Nate Reineke (00:00.834)
Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor.
Chelsea Jones (00:07.979)
And I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family Financial Advisors.
Nate Reineke (00:15.31)
Chelsea, it's almost Halloween. This will come out a couple days before. Is Anna old enough to trick or treat the old fashioned way?
Chelsea Jones (00:17.687)
And.
Chelsea Jones (00:23.223)
She is. She is with, yeah, like us going along with her. Yeah, she's, we've gone to one Trunk or Treat so far, because they have, it's October, so there's gonna be something going on on the weekends. We've gone to one Trunk or Treat so far, and she gets kind of timid going up to ask for Halloween candy, but she'll be like, Trunk or Treat, so quietly.
Nate Reineke (00:33.614)
Mm-hmm.
Nate Reineke (00:37.23)
Mm-hmm.
Nate Reineke (00:48.046)
Yeah
Chelsea Jones (00:51.095)
And that usually gives the person giving out candy a little chuckle and they're like, aww, here you go.
Nate Reineke (00:56.686)
Nice. Yeah, we are, we've done trick or treating in our neighborhood for five years now and we have some new parents like down the street and they're like, will you show us the ropes? Cause you got there's some houses you got to avoid. And this year, actually just yesterday, I went on a walk with Mateo miraculously. It's the middle of October and it was just a nice sunny day. And we went on a walk and he started counting all the houses with decorations. Cause he thinks that's the only ones that give out candy.
Chelsea Jones (01:09.674)
Yeah.
Nate Reineke (01:26.146)
And so I think he counted 18. I was like, it's pretty good. Pretty good. All right, speaking of Halloween, we some spooky stuff going on in the markets. So we're gonna talk about that today, mixed in with some other great questions that aren't so spooky, but we're gonna start with one. We got a question from a cardiologist in Oregon. We actually got two questions from them this week. The question is,
Chelsea Jones (01:29.143)
That's still pretty good. Yeah.
Nate Reineke (01:55.712)
Should I own gold?
You got this question, Chelsea, and you answered it, but I'm going to say my piece about this. That's okay. So I think it's important when you ask this question, especially to us, I mean, you have to understand our investment philosophy, right? And the reason to buy gold or not buy gold or buy anything,
Chelsea Jones (02:05.289)
Okay. Yeah.
Nate Reineke (02:27.754)
is not necessarily a prediction on whether or not gold will go up or gold will go down. The real reason to make an investment is to buy a productive asset. So when you buy a stock, you are buying into a business and that business is theoretically productive. It goes out and it makes money. And gold is not a productive asset. Gold is simply a hedge
Chelsea Jones (02:51.297)
Mm-hmm.
Nate Reineke (02:57.93)
against a variety of things, guess, most of the time inflation. And so it's not really a way or you shouldn't be buying it, I would say, with the expectation that it's going to grow your portfolio or it's just like a growth engine in your portfolio. It is a hedge. And in times like we're experiencing today, kind of inflationary times, there's some stress out there in the geopolitical world.
It can be really tempting to buy it because it's a hedge against this chaotic world. But I believe that you should focus as an investor on long term income producing or I'm sorry, growth producing assets. And I'm going to ask you a question, Chelsea. What does Apple do?
when we experience inflation.
Chelsea Jones (03:59.243)
Hmm, probably raise their prices to account for it.
Nate Reineke (04:01.902)
That's right. Right. They can set their own prices. So to say that you're buying gold as simply a hedge against inflation, that may be true. That or that that you might be right. Inflation could go up and gold could go up. But the reality is that on a long term, when you buy into businesses, they can raise their prices now in short term volatility. You know, maybe they can't raise their prices immediately and people can't buy immediately.
But a long term view of this, if you zoom out and you stop thinking about this year or even the next three years, right, you are buying assets that protect you against inflation when you buy stocks. So I believe you should be buying into real companies. And the reality is that.
you will be protected against inflation if you continue to do that and you're diversified in all sorts of companies that can set their own prices. So I'm curious what you thought or if you agree with that though.
Chelsea Jones (05:04.673)
Mm-hmm.
