MtoM #121 - Couple Creates Their Own Financial Plan and Fires Their Financial Advisor

This is the White Coat Investor podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom. This is Milestone to Millionaire podcast number 121. A couple writes a financial plan. If you're finding our podcast informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes useful, actionable information not available on the regular blog posts or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time, with no strings attached. Sign up today@whitecoatinvestor.com Newsletter. You can do this and the White Coat Investor can help. Welcome back to the podcast. We'd love to have you on this podcast. You can sign up to be on it@whitecoatinvestor.com Milestones and we will celebrate with you any financial milestone you have accomplished and use it to inspire others to do the same. We've got a new milestone we've never had on the podcast today, and after we do that, I'm going to talk for a little bit about 401s and maybe some things you didn't know about your 401k. But let's get into our interview. To start with, our guest today on the Milestones to Millionaire podcast is Adam. Welcome to the show, Adam.

Yeah, thank you. Excited to be here.

Tell us what milestone you recently accomplished.

Yeah, so the milestone that I recently accomplished was my wife and I put together a financial plan which included firing our financial advisor. Cool.

It's exciting. All right, well, let's get a little bit of background information. Tell us what you do for a living.

Yeah, so I am not a provider. I work in healthcare, but I sell software to hospitals and my wife works in pediatrics, so she's a pediatric provider.

So where are you at in life? How far are you out of your schooling and how far is she out of residency? And where are you guys at?

Yeah, so we live in the upper Midwest and she is done with school and she was done with her residency as of 2016. So we've been out for a few years. I worked. I've basically worked since undergraduate, but yeah, been working full time post residency since 2016.

Okay, very cool. So I mean, this is 2023 now, and we're talking about your milestone being getting a financial plan in place. And this is now six, seven years in. Tell us what life was like for you guys financially in 2016, 2017, 2018.

Yeah, I mean, I think 2016, 17, 18, there was a lot of change, right. So she was coming out of residency and her earnings obviously grew quite substantially. Mine did as well at the same time. So we were moving states, we were starting to plan for our family and purchasing a new house and getting more familiar with our new community. So I think there was a lot of big investments that were long term. And I think it started conversations that we were having to get more serious about our financial planning. And I had always been a listener and reader of your blog and your material, but I can say that I probably wasn't great at applying a lot of the principles, just understanding it at a surface level. But then as kind of time went on and just in the last year or two got more serious about it as far as formalizing what we want to do with our finances, both now and in the future and putting that into a formal plan. But I think, yeah, to answer your question, 16, 17, 18, a lot of change. But then prior to that in residency, you know, there just wasn't. We were just kind of staying afloat. You know, we had a pretty low cost of living. We didn't have any children. My wife was working a lot in her residency. I was working and then going to school to get my MBA at night. So we were just working a lot and then just spending pretty minimally. We were still enjoying our life and having vacations. But then I think once we came into a lot more earnings and having bigger life decisions, some of those more financial planning topics seem to come up more frequently.

So do you think you were making a bunch of mistakes when you first came out, or do you feel like you're doing okay, you're doing pretty good.

Somewhere in the middle? As I've gotten more and more educated on, you know, when you should be funding a Roth ira and, you know, for example, like my wife is on the public Service loan forgiveness program, you know, thinking about how deferral of payments to start, some of those things that were small kind of added up. But I don't think anything that was catastrophic that made me feel like we were making a lot of mistakes per se. But I think things that we could have, if we would have understood a little bit better, could have optimized our situation. And I think there's always the opportunity. If you're looking back, hindsight is 20 20, where you can potentially make decisions that would have made you better off now. But I feel that we did pretty well throughout that time period. But there always was opportunities to make it a little bit better.

Well, I mean, she's Almost seven years out of a three year residency. She's got to be getting pretty close to pslf, isn't she?

Yes, we are counting the months. We're about six, seven months away. And obviously the last few years have been. We've benefited quite greatly from payments being paused. But yeah, it's been huge.

For you. That's been huge for you guys, that's been awesome. How much did she owe when she came out, do you remember?

I don't remember the exact figure. It was around 200,000. 200 and that's grown to about 250, but then obviously hasn't grown in the last few years.

Yeah, very cool. Okay, so something happened a year ago or so where you decided to get serious. You decided you're going to take the fire your financial core for your financial advisor course from white coat investor. You actually fired your financial advisor. What was the instigating incident here that caused you to get serious? Serious enough to say, yeah, I need to be one of that 50% of white coat investors that actually has a written financial plan.

