MtoM #137: Roadie Becomes a Millionaire and Finance 101: Retirement Accounts for the Self Employed

This is the White Coat Investor podcast. Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom, this is Milestones to Millionaire podcast number 137, Roadie becomes a Millionaire. At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions, a smaller down payment than a conventional mortgage, all without paying for private mortgage insurance. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options. And@whitecoatinvestor.com mortgage, you can do this and the White Coat Investor can help. Welcome back to this podcast. If it's new to you, welcome. You can come on this podcast. By the way, when you accomplish a financial milestone, we want to feature you, we want to use your experience, congratulate you, but most importantly, use your experience to inspire others to accomplish the same or similar goals. We're all working together here, right? On our individual goals. It's a single player game, but we can still take inspiration from other people. If you'd like to apply to come on the show, it's Whitecoatinvestor.com Milestones. Okay, we've got a pretty special guest today that we haven't had anybody of this profession previously on our podcast. So let's get him on the line. Stay tuned. Afterward, we're going to talk a little bit about retirement accounts for the self employed. Our guest today on the Milestones to Millionaire podcast is Miles. Welcome to the podcast, Miles.

Thanks.

Congratulations on your recent accomplishment. You've become a millionaire. Congratulations.

Thank you very much.

Was this a big goal for you, something you've wanted to do for a long time?

Yeah, you know, right. Like I've been intentional about it. There's certainly goals beyond a million bucks, but it was, like you said, a milestone to hit.

Well, we've had lots of millionaires on this podcast. I mean, this is episode 139. We've been doing this for quite a while. What we have never had, however, is Somebody of your profession come on the podcast and share any milestone, much less becoming a millionaire. Can you explain to people what you do for a living?

I'm a concert roadie nowadays. I used to do a circus. Circus roadieing, you know. Right. Like, just like you see in the movies. This is Spinal Tap or whatever. I travel the world putting up concerts and taking them down.

So when did you start doing that?

Shortly out of college, or I guess even in college to pay for it. You know, I was a local stagehand and wanted to travel after I graduated and thought this would be a nice way for someone to. Someone else to pay for me to travel.

What was your college degree in?

Civil and mechanical engineering.

Mechanical engineer. And you walk out and go, I'm going to be a roadie. Tell me about that decision.

Yeah, really it was. I graduated in the financial crisis, and there weren't a ton of jobs. I was applying to some but wasn't very eager to do it. I was still doing, like I said, local stagehand rigging work where I lived. And when the circus came through town, it looked like a nice lifestyle and had the travel that I desired and an okay income, and that was. That was it. I thought I would do it for a few years, and then, you know, scratch that itch. And then I've still been doing it more than a decade later.

Huh. So you're how far out of college now?

13. 13 or 14 years.

13, 14 years out. So mid-30s?

Ish. Yes.

Okay. And. And what does it pay to be a roadie?

You know, it's. It's a broad range, and there's lots of different, you know, avenues. Like anything freelancing or working for a company. Low six figures, you know, like mid six figures is right. Like my mid profession. And I don't see a whole lot of, like, upward mobility from there, but that's about where it is.

So did that surprise you when you found out how much road he's made?

A little bit. You know, it's a bit like the military, I imagine. I've not served. However, when I hear your stories and others. Right. There's a lot that's baked in. Like, the salary is one component. So you make $100,000, but you get a per diem of maybe 10,000 a year. And then you don't have to pay for your travel costs, your lodging, your food. All of this is provided for us by the tours, so we can keep our expenses super low if we desire to. Just like anything, there's lifestyle creep or trying to Scratch other itches. Lots of people develop funny habits that can be quite expensive, but I've managed to keep mine pretty low.

Yeah, the average household income in America is something like $60,000. And I play hockey with a truck driver. He's a truck driver. He told me he made $111,000 last year. He worked pretty hard, but he made $111,000 as a truck driver in our local area. There are a lot of jobs out there that make six figures that people never think about.

Truly.

And it sounds like roadie can be one of those.

Absolutely.

So are you generally an employee or a contractor, or do you own the company or how's it work?

