's uncomfortable. To take a journey to a new place and, and not know when you're going to get there or really exactly what the next step is.
So, um, you know, I, I'm pretty sure that there are physicians that will fall ass backwards into retirement. But by the same token, there are a whole lot of things that will be missed along the way as, as if there's a journey, you know, uh, all the, all the side tours and canyons and the fires that you can stop and smell and the, [00:03:00] the things that you can do with your family along the way.
Those are kind of driven out by, uh, the mad scramble to get to the finish line. And, uh, you know, I've found that when you get to the finish line, sometimes there's just nothing there, you know, uh, retirement is, you know, that's, that's kind of the end of the game. Some people view it as the beginning, like the, the fire folks, but, uh, I retirement is really not all it's cracked up to be and having seen some people retire, having, uh, you know, achieved some financial independence.
insight. I don't really. I don't really think it's as great as people think it is. I mean, it's not a bad thing. It's certainly something that you have to do at some point, but, um, I mean, you, you can get there, but it's really more about the journey on your way to retirement, I think is cause it's, it's part of your life, right?
What you're doing, getting there as part of your life.
Nate: Yeah. The biggest part of your life.
Ben: Well, yeah, it's, it's, it's, you know, it's your child rearing years. It's your productive years. It's the years with a lot of meaning and purpose because of the work that you do. So, yeah, I don't think people should [00:04:00] race through it.
I think it's better to kind of pace yourself. And if you're going to pace yourself in the consumption or production of anything, uh, you need a plan. Yeah. So I agree with you,
Nate: but yeah, good. Next question. My mom and dad need a little help with money. How much can I help? Oh boy. And we, we talk about planning over and over, but that's what we do.
So I'm going to keep talking about it. Um, well, and this is family dynamics,
Ben: right? It's sure it's mom and dad, but I've seen that go a whole different, a lot of different ways.
Nate: Yeah. So, uh, um, the way that I usually approach. Helping mom and dad first starts with the plan. Um, if you have a plan, you're saving enough.
And we don't really do in detailed budgets. Not that you and I do, but physicians don't tend to like doing that. So a lot of times they don't have a budget. Okay, I got to come clean. I don't have a budget either. Oh, sorry. Sorry. You're the only one on the podcast with a budget, Nate. [00:05:00] Okay. Well, I have a budget, so I could tell you how much exactly I could hand out to other people.
But, um, the reality is if you're saving according to plan. And you have enough money for your bills. And beyond that, if you still have extra money, you can help other people in your life with that money if you choose to do so. That's right. You know, so it's as simple as that. But with the family dynamics, it feels a lot more complicated than that.
Sometimes having someone, an outside perspective in your corner can make it really simple. Um, doesn't have to be you and I, but essentially, if, if you have Enough money to save and enough money to spend, the rest can be given away. If you, if you choose to do that. Yeah. I
Ben: just want to caution listeners. I mean, if you know, when your family's, uh, on the ropes, it seems like money is the problem, but money's seldom actually the problem.
Usually there's a problem behind the obvious problem. And so when you, when you rush in with a fistful of cash, [00:06:00] Sometimes it helps temporarily, but it might actually make things worse. And so when I'm talking with clients about whether or not to, you know, give money to a friend or lend money to family or how to help out other people, I want to know about those other people.
I want to know if they have had success in handling money in the past, because that's, you know, the, the past is prologue for, for financial success. It's like, if they haven't handled money in the, Well, in the past, they're not likely to all of a sudden handle money. Well, because you gave them some, right?
So this is, this is one of the reasons that it takes a while to become financially independent is because you have to learn to be able to handle the money that you're, you're going to have, right? You have to grow into it. So I would urge caution. Uh, before throwing money at particularly family problems, you just need to look and see, you know, whether they're capable.
And sometimes there are ways to solve, solve money problems without, without finances. And sometimes there are ways to solve it by using finances creatively where you don't actually release [00:07:00] control of the money where you, you retain control. And that way you, you keep people from harming themselves with your money.
