WCI #250: Marriage, Kids, and Finances

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dali.

Hi, and welcome to the White Coat Investor podcast. Number 250, marriage, kids and finances. I'm your host, Bisha Spath, and I'm here with Dr. Jim Daly.

Hey, everybody. Love what you hear on the podcast. Looking for more great white Coat investor content? Head over to our YouTube channel where you can watch video recordings of our podcast, short snippets of financial tips explained succinctly by me and others, and deep dives into topics for more in depth learning. You can even learn all about real estate with webinars from our real estate partners. Check out all this and more@YouTube.com thewhitecodeinvestor. You can do this and the White Coat Investor can help. All right. It's great. We are spending the whole weekend here together in Utah. We recorded last week's episode yesterday. We're recording this week's episode today. But the difference is we're recording this on January 29th before our big conference and you're listening to this after our big conference. So we hope the conference went really well, but we can't actually say it did yet. We think it probably did because the people who are planning it have put in a ton of work and it's gonna be awesome. But at this point, it's too late for you to go because the conference is over. Oh, too bad. But if you want, within the next week or so, we are going to have that content available to you as an online course. We call this course each year Continuing Financial Education. And this year's course is CFE 2022. Continuing Financial Education 2022. So if you feel like you missed out and if you didn't go, you did miss out, you can get that course@whitecoatinvestor.com CFE2020. It may not be there by the day you hear this podcast, but within the next week or so we're gonna have that course available. So be watching for that. But it's been a good weekend. We've had a lot of fun. We recorded podcasts yesterday all morning and then we went snowshoeing. We got to fire the T shirt cannon, which is gonna be the highlight of the conference, we hope if we don't take out any chandeliers in the ballroom.

Yeah, you're trusting me. With a cannon.

Yeah. But we both practiced a lot, so we think we can actually not take out anybody's eye. And then you went snowboarding today, right?

We went ski skiing. I learned how to ski. That was amazing.

And how'd that go?

You know, I actually got down the hill without wiping out too badly.

So, yeah, I see you and your husband here, neither of you with a broken leg.

Okay, so that's a win.

The kids are still alive.

It was so fun. So beautiful.

Congratulations, Brighton, right?

Yeah. Brighton.

I bet it was beautiful up there today. It was a sunny day.

It was so pretty.

Yeah. Awesome. Okay, well, today we got lots of fun stuff to talk about. Let's start with finances and marriage. Let's talk about marriage. And this is really gonna be an interesting one to answer because both of our spouses are in the room here with. We'll see what this question is, but I'm afraid of where it's going to go. All right, let's take a listen.

Let's do it.

Dr. Daly, I love your show and appreciate all the work you put into it. One topic that I was hoping to learn some more about is finances and marriage. I'm getting married in the spring, and I'm fortunate enough to have found a truly wonderful woman with whom I share values. And while we aren't having difficulties or disagreements about dollars, we realize that there are a lot of decisions and things to do to become an organized, merged household. And one, I didn't know if you had idea of kind of a checklist about how to kind of get your home in order financially, or if you had any tips or tricks about things such as merging credit cards or car insurance, how to compare and contrast and optimize retirement accounts, how to look at banking, how different couples manage having pretty different incomes, and many other tips or tricks I'd appreciate. All right, well, I think issue number one when you're married is a lot of people are trying to keep separate finances when they're married for whatever reason. I don't know why. I don't know if it's a trust thing or if they just don't want to make changes or if it's like some power or control thing. I think that's really hard to do. Well, now, I'm sure there's a few people out there that do well, but almost all the financially successful couples I know have been through this process and they've merged their finances in some way, so I think you're going down the pathway the right way. But there's no Doubt that there's some changes. And especially the later you get married, the more complicated your financial lives are separately, the harder this merging process is going to be. Where would you start?

So what we did when Josh and I got married was we picked one bank where we would have our checking account that we would kind of pull everything else into. And Josh has access to usaa, so that was amazing. It's a great service that they do. So all we do is we link our credit cards, all of our credit cards, whether they're his or mine, all of our checking accounts into one platform. And USAA enables that. I think most banks do that now. You can pull the data in from all the different places you might be spending money, all the different cards you might be spend, so that it all shows up in one place. And that's really key because when you're trying to go over all of your spending, you kind of want to know where all your accounts are. And it's really nice to see them in one place.