I've always been an employee. You know, in the. I don't know, mid 2000s, I was diagnosed with Crohn's disease, and it was kind of like pre Obamacare. And I. I don't know, I guess I trained myself or told myself that I was going to be an employee just for health insurance from now on because the. The treatment is so expensive. I don't know that that's necessarily the case anymore. I think you can buy health insurance that would cover the. The drugs, but I've always been an employee and been pretty happy doing that.

Well, you're a millionaire. What's that made up of? If you had divide your net worth into categories, what do you have?

Sure. So we're kind of looking into two buckets. The US Assets as well as Brazil. I live in Brazil, and calling from Rio de Janeiro, my taxable brokerage is 650roth, 401k, and IRAs at 325k in I bonds, 25 in money market emergency fund, 15 in HSA, and 5,000 in checking. That's just over a million, I guess. And then in Brazil, we've got probably 25,000 in the banking system in US dollars and another 125 in an apartment.

So where'd all this money come from? I mean, was there an inheritance? Is there some family money you came into?

Not at all. Yeah, maybe about, you know, a few thousand from a utma. Right. After I graduated college, my parents gifted me, but other than that, it's purely earned income and capital gains.

Okay, so rough numbers here. I mean, you make $100,000 ish a year for 13 years. That's $1,300,000. And you've got a million dollars of it left. How did you do that?

Honestly? Yeah. Keeping expenses low. Right. So much of it is provided for us. Right. Like all of the things that the travel budget most of us have has been mostly subsidized by my employers, which has been great. It's led to really fantastic trips and once in a lifetime experiences and then I think developing good habits in lifestyle as well as saving.

How did you treat debt during your life?

Ran from it. I definitely took out student loans in college and it wasn't very much. Was maybe 35,000 in 2010 I think. And the first year of my first year working full time in a grown up job, I was able to pay that off before I went on tour.

You know, Crohn's disease has a lot of treatments, but most of the best ones aren't very cheap.

They are not.

How have you dealt with that particular expense in your life?

A funny little story. While I was in college, I, I don't exactly remember what my insurance situation was, but it was a little bit precarious. And I got the aramicade infusion at the local healthcare facility and a few months later I got a bill for something like 30 or $40,000. And I had no money. I was washing windows the summer after college, just kind of putzing around and that was an inconceivable amount of money. And I later found out, as I'm sure you and your listeners already know, the drug manufacturer subsidizes the cost of the co pay or deductible or whatever and they ended up paying for all of that now. Right. Like I've totally figured out the system. At least I think I have to, where I have a high deductible healthcare plan. My premium is almost nothing. And each year the drug manufacturer pays for the deductible and co pay. So my healthcare cost is something like $5 a year. It's bonkers.

Wow. It's pretty awesome.

It has its downsides too, right?

Yeah. Yeah. I mean, I'm not saying Crohn's is awesome, I'm just saying it's awesome that it's not. Hasn't bankrupt you that you've been able to build wealth despite it. Right. Because we've all met lots of patients for whom their medical issues have really held them back in being financially successful. Whether it's kept them from working or whether it's know, cause them to spend all their money on healthcare or whatever. It's a big problem for a lot of people. So it's impressive that you found a way to overcome that.

Thank you. Yeah, no, and otherwise I'm very healthy. I think I'm at least reasonably healthy. But yeah, no, that was Tough to figure out the first year or two and then smooth sailing after that.

Yeah, you know, most docs in their mid-30s are not millionaires. I was not a millionaire when I was your age. And, you know, there's very much a delay to the career. And we talk about this a lot at the White Coat Investor because it's, you know, we have lots of upsides as doctors, like that high income, but a lot of downsides too, like the big debt at the beginning and a big delay in the start of our career. Talk to us a little bit about the advantage you kind of feel or felt from being able to start early with your investing process.