Nate: Is now the right time to upgrade in house? So, uh, I've talked a lot about planning, so I'm going to take this a little bit of a different direction and talk about the reason people ask that question. And then maybe we'll get down to the bottom of the answer. It seems to me that everyone wants to, when they're buying a house, they want to buy low and sell high.
That really is what it feels like. They don't want to make a mistake in the timing of their purchase, uh, according to the market. But that really isn't how it works. And with physician families, but also when you're purchasing your own personal residence, a use, a use asset, a use asset. We say that a lot.
And I think sometimes when I say that, it seems like it falls flat a little bit. So, um, maybe tell, tell me what we mean by use asset. [00:08:00] A use
Ben: asset is, is things that you typically use up and, uh, and move through. So like a shoe is a use asset. There was an old woman who lived in a shoe. Yeah. So use asset, right.
Right. Um, yeah, that's, that's an example of use asset.
Nate: Yeah. Okay. So when you should buy or upgrade in house is when it makes financial sense for you, not to the market. Not where interest rates are at. And now those play a factor because they play into the price and they play into your monthly payment.
But, uh, the right time to upgrade a house is, you kind of have to check a few boxes. Can I pay this house off before I retire? Like we're talking upgrades here. So when people say I want to upgrade a house, they're, they usually mean by a lot. And that usually means it's your second, third house. Okay. Um, so can you pay it off before you retire?
And. Does your monthly mortgage payment get in the [00:09:00] way of saving for college and retirement? Right. Is your housing plan going to like
Ben: drive your college or retirement plan off track?
Nate: Right. Right. And if it doesn't, and you can reasonably expect to pay it off before you retire, Then you can upgrade and you can upgrade as big or as little as answering those two questions in, you know, with a yes, I can pay it off and I can still save, you can upgrade to that amount.
So when, when the, the, the asker asked
Ben: the question about upgrade, when I heard that I was like home improvement. You know, uh, but it sounds to me like when you are saying upgrade, you're talking about, uh, like next house, bigger, bigger house or better location, which, which one of those was in the question.
Nate: It was bigger house, better location. Okay. Um, I see upgrades too. Uh, that would be one way to kind of mitigate, I guess, if you really. Didn't wanna buy high or buy with high interest rates. If you, if you like the location, you just need to upgrade it, sometimes that's a better fit.
Ben: Yeah, I [00:10:00] was thinking we probably got that question.
'cause I was thinking about the, basically the home improvement angle on this. I mean Mm-Hmm. with mortgage rates in the sevens, you know, seven, seven and a half is the new three and a half, right? Yeah. So, uh, with mortgage rates high, it might make sense to just sit tight and do your. You know, your kitchen renovation or, you know, to add a little space or, you know, improve your deck, that kind of thing, as opposed to moving.
But it's, you know, it seems to me like when we tackle this question, it's usually there's a catalyst for it. It's not like all of a sudden my house isn't, isn't right. There's something about a job or there's something about a child that's involved specifically. Oh, my, my business got taken over. My practice was bought out by private equity.
I don't like it anymore. I want to move. I've got a non compete, so I got to go. Or, um, you know, my child, uh, has, has suddenly proven to be brilliant and we need to take them to the school or there's a social dynamic that's unfavorable. And as a result, we need to, we need to change schools and that tends to feed into housing.
It's funny. Uh, [00:11:00] okay. So true or false. And we talked more about housing than we do about the stock market in our, in our conversations with cost. True or false? True. Yeah. Right. Because you could do something about housing and it's more fun.
Nate: Right. So yeah. Yeah. It's, that's funny. I've never thought of that, but, uh, it seems to be what people, you know, and it makes sense.
A day to day living is your house. The stock market is a decades long journey. Um, but yeah, since we're going down that home improvement route, this isn't necessarily a question, but just, uh, I've seen people do this, right. And I've seen them do it wrong with the home upgrades. And I was just yesterday, uh, speaking to a family.
