MtoM #122 - Orthopedic Surgeon Hits $4 Million Net Worth and Finance 101: Taxes

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Milestones to Millionaire Celebrating stories of success along the journey to financial freedom. This is Milestones to millionaire podcast number 122. $4 million net worth and mid career Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status, and one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we've put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the White Coat Investor can help. Welcome back to the Milestones to Millionaire podcast. This is where we bring on somebody that has achieved a financial milestone, some modicum of success, whatever that milestone might be. It might be getting back to broke, it might be becoming financially independent and everything in between. We love to bring these folks on to use them to inspire you to reach the same or similar milestones, whatever your goals may be. The fun thing about personal finance and investing is that it's a single player game. It is you against your goals. You're not competing against anybody else. But whatever your goals might be, we want to help you to reach them. So if you'd like to come on the podcast, you can apply@whitecoatinvestor.com Milestones and maybe I'll bring you on and use your experience to inspire others to do the same. Our guest today has been very successful, both income wise and net worth wise. We get him on the line and talk about what he's accomplished, but stay tuned afterward. We're going to be talking a little bit about taxes after the interview. Our guest on the Milestone to Millionaire podcast today is going to remain anonymous, but welcome to the podcast.

Great to be here. Thank you for what you do.

We are celebrating a pretty impressive milestone for you. You've hit a net worth of $4 million. Congratulations on that.

Thank you. Thank you.

Let's start. Tell them a little bit about you, what you do for a living and more or less what part of the country you're in, as well as how far you are out of training.

Okay, so I'm in a subspecialty of Orthopedic surgery in the New York metro area. And I'm about 13 years out of training right now.

Okay. And so 13 years is not that long. Now, in general, orthopedists tend to make pretty good money, but 13 years is not that long to be not just a multimillionaire, but worth $4 million. How in the world did you do that?

So I hate to say it, but 13 years to me sounds like forever. It's been kind of a journey of several moves and job changes, but basically started in the military. I had no loans for medical school because I joined the Navy HPSB program. So they paid for private medical school, so that helped. I had no undergraduate loans because I took an academic scholarship. So I started medical school with no debt. I started residency with maybe $30,000 in savings. Then I did a five year orthopedic residency in the New York area. And then once I got out in 2010, then I started four years of attending hood in the Navy.

And what did the Navy pay you to be an orthopedist?

So all told, it was about $120,000 per year. But then I moonlighted and I also did IMEs and insurance reviews of side Hustle. And also I leased out the basement of the house I was in, even though I was renting it myself to somebody else. So I paid almost zero rent as well. So a lot of different strategies I used.

So if you added all that up, what do you think you were making during those years you were in the military?

Probably about 200,000, something like that.

Okay. So then you had to face a decision, a decision that every military doc faces as their commitment comes up. You know, for HPSP students, that's usually four years in. Do you stay or do you go? And what influenced that decision for you?

So as much as I enjoyed the military and serving with the group of people in my department, financially, it wasn't worth it. And I just come back to my deployment, and that's a big thing that gets a lot of the orthopedic guys is that, you know, you serve a deployment. And when I was in, I was doing, you know, acl, shoulder surgery, you know, electives things. And then almost for one year, I didn't operate at all. I went to Afghanistan. I was in a fob, a roll three, and we took occasional casualties and washouts, but almost nothing for one year. And then I had to come back in and resume and do high level orthopedics. And then I just didn't want that experience again where I have a lull of several months to even longer where my skills didn't develop. So it was a pretty easy decision. And I knew a lot of my friends were getting out and I had watched several waves of people get out, you know, years, you know, years before this as well. But mainly the deployment issue.

Sorry, you mentioned something earlier. We'll take a step back here, that you came into residency with $30,000 in savings.

Correct.

Was there some other source of income in medical school or was it just the HPSB scholarship? Because that feels like you saved half of what they paid you.

