MtoM #170: Orthopedic Surgeon Completes His Military Commitment as a Millionaire and Finance 101: Itemizing Deductions

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 170. Orthopedic surgeon completes his military commitment as a millionaire.

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Don't forget coming up here in a couple of weeks. We have a resident webinar. It's May 29th, 6:00pm Mountain Time. Okay, tune in for that. You can sign up@whitecoatinvestor.com resident this is the talk I would give to you if I was coming to your residency and speaking to you.

We're going to talk about having a.

Smooth transition to hit the ground running as an attending. We're going to talk about understanding what to do with your student loans to minimize their cost. I'm going to have studentloanadvice.com Guru Andrew Paulson on here with me. I know lots of you will have tons of questions about your student loans, so he'll be with me. We're going to talk about how to ensure you have the right insurance protection in place and aren't paying for insurance you don't need. We're going to talk about saving and investing your money so you can reach your goals and spend whatever the rest you want on guilt free. We're going to talk about the basics of investing to start building wealth as soon as possible.

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Check that out again. That is whitecoatinvestor.com resident this is the Milestones to Millionaire podcast, right? This is where we celebrate your milestones, whatever they are.

Maybe you've gotten back to broke.

Maybe you paid off your car loan. Maybe you became a DECA millionaire. Whatever your milestone is, we'll celebrate it with you and we'll use it to inspire others to do the same. There is somebody else in your situation or someone who wants to be in your situation, I assure you. And so we'd love to have you on the podcast. You can apply@whitecoatinvestor.com Milestones all right, we've got a great guest today, straight out.

Of the military, and we're grateful for his service, but we're Going to celebrate some milestones with him.

Stick around. Afterward, we're going to talk about itemizing your deductions. My guest today on the Milestone to Millionaire podcast is Dustin. Dustin, welcome to the podcast.

Hi, Dr. Ali. Thanks for having me.

So you are. Well, you tell us what you are. What do you do for a living? How far are you out of training? What part of the country are you in?

So I'm a military orthopedic surgeon. Fellowship, trained in knee and hip replacement. I'm 16 years out of school and through interesting military pathways. Eight years out of residency and five years out of fellowship.

Okay.

So I'm currently out in San Diego where I'm stationed.

Very cool.

And tell us about the milestones maybe that we're celebrating today.

So this summer I'm finishing up my military obligation. Past year, we've gone over a million dollars in net worth, over $500,000 in retirement savings. And then most importantly, this summ, 19 years of being married.

Wow.

Congratulations on all of that.

Thank you.

So how much time have you done in the military total from Where'd you go to school?

First of all, I went to Des Moines University.

Okay, so you're on hpsp?

Yeah, I did an HPSP contract there. Then I did a general surgery internship. Two years with a Marine unit and deployed with them, and then five years of orthopedic residency and then two years in Okinawa, Japan as staff, then fellowship in Boston, and then I've been back in san Diego for five. So that's 16 years active total.

Wow.

Congratulations. And your obligation is just up this summer?

Yes, sir. Yeah. As you well know, every time that you want to do more training or anything else, they add a little bit more time that you owe. So keep dragging the carrot a little bit farther down the road.

So have you decided if you're getting out or not? I mean, now that your obligation is up, it's an option, I suppose.

Yeah, definitely getting out. Already signed up for a civilian job, moving to Minnesota. My wife's family's up there and we've got a lot of friends and family up there, so.

Okay. So what kind of retirement benefit are you taking after 16 years? It's not the classic 20, but you get something now these days, don't you?

Yeah. So they have started doing the blended retirement system. So you get a match up to 5% of your base pay per year. So I'll get that. I don't get a pension for 16 years. I'll probably try and finish up in the reserves for remaining four years. Get to 20. And if you can do that, you get a pension at age 60.

Very cool. Very cool.

All right, so tell us. I mean, this is an interesting career pathway for a lot of people. Obviously, those of us who have been in the military, we've kind of seen this drill. But for most docs, this is different. It's different in what you get paid. It's different in what you owe. It's different in how long it takes to build wealth, is different in whether you're able to buy a home or not, because you keep moving around. Tell us a little bit about your financial pathway to get to this point.