It was a, it's a double doctor family. Spouses are OB GYN and Pediatric Critical Care Doctor.
Ben: Oh my God. You've blown their cover now.
Nate: I know who they are. Yeah. Yeah. Well, uh, I'll do it even more. They're out in Pennsylvania. And hello, Quaker country. Yes. And they, um, they did this the right [00:12:00] way. They continued to pay down their student loans, um, and at appropriate rate.
And you know, they're in their late thirties. So a lot of, a lot of doctors want to get out of that really fast. And they took a measured approach to this. They did a little bit of everything safe for college, safe for retirement, continue paying down student loans, paid cash for all their upgrades. Love it.
And you know why that,
Ben: uh, hold on, hold on. I got to find my sheet of 10 foil stars here. I got to like one. Yeah. I'm just, I'm just going to put it right on the camera. There we go. Yeah. Gold star for the, for the mysterious family from Pennsylvania.
Nate: Yeah. And the reason I liked this and I was celebrating him, I don't think he really was expecting a celebration, but I just thought this is great.
And the reason it's great is you did this over a few years. Yeah. Everyone wants to, uh, once they start upgrading, they, they go wild. Um, and they want to do everything and I totally get it. I don't, I don't like the idea of having a contractor in your house for three [00:13:00] years. No, but, but they did do it and they did it slowly and they didn't have to move.
Okay.
Ben: You've, you've got me on my soapbox. I'm sorry. Stepping up on the soapbox here. Okay. I've seen people do this two ways, the home upgrade. And when I say upgrade, I mean like home improvement, you know, new, new stuff in the same space where you live. I've seen people who barred for this and I've seen people who saved for it.
Okay. Um, there is a magic that happens when you save for it before you spend the money. Suddenly you become wiser, more creative, more focused on the outcome. You, you get the power of clarity, you get to see what is really necessary, what will make you happy and what's kind of like, eh, maybe, maybe not. And you know, the contractors stop pushing you around and you start saying, here's, here's what we want.
I, I've just. I've seen it go both ways and people are happy with outcome in either case, but the ones who borrowed, sometimes they have a [00:14:00] hangover, right? They just, they just did a little bit too much or they went a little bit too far. The folks that save for it and they pay cash, um, just generally are happier with, with the outcome in terms of like buyer's remorse and how they feel about it, they're, they're more vested in it.
And I think they get more for their money.
Nate: I think so too, because they can go confidently go to their contractor and say this. Is the budget. Yeah. If you go over, you will not be paid .
Ben: Yeah. There's no more money. Yeah. And then if they are going over, you know, suddenly they have to go work more shifts.
Mm-Hmm. . Or they have to dig into some account that was dedicated to some other purpose. You know, it, it really just, uh, you know, when, when you're playing with the house's money, right? It's, it's all bets, you know? Yes. Anything you want, but when you play with your own money, it's for real.
Nate: Mm-Hmm. . Mm-Hmm.
Totally agree. Okay. Another physician inheritance, Ben. We always talk about I'm sorry. Wait, wait, wait, wait.
Ben: I have to acknowledge. I'm sorry for your loss.
Nate: [00:15:00] Yes.
Ben: Of course. I'm sorry for your loss. There are people dying everywhere and leaving money to physicians. It's incredible the amount of inheritance stories we see here.
I think it's, I think it's the, the, the age, most of our clients are over 40. They just are. Uh, you know, for some reason we, we work really well with folks that are over 40 who are kind of more established, they got their house, they have kids, you know, five and up typically is the, there's a crowd that we work with.
And I think when you're in your forties, you know, you're more likely to experience an inheritance than not because of the age of the people that are. So anyway,
Nate: yeah, totally. I totally see that. And it's interesting because when we do the planning, sometimes I will. I will ask like about parent situation and nobody really likes to think about it, which means they don't plan for it.
Yeah. So they get this pile of money and um, they don't know what to do with it because it wasn't in their plan. What should I do with my inheritance? Yeah. So, and that's another way of saying, what should I do with my extra money? Which we talk about [00:16:00] through that constantly, right through that, wait
Ben: a minute, wait for it folks.