Yeah, there's opportunities here too. For instance, if one of you has terrible credit, right, by adding your name to an account that's been around for 20 years, all of a sudden you have spectacular credit. You can do that with your kids too, by the way. I'm not sure if you can put them on an account that's older than them, but I bet you can. And all of a sudden your kid's in college and has a 810 credit score because they've got this 20 year credit history. So there advantages there that you might not have thought about when you merge accounts. But we've got everything completely merged. We've had merged finance since before we really had any money. And so it was really easy for us. As our financial lives got more and more complicated, we just added things on as joint accounts, all our credit cards, we have both our names on savings accounts, bank accounts, any checking accounts, brokerage accounts, anything that can have two people's names on it. We've got two people's names on it, just to keep it easy and joint. But how you do that, you know what I would do is just pick the credit cards you like, right? If somebody's got a really good credit card, add your name to it, right? They got some awesome gas card that you can't get anymore. Like we've got this pen fed one you can't even get anymore, but it gives you 5% gas, 5% back on gas. And it's what we put all our gas on. So if one person had A card like that, put the other person's name on it. Great.

Yeah. And you can actually use that if you're trying to credit card hack. And Chase has the five cards. You can only get five cards in five years, I think. So each spouse can then open up one card. Five cards in five years. And so you double your point. Earning opportunities.

Yeah, there's definitely more opportunities there. You got to keep track of that stuff, though. I mean, that's like a spreadsheet if you got that many cards.

Well, I put it all in personal capital and we're good to go.

Yeah, if it. Keeps track of it. Keeps track of it. Retirement accounts you can't combine. Right. Retirement accounts, always individual 401 is always just in your name. Your IRA is always just in your name. But if you're going to look at all your finances together, you've now got twice as many accounts to manage in your asset allocation. So that's going to be a little bit of a complicated process. The two of you have to actually agree on an asset allocation and then adjust the accounts accordingly. So that part might be a little bit tricky. To combine personal capital. Personal capital. Does it. Well, it sounds nice.

Not sponsored. Not sponsoring today, but we should.

They should somebody go get an affiliate deal with personal capital? I think just about every blogger but us has a personal capital deal. I don't think we have them as a sponsor. We could probably go get one. But it does work. But you need something to combine everything so you can keep track of it, whether you're doing it on a spreadsheet, whether you're using personal capital software or some other software. Mint, I think, does similar functions.

Yeah. And it actually breaks down your asset allocation for you. It looks at all the accounts and it just pulls in, you know, exactly what you're invested in. So you can see.

Okay. So the biggest obstacle, though, the reason people don't want to combine finances is because they don't want someone else telling them how to spend.

That's true.

That's true. So we've gotten around that. We don't really do this anymore, but we did this for a long time. We had allowances. It was money that we didn't have to account to our spouse for. You know, and when we were really poor in medical school, it wasn't very much money. I think there was at least one month where it was 20 bucks, but we had money that we could spend and we didn't have to account to the other person for. And so if you feel like I don't want someone telling me how to spend. Just set it up so you have allowances. And it doesn't have to be 20 bucks. It can be $20,000, you know, whatever your budget allows, but enough that you feel like you still have some freedom, some independence, and yet you can still be efficient when it comes to managing your money.

Absolutely. We have fun funds, too. And you brought up a really fun topic. Budgeting. My favorite. So, yeah, okay, I understand I am the only person that is excited about that. But, you know, Josh and I sit down and budget at the end of the year. And I mean. Sorry, at the end of every month. And we run through our.

That'd be nice if you could do it once a year, huh?

Yeah, that would be nice, but that wouldn't be very accurate.

So tell us, what does your budgeting meeting look like?

So we have a spreadsheet, a Google Doc that we update together. We have computers facing each other, so it's very, you know, it's very official looking. And we sit down and we look at all of our spending and we put it all in a spreadsheet. And if something looks a little off or someone's spending too, you know, we point it out nicely. But we try not to judge too much and. Yeah, and it helps us keep everything together. We both know where the money is going and we both know how we need to adjust for the next month without either one having to tell the other person exactly what to do. The spreadsheet shows you. So that's nice.

That's probably the hardest part, I think, is getting your goals aligned once you've gotten together and then working out that budgeting process. I would expect most couples, it probably takes six months. Probably takes doing this six times before you're kind of getting it right. And most of the disagreements you're going to have are going to come out in those first six months. So keep at it. Know that this, too shall pass, and you can get your finances aligned and be working together toward goals. Because when both of you are working together, it's really powerful, and you're going to get a whole lot closer to what you're trying to accomplish. All right. Got anything else to say on that subject? I think we addressed all the issues, didn't we?