Sure. So kind of average pay. I've looked back through the years. Range of military income has been about 95,000, which included the housing allowance, residency up to I was 243,000 for including housing allowance last year, average has been about $150,000 per year. And then the last five years, I've been in San Diego, been able to. We bought a house here, and after Covid kind of calmed down a bit, been able to do a fair amount of moonlighting, which has greatly augmented my income. Made about $150,000 last year. Moonlighting and average about 98,000 the last five years from that.

Okay, well, I don't know if I've said it yet, but if not, thank you for your service. You were in there far longer than I was. And although doctors tend not to be shot at very often in the military, you've always got a deployment hanging over your head. And there are lots of other reasons why it can be a sacrifice, not the least of which is you tend to be paid less. Now, I'm looking at the Medscape salary survey in front of me for this year, and it says the average orthopedist got paid $573,000. Meanwhile, you've averaged about 150 as an orthopedist while. While you've been in the military. What are your thoughts on that and how it affects the military's ability to recruit and retrain, retain specialists?

Yeah, it's definitely a huge factor. I wrote an article for your site a couple of years ago about just how much military doctors are paid and comparing it to civilian pay. I'm taking a civilian job. My civilian job, the guaranteed pay is going to be triple what my military taxable income was the very first day. So it's not the only reason, but it's a significant reason why I'm getting out. There's a large number of, as you said, specialists and surgeons getting out now just because they make so much more money in the civilian world, you can control your life a little bit more. Military is definitely having a retention problem at this point in time. Military physician pay, the incentive pays per specialty have not increased at all since 2015. There's been about 30% net inflation since that time. So not too surprising that without increasing that they're having trouble maintaining people.

Yeah. How much more do you get paid in the military than a family doc?

I get paid $16,000 more than a family doc as a board certified orthopedic surgeon with a year of fellowship training after residency.

All right, you became a millionaire. Tell us about your balance sheet. Tell us about your assets. Tell us about your liabilities. Sure.

So approximate net worth now I calculate every month. So last month it was 1.38 million. A little over half of that is in home equity. We bought a house in fall of 2019 and took the COVID boom, especially down here in Southern California. So home Equity is about 670,000. I've got 600,000 retirement accounts. Over three quarters of that is Roth or combat zone tax exempt retirement pay. My thought process was this is hopefully the lowest amount of money I'll ever make. So I'm trying to get as much into Roth as possible. And then we'll start worrying about doing tax advantage after that. 386,000 of that is in my TSP, 160,000 IRAs and I've got about 50,000 as solo 401k for my moonletting money. And the rest is in cash and high yield savings accounts as we're getting ready to move and trying to save up for those expenses this summer.

Any debts besides your mortgage?

Just my wife's student loans. We've got about $5,900. She did a doctorate degree in physical therapy and through a combination of military moves and Covid, she hasn't really been able to work outside the home since our middle one was born about eight years ago. So it definitely has had a financial impact as well.

Well, you're already on the housing escalator in California. Is your new job going to be in California or will you be moving?

No, I'll be moving to Minnesota.

Okay, so tell us about your thoughts about where you were going to live in practice. You've experienced life all over the place in the military, particularly a relatively high cost of living area. I think you said San Diego, right?

Yes, sir.

So tell us your thoughts as you decided where you were going to locate in the country and what impact the ability to create wealth there had on your decisions?

Yes, we looked a bunch of different areas. I mean we've moved around this much. My wife and I have moved this our 10th move in 19 years of marriage. So kind of not really tied to one specific area. Minnesota is closer to family, but then also cost of living is a huge impact. Orthopedic jobs in Southern California don't pay as well as Minnesota. So I'm probably going to get paid about a third to 35% more for being there and the cost of living is about 35% less. So it's definitely a huge impact. Kind of went through, ran some spreadsheet numbers and back to the envelope math. I'll be able to retire by living in Minnesota in the equivalent standard of living. I'll be able to retire about five years earlier than I would be if I stayed in California.

When do you think you will retire?

Hoping to retire around 60, maybe a little bit earlier if we get brotherhead. If I can finish up in the reserves, the Navy, I'll get a inflation adjusted pension once I turn 60. So it'd be kind of nice to have that as a fallback as well.

Very cool.

