MtoM #43 - Doc Dumps Whole Life Policy And Becomes Millionaire

This is the White Coat Investor Podcast. Milestones to celebrating stories of success along the journey to financial freedom. Here is your host, Dr. Jim Dali. This is Milestones to Millionaire podcast number 43. Doc dumps whole life policy and becomes a Millionaire. If you're like most doctors, nobody taught you anything about personal finance or investing during your undergrad, professional school or residency. Even though your family and perhaps even your business rely on you to be the chief financial officer, you have never been given the tools to succeed. Enroll in WCI Financial Bootcamp, a free educational email series, and learn to convert your high income to wealth. You will learn the basics of investing, saving, insurance and more. Your high income alone will not lead to financial success. But as always, we want to help you on your financial journey. Go to whitecoatinvestor.com financialbootcamp to sign up today. You can do this and the White Coat Investor can help. All right, we got a great episode for you today. This is actually one of our WCI columnists and it's a pretty interesting story because he was not doing so well for quite a number of years as an attending physician and then became financially literate and everything changed. And I think you're going to enjoy hearing about how he did that as well as what he did with a whole life insurance policy that he realized he never should have bought. Let's get him on the line here. All right, so my guest today on Milestone to Millionaires podcast, or Milestones to Millionaire podcast I guess it is, is Dr. Ricky Ricella, neurologist, also a WCI columnist. Welcome to the podcast, Jim.

Thank you so much. It's a huge honor. Thank you for all that you do for us and all the other high income professionals.

Well, this is gonna be an interesting podcast cause we're gonna celebrate with you your newfound status and also talk a little bit about one of the kind of unique things you did on your way there. But let's start with just the basics. What's your profession and how far are you out of school?

Yeah, so like you said, so neurologist. And I'm based out of New Jersey. In fact, I spent my entire life in New Jersey. Born, raised college, med school, heck, even my intern year was in New Jersey. I left the state briefly to go to do training in neurology in New York City. I could actually still see New Jersey from my apartment in New York City. And then now I am back in New Jersey, so I really got to get out of this. So I guess also this might be a lesson that you could still build wealth in a place that does definitely not. Doesn't do geographic arbitrage. And so in private practice now. Was fully private practice but recently bought out a few years ago by our local hospital system. England, New Jersey. I'm happily married to an anesthesiologist. That always helps to build my net worth as we'll go over later or our net worth. And I have two lovely children, even though my son drives me nuts. Jackson is 6 years old, me is 4.

So both of you come out of training at the same time Almost.

So she still had a year of fellowship when I became an attending physician.

Okay. And that was what, oh, what year?

That was 2012 when I started my attending hood and we had gone to med school in New Jersey.

So about nine years out now.

Oh yes, about nine years out, yes. Like I said, we went to med school in New Jersey and we went to state school, but we actually met in college. Kind of nerdy. In a summer neuroscience program back in undergrad.

That is nerdy. One of you stuck with it, the other one went into anesthesia. I'm not going to make any comments on which one made the smarter move, but what's your approximate net worth at this point?

So it's. It fluctuates a lot when you have a lot invested, but it's actually 2 million now the. Yeah, and a lot of that we'll go over. But it's kind of funny when it's. Your investments are pretty high. It fluctuates a lot with the stock market especially. Also a lot of my net worth. The house, it's sort of. And housing's gone haywire. So I can't say it's really a lot of hard work. Just market forces, you know.

Yeah, for sure. They. Once you get to a certain level, the market starts making more of a difference than your actual savings does, doesn't it? But give it. Give us the basic division. How much that's home equity. How much is stocks, how much is other stuff.

So the home Equity is about 1.5 mil and there's a 900k mortgage on that. And that significantly went up over the past because of the COVID pandemic a couple years. And the rest actually is in just simple low cost index funds. We have maxed out our retirement accounts ever since we started attending hood. So my wife right now has 270k about in her 401k. I have 140k, my 403B at work. I also have a solo 401k at 330k. We started doing the backdoor Roth a couple of years ago. So there's a 30k a piece on that, so 60k total. Also my wife has a 457 non governmental which about 32k in that and then the rest is 750k in taxable. So significant amount of our investments are.

In a taxable account and your range of income throughout your career.

So when I started I was at 200k and my wife was a fellow still at the time, so she was probably around 70k. So it started 270. Then when she became an attending we were making about 200k a piece or 400k. But now with our financial plan and our financial literacy, we not only play defense, but we played a lot of offense too, especially my wife. So now together we're combined 900k of income. And that's not including the side gig income that I do.

Yeah. Amazing how much easier it is to build wealth at 900,000 than it is on a resident income, isn't it?

Especially yeah. When you're living in New Jersey. Yeah, that high income makes up for the crazy taxes for sure.

So besides the high income, what were your secrets to success?

