WCI #155: Malpractice Insurance - Above Policy Limit Judgments

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Their money since 2011. Here's your host, Dr. Jim Dali. This is White Coat Investor podcast 155 above policy limits judgments welcome back to the White Coat Investor Podcast. We we're glad you're here. 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, our quote of the day today comes from John Templeton, who said the four most dangerous words in investing are this time it's different because every time there's a market downturn, it feels different than the previous ones and there are aspects that are unique. Every bear market is unique. But you know what? It's they all end the same way with the recovery and most importantly, they all end. So stay the course. You can do it. Thank you for what you do, especially those of you who are truly on the front lines. Maybe by the time you hear this on the 23rd, we're recording it on the 8th. By the time you hear it on the 23rd, maybe I will truly feel like I'm on the front lines as well. Thus far, our emergency departments here in Utah have been fairly empty, and so we're keeping our fingers crossed that they stay that way and that we can keep up with this. So far, projections for us are that we will have enough ventilators and will have enough hospital beds to take care of the pandemic when it finally gets here. Although today's news for the first time suggested that we were going to peak this weekend instead of the last week of April. So we'll see. Hopefully they're right about that. We'll be recording an episode soon. All About Disability Insurance. If you have disability insurance questions, please record them on the speak pipe@whitecoatinvestor.com speakpipe and we'll get those into that special episode, you can ask any question you want on the Speak pipe, but the disability insurance ones. I'm going to save up for that episode, which will probably run in June. All right. Our first question today and the one I named this podcast after, came in by email. It asked you often quote that your research has determined that your risk for an above policy limits malpractice judgment is 1 in 20,000. Can you break down how you arrived at that number, what resources you used, and what data might be available to other fields to determine our own risk? I am pediatric critical care attending. My cursory surgeon has not found many numbers that seem particularly relevant. I. E. I feel my risk is more than general pediatrics, but seemingly lower than adult critical care and neonatology, though I don't have any evidence of these assumptions to be true. All right. I give an entire talk at WC Icon on this subject. You can actually still get that talk if you're interested in it. It's part of our online course, which is called continuing financial education 2020. It's in there. It's a great talk, I thought. I spent a lot of time researching it and I go into where some of those numbers come from in detail, as well as providing citations. But if you just want the quick answer, the basic way is you start with how often people get sued. And that data is pretty easy to find. You know what your likelihood of getting sued in a given year in your specialty is? In emergency medicine, it's about 8%. We're in the middle of the spectrum, right? General surgery and OB neurosurgery, they're all above us. Pediatrics, family medicine, internal medicine, they're all below us, right? We're in the middle of the spectrum there. Then you look at the outcomes of those lawsuits, and when you look at that, what you will realize is the vast majority of lawsuits are dismissed or settled. Okay. Of those that aren't dismissed, most of them are settled. Very few lawsuits actually go to court. It's a pretty small number. It's single digits. If you get served with a lawsuit, the likelihood of you ever going to court is a single digit percentage of that. Exactly what the percentage is. There's no really great data source for, but it's certainly in the single digits. And of those that go to court, 80% plus are won by the defendant. They're won by the doctor because generally doctors get good advice from their attorneys. And if they're told you're probably not going to win this, they settle them. They don't go to court. So of those that go to court and are lost, the average payout is about $800,000. The median payout is about half that, so about $400,000. So that's generally covered by a $1 million policy limit. But the truth is, the vast majority of above policy limit judgments, the vast majority of them are reduced on appeal to policy limits. And of those that are actually still above policy limits, most are only trivially above policy limits. A relatively small amount, a five figure amount, maybe a low six figure amount. So the most interesting paper on this subject came out of Texas. It's not in the medical literature, it's in the legal liter literature. It's called Policy Limits, Payouts and Blood Money. I highly recommend you google that title and read it. You'll probably find it reassuring. It covers Texas from a long period of time. From 1988 to 2005. It covers 28,000 doctors, 15,065 payouts. Okay, of those 15,000, there were 77 out of pocket payments, meaning above policy limit payments. That works out to be about $30 per doc per year. Now wouldn't that be great if you could just pay an extra $30 a year into some other insurance fund and know that any above policy limits judgment you ever get will be paid for out of that fund? That doesn't exist. But it's nice to know that that's all it would cost to do that. At any rate, of these 77 out of pocket payments, the median payment was 62,000. And only 19 of those 77 payments were for more than 250,000. So if you put all those numbers together with some reasonable assumptions, what it works out to be. For example, if you take 19 out of 15,065, that works out to be 0.13%. If you multiply my 8% chance of getting sued in any given year by 0.13%, it comes out to about.01% or 1 in 10,000. And I'm practicing half time, so I double that 1 in 20,000 I figure is my risk in any given year of being sued for above my policy limits successfully. It's not zero, but it does round there. So for those of you who are worried about above policy limits judgment, realize that it is possible, right? But the chances are pretty low. Okay. Now, emergency medicine's mid range OB neurosurgery would be higher, others would be lower. But that's about where you should probably expect your numbers. In pediatric critical care. I would imagine you're around the same as emergency medicine to be maybe 1 in 10,000 per year. I wish those numbers existed in some awesome easy to access database we could all look at. That would be great, but it just doesn't exist. You should also be reassured by the fact that lawsuit numbers are going down throughout my career. From the time I came out of residency in 2006 until now, they have been falling almost every year. And that's why your malpractice premiums have become less expensive. Okay, let's take our first question off the speak pipe. This one's from Matt.

First year attending academic surgeon wondering how stock market drop impacts decision to deploy excess cash flow toward loans or investments. I refinanced $240,000 in loans between my wife and I over a five year repayment period and think I could eliminate entirely within another 12 months. Given the current discount on stocks, would you revert to required payments and put the extra into index funds at this time?

