MtoM #162: Ophthalmologist Acquires $50 Million and Finance 101: Estate Taxes

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 162. Ophthalmologist acquires $50 million. No more wading through dozens of books at the library, scrolling through hundreds of blog posts or dozens of blogs, or checking in daily with online forums, trying to gain a financial education the way the hobbyists do for a fraction of the price of hiring a professional financial planner. The Fire your financial advisor online course will take you from feeling anxious and having no plan, having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school or residency, but never was. Fire your financial advisor also has a version eligible for CME credit. Get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Coat Investor can help. This is the Milestones to Millionaire podcast. What we do on this podcast is rather than answer your questions and bring on fascinating authors or whoever to interview is we bring you on the audience and we celebrate with you the financial goals you have reached and use your accomplishments to inspire others to do the same. You can come on the podcast and share your milestones by applying@whitecoatinvestor.com Milestones. By the way, if you need help with taxes as a financial planner, student loan advice, mortgages, real estate investing, whatever, we try to find the good guys in the industry and put a list of them together. So when you have a need for a financial service provider, your search method is dramatically easier. So just go to whitecoatinvestor.com recommended it has all our recommended lists there and you can figure out who you need, what you need, and learn what you need to know about each of these people. Knowing that we've at least looked into them a little bit and found the good guys avoided the bad guys, and we'll be there to help you reach your financial goals. We view that as part of the mission of White Coat Investors, connecting you with the best financial resources and professionals out there. All right, we've got a pretty interesting guest on the Milestones podcast today and we've done blog posts with docs that have acquired quite large net worths before and occasionally you see a comment on the blog from guys like this. But what occasionally I find surprising is that people don't believe them. They think they're lying, they think they're just trolling me or trolling the WCI community. They don't think it's even possible for a doc to acquire a net worth of 20 or 30 or 40 or $50 million. That is obviously not the case. I've met enough of them that they are out there. They're somewhat rare. Obviously it takes a high income combined with financial literacy and financial discipline, but it certainly happens. Especially if you're willing to work a full 30, 40 plus year career and apply the principles we teach at the White Coat Investor to a high income, pretty incredible things can happen. In addition, sometimes people start a successful business. If you've got 30 docs and APCs working below you in your clinic, that clinic's pretty valuable and can be sold for a pretty high price. And that can also get you up into those sorts of net worth ranges. At any rate, we're going to bring on a doc today that's acquired a net worth of nearly $50 million during his career. And he's going to share with you some of the secrets about how he did it. Stick around. Afterward, we're going to talk a little bit about one of the problems he's dealing with, which is estate taxes. Afterward. Our guest on the Milestones to Millionaire podcast is a recent retiree that we're going to call Fred. Fred, welcome to the podcast.

Thank you very much. Pleasure to be here.

I understand you recently retired. Congratulations. When was your retirement date?

17 months ago, July.

Very cool. Well, congratulations and thank you for what you did for your career. So let's talk about your career. What did you do?

I was an ophthalmologist. I'm about 40 plus years out of school and really enjoyed the career in medicine in general.

Okay, and did you own your own practice? Were you in a partnership? Were you an employee? What'd your career pathway look like?

So I was at one practice my entire career. I was partner and actually the managing partner for the practice and along with three other doctors co founded a surgery center. And I was the managing partner for that surgery center also. And we were the highest volume eye surgery center in our state and perhaps in our region.

Okay, so pretty successful business. You owned it with several other docs, it sounds like. Did you sell your share out to them? Did you all sell out to private equity or are you still an owner of that practice?

Well, after owning it for about a dozen years, we sold 51% of the surgery center only to private equity. And then when I retired recently, I sold the remainder of my shares to my partners and some to the private equity.

Okay, okay.

Practice stayed on its own.

Okay, very nice. And so we haven't mentioned yet what milestone we're celebrating. I mean, retiring itself should be a milestone, but you managed to retire with a pretty substantial net worth. Can you tell the audience what your net worth is?

Almost $50 million.

Almost $50 million. And how much of that came from the sale of the surgery center and any ownership in the practice you might have done versus money you accumulated from your income along the way?

So of that, about 6 million came from selling the surgery center, and the rest of it was working hard and investing wisely.

Now, the white coat Investor started in 2011. Clearly it was not me that taught you how to do this. You were doing this long before the white coat investor came along. How did you become financially literate and disciplined?