So it's a long story, but I lived in a very low cost place in Philadelphia where I was at. So my rent per month was $200. I lived in a house with 16 other people that we each had our own big brownstone, but my rent was about 200 bucks. And I think at the time the HPS fee was, was giving me eleven hundred dollars a month stipend and covering all the books. So I had a. The house I lived in, we had a communal, let's say beer budget and utilities and things like that. So. So I was probably spending only $500 a month. So I was making about 600amonth in school, then two weeks per year. We had active duty pay. We had orders to stay either at school or take the boards or even rotate to the hospitals during our third and fourth year. So I mean, that was a couple extra thousand dollars. I had some savings from when I was younger, putting money in a savings account and then in college. This is kind of one of the reasons why I started listening to your podcast and others like it is. I had an E Trade account. So junior and senior year of college, I got into day trading, which was, you know, the 90s, late 90s, early 2000s, where everyone was making money. So I thought, I thought I had the formula. I put them up. I put, you know, $1,000 in lycos or something like that and, or Qualcomm, and then next week I had 1200. And unfortunately I had a massive issue and I put everything in one stock and lost essentially $18,000 in two days. So that led me to begin saving again, et cetera. So now I lead a much different lifestyle with my investment, et cetera.

So is it just you? Are you married, kids, anything?

So I'm married. My wife's a teacher and we have four kids. Ten, eight, five. And one's about B2.

Okay, very cool. All right, so about. What was your net worth when you came out of the military.

In 2014, out of the military, I probably had $200,000.

So over the last nine years your net worth has gone from $200,000 to $4 million. Tell us how that happened.

Well, so step one, my wife is very frugal, so she doesn't and I don't say we don't live.

This is coming from the guy who had 15 roommates, right?

True. I don't mind living like that in those conditions. My wife is a little bit obviously more deserving of things, you know, but we don't live like a very lavish lifestyle. When I started, I think the number one key was moving into a high cost area. You know, our house that we bought was $800,000, but essentially I'd have to put 20% down typically. But we used a physician's loan. So we put zero down, paid, no PMI on it and I think we put 20, 25 or $30,000 on it, but very minimal, no PMI. My wife had a car that was paid off. I leased like a non orthopedic attending type car. And I said, listen, I'll do this for three years, I'll deal with it. It's new, you know, it has a good sound system, et cetera. And then we just started saving. And I always just assumed that although I signed a very nice contract to start, I, I always assumed it would just disappear one day because I always hear people saying, well, it's changing, medicine's changing. So you never know what to believe. So I just assumed that I had an initial four year contract that was really good and it was incentive based. So I put my head down and I just tried to save 50, 60% of my money. I paid the mortgage at that time I had 12 children. I just had my second child. We don't go on very lavish vacations and at that age there's not much to do anyways. I have family that lives about a mile away, my mother in law, so we have family nearby to babysit. So we don't really spend a lot of money and we save, invest.

So what do you think your earnings have averaged over the last nine years? You know, household income, all in everything.

So post military and post fellowship it's been between 801.6.

Okay, so you're making great income.

Right? Again, I just always assume it's going to disappear like that. That'll not be an option, you know, two, three years from now. The pandemic kind of showed us that also, you know, that affected things a little bit.

Yeah. How much did you see your. How much did you see your caseload drop in the spring of 2020?

Well, yeah, so they stopped elective cases in June. So I did, I think zero cases because that's all I do is elective surgery. So from June until, sorry, March. June is when they started. So March, from March till June, I think I did one or two cases that were, you know, needed to get done, but I did like zero, essentially. Not ideal.

And that's what your income went to as well, I assume.

Yeah, it's. I mean, for me it's kind of a lucky situation. That was at the time where I switched over from one hospital system to the other. For my first year I had a guarantee, so I had a guaranteed base that was constant for that whole year. Then the next year I took a little bit of a pay cut because I earned zero. And they pay you, you know, you draw a percentage of what they paid you the year before. It's one of those systems. But it could have been a lot worse. But I think that was just luck. And that's why I don't like to leave things to chance like that.

How does it feel to pay taxes on a seven figure income?

