Nate Reineke (00:13)
Hello physician moms and dads, I'm Nate Renneke, certified financial planner and primary advisor.
Chelsea Jones (00:16)
Okay.
And I'm Chelsea Jones, also a certified financial planner and primary advisor here at Physician Family Financial Advisors.
Nate Reineke (00:27)
Chelsea, have, ⁓ I hope it's our favorite episode ever. I don't know why, psychiatrists love us and we love them. Don't know what it is. But we have an all psychiatrist question episode. We even had a psychiatrist, I think, last episode and we had to like contain ourselves. I'm like, we could do a five question episode here with all psychiatrists. Yeah, so here we go. We didn't do it on purpose. It's just what we collected.
Chelsea Jones (00:34)
Damn.
Yay!
Yeah, we did.
Family Psychiatrist questions coming for you. Okay, so the first question up is from a psychiatrist in Maine. They said, if my kids are likely to have much of their college covered through scholarships and unused GI bill benefits, how should that change the way I approach college savings?
Nate Reineke (00:57)
Yeah.
Mm-hmm.
Yeah, so ⁓ there this was a ⁓ really unique question. And it tends to be that as people get closer and closer to college, it just becomes more more unique. The more kids you have, the more you know, the different their different goals when your children are like one, three and five. It's just all the same. They're all going to private college. And that's what we're saving for. But as you get closer and closer, it's like, well, this child, you know, they're really good at
you know, the sport or they're really good at this activity. think they actually, they got great test scores. I think they actually are gonna get some merit-based scholarships. ⁓ And so you have to consider these things. For this psychiatrist in Maine, they were in the military, they have the GI Bill, and ⁓ they had some really good reasons that I won't get into for why they are probably going to get a lot more school paid for. So the question is,
Do I just assume I'm gonna get all these goodies or do I prepare for worst case scenario? And ⁓ I have a tendency to prepare for worst case scenario, so I get where this question is from, but a lot of times when people prepare for worst case scenario, they're not maximizing anything in their life. They're sort of just preparing for the worst and it usually doesn't end up being the worst.
Chelsea Jones (02:20)
Mm-hmm.
Nate Reineke (02:44)
And even if you aren't fully prepared for college, you know, as psychiatrist or a physician family, you're going to have some money when your kids are going off to college. You could pay for it. So what do you do? This is an honest college question rather than like, I'm pissed because every college just costs too much. You know, this is a truly like they have scholarships in the hopper. And the answer is to create what I call a floor plan.
Chelsea Jones (02:45)
Right.
Yes.
Yeah.
Nate Reineke (03:13)
not the floor plan like at your house, but the minimum plan. What's the floor here? ⁓ What is, if none of this worked out, the GI Bill's gonna work out. But if none of these other scholarships work out, what ⁓ is the minimum I would need to have saved? And then save for that. It's gonna end up being too much, because one of these scholarships is gonna work out.
Chelsea Jones (03:33)
Mm.
Nate Reineke (03:39)
but at least you have the minimum. You don't need to over save. You don't need to assume like the GI bill's going out the window and nothing's gonna work out, but you save enough ⁓ to where college is definitely gonna be covered or the minimum college will be covered. So let give you an example. Let's say you save for the minimum to where if none of these scholarships worked out, you at least had enough money for public school. But in reality, you're hoping for private school.
And so the scholarships plus some public school money will get them to private school. But at the worst case is those don't work out and they're going to public. At least you're doing your best to have some money in a 529 if you start moving toward the kind of the worst case scenario. And then you have all the tax savings. You feel like, you know, I'm riding the fence here. I'm not necessarily getting.
Chelsea Jones (04:07)
Mm-hmm.
Mm-hmm.
Nate Reineke (04:34)
you know, putting too much in 529s or not enough. I'm just doing just enough. And if they do get those scholarships, you can reimburse yourself the money back out of the 529 without penalties. So you won't pay penalties ⁓ and you're not going to be set back too much. And then you can kind of move on and use your other money for more important goals, because this one is mostly covered. So it shouldn't be your the thing you're thinking about all the time.
Chelsea Jones (04:47)
You can.
Yeah.
Yeah, and one thing about psychiatrists is they're going to keep working. So most likely, I don't know everything about their situation, but psychiatrists work a long time, most likely they're still going to be earning while their kids are in college. And so they may have the earned income to just spill any gap to. That's not covered by the 529.
Nate Reineke (05:09)
Yeah, we'll be.
Mm-hmm.