Yeah. The last thing he said was different incomes. I say, just don't even worry about whose income it is, the way we do it, because we are a team. All of our money is our money, and it's not his income or my income. And that makes it roll it makes it a lot less antagonistic.

Yeah, for sure. You go from his income and her income to our income, his and her debts to our debts, his and her assets to our assets. And you know what? One of you brought more income into the marriage. One of you brought more assets into the marriage. One of you brought more debt into the marriage. What are you going to do? Right? Do you want to be married or not? You know, and so it now becomes all ours, and you start working on it together. Now, I wouldn't start working on it before you're married. Remember, there are some legal protections that come with marriage, but I wouldn't combine your finances before that point. But once you're married, I do recommend you combine your finances. All right, let's take our next question here. This one's about 529s, it sounds like. Let's take a listen. Hey, Dr. Dallas, I'm from Michigan. And just quick question regarding 529 plans. So we contribute to our kids. 529 plan. Our kids are pretty young at this point. My son goes to Kuman, and I'm just wondering, so can we save the receipts for Kuman and in future date, just like an HSA, we can show those receipts to 529 plan and get those money back as it grows, as we contribute over time. I cannot find the answers for that, so can you please let us know? And thanks for all you do.

Okay, so I had to look up Kuma, and I think it's like a math tutoring thing, which looks amazing, but unfortunately it doesn't quite. 529s don't work like HSAs, where you can save your receipts and just turn them in. I believe you have to turn them in with it by the end of the year that you are going to use that money. Is that right, Jim?

Absolutely. You can't save receipts. I mean, you can save them till the end of the year, but by the end of the year, you got to take the money out or you're not taking it out based on that receipt. So not an option for you. But here's the deal, right? I mean, how much money are you putting in there? Most people don't get enough into their 529s to cover the educational costs for their kids. So it's not a matter of trying to get the money out. Plus, if you have a little too much in there, you know what most people do? Grandkids. You know, grandkids, hey, it's just change the beneficiary so it's not that big a deal. If you got too much money in.

There, I think you can use it yourself if you want to do like some continuing education, you know, I plan to use any extra on a cooking class in Italy at some point.

Yeah, for sure. You can change the beneficiary. I'm not sure the cooking class in Italy is going to be permissible though. You're going to have to look that one up. Most of the time it's. It's got to be through a US institution. So if it's a cooking class in Italy, through a U.S. you know, university or something, it's going to work.

Business opportunity.

But if you're just calling up random person in Italy, that's probably not going to count. But you can use these things for K12 if you've got something. If you've got your kids in private school, you might as well run the money through the 529. Maybe you get a state tax break on it. Maybe you can let it grow for a year or two before you put it out and get some tax free earnings. If you're having significant K12 educational expenses, then you might as well take advantage of the 529. But if your state's not giving you a state tax break, you're taking the money out immediately after you put it in the 529. Maybe you don't want to bother, but otherwise this is something for high earners. This is a tax break for the rich, if you will. Poor people don't use 529s because they don't have the money to put into 529s. So take advantage of these things. These accounts are for you as a high earner. You talk about all these downsides of being a high earner, right? You pay these high marginal tax rates and you got all these special taxes just for you. And you're phased out of all kinds of deductions. But the 529, that one's for you. So be grateful and use it as best you can. Alright, So I hope your Covid numbers are doing what our Covid numbers are doing. It's January 29th and our numbers are down 50% here in Utah from the peak a couple of weeks ago. I know in New York they're down three quarters at least a couple days ago when I checked. And I mean, at the rate we're going, there's not gonna be any Covid at all by the time you hear this podcast.

Oh God, you're jinxing this.

But you know, who knows? Maybe there's. What's the next variant? Rogue. What's next? I don't know. But yeah. Anyway, those of you that have been on the front lines, thank you. Thank you for what you're doing. I got Covid this last month. It was not the world's worst experience I ever had, but it wasn't any fun. It was a wicked sore throat. I don't know where I got it, whether I got it from work or one of my daughter's friends or what. But for those of you who have had it, Just kidding. It's not that fun. And you definitely don't want it if you haven't had it yet. But you know what? Omicron plus vaccinations. Hopefully it's not too bad because there's an awful lot of us out there that have had at this point, some of us more than one time.