Not great. Not great. So again, I'm always looking for legal means to lower tax burden. That's kind of the next thing that I'm looking towards doing.

A lot of your story is income. You played great offense. I mean, obviously there's some frugal things. You mentioned the 15 roommates and this sort of stuff. Saving half your scholarship essentially in medical school. But at every step you've done things to boost your income. What tips do you have for others who'd like to see their income be higher?

Yeah, I mean, I think you just need your goal. I always. You have to look at income and you have to look at time. So if there's a way to boost your income that's not going to draw from your personal life. Just look at that. I mean, there's plenty of opportunities. When I was in the military, I did locums, so I'd fly out of state. I think I used to go to like Yuma, Arizona for five, six days, cover ER call. And in that five or six days, I would make three months of my military pay. I was trying to generate 1099 income so I could deduct off my salary. You can look for side hustles, but again, look at what's the ceiling in your profession, in your specialty. And there's a lot of risk if you're trying to make, you know, seven figures plus, and you join private groups and try to get ancillary services. There's a lot of risk that comes along with that. Just like any business, you know, if your partners buy into a surgery center that doesn't do well, or the ancillaries are not making the revenue that they expect, then you're gonna. Then you're gonna be suck a little bit, at least in my opinion. Yeah, I mean, you know, I wouldn't go for the dollar end all be all, but just, just find a lifestyle that suits you budget and take it from there.

When do you think you became financially literate and how did you do it?

Okay, so there's two things in mind. Number one, when I was in college, I used to. I Day traded 1999, 2000 ish, when anyone who put money into e trade, you know, made money. So I had a deal where, you know, I bought once. My brother, who's three years older, works in finance, and he had a hot tip, etc. And I put. I had a diversified portfolio. I sold it all, and I put it in one stock. And I was like, okay, cool. If I put $20,000 in this one stock and it goes up 20 this week, I'm like, I'm gonna buy a car. That was a nice car back then. And the stock literally just went down. I lost 80% on that stock in like two weeks. Then I said, all right, something's got to change. So I started learning more. I stopped investing in individual stocks. When I was in the military, I used to. I used to trade a little bit with my Roth IRA because I was a little bit less risky, you know, and then if I. If I made a hundred dollars, then I made a hundred dollars. So I don't know if that's a great strategy to recommend to people, but it was a nice way to get my feet wet. A couple hundred dollars here, a couple hundred dollars there, because my Roth wasn't very valuable at the time. The other thing came when I was deployed. That's when I learned my main lesson. It was a very savvy anesthesiologist who's like 10 years older than me, and he seemed to know everything about finance. And as you know, when you're deployed, you're just sitting around much of the time. So we had a lot of campfires, a lot of chats over investing. And when I was in Afghanistan, actually the Boston Marathon bombing occurred, and I was like, I thought I was going to be. I was so smart So I was like, oh man, the market's going to crash. So in my tent in Afghanistan, I logged into the Internet and I took all my TSP money and I transferred into the G Fund and I was like, all right, good, safe. And then I just didn't. At that point I was reading books. I read a couple books on deployment about finance. I was trying to get literate that way. And then I forgot about that G Fund thing and the market never tanked. And then when I was getting out, I'm looking at this thing and I looked and I was like, I was making, you know, like 1% or less and the market like went on to 20 something percent that year or thereabouts. And like, man, that's. I have to do something like better besides guess or figure out myself. So then I, you know, then I wound up getting a financial advisor temporarily. And that wasn't what I was looking for then. Long story short, I now have a financial advisor, but that was recommended to me by somebody who I trust. He's like a plastic surgeon nearby. And this guy probably interviewed like 30 people. So now I have a trusted person who's put me on a mathematical model, no trading, everything is balanced, portfolio, that kind of thing. So really an organized plan guided by professionals. If you can't trust yourself.

So what do you invest in now?