Yeah, I don't know if there was one particular moment. I think a couple things maybe cumulatively came together to made us decide that we want to do it. One of the things is I started to learn and understand more about the fee structure around different funds, mutual funds, expense ratios, as well as how financial advisors are paid. I started to look at our portfolio a little bit more and realized that probably weren't getting a very good deal. There was also an incident a few years ago where the company our advisor had worked for traditionally operated under kind of a broker dealer model where we were paying fees whenever a fund was purchased. And then that model changed to an asset under management fee structure. And I felt like we kind of were getting double charged because we had to pay a fee when it was a brokerage model. And then all of a sudden now we're paying fees for the assets they technically had already paid fees for, but are currently under management. So as I started to kind of think more about that and then just the expense ratio, some of the funds and some of the teachings that you've put out and books that we've read, as far as you get to keep what you don't pay, and that continues to grow, especially with the impact of compound interest and things like that, it just determined that, okay, it's time to do that. And I'd actually purchased the course, the fire your financial advisor course, and sat on it for probably four, five, six months. I just, I couldn't get myself to do it. And I think, you know, because it's a lot of work and, you know, especially when you have free time and the weather's nice, you know, there's. Sometimes there's other things that I want to be doing. And ironically, I actually did most of our plan when we were on vacation. I'm one of those crazy people that get up really early, and my wife, especially on vacation, you know, she might want to sleep in a little bit more. And it worked out great because we were in a very tropical location, and I was able to get up for two or three hours before she did and have a beautiful backdrop and sunrise and listen to all of the different courses and start to put together thoughts and ideas around our plan. And I kind of work best when I'm able to focus a lot of my energy on one task and get it done in a shorter period of time. I don't work very well. If I have to do something for five minutes, then come back to it two or three days later and do it for five more minutes. Sometimes that works for people. It just doesn't work as well for me. So this vacation, where I had basically a week of these huge blocks of time where I wasn't working and I wasn't tied up with other obligations, was just perfect that I was able to get kind of the plan basically built. And then my wife and I were able to review it. But that kind of. Yeah, in some. Kind of led us to. To get in on paper and abiding by it.

For those of you who don't know what we're talking about, we have an online course called Fire your financial advisor. If you go to whitecoatinvestor.com and you go into the courses tab, you'll see it there. We actually have two versions of it. One doesn't come with cme, but it's a little bit cheaper. That's the Fire your financial advisor course. And then there's another version that includes eight hours of wellness material that qualifies for cme. So you can use your CME funds or you can buy it as a business expense. That's called Financial wellness and burnout prevention for medical professionals. Also includes the entire Fire your financial advisor course. But, okay, so it sounds like kind of you did this in the morning, and then at a certain point, you had to incorporate your wife into this plan. Tell us about those conversations and how they went.

Yeah, so I think that's really important. And I'm definitely the one who manages the finances of our. You Know, kind of divvy up responsibilities and it's something that I enjoy and have gravitated towards. But looking back on it, I probably wish I would have involved her earlier on in the process. She was obviously aware of what I was doing, but actually showing her the plan and some of the things I put in there came at the very end and I feel pretty comfortable saying that. I'm sure at times she kind of felt like it was my plan that I was presenting to her when I wished. Maybe looking back on it, we would have been able to work on it a little bit more together. But I do think it's just critically important to get that spouse buy in to your financial plan because not only was she able to review it and provide her feedback, but there was a lot of comments that she made that made us revise the plan. I think I'm more of a. I probably gravitate more towards a saver and maybe she's a little bit more of a spender. And I think we were able to find a nice background balance between the middle some things that she really prioritizes as far as how she wants to use our money. It's good, I think, to get another person's perspective on a plan, especially when it's impacting both people in the family. So, yeah, definitely it was a good exercise to go through with her. And then now we review it on an annual basis. And I think it also provides her a better understanding of what our money is doing and where it's at, you know, by me managing our finances. You know, I always worry someday that if I'm not around, would she know where that is and what our kind of plan, our strategies are. Now knowing that we have a plan in place and she understands why decisions were made, I feel much more comfortable in something, you know, knock on wood or was ever to happen to us or one of us.

At some point you decided that you were going to fire the financial advisor. Was that before or after taking the course?

After. I knew I was going to do it during. As I was going through the course. Like that was one of my goals of doing the course was to have a plan, but then to be able to manage all of our, mainly our retirement assets and all of our assets on our own. And I will say I was surprised and shocked on how little pushback the advisor provided. Maybe we weren't that important of a customer, but we had been with this advisor for, I mean, basically since I got out of college and you know, he'd managed a good Six figure amount of our money. So maybe he had bigger clients. But I didn't even receive a phone call, you know, it was a quick email saying, okay, no problem, you know, send the forms over and we'll transfer them over.

So maybe, maybe he gets fired a lot.