Omicron.

Is that how you're not saying it that way on the East Coast? How are you saying it?

Omicron.

That's how you're saying it.

Omicron. Like O Macron.

Write in and tell us how you pronounce it because we've got a serious debate here. Yeah, omicron. But we'll find out. We'll find out because you guys are gonna come down on one side or the other. One of us is gonna be wrong. All right, let's get back.

It's not gonna be me.

Let's get back into kids and finances. Teaching children about finances without them having a job is our next question. I've only got one of my kids with a job and I've been teaching about finances for years. So I'm interested to hear this question. Jim, how are you? I've been reading your posts and listening to your podcast for a long time now. You've been influential in my journey towards financial literacy, so I thank you for that. I'm a middle aged radiologist living in the state of Florida. I have six kids under the age of 14. Under my wife and I's joint bank account, we have separate accounts for my kids where they deposit their birthday gifts, allowances, tooth fairy money, etc. Although not a lot of money at this time, they'll be continuing to add to this and as they're young, this money can grow and continue to grow for a long time. This money is not currently earning anything in the savings account and I would like the opportunity to teach them about investing. Unfortunately, none of my children have jobs and I don't have a business where I can figure out a creative way to employ my children. Opening up their own Roth IRA account would have been ideal. And putting the money into a low cost mutual index fund such as one of the retirement targeted, the Vanguard targeted retirement date funds. I'm not sure if I can open up a kids brokerage account at Vanguard or Fidelity and transfer after tax money into their accounts. I would assume I may be able to open a joint account and probably subject their money to to my taxes, which would kind of defeat the purpose. What would be the best way to teach kids how to be responsible with money and at the same time maximize the returns along the way? Thank you for all that you do.

Okay, so I'll take this one. My kids and I love to invest and the way we do it when it's not earned money is a utma. And ACORNS actually has a great interface where the kids can see the compound interest working. They can see what they're invested in. My oldest son, who's 6, likes to go around saying he owns a piece of Amazon. Every time we buy something from Amazon, he's like, mommy, I'm making money. I'm like, yes, you're making lots of money because of me.

Some tiny fraction of a penny.

So there is a fee there because it's kind of a nice interface. It's $5 a month, but we pay that just so that they can have that experience of feeling like they own a part of a business and really understand investing. So the UTMA is great for that if they don't have earned income. Of course, Roth IRAs are great if they do have earned income. And there's some way you can find to do that. And the last thing that we invest for them is 529s, which we've already talked about.

Yeah. So Acorns is the one that rounds up. Right. Isn't that the one that rounds up like you spend 24 on something and then it's like, do you want to put 76 cents into acorns?

Right, right.

That's the one.

Then that's kind of more. They had like different accounts, but that's more for your adult account.

Okay, fair enough. So, yeah, utmas, we're listening to your question. I'm like, is this like a UTMA ad or something? But that's exactly right. It's a kid's brokerage. That's what it is. It's a custodial account. And so your kids don't control it until in most states, 21. It's 21 in Utah, it's 21 in most states, but in some states it's 18. Some states it can be as late as 25. But until then, it's their money. So if you spend it, you got to spend it on their behalf. And then when they hit that age, whatever it is, usually 21, it's their money, okay?

They can spend it on whatever they want.

Whatever they want. Cocaine and hookers, you know, a trip to Europe, a new Tesla, whatever. It's their money at 21. So that's the downside of this account. The upside is that it gets a significant tax break. It's around $1,200 a year that doesn't get taxed at all, assuming they don't have any other unearned income. And then another 1,200 bucks that gets taxed essentially at their earnings rate. So that's up to about $2,400 a year in income that you are not paying at your tax rate. Now, if it earns more than that, you start paying what's called kiddie tax, which is your tax rate. You know, it gets paid on your tax return rather than their tax return, essentially. And so that's great. You know, if you're investing it tax efficiently, you can put a lot of money in there before you get to $2,400 a year in income. I mean, the yield on a total stock market fund right now is well under 2%. And so you could have over $100,000 in there before you start paying at your income tax rate. And so a UTMA is, I think, exactly what you're looking for. But we have the same thing. We have 529s for college. We have Roth IRAs for any earned money they have. Right. Which is a lot for the teenager. She maxes out her Roth IRA now. But for the other ones, it's whatever we pay them for. Modeling, mostly, and maybe a few odd jobs in a lemon, and that's about it. But we view the UTMA as a pretty significant fund. We call it the 20s fund. And it's kind of a trial inheritance for them. Because if you think back to when you could really have used money, when you could have really used an inheritance from your parents, when was it?