So now I have, I have my, my mainly Vanguard. So I have a brokerage account that's managed by my financial guy. So I have, you know, vtix, vviax, V I, G, A X, V S I a X and VSGax. So that's in my aggressive growth portion. When I transferred the money over, I also had stock which I bought a bunch of Amazon in the beginning. So I have 1500 shares Amazon and I have money in the money market, so that's pretty much it. The individual, the only individual stocks I have are Amazon. My wife had some Pfizer and AstraZeneca from when she was in high school. So that obviously appreciated. So that's separate. Unfortunately, I have a whole life policy. I know we're not keen on that, but I got that in 2010. At the time it was 500 bucks a month. And I was like, all right, this is a 500 that's gonna be earmarked towards going to something investing wise. So that's now 70,000 of cash. Yeah, that's pretty much it. But I have some bitcoin. You know, I bought some bitcoin, so that's, I put a couple hundred bucks a month into that Just to, you know, just to see, play with, you know.

Very cool. All right, well, you've been very successful both income wise and net worth wise. What advice do you have for someone that's, you know, maybe like you 10 or 15 years ago and wants to, wants to build that sort of a net worth? What advice do you have for them?

Well, I mean, a couple things. One is, again, identify your goals. Where do you want to live? So for me, this is the area where I'm living in the area where we wanted to live. So it's important to find a nice job in that area. For me, it was really about keeping my expenses low because I really feel like when you get out of residency and you're working 180 hours a week, et cetera, and you're making maybe 65,000, if you get a job making 7,800,000, let's say, as a starting ortho salary someplace, if you're lucky enough to do that, that's a massive leap. For me, it was helpful to have a stutter step in the military where I was making maybe 121, 30, then a year in fellowship where I was at 70, and then I came out. So I realized that I lived just fine in the military with that salary and I didn't need to make this dramatic change in lifestyle even though my salary increased. So I always tell people, like, you know, you don't want to. Everyone says don't keep up with the Joneses. The key to doing that is don't hang out with the Joneses. You know, most of my friends are, you know, military guys, cops in the area, you know, law enforcement. I don't join any country clubs because, like, I feel like, not that I wouldn't, but I just feel like being around people that have. I mean, there are people in this area that have tens of millions of dollars that they inherited or from hedge funds or whatever. And if you're hanging out with those people, you're going to feel like you're not doing well. And it's hard to. It's hard to keep that in perspective, but it's easier when you're hanging out with, you know, people that don't have as high income. You still. Because you realize my life's pretty good. I don't need like a Porsche 911 Turbo or, you know, something like that.

Well, congratulations on your success and thank you so much for coming on the Milestones podcast to share what you've learned and inspire others to do the same.

Great, thanks. I hope it was helpful. Thanks for all you do. You've definitely inspired me.