Sure. It was nice to start with a. I think my first job paid $70,000 or $80,000 in 2011. And I kept my expenses very low as though I was still living in college. I had roommates. I didn't eat out a whole ton. I didn't go on a bunch of trips. So I was able to save a lot of cash, pay off my student loans very quickly and aggressively. However, I didn't super understand or understand the value of tax advantaged accounts at the time. So I saved up a bunch in taxable brokerage. And nowadays I'm able to, you know, I think I've figured it out enough where I save in my 401k and IRA and HSA and I've achieved reasonable growth in my taxable brokerage. But I feel like I missed out a bit on those early years of stacking paper in 401ks and IRAs that I didn't fully understand in my early and mid 20s.

What's next for you? I mean, what do you think about when you're like, what are your financial goals? Do you plan to try to become financially independent relative relatively soon or do you plan to go become a mechanical engineer or what? What are your plans going forward?

You know, a couple things, right? So one of the, I say this half ingest. One of the motivating little scenes that I, I remember was a movie called the Gambler in 2014 with Mark, Mark Wahlberg. There's a monologue with John Goodman where he's talking about having FU money, right? Like you got a boss you don't like. F you, someone does. Someone asks you to do something you don't want to do. F you, you've got, you know, your house, your car, your fortress of solitude. And I took that to heart and like, in the fun way, right? Like, the job that I do is very physical and I don't Think there's a lot of long term longevity. There aren't people in their mid-60s and late into their 70s working in, in my industry. So there's, there's a shelf life to it and it's, it's hard. So would like to have an out, to not do that job if I choose to or get pushed in a tough way. The Pandemic taught us a lot insofar as the industry didn't exist. When in February, March of 2020, there was no entertainment work, a few people went to the film industry, but live entertainment didn't exist at all. So the first year I was posted up in our apartment in Brazil and we, my wife and I, learned that we can live on her income comfortably. And I don't necessarily have to work, but I do enjoy it, find fulfillment in the work. So the second year of Pandemic, I took a job at Tesla in Fremont and we moved to Fremont for the year. And that taught me that I have transferable skills outside of live entertainment. I wasn't an engineer there. I did other types of work, but it was super fun. I met really neat people, really smart people that taught me great additional skills. So that's nice to know that there's an avenue outside of live entertainment that isn't going back to school to get a master's or trying to remember the stuff that I learned 15 years ago.

But when you got a chance, you went back to being a roadie.

Yes, I did. Yeah. I do love the work.

What does your wife do for a living?

She's a graphic designer and product designer at a science museum in Brazil.

Okay, so Brazilian wages down there, I presume?

Yes, sir.

Yeah. Okay, but these numbers are all combined numbers that you gave us earlier? Yes. Okay, very cool. Well, congratulations to both of you. That's pretty awesome. So what advice do you have for somebody that's, you know, coming up on the end of college, maybe doesn't really like their major anymore, maybe doesn't want to go to law school, doesn't want to be a doctor, but still wants to be financially successful. What advice do you have for them?

Sure, right. Like there are plenty of jobs in, in the trades and otherwise that don't require a lot of education or with non applicable education. Just like the truck driver you, you mentioned earlier, there are plenty of jobs with totally reasonable salaries that, with like the, the things we talk about every day and Dave Ramsey stuff like living below your means, being disciplined, being intentional, that can totally lead to a fulfilling career, a comfortable lifestyle, and be able to save money for retirement or fun or retiring early. These are all very possible.

Awesome. Great advice, Miles, and thanks so much for being willing to come on the Milestones to Millionaire podcast and share your experience and inspire others to do the same.

No, thank you so much. I really appreciate everything you do and love listening to your stuff. I listen to either you or Dave Ramsey while I wash the dishes every day, and I super enjoy it.

The dishes or listening?

The listening more? I really don't like washing dishes, but it's a compulsive thing that I do.

Well, I'm glad we can make your chore a little bit more enjoyable.

Truly. Thank you so much.