He's going to say the word plan.
Nate: Go ahead. Yeah.
Ben: Not yet, but we'll get there.
Nate: Let's see if you can talk
Ben: for the next five minutes without
Nate: saying the word plan. I know we love the plan. We're planners. Yeah. Okay. So, uh, first thing of course, which. Most of the time, this is a check the box that's already done, but fill up your emergency fund.
So peace of mind, fill up emergency fund. Yes. Next thing, I mean, if you're in your mid 40s, especially if you're talking to us, you're probably on track for all your goals. So it is very, very important. You can buy some stuff, but you can spend money. Yep. A car upgrade, that home improvement we just talked about pay cash.
Um, you can reduce your debt. I noticed, uh, I noticed a lot that for physicians, uh, they're doing a balanced approach. When they're going for retirement. So they're paying down their mortgage or paying down other debts along with saving. And this [00:17:00] is a great time to just relieve yourself of all that. Just pay it off.
It's done. And you don't have to worry about that being in the way of retirement. Wait a minute. This is heresy. So,
Ben: you know, all the, all the, uh, folks out there that are listening to all the other podcasters are saying, what I can't, I can't, you know, pay off my 3%. mortgage, I can't, you know, whatever. That's heresy that we, that we should not worship the money gods, right.
But you're telling, you're telling folks that like, if even if you have a low rate student loans, pay them off. So I mean to back, back the truck up a minute and talk about that briefly.
Nate: Yeah. So You know, I, I wouldn't say I fall victim to it, but a measured approach to which debt you should pay off, uh, is good.
And right now rates are really good in savings accounts. Uh, in fact, to be totally honest, uh, this, this doctor that asked me this question, uh, large inheritance, uh, multi millions [00:18:00] of dollars and, uh, had a really low interest rate, like 2 percent on their mortgage. So, um, We went back and forth. I said, look here, here's your options.
Okay. You can put it 5%. We, we have, uh, we use Betterment. They're at 5% right now. Mm-Hmm. Where you pay off this mortgage. And we went through the math, we went through the taxes. She did decide to park the money. Uh, but the second. That rate goes down. We're paying it off. Um, and so, but let's even say that was an interesting example because her interest rate was so low.
If it's, if you're splitting hairs, just pay off your house.
Ben: Just pay it off. interject for, for Kyle's sake, because our chief compliance officer is not here that, um, we, we do have clients who invest at betterment, but we also have clients who save at betterment with a cash reserves product. And what he's talking about is a fixed rate on an FDIC.
Insured and, uh, savings product, not a fixed rate on an investment product. Right. [00:19:00]
Nate: Totally liquid.
Ben: I think we're covered for compliance here, but I just wanna make sure that Yeah,
Nate: yeah. Totally liquid. What you know, and that is some form of arbitrage, but when you hear arbitrage on the, the blogosphere, geez, that's not, say those words, that's, that's trash.
What I'm talking arbitrage .
Ben: You know what, Nick, when my arbitrage is full, I take it outside and I, I, I emp empty it in a larger waistband and sometimes we drag it down the curb, right. So that the arbitrage man can carry it away. That's right.
Nate: That's right. Yeah. None of that, none of that stuff. That's not what I'm talking about.
Okay. Uh, but you know, it set aside that, that really low interest rate mortgage that a lot of us are enjoying right now. Um, a lot of physicians still have 7 percent interest student loans, even, even in their forties, that might be a small balance, but, um, buy some stuff, pay off some debt. Uh, you can invest the money.
Yeah. Like, let's say you're, you're done with one, two and three, invest for college, fill up that college account, be done. You know, I see when people get a pile of money [00:20:00] inheritance or practice buyout, whatever it is, knock like three or four things off your list that could be done. I got to say, I
Ben: love the fill up the college fund thing because I did that.