Well, so I think that definitely the mindset of you cannot be first of all a good doctor if you're worried about finances. And having that mindset is really what drove the fire for me to, well, not fire like retired early buyer, but, but really to start getting financially literate. And it was born out of some bad instances. And I wrote a guest blog post about it, but it seemed like, oh, me and the wife, we're going to be both doctors. Oh my God. We don't have to worry about money. We'll make tons. We don't have to worry about our debt. We could buy whole life insurance. I could just have my high school buddy as a, as a, you know, he's trustworthy. Right. We don't have to worry about it. He'll handle it. And so that led to after seven years of the month, my financial advisor buddy, quote unquote, helping us out. Seven years into my attending hood, I was in $31,000 of credit card debt. I actually should say R. Cause I dragged my wife along with it. And we were trying to keep up with this whole life insurance premiums. Our debt was not paid off at all. In fact, we had hardly put a dent in it. Yeah. Then that's when I had a really bad instance where I was rushing through patients trying to make up income to pay for these whole life Insurance premiums. And one of the patients, sister, she was part of the anguid system. I'm so ashamed that she was part of the Angwood Hospital family. Wrote a scathing email because this was. His brother had a brain tumor. And I felt terrible rushing through this visit, you know, when there's such a terrible diagnosis. And this scathing email came out where she's like, oh, you know, you rushed through our visit. My brother has this terrible diagnosis. You know, we're in the same hospital system. Why did you even become a doctor in the first place? And I really looked deep down at myself and like, oh, my God. You know, I went to become a doctor because, you know, my brother has cerebral palsy. I really wanted to help people like my brother and their families too. And here I found myself rushing through this visit because I was trying to keep up with these whole life insurance premiums, and I was falling behind in $31,000 in credit card debt. And what am I supposed to say? Like, you know, as I'm emailing her, I apologize, but I can't say that. I can't say, like, you know, I mean, I can't say it out loud. We'll just call this insurance company Lord Voldemort. But I can't say because, like, you know, one of Lord Voldemort's death eaters freaking sold me a whole life insurance policy. And now I'm trying to rush through your visit and as well as all my other patient visits to keep up with the premiums. Right. Like, I can't write that. And so I told my wife this, and that's when my wife actually got your book. And when I read it, I knew it was a way for me to get back to being a good doctor. But also our relationship with my wife had been totally strained because we were in credit card debt. And so that also led me to the thought that, hey, financial literacy also brings you to be a good husband. And also my kids, too. I was working harder to pay the whole life insurance premiums, taking away time for my kids. So I was getting to be a bad father. So keeping that thought in mind that financial literacy is the key to being a better doctor, to being the doctor I want to be, being a better husband because we're not having financial fights anymore, and then being a better father, it was totally crazy how I was blindsided. I had, I guess all of us do, obsessed about being a good doc. And I didn't know finances would be my kryptonite.

Yeah, I mean, preach it right? Becoming financially literate certainly makes you a better physician, partner, parent, et cetera. I've been preaching that for years. But what's impressive about your story is you guys hadn't built very much wealth a couple of years ago, right? I mean you had a good income and here you are with a 2 physician income, $31,000 in credit card debt and you know, putting money into stuff maybe you shouldn't have been doing. And yet you managed to turn it around in the last couple of years, have really seen your net worth skyrocket and you're far more peace in your family and in your finances and you're well on the road to fire at this point. So congratulations to you on that. That's something to celebrate for sure. Now let's spend just a minute talking about that whole life policy. You did something a little bit different with it when you decided you didn't want to have it anymore. Tell us what you did.

So that goes to the 1035 exchange. So at the end of seven years when I became financial literate, read your book and then went on the blogs to see, hey, what do I do with this policy? Turns out $50,000 underwater, 25k on my wife, 25k on me. First we had two whole life insurance policies. And so it goes on ad nauseam on your blog post. But also there's an entire forum that will go over how to do the 1035 exchange. Make lemonade out of lemons. So basically the 1035 exchange, that 50k, there was a way to actually make that back and have that grow back up without being taxed. So at least, hey, you know this, we can make it, we can make it back. And the way that you do that with the 1035 exchange and you really had gone over this, over. You had a blog post about it, Jim, you have a blog post about everything. But anyway, and so, and it looked like, hey, this is, this is the steps of how you do it. And these are the few companies that, that, that you can use that offer a low cost variable annuity. So something that seems so complicated. It was something that you made it very easy. And then also the guys in the forum, so the community was hugely helpful. I have to say to I hope they're list. I think it was Noraz 1, 2, 3 and then TJ. I think I mentioned TJ in my guest blog post. They were hugely helpful. They had done 1035 exchanges as well. I just really copied what they did. They had also done the analysis of which one is the cheapest low cost variable annuity to do this was something a doctor could do. And really it was very easy. Being a neurologist is much harder. Being a father is definitely much harder. And so it was something where, where now after I did the 1035 exchange in 2019 last year in December, one of those whole life insurance policy, one of my wife grew up to cost basis. So I made up $25,000 tax free, surrendered the variable annuity and then also mine a couple months later grew up to cost basis. So it was great. So made up $50,000 of loss, but at least it wasn't taxed. So Uncle Sam was sharing in the, in the pain there. I always wondered, maybe we should mention to Uncle Sam, hey, you know, you should get rid of and make whole life insurance illegal. Look what happens. You're sharing the pain of, you know, the, the loss here. Like, you know, can we make this stuff illegal? But you know, whole life insurance unfortunately is still legal. But there is a way to sort of make up your loss and, and not have that be taxed. So.