All right. I hope you enjoyed that interview as much as I did. It's always great to talk to somebody that's been successful. You know, this podcast occasionally gets criticized for only bringing on people that have, you know, these major high incomes, a major high net worth. And this is kind of an example of that. You know, we've had people that are making $100,000 a year, and we've had people that are making seven figures a year. And it's obviously much easier to build wealth when you're making more money. And the fun thing about income, particularly among physicians, is, is that the intra specialty variation dwarfs the inter specialty variation. If you look at the average orthopedist in salary surveys, they're making closer to half a million, not 800, certainly not 1.6 million. And it's the same way with every specialty. Sure, the average pediatrician might be making 225, but there are plenty that are making more. Half of them, actually. And I've met pediatricians that are making seven figures. And so obviously it's going to be easier in some specialties than others. But in whatever specialty you're in, boosting income is not impossible. And I think most people dramatically overestimate the difficulty of doubling their income. All right, I promised you we were going to talk about taxes. And, you know, the interesting thing when you don't know much about taxes is you're convinced that there is this list of secret deductions out there that if you just knew about or if you just found the right person to prepare your taxes, that you would pay dramatically less in taxes. And of course, tax preparation firms, tax advising firms, like to keep this idea alive. They're just soliciting business, though. There are no secret tax deductions out there. Yes, you do have to learn a little bit about the tax code, but for the most part, the way you lower your tax bill is by changing your financial life. You got to be careful, though. The goal is probably, if you think about it, not really to just lower your tax bill. The goal is usually to maximize your after tax income. And those are very different things, because the easiest way to lower your tax bills is stop making money. You don't make any money. You don't pay any taxes. In fact, you're probably getting money back the way our tax system works. And so make sure you're not doing things just to lower your taxes. You don't want to, you know, poke yourself in the eye just to Stick it to the man. But when it comes to doctors, here are some of the tax deductions you ought to be thinking about and ought to know about and you know, probably be using the number one, probably the biggest tax deduction for most doctors is their tax deferred retirement plans. Whether these are 401s, 403s, 457bs, cash balance plans, whatever HSAs I'd even throw in there. But these retirement plans basically take money off the top. So if you put $50,000 into a tax deferred retirement plan and you are making $300,000 now, you're only paying taxes on $250,000. So that might have been in whatever bracket that's in, you know, 33%, 35%, whatever it is, but you just saved that. So if you put $50,000 in and you're in the, you know, 33% tax bracket, that's your marginal tax rate, one third of that, what's that, $17,000 or something just came off your tax bill. So yes, you'll have to pay taxes on that money later. But if you're like most docs, you'll be taking that out, maybe even in the 0% tax bracket, probably some of it in the 10% and 12% tax bracket. There's a big difference there. Plus it grows for all those years in a tax protected way, further reducing your tax bills. So your tax deferred retirement plans, if you were in peak earnings years, max those things out. That's your biggest tax deduction. Not only does it reduce your taxes, but you still have the money. It's like the best tax deduction ever. All right, here's another one, the backdoor Roth ira. And this doesn't reduce your tax bill this year, but it reduces the taxes on your investments, both for you and for your heirs. By putting money into a Roth IRA in your 20s or 30s, you might have 60, 70, 80, 90 years counting your heirs of that money growing in a tax protected way. And that reduces your taxes. So most savvy white coat investors, you know, assuming their employer isn't offering them a SEP or a simple ira, are also doing a backdoor Roth ira. And they can do it for their spouse as well. If you've never heard of this, check out our tutorial. Just Google backdoor Roth IRA tutorial. Maybe throw a white coat investor into your search. It'll pop right up. It'll take you through every step and how to avoid all the mistakes that people make every year with it. It's not that complicated. But somehow people manage to screw it up every year. You can do your backdoor Roth each year. Another big tax deduction is health care. Health care is really expensive, no doubt about it. But the truth is you can pretty much pay for it with pre tax dollars. When your employer is paying for your health care and for most of you that are employees, they're paying a significant chunk of it, probably 80% or so of your insurance premiums, that's all pre tax. If you're your own employer, that's pre tax to you. Likewise, if you have a health savings account, you can spend pre tax dollars on your health care. And so that can be a big deduction even if you're self employed. You can put a line on there on your taxes. I think it's schedule one that allows you to pay for that using pre tax dollars. So big tax deduction there. Another big tax deduction is business expenses. And for this you generally have to be self employed at least for some of your income. And any business expense is paid for before you pay tax. And so if you are self employed, anything you need to run your business, you know, might be a computer, might be cell phone, might be scrubs, might be CME expenses, licensing and DEA costs, credentialing, whatever, that's all pre tax dollars. And so that's a pretty significant deduction as well for many doctors. You know, if you have a non special, what do they call it, specified service business or whatever it is, you know, like medicine or law or