You know, I, I, my wife wanted to go to, And I was like, sure, let's go to Italy, but let's finish filling the college fund first. I probably already told this story for our longterm listeners, but, uh, and you know, we did, we filled up the college fund and it's just one of those things that I don't worry about.
We stroke those checks, you know, twice a year pay for college and it's, it's over, like, this is one of those things I don't have to think about. And for me, you know, it's like having money can bring security, but it can also bring peace of mind and, and some joy. And that's the other side of this. So if in the back of your mind, you're constantly hearing this 3 percent taking away on some refinance student loan or a mortgage that you have, that's not freedom, that's not freedom, that's, that's having a, you know, watch the pot.
Well, so I mean, at a certain level, you have enough money, you can [00:21:00] look at a plan and say, Yeah, you know, I've got enough. I'm, I'm on track. I've got some extra. Let's actually live some of our life. Right. And that's okay. I think a lot of the blogosphere and the podosphere will not, will not tell you that.
But, um, you know, I think that physicians are a unique position because many of them have seen death firsthand. And you know that you only ride this pony once and you better enjoy it cause it's not coming
Nate: back. That's right. That's right. And uh, even worse in my opinion than in the blog sphere is some advisors who make money based on how much you invest will will encourage you to do kind of all Those things we thought that the arbitrage thing, but not paying.
I'm not going there. Yeah, it's nonsense. That's a soapbox. I'm not going out today. Okay. Yeah. Well, uh, the point is, um, you can invest some, but you should also really enjoy some, especially if you're on [00:22:00] track for everything else. So, and then that's kind of the rest of it, you know, by memories, go on that trip to Italy and, uh, potentially, you We've seen people, uh, enjoy some, they don't pay for experiences, uh, like that you can post pictures on Instagram about going to Italy, but they might pay for some help around the house.
Yeah. That's an experience in and of itself. You get to spend more time with your spouse and kids. Yeah. Or just chilling out,
Ben: reading a book, you know, like life was before, uh, at school. Right. What, what were you before you were a physician? Right. It's those kinds of things are the things you get to think about when you make good decisions.
Make good choices, kids.
Nate: Yes. Okay. You were asked a question, a bunch of questions from a prospective client. Uh, and it prompted me to, uh. That was an eye roll for those of you that are just listening and not watching. Yeah. Uh, but it, I sort of reframed the question. [00:23:00] And so the question that I'm asking is, uh, I'm looking for a financial advisors.
Watch questions. Should I ask them? Yeah. What questions should I ask
Ben: before, before I hire a prospective advisor? Yeah. So, um, a little backstory on this. Nice folks. Um, they came to me, they asked some questions on the interview call that I, they're decent questions, but they're not questions I usually get.
Um, and so I wrote them a long, a long answer to that via email. And then I got a question back and they had referenced a, uh, A, a broadly followed, uh, blog. And it was basically like 12 questions to ask before you hire a financial advisor. And it was a post from back in 2011. And some of the questions were good, but some are like way off base.
One of them was like, uh, can I see your portfolio? I'm like, hell no, that's my portfolio. Another one is like, uh, show me the portfolio of one [00:24:00] of your clients. And in my mind, I'm just thinking, um, That is kind of like me interviewing a physician to be my primary care doc and asking to see someone else's chart.
Like in what world is that? Okay. Right. So you can't, you can't see my client stuff. You can't see my stuff, but you know, basically they're trying to get at performance. And so as I was thinking about how to answer this question today, Nate, I was, I was also thinking like, what questions shouldn't you ask a financial advisor?
Like, uh, they're obvious questions, but they're also questions that would actually, the answers would be dangerous for the asker. All right. So one of these questions is how's your performance? And so I probably get that about one out of 10 calls. How's your performance? Well, you know, we invest in index funds, so it's not my performance.
It's the market's performance net of whatever fees. You know, mutual funds charge, right? So, um, but I think the risk is that if you, if you [00:25:00] ask this question, um, the answer can be gained by showing you various periods, right? So, um, if you want to show great performance, show performance from the time that the stock market dipped as a result of COVID 19, uh, through to date.
