Nate Reineke (00:12)
Hello, physician moms and dads. I'm Nate Renike, Certified Financial Planner and Primary Advisor.
Kyle Hoelzle (00:18)
And I'm Kyle Hesley, retirement investment specialist and certified financial planner as well.
Nate Reineke (00:23)
Kyle, what's going on?
Kyle Hoelzle (00:26)
Not a lot, man. Just doing the thing, you know. I did a little estate planning, some personal estate planning this morning.
Nate Reineke (00:32)
You know, my wife's a therapist and they always talk about, you know, they talk in the office about how sometimes they go through so much, you know, trauma with all their clients and everything that they kind of need their own therapy. And I think about that in our lives. like, man, we got to take care of ourselves too. Like, I think I read somewhere that like 60%, I'm making up numbers, some high percentage of financial planners don't have their own plan.
Kyle Hoelzle (00:54)
Bye.
Nate Reineke (00:58)
So it's good. We eat our own cooking over here. So tell me what have you learned? Everybody, this big estate planning thing, everyone knows they need to do it, but they don't really know what happens. So what have you done so far?
Kyle Hoelzle (01:11)
Well, basically I did the first intake visit where we met and went over kind of the main points of an estate plan. I learned there's kind of five main points of a estate plan that you have to drill into and identify different parts about. we, you know, one thing I learned was
Nate Reineke (01:26)
Mm-hmm.
Kyle Hoelzle (01:31)
You want to ask for materials up front if they have it and you want to review that stuff beforehand just to make the most out of that first meeting. Cause there are some big decisions that they're going to ask you right off the bat. know, like who's going to take care of your money after you pass away? Who's going to take care of your children after you pass away? mean, these are big questions and there's all those health directives. There's a lot of layers to those and different things that you can, you can have and not have. so, yeah, I would say, you know, one thing I learned was, you know,
Nate Reineke (01:37)
Mm-hmm.
Kyle Hoelzle (01:58)
think about this stuff ahead of time, which I had been doing, but actually seeing it in front of you. Ask the attorney for like, how can I come prepared? What are a list of things I need to have ready to go? If that's not provided to you, I would ask for that.
Nate Reineke (02:08)
Yeah.
That's actually really good because I've noticed that when people go fill out this paperwork, it's just homework or a chore and they're kind of just filling it in. And the people who get the most out of estate planning kind of take their time, but it's also because it feels like a chore. They don't want it to take too long. So if you think about it beforehand, then when the boring paperwork comes along, you'll be prepared. That's good.
Kyle Hoelzle (02:33)
Yeah,
yeah, and and the other thing too is this works for busy people with all sorts of things but Schedule schedule a hard stop time for you to have this stuff done like hey Let's let's get our second estate planning meeting on the calendar now so that all the stuff I have to do in between I know I have to have it done by this date, you know Give yourself a deadline with this stuff because yeah, it's it's not fun to think about you don't want to think about it It's you know, it's just it's that's common. That's normal. I mean I
Nate Reineke (02:42)
Yeah.
Mm-hmm.
Kyle Hoelzle (02:59)
I have no problem talking to me about this stuff because I do it on a regular basis, but when you start to do it for yourself, it's a whole other story. And so I get that. And so yeah, think setting yourself a deadline, maybe in the form of a second meeting or whatever that is, looks like a calendar item. I think that's another thing that I'm starting to realize as I go through this process is vital for busy people, especially with families.
Nate Reineke (03:13)
Mm-hmm.
Definitely.
Yeah. I remember when I bought my first life insurance policy years and years ago, I was really comfortable with it. But when I went and told my spouse, this is the plan, she was not comfortable for her. She's like, what? I don't even want to talk about that. I'm like, well, you have to. So yeah. All right. Well, we have some questions.
Kyle Hoelzle (03:40)
Yeah, yeah.
Nate Reineke (03:46)
from the audience and from clients and we're going to get into them. Kyle is all about investing. So we tried to keep it to investment questions today. So Kyle, the first question I'm going to ask you is from a vascular surgeon in Oregon. My son is in college and wants to start investing. What tools should he consider?
Kyle Hoelzle (04:06)
Yeah, this is a great question. I think it's awesome that there are young people out there, first of all, who are working and want to start saving and investing or curious about this. think that's really great. right away when you're low income, like a college student would presumably be work study or something, Roth IRA right away is just that's the go-to. Not looking to get a tax deduction because you're not in a high bracket.
Nate Reineke (04:24)
Mm-hmm.
Yeah.