Yeah, I have met, yeah,
I've met a few psychiatrists that talk about maybe not working forever, but most, it's like a fine wine. They just get better with age and they're 70 years old and they're thinking, why would I ever stop this? Like, this is great. And so it's definitely not like, you know, being in emergency medicine where it's like, you can only handle so much for so many years. It's hard on your body. This is not. So.
Chelsea Jones (05:39)
Mm-hmm.
Yeah.
Nate Reineke (05:55)
I don't know this person either. This is a listener. So, but the psychiatrist that we know, I think they'll be okay. And that's even ⁓ more of a nod to, hey, if you're slightly underfunded, it's not the end of the world. And if you're behind on retirement or this person ⁓ had a really big goal of paying off their house, I don't know exactly why that was such a big goal for them, but it was a really big milestone they wanted to achieve.
Chelsea Jones (06:18)
Mm-hmm.
Nate Reineke (06:23)
And they just thought, hey, if I can save a little bit less for college, I'll be able to do that. I think that's a good idea.
Chelsea Jones (06:29)
Yep, very good. Next question, psychiatrist, surprise, in West Virginia. They said, when I did my estate planning, the service that I use suggested that I put an age restriction on distributions. I need some more education on why I would need to divvy it up when I assume our children would need access to the funds for support as young adults even prior to the age of 25. So.
Some context here, the age restrictions, this is basically, so they set up a revocable trust. And in the way that they originally set it up, once their child turned 18, they would have unrestricted access. And she's saying, well, even an 18 year old needs some support, why would I put age restrictions on it? There's one thing that you would wanna keep in mind here is that,
Even if there's an age restriction, that doesn't mean that they don't get any money out of the trust. There's almost always what's called a HIMS distribution allowance. So that stands for Health, Education, Maintenance, and Support. So all of that's going to be covered, even if they don't get everything at 18. So yeah, this age restriction is basically, usually the goal is to save kids from themselves, you know.
Nate Reineke (07:52)
Yeah.
Chelsea Jones (07:53)
and being irresponsible with this money. ⁓
That's why you would put an age restriction on a trust. Usually it's like they get a chunk at 25, 35, 45. You can put the ages at whatever you think is appropriate,
Nate Reineke (08:00)
Yeah.
And it's gonna be different for each child. I have a child right now who is seven and he spends every dollar the second he gets it. And then I have a child right now who's five and he doesn't know what he's saving for but he just knows he wants to get to three digits. I don't know if it's because the five year old can't think of what to spend their money on but if they keep going down this path,
Chelsea Jones (08:12)
Mm-hmm.
Mm-hmm.
Mm-hmm.
Nate Reineke (08:37)
there's going to be tighter restriction on the kid that spends too much money. And I'm trying to let him learn from his lessons, but somehow I'm trying to let him spend it and then run out before he wants the next thing so he learns. sometimes we don't have the option to teach our children all these lessons before, if the worst case happens and you were to pass and your child doesn't know how to handle money and they're 16 and they get, I mean,
Chelsea Jones (08:41)
Yeah.
Okay.
Yeah.
and
Nate Reineke (09:07)
easily they could get seven figures. They'd get a million dollars. Think about you at 17 with no parents. A million dollars, maybe they wouldn't spend it all, but they certainly are gonna go waste a ton of it. And so, that's all this is. It's just protecting them from the selves. You think about, with estate planning, you think about what you want in life. Just think about it, dream it up. Go tell your
Chelsea Jones (09:10)
Yeah.
Thank
Nate Reineke (09:36)
attorney what you want and then they will put it in the plan. So I want my child to be taken care of until they're out of college and then after that they get all the money. If that's what you want it can be written into the plan and all this you know these estate planning attorneys or the software that you're filling out all they're asking you is hey consider this before 25 years old kids aren't really all that responsible so you know they most
Chelsea Jones (09:41)
Okay.
you
Thank
Nate Reineke (10:03)
Nowadays, people aren't buying houses at 25 or before 25, right? Because they're in college or so they don't really need access to all the money. They probably need access to like, you know, a few thousand dollars a month.
Chelsea Jones (10:13)
Mm-hmm.
Yeah.
Nate Reineke (10:21)
So that's all it's asking for.
Chelsea Jones (10:22)
Yeah.
Exactly. Something to consider. Excuse me. The next question is from a psychiatrist in Kentucky. They said, it comes to life insurance, my husband and I both have several policies with different terms. But I want my parents to get the payout from one of the policies, but my husband's still being contingent. ⁓ What is the easiest way to do that? Do I change the beneficiary on the policy?