Or through a couple of years ago, right? Cause that would show you a, a large trough to peak. Okay. Uh, if you want her to show poor performance, which nobody does, then you could measure from the day before COVID was announced until the time that the stock market reacted, right? So. Not that you would do that, but I mean, this is known as the period, right?
So you can slide the period around and sliding the period around can give vast swings in performance. A person who's not skilled in judging performance will look at a double digit number, go found my guy. These are the folks for me. I'm going to experience that for the rest of my life or something like it.
But the reality inside those numbers is that things are a lot. Uh, a lot [00:26:00] sketchier. And I've seen individual investors who brought me their statements and said, look how great my performance is. And I said, let's look at it. And what we found is that in fact, they contributed to their account and the contribution to the account is what bolstered the value.
I've had clients come who've looked at statements and said. You know, this performance is terrible. What's going on in my portfolio? And I look and I find that they've taken money out, right? Yeah. And they forgot. And so I have to say, initially my sphincter tightens up when I see these conversations because like, Oh my God, something went wrong and I didn't see it.
But inadvertently there's always an explanation, uh, about performance. But all that is to say that performance is really, really hard to judge. Uh, so. The people who are asking about performance are going to get a false signal. The people who know how to judge performance won't ask the question. Instead, they'll ask, how do you invest?
What is your approach to investing? And answers that you want to hear have the word index [00:27:00] in them. They might have the word passive in them, uh, buy and hold balanced, you know, it's gonna be all those words that are not gonna, you know, uh, you're not gonna wind up with lampshade on your head at a party because you're so popular when you say those words.
It's gonna be like back when you're in, you know, Uh, you know, an undergrad studying the sciences and people said, what's your major? And I said, it's chemistry. And then they're like, see you later. You know, it's the kind of words that are, that are, uh, you know, not going to make a lot of friends, but really what you're looking for is, is someone who has a discipline is willing to explain to you.
How they invest in a way that you can understand without putting up a magic number and expecting you to understand that. So that's, that's a question not to ask. I would say in terms of, uh, what to ask before you ask questions, you can get a lot of detail in, I like to know how people are regulated. And how they're paid.
And I say, I like to know because sometimes friends will come to me and they'll say, I'm doing business with this person. What do you think? Like, are they, are they on the up and up? And I said, let's go to their [00:28:00] website and I said, okay, let's scroll all the way down to the bottom of the website. And a lot of times they'll say, uh, so and so member firm F I N R a.
Well, FINRA is the regulatory body that oversees salespeople, stockbrokers. And so if you scroll to the bottom of their webpage and it says FINRA, you're in the wrong place because you're going to get a sales pitch. And I know that our listeners hate sales pitches. So that's the first thing is how they license.
So what you're looking for is someone who is registered as an investment advisor, either at the state level or the federal level. Okay. So that doesn't necessarily mean that they're great. It means that they're in a regulatory environment where salespeople seldom live. You're more likely to get someone who's actually an advisor.
Okay. So the sec registration, there's no endorsement by the sec. Nobody, it's not the good housekeeping seal or approval. Okay. So that's the first thing is how are they regulated? Right. Um, if they're regulated as an investment advisor by either the state or at the federal level, [00:29:00] then they are fiduciaries.
The way that they're regulated means that they must act and advise in the client's best interest. And to me, that's table stakes. That's the opening ante. I mean, you wouldn't go to a physician who had a stake in a pharmaceutical company and, you know, was selling you pharmaceuticals on your way out the door.
Right? So, um, you don't want to deal with a salesperson. So that's the first thing. Second thing is, how do you get paid? Right. And my favorite way to ask this question, rather than how do you get paid? So somebody will say it's a percentage or it's five feet or whatever it is, is if I put a million dollars with you, or if you advise on, if you help me with a million dollars, how much is it going to cost me?