Kyle Hoelzle (04:36)
You know,
Nate Reineke (04:36)
Yeah.
Kyle Hoelzle (04:37)
but you're young and you get that tax free growth and you get that in the age of 20 or mid 20s. That's, that's awesome. That's, that's, uh, you know, that's a big win. So definitely, I definitely recommend a Roth IRA. And, um, in terms of tools, mean, you know, I think in terms of investment tools, I think, you know, keep it simple, you know, um, you can get a target date fund. That's 20 70. Uh, that's
That's, know, and they come out with new older, older years come out. if you, that's not quite far enough in the distance, you can, you know, reinvest it, especially in a Roth, you know, no taxes, you know, owed when you rebalance it. So you just can trade into the further out one, if that makes sense down the road, but you know, all these targeted aid funds, once you're so far out there, most of them are always there. Like if you look at like within one series, you know, one provider series, they're usually, there's only one risk.
Nate Reineke (05:15)
Mm-hmm.
That's right.
Kyle Hoelzle (05:31)
highest risk level, no matter how far out you are. So 2070, 2050 are usually the same allocation. So that's a great vehicle to invest in when you don't maybe have a lot of experience, but you want something that's gonna serve you in the long run. I think that that's a great tool. Yeah.
Nate Reineke (05:34)
Right.
Mm-hmm.
Yeah,
I think it would be really cool if you as a parent and you're trying to teach them how to invest. It's not, you know, we see this every day. It doesn't on the surface, it doesn't look all that exciting to buy some big fund. But what you can do is have them actually go inside the fund, show them what positions are in the fund and say like, you own these things. You know, I do this for myself.
garden variety index funds we buy over here. But remember, you go in there and you have all the stocks that you're reading into and thinking about, you probably own them. So go in there and find them, show them what they actually own so they can keep their interest alive, kind of keep that spark. But one big thing that you said, you did say it, but it's really important, is to fund that IRA they need income.
If you want to be helpful, then you could maybe replace their income for them so they can go, you know, invest their few hundred dollars that they make. But they got to have income to put money in the Roth. then another cool thing about this is, you know, we talk Roth all the time. We love Roths. But if you had to put your first dollar as a doctor into some vehicle, it wouldn't be a Roth. You do want the tax break.
Kyle Hoelzle (06:59)
Thank ⁓
Nate Reineke (07:03)
But that's just not the case for young people and that's not the case for the average
person in this country. Most people have really low tax brackets, ⁓ which is why you hear about it all the time. When you hear about Roth's, it seems like the Holy Grail. You would never do anything but Roth. It's just different for physicians with high incomes, but it's not different for your college student.
they should be putting their money in a Roth first. So yeah, it's a great, great way to stick the money in there, get the money in. And last little piece on this is if for some reason your college student needed the money, you can get that basis out without paying any penalties in that Roth. So kind of acts like a mini emergency fund, even though mom and dad are kind of the emergency fund at this
Kyle Hoelzle (07:32)
Mm-hmm. Mm-hmm.
Thank
Yeah, yeah, definitely.
Nate Reineke (07:55)
Okay, next question. General surgeon in Oregon. With my 529 plan, if my child is over 18, can they be the successor and the beneficiary? So with 529s, there's a single owner. It's not you can't have like a jointly owned 529. So best practice is, you know, mom owns the 529, dad is the successor. So if something happens to mom, it goes to dad, and then your child is the beneficiary, right?
But if for some reason that's you can't make it that way, I believe in this case, one of the parents has passed away. And so who do you make the successor? Well, they're 18 years old and it's kind of their money in your eyes. So the question is, can you make them both? And the answer is yes, you can make them both. So you can be in control of what happens with the 529 while you are alive. And if something were to happen to you, then
your child would then own the account. The thing to know back to estate planning, when you think about the ownership of these accounts, you have to know kind of the repercussions of, know, I'm planning this out. If this happens, meaning you do die, what are the repercussions of my child owning the account? And it simply is they would own it. I mean, they would be in control of it so they could make some not so great decisions like cashing it out for something other than school.
But if you're comfortable with that, you know, and they're old enough to own a 529, I think in some states it might be 21. But if they're old enough to actually own a 529 and you're okay with that, then yes, answer is yes.
Kyle Hoelzle (09:31)
So what I'm hearing you say though is which I think is always interesting is that you can be the owner of a 529 and the beneficiary of that 529
for the money to be used for your education. And also too, I want to back up too, because I always explain this to clients all the time. Like we hear the word beneficiary and we think when I die, that person gets the account. And that's true in every single financial account that I've ever seen, except for 529s. The beneficiary is the kid who, not the kid, the person who receives the funds for their education. That's the beneficiary. And the successor acts like how we would think a typical beneficiary would work, and that they retain ownership of the account if I pass away.