Should we change the beneficiary to the trust and then have instructions to put the life insurance money in there? Like, how do we go about this? And this is a great question. Again, my answer is gonna have to be very high level because I'm not a state planning attorney. But at a high level, the reason you would use a trust is to have some control over how the money is spent once you pass. And so if...
Nate Reineke (11:15)
Mm-hmm.
Chelsea Jones (11:19)
know if for whatever reason you want to give your parents specific instructions on how to use the life insurance proceeds then you know consider intertwining that into your trust with the help of your attorney but if that's not something that you're really worried about then just updating the beneficiary on the policy will get the job done. ⁓ His life insurance proceeds they don't go through probate and so putting that into the trust is not going to avoid probate because
that doesn't apply to life insurance proceeds anyway. And so, yeah, the only reason you would want to do that is to, again, kind of like we talked about in the last question, save the beneficiary from themselves. But if you're leaving it to your parents, they probably have got good heads on their shoulders and can handle the payout. So just leave it to them straight out.
Nate Reineke (11:52)
Mm-hmm.
Mm-hmm.
Yeah,
it's also, I ⁓ think there might be some good reason for this, but I want to take a step back and explain what life insurance is for, because I don't know why you would put your parents on a life insurance policy. ⁓ Life insurance at its core is you would buy life insurance to replace an income or ⁓
Chelsea Jones (12:25)
Mm-hmm.
Right.
Nate Reineke (12:40)
Biolife insurance to replace, let's say you had a ⁓ spouse that wasn't working or they didn't work outside the home and it would cost a lot of money to replace them. So stay at home parent who watches the kids and ⁓ like that would be probably $100,000 a year to replace them. Someone to help cook and clean and I mean that's a lot of money. So maybe something like that.
Chelsea Jones (13:01)
Yeah, to hire a nanny and, you know, yeah.
Nate Reineke (13:09)
But let's just aside from that, it is to replace an income because what you do with that income is you pay the bills. You also save for college. You save for retirement. You do all these things. You're paying down the mortgage. So when you get life insurance, you want to buy it so it can clear all your debts so that it can fund your goals and so that it can pay the bills until you get to the point where everybody's retired or everybody's off to school. And so unless this psychiatrist
Chelsea Jones (13:33)
Mm-hmm.
Nate Reineke (13:37)
in Kentucky is paying their parents bills. I don't see a big reason to buy life insurance for them because you're not supporting them now. Why do they need money if you were to die? Now, if they are paying their parents bills, this is obviously you need this. But ⁓ even then, it seems to be there's a good chance that this is getting overcomplicated because you don't need like a 30 year policy.
Chelsea Jones (13:46)
Thank
Okay.
Nate Reineke (14:06)
depending on age of your parents and all that. I just, you know, sometimes these kinds of things ⁓ can get over complicated for no reason. You need a healthy amount of life insurance that allows you to fund your goals, pay off your debts, pay for everybody, pay for the things that your income was paying for before, while you were living. That's what you need this for.
Chelsea Jones (14:06)
Mm-hmm.
Mm-hmm.
Yeah.
Nate Reineke (14:32)
But hey, the psychiatrists, they're
Chelsea Jones (14:34)
They are.
Yeah, because I thought about this too. was like, well, they could be paying their parents a personal loan back.
Nate Reineke (14:43)
Yeah, that's a,
that's very possible.
Chelsea Jones (14:47)
Yeah, because they didn't. ⁓
Nate Reineke (14:48)
Maybe they lent them
money for business or school or something and they want to pay them back.
Chelsea Jones (14:54)
Mm-hmm. there reasons that you would want to possibly leave money to your parents like we've talked about, but usually leaving it to your spouse will get the job done with what you want to do.
Nate Reineke (15:07)
Yeah, especially since your spouse
shares your same goals. It's your money, it's your goals, and your spouse probably shares them.
Chelsea Jones (15:11)
Mm-hmm. Yep.
Hey, last questions from a psychiatrist in California. They said, I just finished up my residency and I'm going to work for Kaiser. They gave me a $225,000 signing bonus, but really it's a seven year forgivable loan. What should I do with this money?
Nate Reineke (15:31)
I got this call yesterday and I was kind of blown away by the numbers that I heard. The 225 was big, but the seven number was the bigger one. When I first started ⁓ working with physicians, this number was three.
Chelsea Jones (15:43)
Mm-hmm.
I was thinking like two or three is what I expected to see.
Nate Reineke (15:54)
Yes, two or three year forgivable
loan. was never 225. It was like, we'll give you $50,000 today. And in three years, it's all forgiven. every year, one third is forgiven. And it wasn't at the end of the world to go spend the money because it's three years. And then that's what I thought in the beginning. Then I realized physicians change out of their first job like.