How much am I going to pay in the next 12 months for help with a million dollars? I'd never gotten that question ever. And in fact, when the regulators put together the CRS form, they didn't put that question on there. It's basically how do you get paid, but ask them that question because it'll force them to [00:30:00] calculate the dollar amount.
You can actually compare that from one advisor to the next. If they're charging a percentage, then they'll have to translate the percentage into a dollar amount. And you can take that dollar amount from one advisor to the next as you compare. So those are the two questions that I would begin to ask.
Then after that, uh, I wouldn't ask if they're certified financial planners, I'd go to the CFP board of standards and I'd see if I could find their name on the CFP website. And after that, you checked a lot of the boxes, right? Now, beyond that, it's really how do you feel about their process? Uh, how do you feel about them as people, you know, do, do they, do they serve people like you?
It's, it's those kinds of things.
Nate: Yeah, that, that process and, and getting down to, it's hard cause you know, like it or not, we're a business and advisors are running a business, but you know, I heard a quote recently. It's you can ask all the wrong questions, but if it's to the right person. They'll get you to the right answer.
I never heard that before. Yeah. So you can ask all the wrong questions to a trustworthy person. And the question is like, how do you get to [00:31:00] that trustworthy person? And all the questions that you asked, it should be, it should be easy for them to answer those questions and they should be totally open book about those things.
So it shouldn't be uncomfortable for them. How much do you charge if I have a million dollars with you? I mean, snap of their fingers. They should know, right. It should be really clear. So, okay. Last question for the day. And this comes on the heels of tax time. So, uh, I keep getting surprised with big tax bills.
What am I doing wrong? Yeah. And there's several things. Um, the first one is, uh, We see all the time, which is the wrong investments in a taxable account.
Ben: Yeah.
Nate: Right. Can you talk about that a little bit?
Ben: Um, yeah, that's, um, I think we've talked about this before, but basically if you look in your taxable account and you have a target date fund or, uh, they'll cut on target eight funds.
They just don't belong in taxable accounts. [00:32:00] Or if you have a, uh, bond fund in there that's not a tax exempt bond fund, those are gonna give you tax bills. But here's the, here's the, the, the sneaky one. Okay? Um, if you, if you, or if you have someone who is looking after your investments and they're trading securities and a taxable account on a regular basis, you are going to get capital gains tax bills, and at a minimum, you're gonna pay 23.8%.
And taxes on that plus whatever your state wants, right? So that's, that's pretty hefty if they recognize a 100, 000 gain, which is pretty easy in a larger account that's been held for a while, then you're looking at like a 24, 000 tax bill for the state takes their cut, right? And if you're in New York or New Jersey or Connecticut or one of those places, then, you know, you can tack on another five or 10 percent pretty quickly.
So that's another 10 grand. And I mean, if all of your taxes are in balance, And, uh, you know, you're, you're basically kind of pay go, you're doing it as you go, then you [00:33:00] get an extra 000 in taxable events in there. You weren't expecting, you're going to get lit up like a Christmas tree. Right. So, um, I think that that's, that's one, one way that it happens.
Nate: Yeah. And circling back to. The advisor, this is one great reason why you want to hear the word passive. Uh, it's not just for performance. I mean, we're talking taxes here too, and that's real money. Yeah. Tens of thousands of dollars because they're chasing returns. Right. Because buy and
Ben: hold translates into hold.
And if you hold, you're not selling. If you're not selling, you're not recognizing gains. You're not recognizing gains. You're not getting surprise tax bills.
Nate: Yeah. Another one would be failure to take advantage of all the tax breaks that you possibly can. Yeah. Um, let's, we, we talk about that a lot, but it's pretty straightforward.
It should be in your retirement plan. Get all the tax breaks you can get, uh, while saving for retirement. So here's the sleeper though. Okay.
Ben: We talk about this all the time. Backdoor Roth, backdoor Roth, backdoor Roth. Okay. So, uh, doing the backdoor Roth [00:34:00] will not save you any taxes this year. Zero, zero, zero, zero.
