MtoM #150: Physiatrist Gets Back to Broke and Finance 101: Term Life vs. Whole Life Insurance

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 150 physiatrist gets back to broke. We estimate that 80% of doctors need, want, and should use a financial advisor and or an investment manager. Some investment gurus, such as Dr. William Bernstein, think my estimate is way too low. Like, at any rate, if you want to use an advisor temporarily or for your entire life, there's no reason to feel guilty about it. Just make sure you're getting good advice at a fair price. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors@whitecoatinvestor.com financial advisors. You can do this and the White Coat Investor can help. Welcome back. This is the Milestones to Millionaire podcast. We celebrate your milestones, use them to inspire others to do the same. We've all got a list of financial milestones out in front of us, so we're behind us, depending on where we're at in our financial lives. And it's pretty cool to celebrate them as you tick them off. Sometimes it goes by so fast and you wish you could go back and celebrate a few of them, but for most of us, each time we hit one, it's a pretty significant accomplishment, whether that's a net worth number or paying off some debt like student loans or a mortgage or a car, whatever it might be, come on the podcast and celebrate with us. We'll use your experience to inspire others to do the same. You can apply whitecoatinvestor.com Milestones all right, our guest today is back to broke. Let's get him on the line. Stick around. Afterward, we're going to talk a little bit about some of the differences between term life and whole life insurance. Our guest today on the Milestones to Millionaire podcast is Adem. Welcome to the podcast.

Thank you, Dr. Dali. Thanks for having me.

Yeah, you can just call me Jim. For sure. Everybody else does, including everybody at the er. So tell us a little bit about yourself. What do you do for a living? How far are you out of training and what part of the country are you practicing in?

I'm in the northeast. Upstate New York, specifically. I finished my pain management fellowship June of 2022, so I'm currently 14 months or so out of training. And I'm an academic spine physiatrist.

Cool. And tell us what you've accomplished.

So as of June, July of this past summer, not too long ago, I Achieved back to broke status.

Back to broke. Pretty awesome. The first of many milestones I'm sure you will accomplish. So you track your net worth, it sounds like pretty carefully.

Yes. It initially was started out of a fear of spending too much in residency as I took, excuse me, in medical school as I took out student loans. But I have diligently tracked every expense I've made since medical school, and I track my net worth since.

So how much did you borrow to pay for medical school?

I borrowed about $255,000.

Was that all of it? Was that the sum total of your expenses or did you have some money saved up or get some family help or a scholarship or.

No, no family assistance, no scholarship. All just government based student loans for medical school.

You borrowed the whole wad?

Yeah.

Okay. Did you take out as much as they would offer you or were you careful about how much you took out?

No, I took out just as much as I needed each month. Expenses were about 1,500 bucks, rent included. 1,500 to 2,000 somewhere around there. But some years were less, some years were more during medical school.

Sounds like you were pretty frugal during medical school, but still ended up owing a quarter million dollars, which is not atypical for docs these days. Okay, what other debts did you have from, you know, schooling, cars, family, et cetera? At your worst, what was your sum total of your debt?

So when I finished medical school, I did not have any undergraduate debt or graduate school. I was pretty fortunate. My parents paid for that. But at the end of medical school in June 2017, before intern year, I was negative 255,000. My family member paid 100 grand of that just to save me $100,000 of interest, which was a huge gift. So It's a loan, 0% interest loan. So I had 150 grand at that point of federal debt and 100 grand of family debt. No cars, no other credit cards, anything like that.

Okay. All right. So then residency happened. What's a PM&R residency? What is it, four years now?

Four years. I did a medical intern year in the tri state area and then went back to the Midwest for residency for three additional years. And then I did a one year additional pain fellowship.

Okay, so over the course of that five years, what happened with your net worth? You started at minus $255,000. And what happened with your net worth during training?

So debt definitely accumulated, but I actually saved a little bit and I paid off a 5 and a $7,000 loan here and there. And Then the pandemic happened and that was the best thing that ever happened, unfortunately for student loans. So for my PGI3 through my entirety of my first year as attending was 0% loans interest.

Very cool. And were you saving for retirement during that time period?

So once the pandemic started and March of 2020, I'll never forget when the stock market plummeted, I said this would be the perfect time to start a Roth IRA because I saw it drop 30 some odd percent, maxed out both my wife's and mine. And then we've been doing a Roth IRA since then.