Chelsea Jones (05:09.397)
Yeah, so there's a couple of things that I like to stress any time we are talking about any kind of change in a portfolio. So this question was, there's no gold. Should I buy gold? The thing to remember is you don't want to be reactive when it comes to your investments. You don't want to hear something on the news, get afraid, and then pull money out of the market. For an example, you want to
Nate Reineke (05:17.71)
Mm-hmm.
Nate Reineke (05:21.25)
Mm-hmm.
Chelsea Jones (05:38.433)
Create an asset allocation in the beginning that aligns with your risk tolerance, something that you can stick to through the rough times in the market without being fearful and pulling the money out. Because I've seen clients react that way, and it's never worked out in their favor. So first thing to remember, of stick to your asset allocation. It's going to be a really, really, really, really, really good reason.
to change anything before you actually make a significant change.
Nate Reineke (06:06.157)
Yeah.
Nate Reineke (06:11.212)
Well, and I can think of a good reason, but it's a delicate one. The good reason would be you can't stomach this. Right. And so if someone's saying, should I sell out of my stocks? I'm not saying I don't think strategically that's usually a good idea. But but psychologically, if if you can't stomach being 90 percent stocks, 80 percent stocks, and you're asking that question.
Chelsea Jones (06:20.501)
Yeah, that's, yeah.
Nate Reineke (06:39.916)
we need to have a heart to heart about whether or not you should continue to be exposed this much to the stock market. And so unfortunately, a lot of times that question comes up when the markets are down. By the way, they're not down. They're soaring. So it's an interesting time. But yeah, okay. yeah, it has to be a really, really, really, really good reason.
Chelsea Jones (06:44.075)
Yeah.
Mm-hmm. Yeah.
Chelsea Jones (06:54.625)
Mm-hmm.
They're still up. Yeah.
Chelsea Jones (07:05.833)
Yeah. the, yeah. And so one of the reasons would be, you know, if you're fearful of the debasement of the US dollar, which if that happens, that's pretty significant. I don't know that holding gold would save us if it actually happened to that extent. But the reason to buy gold is if that fear is so prevalent that the decision isn't truly
Nate Reineke (07:14.51)
Mm-hmm.
Nate Reineke (07:23.864)
Yeah.
Chelsea Jones (07:34.293)
Am I going to be investing in the stock market or am I going to put money in gold or is my money going to be in bonds or is it going to be in gold? Whenever that fear is so prevalent, the true decision is am I going to take my money out and let it sit in cash or am I going to put it in gold? And so if it comes down to that, we want to give advice that you're going to follow that you can stomach.
Nate Reineke (07:42.285)
Mm-hmm.
Nate Reineke (07:50.979)
Yeah.
Nate Reineke (07:55.33)
Yeah.
Nate Reineke (07:59.246)
sure.
Mm-hmm.
Chelsea Jones (08:03.095)
and we want your money to work for you. And so.
Nate Reineke (08:05.452)
Yeah, it is a bit unique to each person. I I'm saying essentially for most people, probably shouldn't own gold. But if by taking that advice, what you're saying, by taking that advice means you're just going to be in all cash. Well, that's not good either. And it's not like gold doesn't get returns. It's just doesn't, it's not productive.
Chelsea Jones (08:24.823)
Hehehe.
Nate Reineke (08:34.55)
So if owning to 5 % of your portfolio in gold gets you back on the horse and allows you to invest your money appropriately, it's not going to make it so you can't retire. And it's not going to make you rich. But if it gives you some calmness amidst the chaos, it's not the end of the world either.
Chelsea Jones (08:34.743)
Mm-hmm.
Chelsea Jones (08:56.151)
Mm-hmm.
Nate Reineke (09:01.762)
So yeah, gold, and it's funny, anytime the markets are moving like this, that's when you get the question. So I just want everyone to sit back and think about this. Were you asking yourself about gold before gold was soaring?
Chelsea Jones (09:10.423)
Mm-hmm.
Nate Reineke (09:20.546)
And if you weren't, it's not to say that this is a bad, it's mainly to say, you know, if you look back at history, that's the only reason it sounds smart or dumb. Nobody's going to know when gold's going to go up or down and just like the stock market. So it's really easy to look at it and say it's going up, you know, something really bad is happening or something really good is happening. But there's no way to tell.