It was in your 20s.

In your 20s, right. You got all these expenses and you have no money, and you have no ability to make money at any sort of a decent rate. Right? That's when you need it, whatever it might be. It might be a wedding, a honeymoon, a car, a down payment, missionary work, Grad school, residency interviews, Residency interviews, you know, all kinds of expenses that you need in your 20s. And so the thing we like about that idea is we're giving them an inheritance, and then we see what they do with it. So before they get the real inheritance, we get to see how they managed a small inheritance, that is. And now we know whether we put it in trust or something, you know, because it turns out they need a spendthrift trust. But hopefully by the time they're out of their 20s. We know that because we've watched them, what they did with the first one. But that's what you're looking for. You're looking for a utma. If you're just talking about putting tiny amounts of money in it. Something like Acorns is probably really good. If you're going to be serious about it, though, I'd go wherever you put your accounts, whether that's Fidelity or Vanguard or Schwab or whatever. But they've got minimums like Vanguard. I think it's $1,000 minimum. So if you're not going to get a thousand bucks in there, you probably don't want to start at Vanguard.

Yeah, that's our plan to transfer it over to Vanguard.

All right, quote of the day. Why don't you give us this one, Tisha?

Don't ask a barber if you need a haircut. Warren Buffett.

Okay.

Yeah, it's true. I mean, if, you know, people are going to try to sell you whatever they sell.

Right. You know, and where this comes up a lot of times is disability insurance. It's like I tell people, you go to the disability insurance agent to help you decide which policy is best for you. So they show you all these policies and demonstrate which one is ideal for your particular state, specialty, gender, whatever. Right. But you don't go there and go, how much disability insurance do I need? Because the answer is as much as you can buy. And with all the bells and whistles and riders and stuff, and the ones on our recommended list, they're very good. They all make great money. They have lots of clients. They're going to help you. But at the same time, right. This is how they make their living. There is a financial conflict of interest there. So it's probably best at least if you decide about how much you need before you go in there. If you want a $10,000 a year policy, you probably don't want to come out. Or $10,000 a month benefit, you don't want to come out of there with a $25,000 a month benefit. So decide those things before you ask the barber if you need a haircut.

Right.

Okay, so this one we should go over. This was an email. This isn't really a question. It's more a couple. Something that somebody wrote in to point out. And I feel like I've said this before, but maybe not as much or as adamantly as I should have.

It's worth repeating. You know what? I will do it.

All right.

Okay. This fact bears not only mentioning, but repeating until all women have no doubt in their mind that this is a high priority. A young woman who has had no prior medical problems may suddenly find herself with any number of unforeseen obstructions, obstetric complications, placenta, previa, preeclampsia, etc. Which will likely complicate her life insurance application and probably raise her premiums. Your rule of thumb seems to be to get life insurance if you have any dependents who would need your income should something happen to you. But for women, we should be applying even before we have any dependents if there is any possibility or future plan of pregnancy. I think that's a great point.

Yeah. I mean, here's the thing too, right? As we all know, pregnancy isn't always planned. In fact, in the emergency department, the rate of immaculate conception is about 15%. People say there's no possible way I can be pregnant. And about 15% of them are. And so it's true. It's not actually having the dependent, it's plans to have a dependent in the near future. I'm not saying you got to do it when you're 25 and not planning to have kids until you're 35, but you gotta have term life and disability insurance in place before you get pregnant. Yeah, before you get pregnant.

That would be the best way to plan it.

Yeah. I mean, I tell people, buy this stuff when you come out. As far as disability, buy it when you come out of medical school. Buy as an intern. Now, that doesn't always mean before you had kids, but often it means for a doc, before you had kids. But as far as term life goes, you know, when someone depends on you, you need to have the insurance. And in this case, you know, you could run into problems. And it's not like you just get these medical problems during pregnancy. People die during pregnancy still, right? It's a lot safer than it used to be. But there was a sad story a couple years ago about a. It might have even been an OB resident who died during childbirth. And no insurance. I mean, it's a terrible, sad story. And you know, GoFundMe is not an insurance company. All right? I mean, it's funny, but it's sad. Right. It breaks my heart when I see some newspaper article about some 25 year old father of three and there's GoFundMe at the bottom. And I'm hoping the GoFundMe is in addition to some life insurance. But I think most of the time it is the life insurance. If you look at what the average GoFundMe raises, it's a four figure amount. It's not a lot of money. Your family is not going to live on it for very long.