Okay, very cool. Is your wife working or is she stay at home spouse or what?

She was working part time as a therapist, but she was pregnant at the time of COVID when it started, so she became a stay at home mother. Now she's recently returned back to work.

Okay, and what's your net worth look like? I mean what are your debts now? What are your assets now?

So as of August, this past August, I paid off all of my federal debt. So all 150 some odd thousand dollars, 155,136, I paid that off. Now I have 100 grand family debt that I will pay this upcoming calendar year to my family. Then I'll be completely debt free. Besides that, no car loans or anything.

Okay, and how about on the asset side?

On the asset side, I have about 55k in a 403 that I've been maxing out with a employer match since I started. 14k in a residency. 401k it was put in 4%. They give you 1%. Not very much, but that's all I was able to accumulate during that. $50,000 in a Roth IRA, 10K in a HSA, $40,000 in a checking account and about three, $4,000 in stocks.

Okay. It all adds up though, doesn't it? And you put it all together, all of a sudden now you're back to broke. Very cool. So over the last, you know, since you became an attending anyway, what's your range of income been?

So that first half year as a fellow and as an attending, I made about 190. And this year I will do about 390 to 400 somewhere around there.

Okay, so you're working pretty hard, it sounds like.

Yep, pretty, pretty busy.

Yeah. Very cool. All right. So you know, this is no small accomplishment to be back to broke and you know, basically a year out of training. How did you do that?

So I kept a diligent record of my expenses. I like to know where everything goes. I just made a plan, I made a budget. My wife is more big picture. I'm small micro pictures. So I like to know the details of where everything's going. But we're on the same page. So a spouse that is aware of what we're trying to accomplish, get out of debt as soon as we can, max out our retirement savings and just over time it'll just work in your favor.

Very cool. Very cool. A lot of people are tempted as they get that attending income to grow into it, to go out and get themselves a Tesla because they deserve it. Dang it. Because they've been working hard for the last 15 years or they go right into a doctor house or whatever. Right. How did you keep from having a lifestyle explosion?

I will admit that first, even in academia, that first direct deposit was crazy to see. But I knew that I had a plan in place and I just had to keep reminding myself that that was the most important thing I could do for myself by accomplishing that plan and getting out of debt as fast as we can. So I understand the allure of investing versus paying off debt. I just knew I would never sleep comfortably if I just kept ballooning expenses. I did treat myself, however, and I did purchase a used Toyota Corolla which was.

Well, you're, you're going all out now, huh? What year is it?

2017.

The people in the WCI Facebook group will be so impressed. Okay, very cool. Well, you know, there's a lot of people out there who are afraid to go to medical school. They're afraid to go to dental school because they look at that debt and $250,000 is more than they have ever earned in their entire life. And that is just terrifying to them. What advice would you give somebody else that's looking at borrowing the whole shebang, borrowing the entire cost of their medical education?

So I think you have to, for those who do that and consider it, I think you have to be pretty confident in yourself that it isn't going to blow up in your face one day or something. You just dug too much of a hole that your 30 and 40 year old self can't pay out of. So there's that old Chinese proverb that is a journey of a thousand miles starts with a single step. And I couldn't disagree more. It starts with a plan. And I remember when I started medical school, I knew how much it was going to cost and I unfortunately fixated on it so much. Where I was like, this has got to be the first thing I do once I'm done. And I knew though that I had time on my side bearing any health issues. Thank goodness nothing's happened that I will accomplish that as long as I just stay true to that. And to me it's the best decision I've ever made.

Looking back, did you worry too much? Should you have worried less about getting this paid off?

I think I did. I did at first and then I did take a step back at one point and say okay, you know, if we just tracking all the expenses and doing things like that, it's a little obsessive. But it was fun because now I can look at just how much life has costed over the years. But yeah, I did enjoy the ride, but I should have not cared as much.

Yeah. What's your next milestone that you're heading toward?

So it's a couple milestones hopefully. So the calendar year of 2024 will be spent paying off my remaining hundred thousand balance. We did save up a little bit of a down payment which we placed on a house and will hopefully those accept hopefully move in in December. And yeah, it's just going to be pay off family and then in 2025 it's going to be all gravy. It's going to be paying for mortgage and paying that down as fast as we can and keep saving or maxing out those retirement accounts.