Okay, should I pay off debt or should I invest in this bear market is basically the question, right? This is the most common question I get at the white coat investor. Should I pay off my debt or should I invest? And of course, once a bear market happens, I get all the same questions. I just get them in this bear market. You know, I feel like the answer would be different because we're having a bear market now. Well, the answer's not necessarily different. Maybe it's a little different. I mean, stocks are a little more attractive to buy now than they were a few months ago. It's wonderful to be able to get 10 or 20 or 30% off anytime you buy stocks. If you thought they were a great deal in February, you really ought to like them in April. But you know, it really doesn't change the equation if you have a goal to get out of debt by a certain time period. Well, you know, you ought to be making enough payments that you can get out of debt by that time period. I wouldn't necessarily change your plan, whatever it might be, just because there's a bear market. But is it crazy if you got 2% loans and you're going to pay them off in two years to now go, you know what, I'm going to pay those loans off in three years instead and I'm going to invest for now in the market because I feel like it's a great opportunity to buy stocks low? No, that's not crazy. Go ahead and do that sort of thing if you want to, but I wouldn't necessarily, just because we're in a bear market, decide you're never going to pay your student loans off or you're going to stop making payments on your mortgage. You know, if you want to take your extra mortgage payments for the next few months and put those into the stock market, I think that's okay. But as a general rule, I would just follow your plan. The nice thing about having a nice written financial plan is when you get in a bear market, you can follow it. When you're in a bull market, you can follow it. When you don't know what kind of a market you're in, you can follow it and you just make it very automatic, very rational, very sp, like very unemotional. And you follow it and, you know, a decade or two later you wake up and go, geez, I'm a multimillionaire. I can do whatever I want with my life. I basically won financially, and that's a good feeling. All right, another question from Matt on the speak pipe. Let's listen to this one.

Academic surgeon here with a question regarding disability and life insurance. I started an SSRI approximately 12 months ago to deal with mild anxiety. When I went to apply for disability insurance, guardian and principal rejected me on the basis that I had started a psych med within the past two years. Have you heard of this before? I don't think readers are aware. I certainly wasn't. Thanks very much.

Okay. Did I know that being on an SSRI would affect your disability insurance? Yes, I knew that any medical problem you have can affect your disability insurance. That's why it is best to buy it when you are very young and very healthy. You know. So as a general rule, the time to buy disability insurance is as an intern. And if you've got medical problems, you're going to have some issues getting the disability insurance. One of two things will happen. They will either charge you more for it by putting you in a higher risk category, or they will exclude that illness or that injury or that type of illness or injury from your disability benefits. You're basically it doesn't count if you get disabled due to that. For example, when I went to buy disability insurance as an intern, they asked if I climbed rocks and I told them yes, I do climb rocks. And I fill out another questionnaire, how often I climb them, how often I plan to climb in the future, what kind of rock climbing I do, etcetera, etcetera. And they basically came back with an exclusion that if I was disabled rock climbing, they weren't going to pay any benefits. Now, if I got disabled in a car wreck on the way to the crag, that was fine. If I got disabled at work, that was fine. You know, if I just came down with rheumatoid arthritis, that was fine. But not if I got disabled falling off a clip face. And so that's often what happens when you have any sort of a medical issue or any sort of interesting hobby. The nice thing is a lot of these things can be changed later. For example, if you're on a stable dose of an SSRI for a few years, or if you are no longer on it, then oftentimes you can get that sort of a disqualification removed. But here's the deal. You still need disability insurance. So what are you going to do? You still got to go buy it. It does make the shopping process more complicated, but that's your agent's problem. You're paying this agent several thousand dollars in commission to sell you this disability insurance policy. They should have to do a little bit of work for it. And part of that work, when you have an interesting hobby or you have medical issue, is kind of informally shopping you around to the various companies and asking how would you treat this? How would you treat this so that you're only actually applying to the people who are going to give you coverage. And that's in general a good thing to do when you're getting disability or life insurance. Thank you Matt for those two questions. All right, our next question comes in by email. Thanks for all you do My question is regarding opening a taxable account versus utilizing a high interest savings account. I'm an early career psychologist living in a high cost of living area. I'm single, in my mid-30s, work at the hospital as a W2 employee and have some side gigs. My pre tax income is typically around 150 grand. I have worked hard to have zero debt and net worth of about 90 grand spread across my savings and retirement accounts. I am fortunate to be in a position to max out my 401 and IRA each year with a simple three fund portfolio and will have a pension when I retire. That's all great. My written financial plan has me saving to purchase a house over the course of the next five years. Thus far it has been in a high interest savings account. However, as of late I've been considering placing some of these funds into a taxable account with the hopes of greater returns over this period of time. What are your opinions on this? Well, it's already in a taxable account, right? If it's at a bank, that's a taxable account. Just the investment is a high yield Savings account. Likewise, you could invest that into a money market fund at Vanguard or Fidelity. You could invest that into a short term bond fund. You could invest that into a balanced fund with some stocks and some bonds. You could also invest it into a stock fund. But you're talking about money you need in five years and you don't say exactly when. So as a general rule, money you need in the next five years probably doesn't belong in stocks. But you really have to look at the consequences. What are the consequences if there's a huge bear market like this one we're in right now, right before you need the money? Is that a big deal or isn't it a big deal? If it's not a big deal because you can pull the money from somewhere else or you can just delay the purchase or whatever, then you can take a little more investment risk. If it would be a huge deal because, you know, you need to buy this house on April 28th of whatever year, then you need to take less risk with it. And as a general rule, if you're saving up for a house down payment, you know, a high yield savings account is a great place to do that. If you want to take a little bit more risk and hope for a little more return, that's okay. But I wouldn't take a lot more risk for money that you need soon. The truth is, the return of your money in that situation is probably more important than the return on your money. All right, we're going to bring a guest onto the show here. Okay. We have a special guest now on the White Coat Investor Podcast. We have Chad Chubb here. He's a certified financial planner and a fiduciary for physicians, dentists and their families across the United States. He's been quoted by Medical Economics, AMA and cnbc, and I've linked to a number of blog posts that he's written in my monthly newsletter. Chad, welcome to the White Coat Investor Podcast.