Well, let me tell you a good story. When I was 13, which was way back in 1969, I inherited $15,000 in a single stock from my grandmother. My parents turned over that stock to a family friend who was a full cost broker at the time. He, of course, promptly sold it for another single stock. A year later, he called and said that single stock was falling precipitously and it was time for me to sell it. I declined to do that. And I said to my parents, why would I buy high and sell low when I didn't need the money at 14 years old? That's when my journey began. So that was about 1970, when I was 14. I don't think Boggle came out with his 500 index fund till 76. So it took me a while to find Boggle heads, find the theory behind index. But along the way, it was important I read Larry Swedro, Bill Bernstein, of course, Benjamin Graham to try to educate myself. At 14, I realized that the professionals often didn't know what they were doing. And now in retrospect, I know that a stockbroker, many of them are just full commission, non fiduciary salesmen. That's when my journey started. And as soon as the index funds really hit Vanguard, I made the switch over. I still have some legacy funds and individual stocks that I had along the way because they did well also and it was too painful to sell them and suffer the capital gains. But well over 95% of my holdings are in index funds.

What kind of income range did you see over the course of your career? I imagine it's substantial given the effects of inflation over 40 years. But what incomes have you seen?

I was fortunate in my office practice from the surgery Center, I would make one to two million dollars a year. Currently, I have our investment portfolio in two components. The first is the index funds that we talked about. And the second is in very high quality single or double tax free municipal bonds. Once I realized that I had this income, I realized that I would be able to create a portfolio that would basically be immune from sequence of returns risk. Once I retired, what I did was invest a significant amount in individual high quality municipal bonds. So right now I have about $17 million in individual tax free municipal bonds. Those bonds as well as the dividends that I get from the index fund generate about $1.3 million mostly in tax free income. It's what we live on in my retirement and I don't have to care what the market does. My feeling is that all of my equity holdings will pass to my children at a step up in basis at my death. And the only reason that I will go into them is if we make the decision to buy a warm weather second home while we're in retirement.

Well, you can certainly afford to do so if you choose to do that. It's interesting. I look at salary surveys all the time and the salary surveys show that ophthalmologists on average make three or four hundred thousand dollars a year. Yet you are making one or two million. What advice do you have for an ophthalmologist that's making $350,000 a year and would like to do what you did in your career?

I've got about seven keys to doing that. The first is geography. In choosing for us to deliberately live near family, I also got to practice in an area where demand for my work was essentially unlimited. That's the key. There wasn't really the competition, so I could work all day, all night if I wanted to. As a huge bonus, by living in this area, expenses, a great home, superb recreational and entertainment activities, were far less expensive than if we chose to live on the coast. The other thing that's really, really important, own or buy their own surgery center. Since I started practice, Medicare eliminated assistant fees which used to generate about $1,000 extra for the main surgeon, and they cut reimbursement for cataract surgery by over 80%. By owning the surgery center, I actually made more owning the center than doing the surgery itself. In addition, by owning the surgery center, I had great control over the quality of the surgery center, the efficiency, the scheduling, and most importantly, I was able to hire the staff that I work best with and were best for the patients. Those two things for ophthalmologists are the most important. I've got other things that I consider secrets to success, but as an ophthalmologist, those are the two most important things.

Maybe we ought to hear what some of your other secrets to success were.

So a long time ago, when I met with an advisor about buying term life insurance and disability insurance, I was still a resident. He said, I've got one word of advice for you. If you follow this advice, don't do anything else foolish. By the time you're 60, you'll be able to have a comfortable nest egg and retire. Those words were one house, one, one spouse. I think that's a very critical thing to building wealth and being happy. The second was to really invest in the way that the white coat investor advocates. And that is to invest using diversification, asset class and low cost index funds. I think that's very key and as the white coat investor suggests, really know the difference between investing and speculation. To me, speculation is gambling and there's always perhaps a part that you can invest in a small portion of your portfolio just to make it fun. Over the years, I was actually lucky to be in Seattle in 1992 and walk into a coffee house when they didn't exist anywhere else and called home to my wife. This was at the American Society of Cataract Refractive surgeons meeting in 92 in Seattle. I said, there's coffee houses here. Do you think those could take off? In 1992 I was with very early investor in Starbucks. Similarly, I was intrigued with Tesla. But those are speculation gambling, not investments. But they can add spice to your investing career. It's key, like White coast investors to write an investment strategy. It will keep you on track when the market is either euphoric or when the market is crashing. Those market crashes are golden opportunities. And after 40 years I was lucky. I was there after September 11th in the market crash, there 2008 and there in Covid. And since I was working and making a good income while everybody else was running afraid and pulling money out, I kept putting money in month after month. And that was the key to building the nest egg that I have now. The other thing that I think everybody needs to know is strive to be content, strive to be grateful and find joy in the years before retirement. If you really enjoy medicine, then retirement is a stage to plan for. It's not the number one goal. Being a physician in my mind is truly a privilege and it's really, really an honor. I can't think of any other career where we get the self Respect people, ask for our opinions and listen to us. And the self worth that it generates is really hard to beat and all of that. And we're allowed to make a good income to support our family. I really can't imagine a better career choice than going into medicine. I know some people don't feel that way, some people get frustrated with different aspects of medicine, but for me, it was a career that I still cherish to this day.