Very cool. You're renting a place now then?

Correct.

What are you renting? Is an apartment, a townhome, a house? What are you renting?

Apartment. Very small. The only increased standard of living that we've done was I purchased a Toyota.

Okay, so this is the same place you were living when you were in training.

We really relocated, but it's the same cost of living similar from where I was as a fellow to an attending.

Any regrets about that and about not buying a home a year ago?

No, none whatsoever. I knew that if I purchased a home it's going to be expenses that I'm not ready for. And sure, one year ago mortgage rates were, interest rates were better. I could have gotten the house that I'm going to move into for less. But I just, I really have to stick to my plan and no regrets whatsoever.

Somewhere out there is a doc who's like you were a year ago or two years ago, you know, getting ready to come out of training or having just come out of training. What advice do you have for that person if they want to do the same thing you've done and become back to broke within a year?

Just Know that if you have a plan with your student loans, if you have a hefty amount, just follow the plan. Whether it's to go into academics. I could have stayed in academics and did the pslf. I didn't care to. I knew I could be done with it in a year. Again, I had a unique situation. I had a portion of it paid by family. But, you know, if you just follow a plan or whether it's refinancing or pslf, you're gonna do fine. Just max out the accounts along the way. Don't go crazy making purchases. And every month after payment of that debt is a surplus. Really, I don't know what to do with the extra money.

Yeah, it's pretty cool. I remember getting those first few attending paychecks and it's a pretty wild feeling to go, wow, it really actually did pay off to put in my twenties and half of my thirties learning how to do this. Now I get a big check every month, so of course it doesn't do any good if you don't actually use it wisely. And that's where it comes down to having a plan, like you say. Well, Adem, you've been very successful. Congratulations to you and thank you so much for being willing to come on the podcast and share your success with others.

Thank you, Dr. Ali. This was a huge milestone for me talking to you and having this opportunity. You've been instrumental in my personal finance and my family's financial well being. So thank you for everything.

Well, you've done very well. We might have showed you the path, but you're still the one who had to walk it. So congratulations to you.

Thank you.