Thanks, Jim. Happy to be here.

It's great to have you on here. It's really wonderful to, you know, introduce you maybe to the podcast audience that hasn't had a chance to meet you yet. You're one of my, you know, listed firms and have been for a long time on our Recommended Financial Advisor page. But sometimes I think people don't realize that's there sometimes. So I want to make sure they're aware of that and maybe get to know you a little bit better personally today. Can you tell us, to start with, what made you go into financial advising? Why did you decide to become a financial advisor?

Yeah, yeah, good question. To get started, I think it was more or less a few life events led me to become a financial advisor initially, Jim, I actually thought I was going to be a sports agent. I really enjoyed sports my entire life. Played a decent level of hockey at one point, and I don't know, maybe it was the Jerry Maguire effect, but it just seemed like that was such a neat way to kind of mix business with sports. And then one day I had to come to the reality that I probably would not survive law school. So ended up thinking, well, what's another way to keep sports involved? And kind of the next idea was financial planning for professional athletes. So that led me to major in finance at the Smill College of Business up there at Penn State. So I think it was different life events. My father in law also was essentially a financial advisor for 30 years. He kind of transitioned from management a little bit in between there, but for most of his career there he was focusing on working with physicians both early career and late career. And watching him kind of speak at different hospitals across the Central PA and even Western PA and work with the PA Medical Society, that had a big effect. Just kind of seeing the work life balance he had and the difference he was making for a lot of these positions that I think at the time it wasn't as apparent, but looking back on it, that was one of the big events. And I was fortunate to have a great internship back in 2010 with Merrill Lynch's Private wealth team. And that was, I think, my first really good example of seeing what true financial planning was. Because initially headed up to New York City, you're thinking like, oh, everything's the stock floor and the commodity pits where people are screaming at each other. You just assume that's what financial planning is and it wasn't. It was obviously a much different environment. Really just seeing they had a CFP on staff, they had a CFA on staff, a big team, $4 billion of assets. But that was another big event that looking back on it, I think it really pushed me towards this financial advisor role and really cemented that idea. I had a unique experience too when I graduated Penn State. So I pretty much started building my practice right out of school. I was fortunate to have a great mentor where he allowed me to be a paraplanner, working with his high net worth and high income clients and building their financial plans while he allowed me to build my practice behind the scenes and traditional financial planning firm. Back then, really working with baby boomers and pre retirees it really wasn't until about 2015, when our family relocated to Philadelphia, that we said, let's maybe start working with this physician demographic, which only happened because we were surrounded by so many young physicians. A lot of the friends we were making down there had a lot of these same things going on. Large student loan balances, buying a home, starting a family, large medical contracts. It really just all started to click then on really the niche side of that financial advising. But I think the long winded answer there, bringing it back to the short side of things, was I think it comes back to helping. Whether it's medicine, financial planning, or even going back to the initial law example there you have that personality to help and you want to help. Numbers was always something I enjoyed as well, coming from a family of small business owners. Looking back, I think it was numerous life events and then just my love for numbers and small business owners and really just coming back to or coming from a family of small business owners that want to help. And those are kind of the different points that I look back on where I think now it makes a lot more sense on how I came down the financial advising path, kind of looking back on time there.

So you don't get to be the agent for the NHL stars, but you do get to be the agent for all these doctors out there so you can yell at them, show me the money.

I always joke that I went from sports contracts to medical contracts, so it.

All worked out awesome. So tell me about your what's your fee structure and why did you choose that structure?

Yeah, I'm happy I finally get to have this conversation with you. I tell other advisors, so we use a flat fee structure. It's one of those things where it always makes me chuckle a little bit because we often, whether it's my friends that are financial advisors or other advisors meet at conferences, they kind of always want to use that model. It kind of feels like you're leaving money on the table and things of that nature. I often reference you, Jim. I also reference Rick Ferry quite a bit. I think I just like the guys that always kind of take the other side of things and kind of challenge that status quo. But we decided to use a flat fee structure. And again, stealing words from you, that good advice at a fair price. We thought it made the most sense. I think it was either Andrew McFadden or possibly Daniel Ren that said it on their episode as well. Just saying when you have a true niche and you work with that same group of individuals, you have a wonderful opportunity to really custom tailor that pricing structure for that demographic. And I think the way our flat fee structure is built, which is based on essentially tiers with net worth and income, we knew that we could build a very specific tailored flat fee model to work with Gen X and Gen Y physicians. So we utilized that fee structure. It wasn't always that way. It really evolved over the past five years. Again, kind of just hearing the message you've always put out there, listening to the message that Rick has put out there, and again, tailoring that to the clients that we work with every single day, we were able to really custom tailor that flat fee structure.

So what is most unique about your firm? I mean, when I log on to wealthkeel.com to check it out, the thing that pops up there is financial planning for Gen X and Gen Y physicians. Does that mean you don't want to have baby boomer clients that when Gen Z comes along in a few years, when they come out of medical and dental school, you want them or you don't want them or. What is it that's so unique about Gen X and Gen Y that you've decided to focus there?

Yeah, great question. And this kind of came back to the whole transformation that happened back in 2015, and we got to work with baby boomers and we still do have clients that are in that retirement phase and they trusted us since day one and we're very happy and proud to work with them. But it came down to who do we serve best? But also who are we most relatable with? Who do I want to have conversations with for the next few decades? And for us, that came back to our generation. I'm a millennial, but that Gen Y generation, but Gen X as well. Gen X seems to be that forgotten generation. So we wanted to make sure we gave them extra love. So if that changes for Gen Z down the road, maybe it does. Jim, right now I don't have any intentions of that because there's already more than enough individuals out there to keep us busy here for the foreseeable future. But we will want to continue to build that focus because again, it's just they're relatable. We're in that same phase of life. So financial planning aside, we can sit there and have a conversation on the current events and growing our families and going through a lot of those life events. I think that's probably the biggest unique feature I think hit on that flat fee structure. Again, we're also very tech savvy, tech nerds on keeping a very efficient firm, but also keeping financial planning exciting. We think technology removed the spreadsheets and the more boring part of financial planning that maybe we're used to thinking of and making it a lot more interactive. So I think those three items are probably the big items that make us unique, which I always kind of come back and chuckle at a little bit too, because while those are huge differentiators in many worlds, when you look at your list of great advisors that you have, I think that's the beauty of that list, that you're having a lot of individuals that are doing it the right way. They have the right focus. They truly specialize in that group of physicians, whether it's Gen X and Gen Y or maybe even the more seasoned attending physician or whatever cycle they're in there in their medical career. So I think those are the unique features of our firm at the highest level.