something like that, you may also benefit from. What's our biggest deduction here at the White Coat Investor, which is the 199A deduction. Now this one only goes through 2025, but if you own a business, you should know about the 199A deduction. This is the ordinary business income deduction. It's basically a deduction that was put in place back in 2018 in order to allow S Corps and partnerships and sole proprietorships to be on even ground against C corporations when the corporate tax rate was cut to 21%. So you ought to know what that is if you're self employed. A lot of doctors aren't allowed to take that because they have a specified service business and they make too much money. But you ought to look into it and see if you're allowed to be taking that deduction. It's a big deal if you are. Okay, here's another one. Buying a home. You know I mentioned if you change the way you live your financial life, you may Find that you have a lot more deductions. And one of those things is buying a home. And the reason why is mortgage interest is deductible. And given that interest rates are significantly higher now than they were a year or two ago, you might be paying a lot of mortgage interest. Now. It's not necessarily a good idea to pay a dollar to get a 33 cent deduction. But if you're going to buy the house anyway, you might as well deduct that mortgage interest. And so that can be a significant deduction. Another one is giving money to charity. Again, this is changing the way you live your financial life. But every dollar you give to charity, assuming you itemize, and even if you don't itemize for small amounts, every odd dollar you give to charity, you're not paying taxes on. And so that can be a pretty awesome deduction. It's even better if you're donating appreciated shares because then neither you nor the charity pay the capital gains on that. Yet you still get the entire value of what you donated for a charitable deduction, assuming you've owned the shares of whatever it was for at least a year. Okay. And another one that many doctors use or don't know to use is tax loss harvesting. And if you have a taxable investing account and you've lost money, you ought to sell what you lost money on and buy something that's pretty similar to it. And that way you haven't changed your overall investment strategy, but you have harvested that tax loss. And those are very useful. You can use $3,000 a year of it against your ordinary income, and you can use an unlimited amount of it against any capital gains. And so that can be a useful tax deduction as well. But there's not this list of super secret tax deductions out there. And when you start looking for those and talking to people that think they're finding them, a lot of the times you're committing fraud, you're evading taxes, not just avoiding taxes. And so you got to be careful with that. I can't tell you how many doctors I've run into who think they have a legitimate tax deduction and they really don't. You know, for example, they're, you know, deducting some lease that they're just using to commute with and it's totally non legit. If they ever got audited on it, they'd be hosed. But so keep that in mind. All right. Well, I hope you are having a good day. I hope I have a good day. I'M feeling a little stressed today. This is the least stressful thing I'm doing, recording this podcast today. My daughter has somehow talked me into jumping out of an airplane later today, and so we'll see how that goes. But, you know, that's what she wanted for her birthday. So here we go, jumping out of a plane today. This is the last podcast I ever record. You'll know why, but wish me luck. All right. Our sponsor today is the White Coat Investor insurance page. And the truth is that getting high quality disability and life insurance is a big deal for doctors. If you're not financially independent, you need disability insurance. If anybody else depends on your income, you need term life insurance. This is not like a maybe. This is not optional. Go get it. Doctors die all the time, and not just those who jump out of airplanes. Doctors get disabled all the time. And most docs don't have the ideal policy for their gender, specialty, state or health status. So if you do not have these policies in place, if you're not sure you have the right one, you need to talk to somebody on our list. And the way you find that is you go to whitecoatinvestor.com insurance or you can go to our, you know, the main website and just go to the recommended tab and go down to insurance. Insurance agents. These are people, we've been working with, some of them for more than a decade. They're not going to hose you. They're doing fine financially. They don't need to sell you a policy that you don't need. They know that by doing the right thing for you, you'll send more business their way. And so they do the right thing. It's extremely rare that we get any sort of a complaint about them. And if you come to us early on, we'll fix it. Trust me. They want the business from the White Coat investor and so they will treat you well or they will not be on that list. You can trust these folks. They're good insurance agents. Yes, they're agents, they're commissioned. They want to sell you stuff. If you go in there and go, how much insurance should I get? They're going to tell you a lot, so you probably have to decide how much you want before you go in. But they're good people and they'll help make sure you get the right policy. That's a whitecoatinvestor.com insurance. All right, I won't be recording for a few weeks after I jumping out of an airplane. We've got a couple of trips coming up and some, so it'll be a while before I record again. By the time you hear this, I think those trips are actually mostly over, but wish me luck. Should be a good little time in our family's life and we look forward to chatting with you again. If you would like to come on the podcast Whitecoatinvestor.com Milestones, we'd love to have you. Until then, keep your head up, shoulders back. You've got this and we can help. Good luck with both your career and your finances.

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