All right. I love that interview in that he talks about having a plan. A plan, a plan, a plan, a plan. I beat on this drum all day long. If you have a plan, everything's actually pretty easy afterward. All you have to do is follow it. But so few of us actually run the numbers, actually write down what we want to accomplish with those first 12 paychecks when we come out of our training. But if you will do that, I promise you'll be amazed at what you can accomplish in a year. Now, it's been said that most of us overestimate how much we can accomplish in a day, but we also underestimate how much we can accomplish in a year. And I think Adem is a great example of that. I mean, look at all he's done in a year. He's only a year out of training and he's practically got medical School already paid for, his net worth is back to zero. No small accomplishment for a doctor. And he's going to start building wealth like crazy. So they're doing awesome. All right, I promised you we were going to talk a little bit about term life and whole life insurance. All right, so let's start at the very basics. What is term life insurance? Term life insurance, or pure life insurance, is simply a contract between you and an insurance company. You pay them some money each month or each year. That's called a premium. And if you do that and you happen to die during that term, they will give your designated heir a big fat lump sum of money. For example, you might be paying a premium of $100 a month, but if you die, your heirs might get a million dollars. And how can they do that? Well, because they have a whole bunch of people like you giving them $100 a month and most of them don't die. So that those who do die, they can pay out that million dollars and still have enough money to pay for all their expenses and the commissions to their agents sell and a little bit of profit left over for the company. That's the way the proposition works. It's a very straightforward contract. Now, you can buy these term policies that are year to year. They go up in price every year. You can buy them that, they go up in price every five years. Or you can buy like a level term policy for say 10 or 20 or 30 years in which you pay the same premium every year for those 30 years. And if you happen to die during those 30 years, well, your heirs get a big old fat lump sum of money. And the idea behind this is that this will take care of those who rely on your income. So if your kids are relying on your income, put food in their mouths, clothes on their back to pay for them to go to college, and you're not around anymore. Well, term life insurance, the proceeds from that policy take the place of you financially. Now, they can never replace you, but they can replace your earnings. And that's the point of term life insurance. You know, maybe use it to pay off a mortgage. Use it to send your kids to college. Use it to create a nest egg for your stay at home spouse so that they don't have to work the rest of their life. But keep in mind, if that's your plan, you need a pretty big fat policy, right? Certainly. Seven figures, lots of white coat investors have two, three, $5 million term life policies because that's their plan. They don't want their spouse to ever have to work if something happens to them. So their financial life will be exactly the same with or without the doctor. And that's not a $200,000 or $300,000 policy. That's going to be a multimillion dollar policy that does that. Now, as you go along and build wealth and accumulate retirement savings, you actually have less need for term life insurance as you go throughout your career. And you can cancel a policy once you become financially independent. If you have multiple policies, you can cancel them gradually. There's lots of different options you can use there to. Because what you want is the sum of your nest egg plus your term life insurance to equal the amount you need to live the rest of your life or your spouse or partner needs to live the rest of their life without you producing income every month. All right, so that's term life insurance. Whole life insurance is a life insurance policy that pays out no matter when you die. Right? A typical term life insurance policy is carried until you're 55 or 60 or 65. Whenever you reach financial independ, a whole life policy is carried till death. So it still pays out if you die at 65 or 75 or 85 or 95. So theoretically, if everybody keeps this policy to death, everybody's going to get paid out instead of just some tiny percentage like what happened with the term policy. Now, because everybody's going to be paid out, the policy costs dramatically more in comparison to a term life policy. A typical whole life policy might cost 10 times as much money, right? So you're paying thousands a month instead of hundreds a month. And in fact, it's not unusual at all for me to run into a white coat investor that's got premiums of 20 or 30 or $40,000 a year in whole life insurance. The problem with buying these policies is that you probably have a better use for your money. If you weren't paying 20 or 30 or $40,000 a year in life insurance premiums, you could max out your retirement accounts, you could pay off your loans, you could fund a 529 for your kids, you could build wealth, you could start a real estate empire, whatever. You could retire earlier if that money's not going toward whole life insurance premiums. So that's the main problem with whole life insurance is that it's just really expensive and you can't use that money for something better. And the truth is, it's generally insurance that you don't need. Right. If you're being financially independent at 55 or 60 or 65 years old you dying at 72 is not a financial catastrophe for your family. It's bad. Everyone's bummed that you keeled over, but you're not, like, leaving them in the lurch because you've got this huge nest egg you saved up throughout your career, and that can be used to replace that money in their lives. And so that's the whole point of using term life insurance instead of whole life insurance is you save all that difference in premiums and you can invest that money, buy term and invest the rest. You've heard it called. Yes. There's all kinds of things that you can use whole life insurance for. You can borrow against the cash value in it and use that money for whatever you want. You could invest with it, or you could spend it, or you could send your kid to college on it, et cetera. But the truth is, for all that stuff, there's generally a better financial product out there. And so, as a general rule, whole life insurance is a product designed to be sold, not bought. And the reason why it's sold so hard is because the commissions are huge, right? They tend to be 50 to 110% of an annual premium. Right? So if you're paying $30,000 a year in whole life insurance premiums, the person who sold that policy to you might get $30,000 for doing so. Now you know why they're trying so hard to sell it to you. But very few people actually have a need for a permanent death benefit, a whole life insurance policy. So you better make sure you actually have a need for that, that you understand exactly how it works before buying it. Most people don't need it. I would say fewer than 1% of white coat investors have a need for whole life insurance. Most people are going to be better off just buying a good term life insurance policy and investing the difference. All right. Speaking of financial professionals, you might also need a financial planner or an investment manager. And I estimate that probably 80% of docs need, want, and should use one. Now, if you're here listening to this, that number's probably lower. But even so, if you want to use an advisor temporarily or even for your entire life, don't feel guilty about it. It's not a bad thing. Just make sure that you are paying a fair price for good advice. That's the key. If you need help updating your financial plan or just getting one in place, check out our list of recommended financial advisors. These are people who give you a fair price and good advice. You can find that list@whitecoatinvestor.com Financial Advisors all right, this is the end of our podcast. Hope you've enjoyed it. We'd like to see you next week. Send us feedback if we're not doing things right. If you'd like to see us do something differently, you can always email me editorhitecoatinvestor.com if you like what we're doing, please leave us a five star review. It helps spread the word and help others to become White Coat Investors, become financially literate, become successful in their lives. Keep your head up and shoulders back. You've got this. 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.