All right. I hope that was an enjoyable interview. It's certainly different. I mean, when we do surveys of our audience, it's probably 75, 80% doctors, but that's not everybody. The other 20% of you are other stuff. And sometimes it's other stuff that's really interesting. I don't know anybody that works as a roadie prior to doing this recording. And so it's pretty cool to glimpse into the lives of other people and realize that, guess what? There are other ways to have a good income that don't involve practicing medicine. And I think that's an important lesson for us to take as doctors. Right. If you hate what you're doing, go do something else. There's plenty of other great stuff out there. Yes, it might not be quite the income you're used to, but if you eat your financial ducks in a row, you can do something else and be happy. The other thing is, we get a lot of criticism on this podcast that we only bring on people with these super high incomes. Well, here's another example of somebody without a high income. Yes, he got to start in his 20s. Yes, he got to start without a huge student loan. He still had student loans, but without a huge student loan. And he was still able to build wealth. Right? I mean, given how quickly his wife and he had been saving and putting money away and building wealth, they are not very far away from financial independence. They're not spending that much money. So given five more years, maybe they'll be financially independent. I think there's also a lesson there. He lives in Brazil, right? Guess what? It costs less to live in Brazil than it costs to live here. And so that's the classic financial arbitrage. You can go live someplace cheaper. You do not have to live in Manhattan. You don't even have to live in the United States. Now, if you want to practice medicine, there's a good chance you might have to live in the United States for a while. But there are other options out there. And there are plenty of retirees that have chosen to go to Guatemala or Costa Rica or Belize or you know, some Caribbean island or lots of other places in the world. Thailand I think is pretty big for expats where it is not quite as expensive to live and your money will go a lot further. So don't be afraid to, you know, look into some other options, particularly if you love to travel and aren't particularly wedded to one geographic location. All right, I promised you at the beginning we were going to talk about retirement accounts for the self employed. Okay, so let's start at the very beginning of this. When you're self employed, you are the employer. You are the employer and you are the employee. Right? And so you're responsible for all the benefits. You got to line up the health insurance, you got to line up the retirement accounts, you got to line up the insurance, you got to line up everything. Yes, all that can be paid for with pre tax dollars, which is nice, but you got to do the work. The benefit though is you also get to choose the benefits. You don't have to buy benefits, you don't care about. If you don't need life insurance, don't buy life insurance. Right. If you need a really great retirement plan, you can go out and get a really great retirement plan. Same with high deductible health plan and HSA and that sort of stuff. You can go do that when you're self employed. It's in your control and that's one of the best things about being self employed. As a general rule, when you become self employed, you need to be paid a little bit more than you were as an employee because your employer is no longer paying for anything. They're not paying for the other half of Social Security taxes, they're not paying for any of the benefits. For a typical doctor, you know, if you're going to go 1099, be self employed, an independent contractor, you should expect to be paid about 10% more to make up for all that stuff. You know, you got to run the numbers individually, but that's a rule of thumb about 10% more. So if you were getting paid $250,000 to be an employee, maybe you ought to be getting $275,000 to be self employed, to be equivalent. Alright, so keep that in mind. You generally got to be paid a little bit more. But at any rate, when you go to get your retirement account the mainstay for a self employed physician, and this is whether you have an employee gig on the side or not, is the individual 401. And if you have an employee gig, you can have two 401s. Don't let that stop you. Yes, you got to understand all the contribution rules, but you can have two 401ks. And generally with two 415c limits, which is for those under 50 this year is $66,000 limit that can be put in there. That's the total between you and the employer put into the account. So this is the mainstay of your retirement savings when you are self employed as an individual 401. And this year if you're under 50, you can put in $22,500 as an employee contribution, but you can make up the rest of that $66,000 as an employer tax deferred contribution, or you can make it up as an employee after tax contribution. If you set up the plan right. If the plan's set up for this, you can make those after tax contributions and you can immediately convert them to Roth if you want. So lots of options there, both on the Roth side, the tax deferred side, whichever one makes more sense for you, which is generally tax deferred if you're in your peak earnings years. But that rule of thumb has plenty of exceptions. Okay, so that's the mainstay. Your first $66,000 in savings for retirement is probably going into an individual 401. Your other options, everybody that has earned income or whose spouse has earned income can do an IRA contribution. Now for most of us docs, most of us high income