All right, let's get into some questions from the listeners here. Our first one comes from Robin, who's got a question about an old 457. Let's listen to that one. Good morning.

I'm a surgical subspecialist and was employed.

For several years by an independent small community hospital that was owned by the county.

So I was able to contribute to.

A governmental 457 during my employment and I maxed it out every year. I left that job a few years.

Ago and rolled the 403 to a.

New account, but kept the 457 in.

Place mainly because of the flexibility of.

Distributions before the age of 59. I guess I was thinking that this.

Could be beneficial in case of emergency.

At this moment, I think that hospital is still solid. They're very solvent and as far as I know, in good shape.

My question is this.

If that small hospital were to be acquired by a large for profit healthcare system, what would happen to my 457? Would it go away? Would it be subject to dissolution by whatever system was acquiring them? I am starting to think that I should roll this account over as well.

Just so I have more control over it.

Thank you so much for everything you do. I will say that your advice has been life changing for me and my family. All right, Chad, what do you think about that one? What should she do with this old 457 from an old employer? She's worried about the hospital being bought out.

Yeah, yeah, very good question. You know, when I hear these messages too, it's always nice to hear the really nice words they say about you too, Jim. It shows the effect that you're having. So the first thing is that trying to plug myself in as if Robin was a client of ours. I think she is right in that thinking of having the accessibility. But for the most part, with a 457, we're going to assume it's a 457B plan coming out of the hospital side of things, few things we look at. If it's a good plan, you can always keep it as is. Assuming the hospital is not bought out, or if they are, we'll kind of see if they merge that plan. Looking for good investment options, making sure that it's low cost, making sure there's good expense ratio, low expense ratio, options inside of that plan. You know, with today, if she needed to, she could. Robin could also move that account over. You know, if a 401k or 403b accepts that 457, which, you know, at least in our experience, that's pretty common. And assuming you do have a good plan where it makes sense to convert that over, you know, that would be one idea as well. You know, with that 59 and a half, we're not as concerned about that. You know, when we build the financial plan, we try to build in these different buckets to prepare for earlier financial dependence if we do need access. But, you know, at least from our experience, you're going to max out your 403B, you're going to max out your 457B. You know, hopefully you're cranking out backdoor Roths every year, and then you probably are going to build up a pretty substantial taxable account. And if all else fails, we know that we still have access to 72Ts if needed. So I think the accessibility is a good thing to keep in mind. But I wouldn't make my decisions on that. I would make my decisions based on the plan that she has or what is possibly available to her.

Yeah, I think the big question here is, is that a risk for 457? I mean, the big problem with 457s is it's not your money, it's the employer's money. And so there's always this risk of the hospital or the employer, whoever it might be, going out of business, but I don't know that it just being acquired by another company is quite the same risk as going out of business. I mean, I would assume when the other company buys it, it's pretty much now the one standing behind the 457. Isn't that kind of what you would expect in that situation?

Yeah, I would as well, just listening to that piece of it. And that's why when we listen to that, the buyout part just didn't seem as concerning. Now she came in and said, we're worried about that hospital going out of business. We're located in Philadelphia, where we actually saw a hospital go out of business. Hahnemann never thought you'd see that, but it does happen. So it's definitely something to be aware of. But with the buyout, as opposed to possibly going under, I would say that most of that concern was lowered.

All right, let's take our next question. This one comes from Dan from South Florida, who's left us a few questions on the White Coat Investor podcast. But let's take a listen to this one.

Hey, Jim, this is Dan from South Florida. I just want to say thank you for everything you've done. You really helped to change my financial life, which has led to all the other aspects of my life becoming a lot easier and less stressful. And I really appreciate that. Part of this has led to me start a side gig apart from medicine, my medicine job, I'm a 1099 independent contractor, and I'm starting this business on the side where I'll be owner and operator. My question is, it's a sole proprietorship, obviously, and I'm going to be paying myself through the business. Is it best to pay myself as a 1099 or have myself be a W2 employee of the company that it is under so that all the taxes and everything else are taken care of that way? Not 100% sure on this, and I'm trying to figure it out online, but I appreciate your recommendations. Thanks again for everything you do.

Okay. I think Dan's a little bit confused about how this all works. You want to see if you can clear up some of that, of how this side gig is going to work? Yeah.

So listen to Dan's message there. And maybe I'm missing the deeper part of that, but I pretty much thought, you know, you could probably keep this pretty simple for us when we usually go through this conversation with clients on keeping things simple. 1099 is the way to go. And I think based on the way that Dan walked through that too, it seems like that is the main option, too, which also provides the most flexibility. Yeah, I even say a little bit more agile, too. And since his current pay structure, it sounds like he noted, is 1099 as well, it seems like he probably has a pretty good plan in place. Sounds like he's quite the do it yourselfer there. So I would Assume he already has a good plan in place to build around 1099. I wouldn't break that. I'd keep that going, at least from what I'm getting there out of Dan's message.