Well, it sounds like you and your spouse have worked very hard to achieve this level of success. What would you say your secrets are? How did you do it? Lots of people, despite being orthopedic surgeons, despite minimizing their debt, don't accumulate as much wealth as you have. What have been your secrets to success?

I think big key has been my wife. She's been an amazing partner. We've moved so much and she's handled everything with grace and done a phenomenal job of keeping everything together. We're both pretty frugal, live within our means. I've got a 16 year old car with 160,000 miles on it that I'm planning to keep driving even after we move. She's got a five year old minivan. We've got all of our cars completely paid off. We tried to avoid debt and kind of focused on putting finances first and you know, making sure that we pay ourselves first, max out retirement account second. Money comes out beginning of the month before you even see it to kind of make sure we do that before we spend anything.

Tell us about your decision to moonlight. What, what, what did you feel like you were sacrificing to do that? What did you gain from it?

Yeah, I think the biggest thing I sacrifice from it is time. I'm usually one to two weekends a month. I'm Going most often up to your native Alaska or Washington state, doing primarily independent medical examinations. So, biggest thing I sacrificed there is time. I miss out on a lot of my kids, hockey games and things like that. But the decision to do it was we kind of looked at costs and what everything is around here, and essentially, if I don't moonlight, my kids can't play hockey. They're on four teams between the three of them. I'm doing a little bit of rookie league hockey. Try not to get injured out there without the moonlight. We can't afford the hockey. We can't afford the family trips. We just got back from a hockey tournament up in Mammoth, California. Spent a whole week up there to include a hockey tournament and skiing and stuff like that we wouldn't be able to do. And then also saving up money for the move.

Very cool. Very cool.

All right, so there's somebody out there like you. Maybe they've got a military commitment. Maybe they're serving active duty right now. They want to get to where you are. What advice do you have for them?

I'd say One of my mentors in residency once told me, the two most important decisions you make in life is who you marry and what you do for a living. He basically said, you could screw everything else up, and if you get those two right, you're going to be okay. And I think those are very key. I think anybody that's considering a military contract should definitely consider all the aspects of it. I think a lot of people come in like I did. I was terrified of the amount of loans. The amount of loans I was going to be taking out was, I'm pretty sure, more than my parents ever made per year for each year of loans. So I was scared about doing that. And as you talked about on the show, like, military is not a good financial decision. If you want to really be a military doc, it's a great way to do it, great way to serve your country and take care of some people. But from a financial standpoint, it's definitely not the best move. So I think just kind of focus on keeping your life together. Marry well, as well as you can. We got married at 22, so pretty early on, but hopefully my wife is as happy with that decision as I am.

Yeah, you got to get the good ones early, right, sir? All right, well, congratulations to you on your success, and thank you so much for being willing to come on the Milestones podcast and share it with others.

All right, thank you very much.

All right, I hope you enjoyed that interview as much as I did. It's always great to talk to a.

Member of the military.

Thank you, all of you out there for your service. The military really is having trouble retaining.

People because they don't pay that much.

But more importantly, they're having trouble recruiting people, not only because nobody's going in blind anymore, they know what they're getting into, but because PSLF and SAVE have become so generous that HPSP doesn't look nearly as good by comparison. Even going to Yusufs doesn't look as good by comparison. So it's a real recruiting problem. If you have a desire to serve the military, there's some incredible people to take care of and some really unique opportunities. I encourage you to do so. But as you can tell from today's podcast, it's not necessarily a lucrative decision.

And you need to go in with your eyes wide open.

Now, at the top of the podcast I promised you, we're going to talk about itemizing. And what happens when you do your taxes is that you have a total income and then you take out a few deductions, money that you make that you don't have to pay taxes on. And the first deductions you take out.

Are called above the line deductions.

They're things like self employed retirement accounts.

And self employed health insurance, those sorts of things.

And after you take those out, you arrive at a number called your adjusted gross income.

That's usually at the bottom of the first page and the top of the second page, but it varies by year on your tax form.

But after you get to your adjusted gross income, you get to take one more deduction away from it to get.

To your taxable income.

And that deduction is called the standard deduction. In 2024, your standard deduction if you are single or filing married, filing separately, is $13,850. You double that if you are filing married filing jointly. So it's $27,700. You get that just for being alive and breathing, you know, it's kind of the same reason they give you student loans in medical school. If you can get in medical school and you have a pulse, you get student loans. It's great, right? But that's what the standard deduction is. Another option if you don't want to take the standard deduction is you can try to get a bigger deduction. And we call that itemized deductions. And itemized deductions are listed on Schedule.