Can you tell us a little bit about your spending before you retired and now that you're retired?

So our spending before retirement was about $420,000 per. Again, I was making one to two. So as you have always advocated, live within or below your means. Now that I've reached this age, our spending is changed only in the sense that we spend more in travel, now about $90,000 a year. And as we move into more detailed estate planning, we are giving much more money to our children and our grandchildren and also charity. And we're trying to get our head around and get comfortable setting up slats, spousal lifetime access trusts, still trying to get comfortable and moving ahead with that. So even with all of that, we are still spending probably one third of what I'm currently making in retirement, just.

The income, not even counting the principal, which is continuing to grow. So clearly spending $400,000 when you have 50 million, you're going to die with far more than you have right now, barring giving it all away during your life. You've got an estate tax problem, that's clear. And I'm curious how you chose to divide up what you will leave behind between charity and between heirs. Have you made those decisions yet or are you still struggling with those?

We're still struggling with them. Most importantly, my wife and I are trying to come to agreement on that. The vast majority of it will be left to our three daughters and our eight grandchildren. However, we are enrolled in legacy programs for charitable organizations in our community. I'm active in multiple charitable organizations and on the board of directors of multiple charitable organizations, including the board of trustees of an entity that has over 250 donor advisor funds in it and I'm proud to say gives over $16 million a year to charity.

I'm curious what role debt played in your financial life over the last 40 years.

I'm debt free and I paid off my student loans within probably five years, four years of practice and our mortgage on our house within five years of starting practice. I also paid for three weddings and I put three daughters through both undergrad graduate and medical schools 100%. And they graduated debt free, too.

So you certainly haven't been borrowing money to invest.

It doesn't sound like I have never borrowed money to invest. No.

Well, very cool. All right, well, let's say there's somebody just like you 40 years ago, they're coming out of residency, they've got some student loans. You know, they want to have a great long practice. They love practicing, but they also want to accumulate wealth. What advice do you have for them?

Read and turn to sources like the White Coat Investor in order to become educated and be a do it yourself investor. There's more on the White Coat Investor website than just how to invest. It includes how to live. So read books like Bernstein's and Larry Swedro on how to do things. Understand why term and disability insurance are good and why whole life insurance. You have to have a really good reason to invest in. Know what investing means in comparison to speculation and hearing the latest tip, find the right life partner to make the journey with. That's as critical a decision as going into medicine or how to invest. And along the journey, enjoy the journey itself. Seek balance and make a commitment to your community, to charity, and most of all, to your family. Because in the end, that's what's really important.

Awesome. Great advice for life and for your finances. Thank you so much, Fred, for coming on the podcast. We're super grateful for you and your success and what you've shown us is possible for a white coat investor to accomplish in their career and with their finances. And thank you for sharing your wisdom.

Thank you very much. I appreciate the opportunity.