Doesn't, doesn't save you any taxes at all. OK. But it can save you a whole bunch of taxes in retirement. So if you're frustrated with paying too much tax today, uh, imagine what its going to be like years and years and years from now when those IRAs and 401ks kind of blow up and you're required to make distributions.
Uh, you know, the older physicians that we serve. You know, either they've done this right or they haven't, it's too late, but backdoor Roth is something that's going to keep you from having this trouble in the future, um, can be a little complex to set up. We do this all the time. We did 141 backdoor Roth conversions last year.
Um, I say we, Kyle did that. Yeah. Thanks. Thanks, Kyle. Nice job. Yeah. So, but you know, you know, there's, there's another thing, right? This is, this is, and maybe this is the last time, but this is a sleeper. So CPAs, like all the rest of us are born human, right? But they have this genetic code that says, don't ever pay any more taxes than you have to.
And don't pay them any sooner than you have [00:35:00] to. Right. And so when you go there and you do your tax planning, they will inadvertently prepare what is known as a protective estimate. And it's the amount of money you need to pay throughout the course of the year so that you don't pay a penalty. It's not so that you don't owe taxes.
Okay. It's so that you don't pay a penalty. And as a result of making a protective estimate and paying on a protective estimate, you pay a fraction of the taxes that you have due. Because you've dutifully paid your taxes throughout the year, you're expecting to not owe taxes in April. But the fact of the matter is you can still owe them, and that's a surprise.
And so, uh, back in the day when I was sitting face to face with clients here in Eugene, Um, I would go to their CPAs, and I had to, you know, You know, do a little CRISPR and change that genetic coding that causes them to pay little taxes as possible as early as possible and say, this client wants to actually pay all their taxes before December 31st.
Can you make that happen? What? What? No, you're kidding me. Uh, no, [00:36:00] nobody wants to do that. I'm like, yeah, these, these folks do. They actually want to pay their taxes because they hate big surprises in April. Right. And so you got to sit down with your CPA and here's the word you got to say is like, uh, I don't want to surprise tax bill.
In fact, I want to surprise tax refund, figure my taxes. So I get about a thousand dollars back in April. And that's going to be, that's going to put you right where you want to be. But you have to use those words because they, they don't know that, you know, what protective estimate is now. Right. Right. So you, but, and if you go, you say that you'll, you'll flabbergast and there'll be stunned because you're not supposed to know these things.
Right. Yeah. But, but go to them and tell them that I'd like to get a little refund that can you plan my taxes? So, and certainly they can do that.
Nate: Yeah, sure. Sure. And the surprise, the, the, this in, in plain language, that's just withhold enough money to pay your bill. Yeah. You know? And so, um, you know, it's interesting that these are, these [00:37:00] seem straightforward, but something that I've, as I hear people, uh, squirm about their big tax bills, I've noticed that they're squirming over what feels like a big tax bill.
Yeah. Because they're still in the mindset of, you know, when they didn't make a lot, maybe they got a tax return. And sometimes it's like 20, 000. Yeah. And that feels really big. That's not a very big portion of your overall income. So you have to be explicit with your CPA, right? That 20, 000. I'm not prepared to pay a 20, 000 tax bill because I'm investing my extra money or spending my extra money.
I think CPAs
Ben: like the general public think that doctors are rich,
Nate: right?
Ben: And so they think you can just cover a 20, 000 bill.
Nate: Yeah. Harder than it feels.
Ben: Okay. That's it. Ben, will you take us out? Last question. Okay. So, um, I have a, I have a new challenge for us listeners. [00:38:00] Okay. So our call in number is 5 0 3 3 0 8 8 7 3 3.
You can call in and leave a voicemail. No live person will take that call and you can ask us a question that way, but you can also text that number. That's a Google voice number. You can text 5 0 3. 308 8733 and ask questions that way, right? You can also send your questions to podcast at physician family.
com. So, uh, keep your questions coming until next time. Remember, you're not just making a living, you're making a life.
Voiceover: Thank you for listening to the position 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.
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