Nate Reineke (09:44)
Yes.
Mm-hmm. Yeah, right.
Yes.
Kyle Hoelzle (10:11)
Sorry, back to my initial thing, 529s, like right now today, if I wanna go get my master's and my PhD or something, I could open a 529 in my name and be the owner and then could fund it then could use it to pay for my education, right? Yeah, and so when you name, so then what this client's asking is that if you name your child a successor, then they become the owner and it's just basically back to that same scenario where like you're the owner and the, that makes sense, okay. Yeah, and I agree with what you're saying.
Nate Reineke (10:20)
Yes.
That's right. That's right.
That's right. Yep. Yep.
Kyle Hoelzle (10:38)
in that context of like, you know, if your child's maybe through their undergrad, they're showing financial, you know, they got a job or showing financial savviness, you know, yeah, I mean, you could easily name them the successor, I think, if you feel comfortable doing that. definitely, yeah, consider, consider the ramifications, like you said, because that money would be theirs at that point. And yeah, they could do anything they wanted with it at that point. So that's a great question.
Nate Reineke (10:53)
That's right.
Mm-hmm. Yeah.
That is funny. I never thought about how it's a beneficiary is different in everything other than 529s. That's very true.
Kyle Hoelzle (11:09)
Yeah, it's nuanced. have to be careful.
Nate Reineke (11:12)
Okay, a psychiatrist in Virginia asked, when target date investing, should we be investing with a target? I'm sorry. Should the investment target be based on your current age or your planned retirement year? I don't think we've, I've actually had anyone ever ask this question because normally the title of it is like retire.
in 2050, right? So it's kind of obvious to us, but you had an interesting way of putting it. So I'll let you answer.
Kyle Hoelzle (11:48)
Yeah, this I agree. I have not heard this question before. It caused me it, but when I first heard it, it was during a meeting with a client and they asked me and they said they read it on the internet and an article and they asked me about it. And I said, should you buy your target date fund to target your current age or your retirement target year? But all these, and my initial thoughts like, well, all these, like you said, all these funds are the target year of the stated in the name of the fund is the not your
Nate Reineke (12:13)
Yeah.
Kyle Hoelzle (12:15)
target age, it's your target year when you retire, right? So, merely you kind of dismiss that, but then you start to think about, well, maybe there's something to this, right? Like can't just dismiss it right away. So, sometimes when it's really hard to make sense of something, I find it's good to go to the extremes. So, in this case, I was with the client on the line there. said, all right, let's think about this in extremes. Let's say you want to retire when you're 40. Like that's pretty early. Like that's pretty extreme. a lot of people are able to do that.
Nate Reineke (12:16)
Right.
Mm-hmm.
Kyle Hoelzle (12:45)
So let's just assume that you have normal health and you're going to live to 85, 90. So you have 50 years that you need to spend your assets down. So the question then becomes, if I'm retired today at 40, then I should be in the target date 2025 fund. And that's probably going to be about 50 % stocks, 50 % bonds, or 60-40, something like that.
That money has to last me for 50 years. Conversely, I could target my age 60 and I could buy a target date fund that matches my age 60. And this is what think at the core of the question here. Should I do that instead? And my answer is, was.
It seems to me it's a risk reward type question. If you need to retire today, then you should have enough money where you don't need to take substantial amounts of risk over the next 50 years to make sure you run out of money. Because if any of those bad outcomes happen, then you run the chance of superannuating, which is to say running out of money before you die. So I believe that you should be in
Nate Reineke (13:45)
Mm-hmm.
Mm-hmm.
Kyle Hoelzle (13:56)
If you're actually retiring at the age 40 and it's 2025, you should be really conservative, meaning you should have enough money to not have to take risks to last that next 50 years. If you got to take more risks to do that, then you probably should keep saving. You know what I mean? You should, you're not prepared, right? Cause it's not recommended to go into retirement and carrying too much risk, you know, unnecessarily. And in this case, I think that it does, just doesn't make sense.
Nate Reineke (14:08)
Mm-hmm.
Yeah, you're really not prepared.
That's right.
Yeah. I think I wasn't on this call, but I imagine that what's coming from this article is that most people retire around the same age. The average person retires at 65. And so to them, they can't fathom a world where some doctor decides they want to retire at 50.
Kyle Hoelzle (14:26)
So, yeah.