Chelsea Jones (16:00)
safety.
Mm-hmm.
Nate Reineke (16:21)
like it's a sweaty t-shirt, like they can't get it off fast enough, and ⁓ many times. And so seven years, I thought, my gosh, that's an eternity for your first job. Nobody stays in their first job for seven years. And so I asked this, you know, fresh physician, I asked them like, are they forgiving it a little bit every year? And they said, they forgive some in the fifth and some in the seventh. I thought, this is...
Chelsea Jones (16:21)
Yep.
away.
Nate Reineke (16:50)
Insane. That's what I said. I mean, we haven't even talked about Kaiser in so long, but it still is the golden handcuffs and the cuffs get heavier, apparently. So, ⁓ you know, this young physician who really didn't know a lot about personal finance, they were smarts and they said, I don't really think I want to spend any of this. I don't know what to do with it. ⁓ I said, you know, I asked about interest rate and all that.
Chelsea Jones (16:51)
Talk about golden handcuffs.
Yeah.
Nate Reineke (17:18)
the best thing I think that they can do is stick this in a high yield savings account or buy a seven year CD or something or something to where essential, because there's interest on this loan. And so they're charging them, I almost wanted to say, give it back. Yeah, because I mean, honestly, I did not see a world where this 31 year old physician was gonna stay at Kaiser for seven years.
Chelsea Jones (17:25)
Mm-hmm.
Yeah.
Can you out that on this? Yeah.
Nate Reineke (17:48)
So the answer here is even if it is three years, maybe it's a different deal, maybe it depends on which Kaiser. ⁓ But what I have seen give people the most peace year after year is they take this money and they don't even consider spending it. They put it somewhere else, they put it in a savings account, let the interest accumulate, and if they want to leave, they have the money to write a check. And the amount of checks that I have seen written is remarkable.
Because if you think about it in the world of a physician. You can go to a different job and easily make another hundred thousand dollars a year. I mean, I've seen physicians go and make one hundred thousand dollars less or one hundred thousand dollars more like it's nothing. Right. It is something to them, but the range of pay because a lot of physicians very ready to move to a different state. So imagine this person just found out a way to get a job that paid an extra fifty thousand dollars a year.
Chelsea Jones (18:17)
Yeah.
Nate Reineke (18:48)
Over seven years. mean, it's just easily I'm going to go to different job and I want to be able to pay you back. So don't don't fall into the trap. Set this money aside. Be ready to walk away. Give yourself flexibility. And if you do say for seven years, good on you. You got another quarter million dollars waiting for you.
Chelsea Jones (18:48)
Yeah.
Which this truly is a trap. I had a client who got, it was like a $50,000 sign-on bonus that was a forgivable loan. But whenever it was paid out to them, taxes were withheld. So they didn't give $50,000, they got 35, 40, whatever it was. They ended up moving jobs within a year, had to pay all that back. But guess how much they owed? $50,000.
Nate Reineke (19:25)
Mm-hmm.
Chelsea Jones (19:35)
They couldn't like take their money back from the government and say, hey, I have to give this back.
Nate Reineke (19:38)
They withheld the taxes.
That's interesting. Huh, that's a...
Chelsea Jones (19:42)
I think it was
a requirement with that employer, which she had had payroll issues with this employer, so it wasn't a surprise that it got screwed up, but.
Nate Reineke (19:46)
That's weird. Yeah. Usually, so
you certainly owe the tax, but usually you owe it as it's forgiven. So that's odd that they did that. But ⁓ you know.
people make mistakes. Yeah, it's a trap. Okay.
Chelsea Jones (20:00)
Yep. Yep. Be careful. It is. They're
trying to keep you around, but.
Nate Reineke (20:08)
They need you and they want you and ⁓ that should tell you something. You can go get a different job for more money, I'm sure. But Kaiser's got great benefits. It's not all bad. This is a retention tool. They do want, they want to keep you. That's what this is. So just be careful. Keep your flexibility. Okay. Thank you everyone for listening. If you liked this episode, please subscribe and leave us a rating. And if you'd like to work with us, you can go to PhysicianFamily.com, schedule an interview.
Chelsea Jones (20:15)
Right.
Mm-hmm.
Nate Reineke (20:36)
If you're not ready for that, you can send us a question at podcast at physicianfamily.com. We will answer ⁓ every question even if it doesn't make it to the podcast. Until next time, remember, you're not just making a living, you're making a life.