So what you could do is you can invest your money in kind of a tried and true way, which is to be really diversified and buy a whole bunch of companies, buy a whole bunch of bonds and take a more smooth path to retirement and get the total market return, participate in the world's growth, buying international stocks, buying US stocks, buying bonds and get a piece of everything and the volatility will be
less. It won't be as scary. yeah, it's an interesting thought experiment. I don't get any questions about NFTs anymore because they're just gone. They're...
Chelsea Jones (10:33.463)
Great.
Yeah, it's like anymore.
Nate Reineke (10:40.182)
Okay, enough about gold. Cardiologists in Oregon again, my workplace plan now offers a Roth 403B. Should I maximize that to get more into my Roth or just continue as normal with a backdoor Roth?
Chelsea Jones (10:55.287)
This was a great question. It's worth asking. But ultimately, so this cardiologist, up until he retires, is going to be making well into a six figure salary. He's gonna be in the highest federal marginal tax bracket. So it doesn't make sense to put money into the Roth when you're still in your highest earning years. And...
Nate Reineke (10:57.102)
What do you think?
Nate Reineke (11:11.758)
Mm-hmm.
Chelsea Jones (11:23.911)
the benefit of the Roth gets less and less the closer you are to retirement. So, for example, if he defers his income, you know, pre-tax this year and saves 47%, he's in Oregon, Oregon state taxes 10%, 37 federal, say he saves 47 % on every dollar he defers. But then next year he's fully retired and he has the ability to take that money out.
Nate Reineke (11:29.677)
Yes.
Chelsea Jones (11:53.591)
So it's in there a year or less, maybe a few months. That's any pays taxes at the 24 % rate or maybe like a 27 % effective rate estimating. That's a 47 to 27, 20 % permanent and virtually immediate taxings. yeah, closer you are to retirement, the better the tax deferred actually becomes.
Nate Reineke (12:01.954)
Mm-hmm.
Nate Reineke (12:14.328)
That's right.
Yeah, and
Nate Reineke (12:22.444)
Yeah, it's always better. the difference for high earning doctors, it's always better to defer the money. But like you're saying, right on the cusp of retirement, it would be catastrophic to put it into the Roth. And I think there's one little piece that's missing here that's always interesting, at least for us to think about. The whole point of putting money in a Roth is grows tax free. And how much growth are you going to get?
Chelsea Jones (12:31.147)
Mm-hmm.
Chelsea Jones (12:49.431)
Mm-hmm.
Nate Reineke (12:51.95)
in one year, right? You'd have to get the 20%. I mean, you'd have to get absurd growth. You'd have to. Yes, and it's more than 20%. I can't do the math in my head, to take, know, it's you'd have it just wouldn't make any sense. Now, if you're really, really early on, I understand this question a little bit more because there's this idea that maybe you'll get great returns over 30 years.
Chelsea Jones (12:53.857)
Great.
Chelsea Jones (13:01.109)
Yeah, make up for the taxes that you just paid on it in your.
See ya.
Nate Reineke (13:19.746)
But the reality is that for doctors and high income tax brackets, you do the Roth, the backdoor Roth because you have no other options. If you had more pre-tax options, you should take those.
Nate Reineke (13:34.168)
Alright, a spouse of a dermatologist in Virginia. want to retire at 50, but I know that we can't get Medicare until we're 65. What are our options to stop working or dramatically scale back with that in mind?
I have an answer. I'm sure you do too. I'll let you go first.
Chelsea Jones (13:52.375)
And yeah, I do. Yeah.
Okay, yeah. So this question came from one of my clients and he brought it up because he recalled whenever we were doing planning, he was like, I remember you telling me that if we're retiring, quote unquote early, meaning before 60, especially before 65, the cost of paying for private healthcare can be a bit of a burden. Like you have to save a lot to make up for that. And so he wants to retire in his 50s.
Nate Reineke (14:10.606)
Mm-hmm.
Nate Reineke (14:20.27)
Mm-hmm.
Chelsea Jones (14:28.155)
working at his current pace until 65 is just not a goal for them. so he was like, what can we do to kind of help offset the private healthcare costs before we reach Medicare without me having to work as much as I am now? And so the immediate options are you can always save more. That's always whenever you're looking at the straight numbers going to.
Nate Reineke (14:34.968)
Mm-hmm.