Awesome.

And also it was sort of a great like sign. So when I grew up to cost basis, man, me and my wife, we went out, you know, she's like, oh, what's the occasion? Like, oh, your whole life policy grew up the cost basis. And my wife's like, what? The 1035 exchange. I was like, she's like, oh, that was the thing you were talking about. But it was also a sort of sign that. Yes, sort of the learning, like reading your book, reading the blogs. It was almost like I've washed my hands totally of that mistake of the whole life insurance. It's almost like I have arrived, you know, so awesome type of thing.

Yeah, well, we're short on time. What other tips do you have to people who, who maybe are where you were a couple of years ago. They've been out of school for a while and they're not building any wealth. Maybe they still have some credit card debt, they've got some student loans still. Maybe they got a whole life policy that they're starting to wonder about. What advice do you have for them?

I just have to repeat that when you learn financial literacy, it is not taking away from you becoming a good doc. In fact, it is reinforcing you in becoming a good doctor. I think a lot of the docs, you know, they ignore finances like I did because, oh, you know, I'd rather read my neurology textbook because you know, that's going to help my patients Forget the finances thing, because it doesn't make me a better doctor. It's not going to help my patients. And I'm here to tell you, well, it does help your patients because I've been there. Like, when you ignore finances, you're going to rush through your patients and have that hanging over your head and next thing you know, like, you're giving terrible care. I'm so ashamed that I was a bad doctor. I wasn't the best doctor I could be, and it was finances. So keep that in mind and that will reinforce to have you become a better doctor, but also it reinforces that you're a better husband, father. And also I have to give a shout out to one of the guys in the community. He actually trolls the forums like I do. So unfortunately, his wife is. Has metastatic cancer. He's in the hospital right now. I have to support him, give him a shout out. But this is also an example of because he is financially illiterate, he's able to take time off of work. He's busy anesthesiologist in order to support, you know, his wife who's dying in the hospital. If he wasn't financially literate, he might have to still be, like, on call and working and not be at his wife's side. So. So that, that brings another point. Keep these stories in mind. Like, it's not just, oh, you're, you're a bad doctor or husband, father, whatever, and you just take Ricky's word for it. Keep these stories in mind. There, there is real stories behind it that'll put an emotional attachment and that will light the fire for you to, oh, dig into maximizing retirement accounts, doing the backdoor raw. You're doing that stuff to be a better doctor, better husband, better father. Just being better overall.

Awesome. Well, thank you for sharing that. And congratulations to you not only on becoming a multimillionaire, but also, probably more importantly, and not only, you know, getting rid of a whole life policy, which is not an insignificant accomplishment, but mostly just becoming financially literate and being able to put money in its proper place in your life and allowing it to be a tool in your life. So congratulations to you. Thank you for coming on the podcast.

Thanks, Jim. Thanks for the opportunity to talk. So love all that you do, man.

All right. I hope you enjoyed that interview as much as I did. A lot of takeaways there, right? The benefits of financial literacy. You sold them pretty well, I think, and I don't think I need to say anything else about that as far as how it affects the rest of your professional and personal life. If you need more information about a 1035 exchange, that's basically a way to get rid of a whole life insurance policy while preserving your loss. And then you can basically take the gains in the same amount of that loss tax free by exchanging into a variable annuity. So let's say you put $200,000 into a whole life insurance policy and find out that it's worth $100,000 after a few years. Well, you've got $100,000 loss there. So if you exchange your $100,000 value into a variable annuity, then you basically get all the growth between $100,000 and $200,000 tax free. And once it gets to 200,000, you can cancel the variable annuity and you're back to your $200,000. You know, it's not exactly awesome, but it beats having to pay taxes on $100,000 worth of gains. Anyway. Hope that's clear. If not, there's blog post on it. You can look it up if you simply Google I think it used to be called how to dump your whole life policy, but I think we renamed it. Let me see what the new name is. How to cancel your whole life insurance policy. All right, that's apparently a more googleable term, and my team helps me to use those more frequently, it turns out. At any rate, I hope you enjoyed this podcast. If you want to be on the Milestones to Millionaire podcast, you can apply whitecoatinvestor.commilestones. we'd love to celebrate with you your financial accomplishments and use them to inspire someone else to do the same. If you're like most doctors, nobody taught you anything about personal finance or investing during your undergrad, professional school or residency. Even though your family and perhaps even your business rely on you to be the Chief Financial Officer, you have never been given the tools to succeed. Enroll in WCI Financial Bootcamp, a free educational email series, and learn to convert your high income to wealth. You will learn the basics of investing, saving, insurance and more. Your high income alone will not lead to financial success, but as always, we want to help you on your financial journey. Go to whitecoatinvestor.com financialbootcamp to sign up today. You can do this and the White Coat Investor can help. See you next time on the Milestones to Millionaire podcast. My dad, your host, Dr. Daly, is a practicing emergency physician, blogger, author and podcaster.

He is not a licensed accountant, attorney.

Or financial advisor, so this podcast is for your entertainment and information only and should not be considered official personalized financial advice. It.