Yeah, I think you're absolutely right. What I'm not sure Dan is realizing is that it's basically the same business as his clinical work. You know, it's not like he's going to get another 401k out of this. If you've got an individual 401k from being an independent contractor at your clinical work, and then you open another business where you're the only owner, you're opening a sole proprietorship or an LLC taxed as a sole proprietorship. It's basically the same business. You know, maybe you'll use a different Schedule C on your taxes just to separate them out and, you know, maybe you open a different bank account and that sort of stuff to separate them out. But for everything interesting about it, it's basically the same business. It's just like as if you were working for two hospitals as a 1099 independent contractor. It's just. It's more of what you're doing, even though you're doing a little bit different work. Now, if that business got big and you had a whole bunch of employees, maybe you'd want to consider, you know, incorporating and those sorts of steps. But it doesn't sound like just kind of starting a side gig that you're anywhere near that yet. So I think you're absolutely right there. All right, our next one comes from an anonymous caller, and it's not actually about that caller. It's about that caller's father. So let's take a listen to that.

Hi, Dr. Dali. I would like your advice to understand the difference in strategy between these two scenarios. To help give advice to my dad. If my dad retired in 2019, my assumption is that the advice would be to try and budget less than the classic 4% withdrawal rate until the market improves. However, he was planning to retire this summer, so now, as the market has crashed, he is often reaching his retirement target, even though he was there earlier this year. So do you still recommend retiring and going lean based on the assumption that the market would recover, or do you say, tough luck and you need to work a little longer until we start to see things rebound? Thanks again for all your help. Really appreciate all your advice.

Okay. This is a kind of a deep question, and I think it's a good question. It's what you always worry about, right? You worry about Retiring right into a bear market. So what would you tell this doc and this doc's father?

Yeah, exactly. This is the one message you never want to hear or hear stories of. And you just kind of look back on and you say retiring at the end of 2019, even the start of 2020, man, everything's going perfect. And whether it's a market correction or what we're seeing here with a pandemic, my first thought is I hope that there were some precautions put in place by hitting that retirement phase, you know, naturally lowering the risk and the allocation things of that nature. It's such a simple question, but such a loaded question where there's so many moving parts that you could probably ask more questions on. You know, I'd even come back to, you know, how much is this individual's father? Do they have a good pension, do they have a good Social Security, or are they truly relying on, you know, that quote, unquote, 4% rule out of a portfolio? That's where if that portfolio is vital and they're still pulling money out through this downturn and hopefully we get some good news here soon and maybe by the end of the year, we're making strides forward, but still, if it goes out for a longer period of time, what type of effect does that have? Maybe you do discuss some type of work. Maybe it's something more simple just to at least offset what you had to pull out of your portfolio. We always use the example in these downturns. As long as you have all your workers going back to work for you, when it does turn around, you can get through that. Nor that modern portfolio theory idea. But I think there's just so many more questions I'd want to ask there. And then also Kitches, I think Michael Kitches had a really good article essentially in the past keeping more what we call core mounts and agile mounts where you can change amounts around. That might be something they want to address in the future. Where, hey, we're probably going to go through these types of things in the future. Again, usually not pandemic based, but we will go through market corrections and just kind of having some flexibility in that number as opposed to that hard 4% rule, I think is vital, whether you're just retiring or just even planning for retirement. I think that's a huge part. But I don't know, Jim, there's so many questions I want to ask there to dig deeper, but that would be my initial thinking, just kind of hearing that note from the individual there for their father.

Well, let's Take it a little bit deeper, because I think this is what a lot of people think about. I think the 4% rule is super useful to kind of get a ballpark figure of about how much you need to retire. It's very helpful. You know, you reverse engineer it, you look at your expenses, you multiply them by 25. That's what financial independence is. As an actual withdrawal strategy, I think it sucks. You know, I think you're far better off if you can be somewhat flexible, you know, and actually use, you know, what's often termed a variable withdrawal strategy. When times are good, you take out a little bit more money, you buy a little nicer gifts for the grandkids, you give a little more to charity. When times are bad, you tighten the belt a little bit. I mean, you did this through your whole career. What's to keep you from doing it during retirement? So I think that's probably the best strategy for everybody is some sort of a variable strategy. It'll allow you to spend more money throughout your career and not be, you know, railroaded into a, you know, specific 4% rule. That said, I think you really need to assume that this is going to happen the year after you retire. You know, if you go in and you have a plan, that's okay. If this happens a year after you retire, you really know you're ready for retirement. And so if it does happen, that's okay. You know, I mean, most of the time, you're still investing for 20 or 30 years, and you don't have a portfolio that's 100% stocks. And so you can spend from the bonds or spend from the cash for two or three or five years, whatever it takes to recover. And so I don't think you have to go back to work. If you had enough money to retire in January, you still have enough money to retire, you know, just because the stocks in your portfolio dropped. And who knows what it is, right? We're recording this now on what. What's today, the 7th or the 8th? And it's going to run the 22nd. So who knows what's going to happen between now and then? But, you know, just because the stocks went down 20% doesn't mean that everything's changed in your life. It's like Cindy and I were talking before we started recording this podcast, we were talking about her daughter who has a 529 plan, right? An aggressively invested 529 plan, and starts college this fall. And so she's freaking out about losing all this money. But we're looking at each other chuckling because, you know, we know something she doesn't, that she can just pay cash for what's coming up with college and that she has time over the next four to six or eight years or however long she spends in school for those stocks to recover. And so I think a lot of people just don't, you know, they lose the long term perspective and realize that they don't need all of that retirement money the day they retire, you know, they're going to be taking it out over 30 years. And so it's okay to still take a long term perspective with a significant chunk of it.