All right. I don't think I can preach it any better than he did. Right. I've been telling you this stuff since 2011. He learned it before then and has been applied in his life for 40 years. Invested a big chunk of his income. He made a good income, Right. He managed debt wisely. He stuck with his plan through thick and thin. Instead of selling out in the tech crash, instead of selling out in 2008, instead of selling out in the pandemic, he put more money in. And guess what happens? Yeah, ownership's great, right? He got a nice 6 million boost to his retirement nest egg when he left. Now, in his case, he was such a good saver and investor, it really didn't move the needle all that much. But for lots of people, that takes him from having a two or $3 million net worth to having a $10 million net worth. And so ownership's also, I think, a pretty important aspect of this success story. I'm a big fan of ownership. Now, it doesn't always make sense to own your job or own your house or whatever, but in the long run, most of the time, the owners make out better than the non owners. And so consider that as you go through your life. All right, I promised you we were going to talk a little bit about estate taxes. And when you think about estate planning, there's multiple reasons for estate planning, one of which is just to make sure your money and your stuff goes where you want it to go when you die. You may be trying to avoid probate, which can be an expensive and time consuming process, and it can also be a public process. But for a lot of people, it's minimizing taxes is the reason they're doing estate planning. And a lot of people worry about the death tax, but it actually doesn't even apply to them. Most white coat investors are not going to have $50 million when they die. Most white coat investors are going to have, you know, $5 million, something like that, maybe $10 million, maybe. And the nice thing about the estate tax is that at least federally speaking, and it differs by the, I don't know, 10 or 15 states that have an estate or inheritance tax, but for most of us, the federal one's the only one that applies. And it has a big exemption. Right now the exemption is $13.61 million, double that if you're married. That's how much of your wealth you can pass to the next generation without paying any estate taxes at all. So that works out to be over $27 million you can pass on without paying estate taxes. The problem is, once you get above that amount very rapidly, within a million dollars of additional wealth, you get to a 40% tax rate. So in this case, if you died with $50 million, you pass on $27 million. That leaves you $23 million. $23 million times 0.4 works out to be what, like, I don't know, $9 million or something? $9 million in taxes. That's what it's going to cost Fred when he dies if he doesn't do anything about it. And so the main thing people do is they give their money away. You either give your money away to the next generation and you can give in 2024, you can give $18,000 a year to any person you like, you and your spouse both. So if you got married, kids, and they got three grandkids, you and your spouse can give each of them $18,000 a year. So that adds up in a hurry and that can help decrease that amount of your estate above the estate tax exemption. You can do that directly. You can do that by putting the money into trust, et cetera. Also, money you give away to charity doesn't count toward that estate that will be taxed. So those are kind of the main techniques. Now he mentioned a slat, a spousal lifetime access trust. And this is the mainstay of our estate plan. Not only does it provide substantial asset protection, but basically what it does is allows you to get growth in your net worth out of your estate once the money's into the slat, whether you gift it in there, whether you sell assets into it in exchange for a promissory note, further growth on those assets is not in your state. So estate taxes aren't due on that. And over the course of a number of years, we're hoping to completely eliminate any estate taxes that we may owe. And so far I think the plan's going to work. It's not quite there yet. If we died today, we would be paying some estate taxes, but I think over time it is going to work. We're basically spending down our estate, using it for taxes, using it for charitable giving, while the value in the slat increases. And so that's what he's looking into. Probably would have been better if he'd done that 20 years ago. Maybe he didn't realize he was going to have an estate tax problem then. Be aware, by the way, that starting in 2026, that federal state tax exemption amount is going to be cut in half. It is indexed to inflation. But if Congress doesn't make any changes in the laws between now and the start of 2026, it's going to be about $14 million total between the two spouses, rather than $14 million each. All right, enough on estate taxes. It just is not an issue for the vast majority of white coat investors. I'm sure when you hear about a DOC with $50 million making 1 million to $2 million a year, it doesn't feel like a very easy person to relate to. But I think it's still useful to bring somebody like that on the podcast every now and then just to show you what's possible. Alright, let's talk about fire your financial advisor. Right? This is a course we put together, what, five years ago now? Five, six years ago, because we found there was a whole group of people in between the hobbyists like me. Right. How did I become financially literate? I read books, I participated on forums. I asked questions. I answered questions. I read blog posts. It took years. It was free, but it took a lot of time. And then on the other end is someone that just goes out and hires a financial planner to help them draft their financial plan, maybe implement the plan, and maybe even manage their investments going forward. But in between those two groups, there's a whole bunch of people. And those are the people we're trying to reach with the Fire your financial online course for a fraction of the price of hiring a professional financial planner. That course will take you from feeling anxious and having no plan to having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This is the material you should have been taught in college, medical school, or residency, but never were. It also has a version eligible for CME credit. So if you got some CME dollars, you can actually use that to buy this course. It comes with some wellness material and that's what allows it to be eligible for cme. So get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Coat Investor can help. All right, that's the end of another great episode of the Milestones to Millionaire podcast. I hope you enjoy these. If you want to come on, apply@whitecoatinvestor.com Milestones. You do not need $50 million to come on. Heck, if you got back to broke, we'll celebrate with you. If you paid off your car loan, we'll celebrate with you. You could have paid off your credit card. I'll celebrate it with you and we'll use it to inspire somebody else to do the same. Keep up the good work. We appreciate what you do. Let us know what you like about the podcast and what you don't and we'll keep being here to walk alongside you in your financial journey to reach your financial goals. 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.