Nate Reineke (14:53.582)
Mm-hmm.
Chelsea Jones (14:59.189)
be one of the possible answers. But the approach that we actually are taking with his plan is just a dramatic scale back. So he's going to work enough to where his health care is covered under his employer until they reach Medicare age. And then once they reach Medicare age, he's just going to stop working completely because the health care cost has gone down.
So he's working significantly less or longer, which is sustainable because he's not going to be working at his current rate or his current pace. But he's offsetting that health care cost of it. So they don't have to save as much as they would if they were just going to take on that full cost on their own.
Nate Reineke (15:31.342)
Mm-hmm.
Nate Reineke (15:48.014)
Yeah. Huh. That's a better answer than I had. I said, save more money. No, I like that though. Retiring at 50 is generally people just don't end up doing it. So saving every nickel until 50 and then being like, actually, I think I'm going to work a little longer. It sort of feels like a waste. So I like that. Most people get enjoyment out of work in a couple of days a week. So and the benefits are
Chelsea Jones (15:54.175)
You just gotta have more money.
Chelsea Jones (16:02.655)
and
Chelsea Jones (16:14.807)
Mm-hmm.
That could be a game changer. Yeah.
Nate Reineke (16:17.77)
It's great to have those benefits. Yeah, it's huge. okay. Internal medicine doc in Washington. I just switched jobs and my new employer, and with my new employer, I can elect for a match to go into my 401k or take it as a cash balance. What should I choose? I think they're talking about a cash balance plan. Okay.
Chelsea Jones (16:41.323)
Yeah. So whenever I looked at this client's benefits overview, they have a 401k that they contribute to no matter what they elect in this scenario, because this election is referring to the employer contribution. So the employer is saying, do you want us to put money into your 401k so that way it can invest and you take on the investment risk? Or do you want us to put the money that we would have
Nate Reineke (17:07.608)
Mm-hmm.
Chelsea Jones (17:10.763)
contributed to the 401k into a cash balance plan instead, which is invested relatively conservatively, but it's a guaranteed benefit. It's a defined benefit plan.
Nate Reineke (17:21.709)
Mm-hmm.
Chelsea Jones (17:24.975)
And this was a great question too, because usually the question is, did I participate in the 401k or should I participate in the cash balance plan? Where if they choose the cash balance plan, there's no 401k. It's an either or in most situations. But this one is really interesting because they have the 401k either way. But do they want this employer contribution to go 401k or cash balance? Ultimately, we went with the 401k.
Nate Reineke (17:39.008)
Uh-huh.
Chelsea Jones (17:53.675)
because they still have quite a bit of time until they retire. And you have more flexibility with the 401k if you end up switching jobs. The intention is always to, the intention most of the time, unless you're super early on in your career, is to stay wherever you're working at forever. But life happens. A lot of times you end up switching jobs. The cash balance plan had a longer vesting period.
Nate Reineke (18:03.98)
Yeah.
Nate Reineke (18:16.926)
Mm-hmm. That's right.
Chelsea Jones (18:23.479)
think he had to stay there for at least five years to be vested in the benefit before when Kay had a three year vesting period.
balance interest credit rate was I believe 5 % and they could get a higher.
Like you could project a rate of return in the 401k, yeah.
Nate Reineke (18:41.006)
projected rate of return. Yeah. Yeah, I actually thought you were going to go a different direction with this. It's kind of bleeds into my next question heavily. what I thought you going to say is just cash balance, or 401k, purely because of the projected rate of return or the expected rate of return, right? We know cash balance planes. It's just they're invested in
Chelsea Jones (18:50.113)
Yeah.
Chelsea Jones (19:05.559)
And then.
Nate Reineke (19:10.732)
less risk, we're taking less risk. It might be 50 % stocks, 50 % bonds. But I got a very similar, it's kind of what you were referring to, this is normally what happens. So I'll just let this run into that question. It was from a hemonk in Iowa. I just changed jobs and am being asked to choose my retirement plan option, defined contribution plan or defined benefit plan, which should I choose?