A of Form 1040, and there's just.

A handful of them. The first one is medical and Dental expenses, however, there's a limit on these. You basically only get the expenses that are more than 7.5% of your income. And I think it's adjusted gross income. All right, so that's kind of hard for doctors, right? If your adjusted GROSS Income is $300,000, well, you got to spend more than 21,000 on those medical and dental expenses before any of them are deductible. And then only the amount above that is deductible. So who really gets this as doctors? People do an ivf, you know, that sort of a thing. Something that's not covered because typically your max out of pocket on your insurance.

Is less than that amount for a doctor.

So this isn't a real common deduction.

For people to take.

One that is very common for doctors is taxes that you pay. And these include state and local taxes. They also include your real estate taxes, your property taxes. You also get the choice actually between.

Your income taxes or your sales taxes.

But for docs, it's almost always going.

To be more for your income taxes unless you're in a tax free state.

However, there's a limit on this. The limit is $10,000. And you've probably heard this, it's called the SALT tax limit. State and local tax, right. And it's $10,000 a year.

And there's a lot of people that.

Are very salty about that.

Typically people living in places like New York or California where they have big property taxes on their expensive homes and where they have, you know, big, huge income taxes.

But it affects pretty much all of.

Us that are doctors and not in an income. One of the seven income tax free.

States there is a workaround if you're self employed. In many states it's called the ptat. And it's basically a way your business can pay your state tax bill. And that way it gets deducted as a business deduction. And that's totally legal, totally legit.

We do that here at the White.

Coat Investor in Utah. The White Coat Investor pays my state taxes and so I'm actually able to deduct those. So that's the workaround for that. Maybe it'll change the next time we change our tax system.

But for now, you know, if you're not self employed, you're limited to just $10,000 there.

The next category, and probably the biggest one for lots of people, is mortgage interest.

You can also throw some other interest in there, like investment interest. But most people it's mortgage interest is the big piece here.

So if you got a big fat mortgage that you're paying tons of interest on, like lots of people are. Now that people have 7% mortgages, this might be a pretty significant deduction.

You know, this alone might get you above the standard deduction. And then finally, well, not finally, there's one after that, but the other big category is charity.

So if you're a charitable person, if you tithe, you know, if you're making $400,000 and you give $40,000 a year to charity, that's a pretty big deduction.

You'Re going to want to be itemizing, right? Because that alone is going to get you above the standard deduction.

So you add that with the mortgage interest and then $10,000 of your taxes, and that's typically what people get. You can also deduct casualty and theft.

Losses and a few other obscure deductions on Schedule A, but the big ones.

Are charity, mortgage interest, and $10,000 of taxes. So if that all adds up to.

More than your standard deduction of about.

$14,000 or about $28,000, then you itemize. If it's less, then you take the standard deduction. And you don't have to do the same thing every year.

In fact, what a lot of people do, if you're a big charitable giver.

You might give to charity twice as much every other year. Basically bunch your deductions, right? You give for last year on January 2nd, you give for this year on January 3rd, and you deduct it all in this year.

And then last year you took the standard deduction. So a lot of people use that technique as well if that's your main deduction. Obviously, if mortgage interest is your main deduction, that's not going to work nearly as well. Sometimes people try to push their taxes into the next year or, or pay them in advance to try to help that when they're bunching. But I would say probably most docs are not bunching their deductions. They're just taking the itemized deductions each year. But that's the way it works. All right.

Hope that's helpful to you if you're.

Looking to boost returns, lower taxes, and build wealth. Join the WCI monthly Real Estate Opportunities list for tips and strategies to maximize your real estate returns and for introductions to exclusive investment opportunities. Expect educational emails that introduce you to syndicators, fund companies, online courses, and online real estate platforms. Go to whitecoatinvestor.com reopportunities to sign up today. You can do this. And the white coat investor can help.

Thanks so much for your time on the podcast today. Keep your head up, your shoulders back. You've got this.

We're here to help. See you next time on the Milestones to Millionaire podcast.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.