Yeah, and I couldn't agree more. I mean, you're going to use a variable rate or kind of using that idea of the core amounts and the adaptive amounts that you can move around. But we always like the idea of using that bucket mentality. We think buckets are just more relatable. But you know, hey, this bucket is going to be ultra conservative because during your retirement, this is the first bucket we're going to exhaust. This next bucket is going to have a little bit more risk in it because we still want to keep pace with inflation. But we know that we're going to get to this bucket in the near future. This third bucket is going to have more risk. So when we go through these crazy markets, yes, it's going to bounce around a little bit more. But we know that that is very far down the timeline. So we have more time and more market cycles to get through to make sure that we're recovering that. And as that bucket shifts up, we can start to peel back some of that risk as well. And I think that's a good idea. I forget it was a report a while ago, but essentially it was the benefits of sequence of return. And they pretty much said the first three years before retirement, in the first three years after retirement are good years to make sure that you're keeping an eye on the overall risk. But once you get out of those cycles, you can start to get back into that benefit of sequence of returns. I thought that was really good. That's an idea that we utilize a lot on starting to maybe take some risk off the table, headed into it, keeping it off a little bit. And then we get back into that longevity play where, hey, a few decades ago you retire and maybe you have 10 years or so. Now you can retire and have a 30 or 40 year retirement, depending on your longevity. And you want to make sure you're planning for that too. So I think Whether it's that variable rate or even just using different buckets, I think those are two really good ideas to keep in mind for that retirement phase.

Yeah, it's the whole idea of a bond tent there where you de risk for a few years before and after retirement. But whether you call it buckets or not, it's really the same thing, you know. And like when I helped my parents set theirs up, we basically took out, you know, two or three years of RMDs and put that in cash. You know, it's literally in cash. They cannot lose money for two or three years worth of withdrawals. And so that just gives them, I think, a lot easier time sitting back and being more philosophical in times like these. You know, it was interesting. My dad called me up a couple of weeks ago and he said, you know what, since you started helping us with our money, we have twice as much money even after this drop. And I'm like, you know what, it's not that complicated. You're right. That's the way it works. So. But it's, it's just good to take a long term perspective, I think. At any rate, Chad, thank you so much for coming onto the podcast today. Those who want to get more information about you or from you, they can find that@wealthkeel.com or they can just email you at chad Chubb. That's two Bs on the end of chubb@wealthkeel.com. thanks for coming on the White Coat Investor podcast.

I appreciate it. Thanks, Jim. And as you would say, thank you for what you do. I appreciate it. Thank you. Thanks, Jim.

Okay, that was great having Chad on the podcast. If you need his services, you know where to find him. Our next question comes in by email. First, thanks for everything you do at the White Coat Investor. You've been instrumental in my education with personal finance. You're very welcome. I am writing you this because Trump just decided to suspend federal loan payments and interest for the next 60 days. I'm currently in repay and I'm at the point where my payments are still low but will increase after this tax season. With an attending salary, missing these two payments would be less than ideal. I called Fedloan. They have no idea. Well, that's not unusual. Don't call Fedloan with questions they don't know and it doesn't matter what the question is. Maybe this would be a good idea for a blog post or a question on the podcast. I would like to still make my payments during this time, but not sure the logistics behind it. Okay, so this question came in in between the time Trump put out basically an executive order suspending student loan interest and the time the CARES act passed. So it's really not relevant anymore because the CARES act basically superseded it. Here's what you need to know about student loans between now and September 30th. If you have federal student loans, the interest on Those is currently 0% from now through September 30th. That means you may not want to refinance them. You know, most people probably are not going to refinance until September 30th. And also you don't have to make any payments. So you make no payments, you pay no interest. It's really great deal for federal student loan holders between now and September 30th. And I hope that gives everybody a little bit of a break in this economic downturn and gives you the opportunity to, you know, be prepared to refinance if that's right for you come September 30th, but enjoy 0% interest from now until then. The good news for you, since it sounds like you're thinking about maybe going for public service loan forgiveness, you don't actually say that. But the good thing for you is all those payments that you didn't make, these non payments are payments as far as public service loan forgiveness is concerned, they actually count these six months where you don't make payments. They count to six months of payments. You can argue whether that's good policy or whether that's fair, but that's the way it is. So good for those who are in that situation. All right, our next question comes from Steve from Michigan. I think you're going to like this one.

Hi, Dr. Dali, this is Steve from Michigan. I've heard you say before that you only invest in index funds or ETFs. I'm just wondering, have you ever bought a single stock before? If so, have you ever been burned by a single stock and that's why you only invest in index funds, or have you never even bought any single stocks and you've always been smart enough to only stick with index funds?

All right, have I ever bought a single stock before? Not really. And I don't know that I've necessarily been burned by it. Why do I recommend against it? Well, I recommend against it because you're taking on uncompensated risk. If there is a risk that you can diversify away, you will not be paid for taking it. What do I mean by that? Well, you could go out and buy Enron. It's A great stock. I'm sure you could buy WorldCom, for instance. You know, all these awesome stocks you've heard about, but occasionally they do go bankrupt and often happens very, very suddenly. Or you could buy a whole bunch of stocks and diversify away that individual company risk. And that's what I recommend you do. That way, even if Apple has a terrible year, your portfolio still does. Okay. And when you own all the stocks in the economy, in the stock market, then you're going to own all the winners too. Yes, you'll own all the losers, but on average, what you will get is the market return. And that's more than enough for most physicians who have an adequate savings rate and an adequate income to retire very, very well. All right, so couple of situations. One, I owned an individual stock when a company I owned privately went public. So that was interesting. I had a couple of blog posts where I talked about that. It was a debt fund, it was a real estate debt fund. And what it did is it gave loans to developers. So a developer would borrow from this fund, they would pay like 12% plus a couple of points to have a six month loan rather than going to the bank. And so the fund would take its cut basically and it would pass the returns on to me. It was a really great investment. Unfortunately, they decided it was so good that they were going to go public with it. And so when they went public, this fund, Broadmark, started being traded as a real estate investment trust on the stock market. And so I owned an individual stock for about 10 days while I transferred those stock shares over to Vanguard and then sold them. I was actually kind of glad I sold them as we then came up on a pretty nasty downturn in the market. As I'm recording this, it might be fun to look up what Broadmark stock did in this downturn. It might be interesting. Maybe it did great, maybe it did poorly. I don't know. You sign into the Internet here and we'll look it up. Okay. Looks like they've done well today. Let's go back over the last six months. And they looks like they peaked in February with everybody else at about 1270 a share. I think when I sold it was mid December or so, which was 1250 or so a share and subsequently fell in the market to 582 a share. So it had a loss of more than 50%, way bigger than the overall market and has recovered a little bit since then. It's now trading at 744 a share. So that's what I'm Talking about when I'm talking about individual stock risk, if I had held onto this, I would have lost more than 50% of my investment in that downturn. And instead I did not. You know, I think the market overall went down. I think maybe as much as 35%, but certainly less than this stock by itself fell. The only other time I've really dealt a lot with individual stocks, my parents, before I started helping them with their money, they had been going to honestly a terrible financial advisor that was dramatically underperforming the market while charging 2% a year to do so. But it put them into all kinds of individual stocks. And so I had to help them sell the stocks. So I didn't ever actually buy those, but I did sell a bunch of them. You know, I don't know, it was 30 or 50 stocks, individual stocks that they had in their portfolio that we had to go through and sell one by one. So. But that's really all the individual stocks I've dealt with in my life because luckily I got the message early on in residency, before I had much money, that that really wasn't a very smart way to invest. I've made lots of financial mistakes. Don't get me wrong, right? I've hired the wrong kind of financial advisor. I bought houses I shouldn't have bought. I have, you know, bought insurance I shouldn't have bought. I own whole life insurance. Right. I've made lots of financial mistakes, but that really isn't one that I have made. Okay, another question from Steve from Michigan.