professionals, we're doing this via the backdoor Roth IRA process for ourselves and for our spouse. Right? $6,500 this year if you're under 50, $7,500 if you're 50 plus for each of you, even if one spouse isn't working, you can still do one of these for each of you. So that gives you another $13,000. So we're up to $79,000 that you can save for retirement. And that covers most people, even most doctors, if you're saving $79,000 for retirement. Awesome. Good on you. You're probably done. A lot of people can't even max both of those out. But if you want to save more, there are other options. An hsa. If the right health care plan for you is a high deductible health plan, you should definitely use an hsa. This triple tax free account may be the best Investing account out there. It's the first thing I fund every year. And the exact contribution amount for 2023 eludes me. For a family it's around 7,000 dol. For an individual it's about half that. That goes up each year with inflation. So you can get a few thousand dollars more into your HSA and use that for health care either now or in retirement or even after age 65. You can take the money out, pay taxes on it, but without penalty. Spend it on non health care stuff. Okay, let's say you're just absolutely killing it, you're making tons of money and you want to save even more for retirement. Well, there's another good option called the defined benefit cash balance plan. And you can have a personal defined benefit plan or personal cash balance plan, even if you're it right, you're an independent contractor. Schwab, for example, offers these. You can go to the people we recommend under our recommended retirement account provider page and they can set up custom plans for you. Both a customized Solo 401 or Individual 401 that allows you to do after tax contributions and conversions, or a personalized defined benefit cash balance plan. But depending on your age, you might be able to put a ton each year into cash balance plans. I've seen contributions as low as $5,000. I've seen contributions well over $100,000 per year. It's actuarially determined because this thing has to masquerade as a pension. So the older you are, the more that can actually be put in there. Alright, Even if you've maxed all of that out, you can always save more. In a regular old non qualified taxable brokerage account. You can buy stocks, bonds, mutual funds, whatever. You can go buy investment property, anything you want. There's no limit in how much you can invest in a given year. There's only limits on how much you can put into a retirement account. Now the big question a lot of people have is what about a SEP IRA? My accountant says I should use a SEP IRA. Well, SEP IRAs are pretty good, right? They're better than nothing. They're almost always going to be better than a simple ira, which occasionally a small practice with a few employees will use. But the downside of a SEP IRA is the balance in there counts against you. When you go to do the backdoor Roth IRA process, essentially your conversion gets prorated and that's not a great thing. And so that's why most docs, other high income professionals that are self employed, should be using an individual 401 instead of a SEP IRA. At some income levels you can contribute more to an individual 401 than you would be able to with a SEP IRA because you have that employee contribution that you can use. You also have this option if the plan set up for it to do after tax contributions. Now starting this year, SEP IRAs are supposed to be accepting Roth contributions which would obviously keep you from being prorated. Might solve that issue in practice. I'm not sure I've run into one yet that's taking Roth contributions, but hopefully by the end of the year you'll see that at Vanguard, Fidelity, Schwab, those sorts of places. But as a general rule SEP IRA is the wrong choice for a doc. Solo 401 or also known as an individual 401 is the right option once you have employees. This is no longer a do it yourself game. You need professional help. You ought to get your practice studied. We got that list of retirement account providers on our recommended list. You ought to talk to those people and help them decide what the right plan is for you and your practice or your small business. It might be a 401k. It won't be a solo 401, not once you have employees that aren't your spouse. It might be a SEP ira. It might be a simple ira. It might be no plan at all. But you got to kind of have your practice and employees and how much you want to save studied to figure out what the right plan is for you. I hope that's helpful in understanding self employed retirement accounts and how they fit into your life. All right, at some point in our financial lives it's going to be time to buy a home. And a physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. Those loans allow doctors without having to pay private mortgage insurance or PMI to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But as you're further along in your career and you can get a conventional mortgage, you don't have a better use for your money at this point than a down payment or if you just need to refinance, we've also got great resources for you and people that can help you to do that. So wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help. All right, we've come to the end of another great podcast episode. I hope you're enjoying the podcast. Send us feedback if you'd like to see something different. If you'd like to be on it. Whitecoatinvestor.com Milestones we'd love to celebrate your milestone with you. Keep your head up and shoulders back. You can do this. We'll see you next time on the 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.