Nate Reineke (14:49)
They just think, well, the average person retires at 65. So it's sort of the same to them, meaning a fund that, you you're retired when you're 65, let's call it 2055. If you're retiring in 2055, whether or not you're 40 or you're saying, you you're saying you're retiring in 2055, it doesn't really matter. Like, it's all the same to them. But this is yet another example of why physicians can't take rules of thumbs.
They can't read articles and immediately apply it to their situation all the time. Everyone is unique, but physicians are extra special, right? Because they all have specific goals. They have really taxing jobs. Many of them can't work until they're 65. You know, it's some can, some can work until they're 70 pretty comfortably. Most psychiatrists I talked to want to retire at 70. They love their job. They get better with age. It's just different for you. And so
Kyle Hoelzle (15:21)
Mm.
Nate Reineke (15:45)
Anytime you're reading an article, you might be able to get some value out of it, but you have to be able to translate it into your own life. And for physicians, I would, you know, if that's what this article was getting at, you just have to know, I don't know many physicians unless they're either working until the wheels fall off or they're like, I want to retire, you know, in my late 50s or 60 or something.
So you just can't take rules of thumbs. You're different than everybody. You have a different risk tolerance. You have different spending habits than even your peers. Yeah. So, but generally speaking, it's plan for the year you want to retire, right? And if that is retiring early, you should have a whole bunch of money, probably in a flexible brokerage account. And you
Kyle Hoelzle (16:12)
you
Nate Reineke (16:28)
should also be investing appropriately.
So like you said, not taking too much risk. But interesting question. Let's see, we'll get to the next one here.
Kyle Hoelzle (16:33)
Mm-hmm.
Nate Reineke (16:40)
This is a POM CritCare doctor in California. My wife works for a tech company and receives around $20,000 a year in RSUs. How would you handle them in my portfolio? So this is a question I got. I wrote this plan. RSUs aren't all that familiar to doctors, but more and more lately I'm finding, especially in California, I have two...
doctors married to tech people in California. So they get these RSUs, which is essentially a form of a concentrated single stock, but it's in the form of compensation, right? And so you work for Google and they give you Google stock and it's part of your comp package. And everybody gets these single stocks. honestly, most of the time when I see them do, I see them hold them. They just sit there.
Kyle Hoelzle (17:13)
.
Nate Reineke (17:33)
And so they come in the form of income, but then if you just hold them, they act like a normal stock where there's capital gains as they grow. The problem with this is, and it's a problem, it's our problem, Kyle, it may not be the average person's problem, but it's our problem. It goes against a physician family investment philosophy of diversification. So I would never ask you to buy a single stock. So if you earn a single stock or,
You know, sometimes people are gifted a single stock. What do we recommend they do with them? We recommend you sell them and invest them appropriately for your retirement or college plan. So be fully diversified by this garden variety index funds that participate in the whole market rather than this one concentrated position. And I see these get out of hand too. $20,000 one year doesn't seem like a big deal. You almost feel like you're taking a high flyer on the
company you work at. But over time, I've seen these grow, you know, because tech stocks can grow pretty fast. And with $20,000 a year over and over and over for many years, it's all of a sudden you have a big concentrated position, you have a big tax problem. So I would use this essentially, I would think of these as income that are sold right when you get them. It's not I'm not making a
Kyle Hoelzle (18:42)
Mm-hmm.
Nate Reineke (18:49)
I'm not taking a guess on whether or not Google or Meta or Apple are going to do well or not. I'm just saying I would never ask you to buy one individually. So there's no sense in holding on to one individually. The only real thing to consider here is there are some tax logistics. Like if you have a bunch of RSUs and I'm asking you to sell them or you're asking them to sell them and you're like, I'm going to get hit with a bunch of taxes. Sometimes I've seen well,
If you wait a month, you won't be paying short term capital gains anymore, it'll be long term. Sometimes that kind of analysis is worth it to wait it out to save a little bit on taxes. But if you're starting from scratch, I wouldn't even mess with holding onto them for longer than the second you get them, you sell them and you invest them or sometimes you could spend it.
Kyle Hoelzle (19:40)
Yeah, that was that was what I was wondering it's like you can sound immediately Even though you're in that short term short term capital gains window where it's like I don't do that because you're pay over an income tax But if you have like one or two days of short term capital gains, it's probably gonna be pretty insignificant I would imagine unless there's some huge spike, but that's that's not that's a typical So yeah, I would expect you to who cares you're paying order income tax on this small amount of gain to reduce any
Nate Reineke (19:46)
Mm-hmm.