Hi, Dr. Dali, this is Steve from Michigan. Again, I've often heard you talk about tax loss harvesting, but I don't know if that is the correct decision for me. I've recently started a taxable account after maxing out my Roth and deferred accounts. The date today is March 23rd of 2020, which means that account is deep in the red. I feel like my risk tolerance is pretty good right now because the only thing I can think about is buying more of these securities to lower my cost basis and increase my yield on cost. Why would I sell right now and realize those losses? Am I thinking about this all wrong?

Okay, Steve is missing the point of tax loss harvesting here. Yes, you should tax loss harvest your brand new taxable account. In fact, tax loss harvesting is almost always done on stuff you bought not that long ago. And the reason why is because the stuff you have the biggest losses on tends to be stuff that you bought recently. If you bought it 15 years ago, you're probably not underwater on it so why would you sell and realize those losses? Well, the reason why is so you can claim those losses on your taxes. You can use them to offset capital gains in any amount. You can also use them to offset up to $3,000 a year of ordinary income. And then of course those losses are carried forward if you don't use them all up in any given year. But what you are missing here Steve, is that at the same time you are selling, you are buying a very similar investment. And so you're not actually selling low, you're still in the market. You basically still own the same investment. Not exactly the same, but very, very similar. And so you haven't sold though. All you've done is harvested or captured that loss. And that becomes even more valuable if you have a method of flushing capital gains out of the portfolio later. For example, we give a lot of money to charity, so instead of giving cash, we give appreciated shares. So I harvest the losses, I flush the gains out as our charitable giving and those gains are never realized. So we basically don't pay capital gains taxes, but we can take advantage of those losses on our taxes each year. Another way you can flush them out of your account is just by holding onto them until you die. Then your heirs benefit from the step up in basis at death. But combining, you know, a method of flushing out the capital gains along with tax loss harvesting can be very powerful and can make a taxable account really rival a tax protected account in a lot of ways. And also Steve, this is a great time to buy more. You know, not only should you sell what you have, but you should buy more. Okay by email during all of this, an article on what you are doing financially and personally would go really far. A lot of your principles like tithing, personal wellness, mental wellness go a long way and should resonate with your readers. Likewise, talking about what financial steps with dollar cost averaging you're doing to maintain a balanced portfolio would be helpful. Okay, this is interesting because it's asking like there's something different that I'm doing now with my finances. I'm not doing anything differently than what I do normally. I have the same portfolio I had two months ago. It's the same portfolio, same investments, same percentages, etc. Now because stocks went down when I buy investments, which I do about once a month and it's about this time of the month, by the time we get, you know, all the numbers back from, you know, how the white coat investor did last month and you know, I start getting paid from my partnership and all that stuff. This is about the time when the money comes in. And so, you know, this is the time we invest about once a month. But what am I buying? Well, I'm buying the stuff that is lowest to kind of help rebalance the account. So when stocks go down, all my money's going into stocks. So last month, I don't know, it was March 6th or 7th or whatever it was, I put a bunch of money into stocks. Likewise this week I'm going to put a bunch of money into stocks and I probably won't put any more money in there until about May 6th, 7th, 8th, something like that. When I invest money again, sometimes that works out well, sometimes it works out poorly. For example, I wasn't putting money in at the very depth of this market, at least so far as of April 8th on March 23rd, you know, I didn't have a bunch of money sitting around to put in on that date. I was tax loss harvesting, but I wasn't putting money in because I'd already invested all my money for the month. I always stay fully invested. And so I continue to invest each month as money comes in into our written investing plan. One thing that I'm probably going to end up doing this year that I don't normally do is I'm probably going to use cash for our charitable giving. You know, I like to give appreciated shares so I can flush those capital gains out of our portfolio. But unfortunately, our taxable account no longer has any capital gains that I've had for at least a year. So you can't do it if it's something you just bought a month ago. You have to have it for at least a year in order to do that. And because I've tax loss harvested the entire taxable account, I basically can't do that. So I guess that's a little bit different this year. But next year I'll go right back to donating appreciated shares and flush some of those out of my portfolio. We still give to charity. We still tithe. I'm trying to do all those personal wellness things we all know we should be doing, like eating right and getting plenty of sleep and exercising. But you know what? There's no doubt there's a lot of stress on us as well as everybody else. Right. I worry when I go to work that I'm going to bring home the virus to the rest of the family. I worry that finances aren't going to do well, that we're losing wealth and I'm losing income and I worry about meeting payroll for the white coat investor, I have all those same worries that a lot of you guys have out there. So I don't know that's necessarily any different or any better for me than it is for you. Certainly knowing what's going on with my finances is reassuring in these sorts of times. Hope that's helpful. Our next question also comes in by email. I have a hopefully quick question for you about HSAs. I recently switched employers from one that had an HSA through health equity. I'm currently at Health Savings Administrators, but I'm now reconsidering this after reading one of your articles. Since they have higher fees than their competitors. What are your thoughts on the best HSA carriers? Are you still using HSA Bank? Is there a limit to how many times or how often you can switch HSA carriers? Are there significant costs in doing so? My new employer does not offer a high deductible health insurance plan with an HSA option. So here's my question. Well, you've already asked about five, but here's the one you want answered, I guess. So here's my question. If you have money already in an HSA but you go to an employer that doesn't offer an hsa, can you still contribute to it in some way outside of your employer doing so, or is that not allowed? And if it is allowed, is it wise to do so? It will still grow in a tax free manner. I would still get tax free withdrawals later if used for health related matters matters, right? Okay, so it sounds like we just need to talk about HSAs in general. An HSA is a health savings account. It is something you can put money into either through your employer or on your own. If the only health care plan, the only health insurance plan you have is a high deductible health care plan, that's not any particular number. It's that the government says this is a qualifying HSA plan. This is a high deductible health care plan. And if that's all you have, then you can put some money in there as a single person. It's about $3,550 for 2020. And if you are a family, meaning a parent and a child or two spouses, then it is $7,100 for 2020. And that money can sit in that account from now until the day you die. You do not have to spend it, you do not have to spend it on healthcare. You don't have to do anything with it. But there are a few things you should do with it. One, you should Use it for health care. And the reason why is the withdrawals that come out and are spent on health care are tax free. So that makes them triple tax free. You got a tax deduction for the money that went in there. It grows in a tax protected way and then when the money comes out, it is spent tax free. So it's great to spend it on health care. Ideally you spend it on health care decades from now because that gives them, gives it a maximum amount of time to grow tax free. So that's great. You can invest the money. It doesn't have to sit in some piddly little savings account like the default choice in the HSAs lots of employers put in. It can be invested in mutual funds just like your 401k can and hopefully get a much higher return so that it's growing and growing and growing. You know, before this downturn I think I had a six figure HSA just because we'd put money in it year after year after year and just invested it the whole time. So when the market did well last year, you know, it jumped up in value quite a bit. And I think it was a six figure hsa. I'm sure it's a five figure HSA right now, but I haven't looked at it recently, so I don't really know. Where should you open one? Well, if you're opening one individually because you're an independent contractor, your employer isn't giving you any money toward it or whatever, then the two best places are probably Fidelity and Lively. And we've got an affiliate deal with Lively. If you're interested in going to Lively, it's whitecoatinvestor.com lively and we appreciate you supporting the site by using that link. I don't have one with Fidelity. Fidelity is also a great choice. Some people even think it's a better choice. That's where ours is right now, is Fidelity. But they're very, very similar. They're both great. Very, very low fees, lots of great investment options. And so I recommend those two as the two best HSAs out there right now. So what happens if now you're not eligible for a high deductible health plan? Well, you still leave that money in an hsa. You can still use it to pay for health care related expenses. Expenses. You can still leave it in there until you're retired and use it for Medicare premiums or whatever health care expenses you have in retirement. But what you can't do is keep contributing to it each year. You cannot contribute to it if you have any other health plan covering you other than a high deductible health plan. So keep that in mind. Now remember, it's usually better if your employer offers it to go through your employer. And the reason why is you might get a match from the employer. They might actually put some money into the HSA for you. But you also save on payroll taxes, Social Security and Medicare tax on that money that goes in the hsa. So it's great to run it through your employer, even if their plan's not awesome. You can do a rollover once a year from their plan to your plan, wherever it might be, whether it's Fidelity or Lively or whatever. And so that's a great option there. Hope that answers your question. All right, let's take our last question here. This one's from Chris on the Speak pipe. Let's take a listen.