It honestly made me feel better about the decision that, you know, he was quick to always try to call me to almost sell me something, but then didn't really show a lot of concern when we decided to part ways. So made me feel better about my decision.

So how do you guys feel about your finances now that you have a financial plan that you not only understand and can follow, but that you wrote yourselves? How do you feel about that now?

Oh, it feels great. I mean, I think although the initial steps of writing a plan, I understand, can be kind of daunting, I think the benefits of getting a plan in place and the security it provides and the peace of mind it provides, it's unmatched. I mean, I think again, it takes some time on the front end, but I feel like we've saved a lot of time in the last year or two since we've had the plan in place by when we have major financial decisions that come around, the answers are already there. Can we afford this? Are we saving enough? Is our son going to have enough money to attend any college or university he wants to? Instead of having to then spend the rest of that day or that night or the weekend trying to run numbers, we can quickly just reference the plan and some of our spreadsheets and know that it's all kind of taken care and everything's on track. So I think that was one of the things I also learned through writing a financial plan is again, it's can be a lot of work upfront, but it's going to save you a lot of work and headache of financial decisions that come on a day to day or month to month basis.

How much money did it save you to take the course instead of paying this advisor every year?

Oh yeah, I mean it was, yeah, it was probably break even within the first year. Yeah. As far as what we were paying the advisor versus the course and I think the course especially too, there's so much value that, you know, the white coat investor and yourself obviously that put out that you can put together a very solid plan by just the information that's available. But there's so much structure around the course that you really feel confident that it's kind of a bulletproof plan that you've covered every aspect of family finances, so, yeah, I think the break even is pretty quick. Cool.

Well, Adam, thanks so much for being willing to come on and share your experience on the Milestones podcast. And congratulations to you and your spouse on your success. It's probably pretty awesome what you guys have done, and I know you're going to be successful going forward.

Great. Well, thank you so much for the opportunity. All right.