Chelsea Jones (19:13.175)
and
Nate Reineke (19:38.486)
I almost called these two questions. almost did our own little segment called this or that, because it was the same thing. But it is, you know, it's open enrollment. And when you change jobs, a lot of times it's like when you start making these choices. So we're getting a lot of those, a lot of those questions. And you touched on a lot of this, but I'm just going to kind of answer it my own way. First, I want to just, we've done this many times and I'm going to define.
Chelsea Jones (19:43.702)
Yeah.
Nate Reineke (20:05.678)
defined contribution plan versus defined benefit plan. Defined contribution plan, this is your 401k or 403Bs. But this is you and your employer put money in an account, retirement account, and how much money you have at the end really is determined by how much you put in and how your investments do. I mean, you could put this in very, very...
Chelsea Jones (20:29.878)
Mm-hmm.
Nate Reineke (20:36.718)
a low risk option, just like a defined benefit plan. But you wouldn't because you're probably, know, in your 30s, 40s, even 50s, you have 10 years till retirement, you're going to take some risk and you're expecting to get a better return in return for that risk that you're taking. Okay. The fine benefit plan is your employer is promising you, which is a little different than cash balance plan.
Chelsea Jones (20:55.499)
Mm-hmm.
Nate Reineke (21:04.215)
but your employer is promising you a benefit. They're defining what your benefit is going to be. So this is essentially a pension. And it's just a calculation based on how long you've been there and what your salary was usually. they do like your salary in the three years you made the most money or your five years you made the most money. So there's all sorts of ways to analyze it.
And they're all theoretical, right? Because we don't know what return you're going to get in your 401k. don't know how your investments are going to do. It's hard to even project exactly what your pension will be because a lot of times people get raises and it's really difficult to know in the future. But you can get close with some of that analysis. And you just described it. It's like, do you want to take the risk?
Chelsea Jones (21:34.711)
Mm-hmm.
Chelsea Jones (21:51.543)
Mm-hmm.
Nate Reineke (21:58.904)
That is your risk in 401k. You are accepting that you're going to take the risk versus do you want the risk to be put on your employer for theoretically a lower return? And then there's just the fact that with a pension, when you die, the pension dies with you. So theoretically, if you can make more money in a 401k and you don't spend all of it because you're not dying with zero here,
Chelsea Jones (22:11.895)
Mm-hmm.
Nate Reineke (22:27.818)
then your children will get to inherit it. So that's the decision. And that's what most people are asking. But in this instance, and if this client is listening, they will fully agree with me. They change jobs about every three years, sometimes three months. And so the question on whether or not to take a pension is not hard. They are not going to stay there 15 or 20 years. They're just not.
Chelsea Jones (22:30.167)
Thank
Chelsea Jones (22:40.247)
Mm.
Chelsea Jones (22:44.407)
you
Nate Reineke (22:56.686)
And if they if they do, it's not all bad, because usually your employer is trying to make the benefit roughly even. So in this case, their contract, their employer contribution is really high. It's really high. It's like one of the highest ones I've ever seen, other than if you're a partner and you're maxing out your 401k to $70,000 a year. So the question you have to ask yourself is, is this my forever job? Am I confident in that? Because if I'm not, I want this 401k to be portable. I want the money to come with me.
And I don't want to take a severely reduced pension if I'm only going to be there a few years.
So I would say in most cases, unless it's like when you're making this decision, at least for our subset of clients, right, our subset of doctors that we talked to, a lot of times when they're faced with the choice, they do go with the 401k, but not always. So individual to you.
How'd I do?
Chelsea Jones (23:59.095)
Good.
Nate Reineke (23:59.702)
We hit that from all angles.
Chelsea Jones (24:02.379)
We did. I feel like we kind of gave the same answer though, which is...
Nate Reineke (24:06.22)
We did, but was just the only difference is, yeah, different delivery. There you go. Okay, that is it for today. Thank you everybody for listening. If you liked this episode, be sure to subscribe so you don't miss out when a new episode is released every Wednesday. And you can also leave us a rating wherever you are listening. And if you want to work with us, you can visit us at physicianfamily.com to schedule an interview.
Chelsea Jones (24:09.313)
Different delivery.
Nate Reineke (24:34.382)
but if you're not ready for that, you can send us a question at podcastatphysicianfamily.com. We'll answer your question even if it doesn't make it on the show. Until next time, remember, you're not just making a living, you're making a life.