Yeah.
That's right.
Kyle Hoelzle (20:05)
You know, it's you're thinking you're a planner, so you're thinking big picture here. You're well, say you stay at this company for 20 years and you get the sizable single stock, you know, and some of it grows. There is a there is a real concern to be had about what's called concentration in your portfolio where you, you know, a certain large percentage of your retirement assets are concentrated in a single stock. And that's really common, like CEOs and things like that, where they're going to get a lot of their compensation that way and other things like that. But yeah, I mean,
Nate Reineke (20:20)
Mm-hmm.
Kyle Hoelzle (20:33)
That's a real concern that ⁓ you do have to consider. like you said, taking immediate action on it is better than delaying the delaying the inevitable on that. So yeah.
Nate Reineke (20:40)
Yeah.
And you'll still participate in the growth of the market. You you're going to you'd probably buy back right back into Google because you're going to put it in, you know, an index fund and Google's in there. You just won't be so concentrated.
Kyle Hoelzle (20:49)
Mm.
Yeah, I can see like from a value standpoint, if you want to participate in the growth of your company, you want to see the fruits of your labor and that was important to you. I can see keeping the first one or two of those when you first start to see your your all time since you've been there. That'd be cool. But like each year moving forward, you know, I would, like you said, I would get that and reinvest that for my future and appropriately. So
Nate Reineke (20:58)
Mm-hmm.
Yeah.
Mm-hmm.
Yeah.
Yeah, that would be cool. It's like the first dollar you make when you open up your first business and you hang it on the wall, except that's going down in value.
Kyle Hoelzle (21:15)
Okay.
Nate Reineke (21:23)
Okay, last question for you, Kyle, from a dermatologist and taxist. ⁓ Why do you recommend municipal bonds in my brokerage account over corporate bonds? So I want to take the easy one, which is taxes. But I was talking about this with you the other day, and you had a lot more reasons other than just the tax benefits of municipal bonds. So I'll you take it from here.
Kyle Hoelzle (21:47)
Yeah. Yeah. So like you said, you you get, you're fairly tax exempt on those, those municipal bond funds and that's your biggest tax burden on the income generated from that bond fund. So, immediately, you know, putting municipal and a taxable brokerage makes a lot of sense over corporate bonds, just from an after tax return standpoint. But what I find interesting is, you know, looking at the trading returns of
Nate Reineke (22:05)
Mm-hmm.
Kyle Hoelzle (22:12)
Total you know like a total US bond index which is gonna have like treasuries and corporate bonds in it versus a total US municipal bond index fund you look at the trading returns and You looking like the last 10 years for example municipal bond funds have actually outperformed corporate bond funds just in that period I'm not saying that's gonna be you know there's no way to predict the future But at least looking at the trailing 10-year it has outperformed and that's on a before tax basis so
Nate Reineke (22:32)
Mm-hmm.
Kyle Hoelzle (22:39)
It's bonds, we're talking 30, 40 basis points maybe, something small, but it's a performance advantage nonetheless. And then you take the after tax return into account and then municipal bonds, the returns even higher for you, because you're not paying taxes on that interest. that's, yeah, that's, know, which is to say that it's an asset class worth having. It's not something to be discarded.
Nate Reineke (22:43)
Mm-hmm.
Right. Yeah.
Yes.
That's right.
That's right. And an asset class worth having. You pointed this out to me when we were talking that I thought was most interesting. I mean, you go look in your 401k and it's filled with corporate bonds. There isn't a bunch of municipal bonds. really, unless you have a taxable account, most of the time, that's your only exposure to municipal bonds. So it's this whole sort of asset class.
it's bonds, you know, like a sub-asset class of bonds, and you really don't have any exposure to it unless you buy it in your taxable account. So all signs point to municipal bonds, and the tax benefit is what we always talk about. I mean, because for doctors, it just doesn't make any sense to buy any other bonds in your taxable account. But
to hear that there's three or four other really great reasons to do it. was like, I started getting excited about bonds over here.
Kyle Hoelzle (23:52)
Yeah, I mean who wouldn't want a little bit more diversification, you know, mean so
Nate Reineke (23:56)
That's right. Yeah.
Okay, that is it for today. Thank you everybody for listening. ⁓ If you liked this episode, please be sure to subscribe so you don't miss when we release new episodes every week. You can leave us a rating wherever you're listening. If you'd like to work with us, you can go to physicianfamily.com, schedule an interview. If you're not ready for that though, we welcome and encourage questions. You can send us a question at podcast at physicianfamily.com. We promise to answer the question.
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