I hope you enjoyed that interview. You know what I love about this is seeing white coat investors take control of their financial situation. The power of a written financial plan is not just during a bear market that it helps you to stay the course, but it gives you the confidence to know that you're going to reach your goals, and it outlines the pathway to your goals. And probably one of the best things Katie and I ever did was get a written financial plan together. And we originally did it during residency, made a few minor changes as I finished residency and became an attending and a rare change since then, but basically that outlined our pathway to financial independence. And we just followed the plan. All kinds of people have questions about their investments or their finances. You only have to decide those things once. Once they're in the plan. All you gotta do is reference the plan. And if you write it yourself, if you compile it yourself, you know it so well. You don't even really have to look at it very often because you remember what it is because you put the time in to develop it. And yes, it does take time. And yes, it's not a free course. I was actually surprised that he said he only broke even the first year. So most people are paying so much to a financial advisor that paying a few hundred dollars for our online course is dramatically cheaper and what they're paying to a financial advisor. But sometimes when you're paying a commission based advisor, you're not actually paying that much money. Maybe not getting very good advice at all, but you're not paying that much money if you don't have that much money invested with them. You're just paying those loads on their mutual funds. So I thought it was a great episode. I'm glad you guys were able to hear that and hear from someone who's had success taking that and putting their financial plan in place. All right, I promised you at the top of the episode that I was going to tell you a little bit about 401ks. And we've gotten lots of feedback on the podcast that we get into the weeds a little bit too much. So I'm trying to do a little more basic kind of stuff because I Feel like there's a lot of podcast listeners who are either new or for whatever reason don't have those basics down. So let's talk about 401s. A 401 is named that because it comes from section 400, 401k of the internal Revenue Code. That's what outlines the ability to have this employer provided retirement plan. And a 401 is essentially a tax protected plan. Your money grows faster inside a retirement account like a 401 than it grows outside the retirement account. Because every year an investment outside a retirement account puts out interest, puts out dividends, you got to pay taxes on those. And so there's a drag on that, a tax drag on that money as it grows. If you buy or sell an investment, you got to pay capital gains if you have a gain on it, right? And that's again more of a tax drag. So it grows slower inside a 401 or other retirement plan. It grows tax protected, right? So buying and selling, there's no tax consequences. The dividends that come out or the interest that comes out every year, you don't have to pay any taxes on those. And so it's in this tax protected shell. And of course there are tax deferred accounts and there are tax free accounts. But the tax deferred account, you get a tax break up front. It grows tax protected when it comes out. You pay ordinary income tax rates on it, often at a lower tax bracket than when you put the money in with the tax free account. You're putting in money that you've already paid taxes on. It grows in a tax protected way when it comes out in retirement that's tax free. And so 401 is just one type of of these retirement plans. Originally they were all tax deferred or these traditional 401 s. So you got the tax break upfront. You paid taxes when you pulled money out in retirement. In more recent years, last decade, decade and a half or so, you are seeing Roth 401s, which are like a Roth IRA or other tax free account you put in after tax money. It grows in a tax protected way and eventually comes out tax free. The other great thing besides these tax benefits in these accounts is they are asset protected. A 401k is an ARISA account, E R I S a right. Which is basically this federal legislation that encourages people to save for retirement. One of the way it encourages it is if you have to declare bankruptcy because heaven forbid you have an above policy limits judgment that's not reduced on appeal and you have to declare bankruptcy because somebody has a $20 million judgment against you. You get to keep your 401 in every state. This one isn't even state specific. This is federal protection, so you get to keep that. And so it's asset protected and tax protected. That's pretty awesome. Aside from the fact that you feel like it's retirement money, so you're less likely to rate it for a boat or a vacation or something like that, people don't view a 401 as their emergency fund, and so they tend to leave it for retirement. Some people worry about these rules. This 10% penalty that you have to pay if you take money out before retirement age. For IRAs, that age is 59 and a half. For a 401, it is not 59.5, it's 55. It's 55 and separated from the employer. So if you retire at 55 and you leave money in a 401 instead of rolling into an IRA, you can access that without the 10% penalty. There's all these other ways you can access it too. There's all these expenses that are exceptions for that particular rule. There are also the ultimate one, of course, is basically an early retirement exception. It's called the 72T rule is what it's called. But basically, if you retire at 45, you can start taking money out of your 401. You just have to take money out from then until you're 55. Or in the case of an IRA, 59 and a half the same amount each year. Essentially. It's annuitized in that way. Kind of like a required minimum distribution would be for most of you. You're young enough that you're not going to have to take money out of a 401 mandatorily until you're 75. The IRS, if you have a tax deferred retirement account, the IRS does make you take money out eventually, but it's not that much. It doesn't kick in until age 75. Even at that age, it's only about 4% a year, which you want to be taken out that much anyway, right? I mean, what's this money for? Your hearse isn't going to have a trailer hitch, so you might as well be taken out that much. So no big deal about the RMDs. Don't worry about that. Use the 401. Try to max it out. If you're under 50, you can put an employee contribution of $22,500 in that account every year. If you are 50 plus the employee contribution is $30,000 a year that you can put into a 401. That's a separate limit from your IRA limit, which is 6500 or 7500 if you're 50 plus it's a separate limit from your 457 limit if you have one of those. Sometimes people have a 403 instead of a 401. There's a few subtle differences there, but for the most part it's the same thing again. 22,500 in 2023 or $30,000 you can put in there as an employee contribution. In addition to employee contributions. The employer can put money in there. They can put a match in. Sometimes it's what they call a safe harbor match, or it's 50% of the first 3% of your income that goes in there. Whatever. It's your employer encouraging you to save money for retirement. But not getting your match is like leaving part of your salary on the table. So don't do that. Always get your match. That should be like. Your biggest priority in your finances is to get your 401k match if there's one offered. And the total contribution you can put into a 401. If you are under 50. Total contribution for 2023 is $66,000. And that's composed of your employee contributions as well as any employer contributions. So a lot of us that are in partnerships or whatever, we can make our own employer contributions, these profit sharing contributions. There's also the possibility of putting in after tax employee contributions up to that limit if the plan allows it. That's sometimes called a mega backdoor Roth IRA contribution. So look into that if you're interested in saving more inside retirement accounts than you're allowed to do. But those are the basics of a 401. It's a great way to invest. They're typically invested into mutual funds. Most 401 s these days offer at least a handful of low cost indexed mutual funds. And that's most of the time, the ones you should be using.

You.

You can round out your asset allocation using your taxable account or IRAs, or 457B or any other accounts you have. But for the most part, you're looking for the low cost, broadly diversified index funds within the 401. You don't want to leave it just sitting there in cash. All right, enough about 401 s. I hope that's helpful to you. If you didn't know all the ins and outs of 401, hopefully you're more well versed in that. Now, if you're finding our podcasts informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes useful, actionable information not available on the regular blog posts or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time, with no strings attached. Sign up today@whitecoatinvestor.com Newsletter. You can do this and the White Coat Investor can help. Thanks for listening to the Milestones podcast. We're really grateful for your feedback. This is about you. We want to produce the content that is most helpful and most valuable to you. So your feedback is very, very important and we do appreciate those who give it to us in whatever format. Obviously, bad feedback. We want privately good feedback. Give us a review, right? That'd be great. But until we see you next time, keep your head up, shoulders back. You've got this. We're here to help you. See you next time on the Milestones to Millionaire podcast. The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.