Hi Dr. Dali, my name is Chris and I'm a non medical professional but work for a Fortune 500 company. And my employer recently added the option for a Mega backdoor roth to our 401k plan. This plan is managed by Fidelity and the conversions take place on a daily basis. So looks like a great option for retirement savings. My question is, if I put in between myself and the employer the max of $57,000 this year, in years past I've done the backdoor Roth IRA for $6,000. Am I still able to do that $6,000 backdoor Roth IRA or is the $57,000 in this mega backdoor Roth the most that I can put in this year? Thanks again for all of that. You do. Take care.

Okay. I know that it's called a Mega backdoor Roth ira, but it's actually not a Roth ira. The Roth IRA is totally separate and a backdoor Roth IRA is totally separate. They have separate limits, right? As far as an IRA contribution, if you are under 50 right now, you can contribute $6,000 a year. Your spouse can also contribute $6,000 a year. If you are 50 plus, you can contribute $7,000 a year. Year. Likewise for your spouse. That is a totally separate limit from any 401k limit you might have, any SEP IRA limit you might have, any simple IRA limit you might have. So what a mega backdoor Roth IRA is, is when you make after tax contributions to your 401k and then either convert them to a Roth account inside that 401k or withdraw them and convert them to a Roth IRA. It's a way to get even more money into a tax protected account than the 401k would otherwise allow by putting in essentially after tax, not Roth but after tax money into it. So these are totally separate things. They have totally separate contribution limits. A 401 limit is $57,000 a year including the employee and the employer and the after tax contributions IRA contribution is $6,000 per year. Totally separate. So yes, you can still do a backdoor Roth ira. In addition, 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. Be sure to check out our Facebook group, our subreddit, our WCI forum. If you're feeling a little bit isolated during this social isolation period, you'll get a chance to rub shoulders with doctors in a totally virus free way. So be sure to check that out. Thank you. For those of you who have left us a five star review and told your friends about the podcast, head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast and stay safe out there on the front lines. My dad, your host, Dr. Dahl, 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.