Yeah, this message was longer, but I think that that was the meat of it.

Yeah, I think that's the main point. So, yes, get your life insurance, get your disability insurance before you get pregnant. Very smart move. But you know, you don't need to buy it 10 years before you get pregnant, you know. But as you're starting to think about starting a family, that's the time to be getting that insurance in place.

Absolutely. All right, next question.

Dr. Dali, thanks for helping make all of us better positioned through financial education. I think my wife and I have won the game and wonder if we should stop playing. However, I'm not sure how to do this and what it actually means. We're a two physician family in our early 50s with two kids and a current combined income of about $900,000. We have no debt and plan to retire in five years. Our combined assets include about $5 million in tax advantage accounts, 2 million in taxable 1.3 million in 529s, 45,000 in an HSA, $200,000 in cash, an additional $1 million in private equity real estate. We have a demonstrated high risk tolerance, but decreasing our risk seems prudent. On the other hand, we could stomach a 50% reduction in a bear market and still be over our financial independence number. Any suggestions? All right, first of all, congratulations on your success. You're doing awesome. You guys are really killing it. I mean, a $900,000 income. We're trying to add up your assets. We're around, what, nine million bucks? Something like that. Eight, nine million bucks. You killed it. You're doing awesome. And the fact is, you say you're going to work five more years making this kind of money. I mean, your assets are going to be double what they are now, five years from now. And I suspect your spending habits probably aren't going to change all that much. So what you really ought to be Thinking about is what you're going to do about estate taxes, because you're almost surely going to have an estate tax problem. And so start thinking at least a little bit about your estate planning. But as far as this concept, this concept of stop playing when you've won the game, this comes from William Bernstein, right, who basically said that. And the idea was to have a liability matching portfolio so where your portfolio matches your future expected liabilities. And the idea is, with the things that are going to match those liabilities, you don't take a lot of risk. Whether you're putting those into TIPS or I bonds or those sorts of things. Relatively low risk assets for the money you absolutely must have. And then everything else, you can take whatever risk you want because as you mentioned, even if you lose half your assets in the market, you're still okay. It's like Warren Buffett, right? What did he tell his wife to put the money in after he's gone, right? 90% S&P 500 index fund and 10% in treasuries, I think is what he said. Because the truth is there's so much money there that even if you lost 90% of it, it's still more money than you're ever going to spe. And you guys aren't quite in Warren Buffett category, but it's the same basic philosophy here. So some things you ought to be thinking about estate planning. If you don't have at least the bones, a skeleton of estate planning place, it's time to start thinking about that. Two, Is there something you can spend money on that is going to make your life happier? If there is, go spend the money. Whether that's upgrading a car, whether that's doing a renovation on your house, whether that's going on a trip, or more likely it involves changing something about how you're earning money. Maybe you take less call, maybe you do fewer night shifts, maybe you take every Friday off, whatever it might be. You need to at this point be looking at those sorts of things, because otherwise you're just going to be leaving a whole lot of money behind. When you go at the rate you guys are going, you're just doing so very well that you ought to be thinking about all those other things. Maybe it's lawn care, you know, maybe you're doing your own lawn care, your own snow removal, cleaning your own house, those sorts of things. You can buy some of your life back by spending money on those items. And you are at that stage of life when you ought to be thinking about all of Those things. And if you still like mowing the lawn, fine, go mow the lawn. If you hate it, why are you still doing it? Because you can afford not to.

You can't take it with you.

Yeah. What other tips do you have for somebody making $900,000 a year who is planning to work five more years and already has 9 million? I mean, what do you tell them?

You know what? I'm starting, so I'm just like, hey, good job. But yeah, no, for real, though, you should outsource at this point. If I were in your shoes, I would be outsourcing as much as I could just so I could just relax and enjoy my life with my kids.

Yeah. But as far as the asset allocation, if you want to do what Bernstein says do, basically go out and buy enough tips to cover all your future expenses, all your future mandatory expenses, and then you can take additional risk with the rest of the portfolio. But that's where the quote comes from that you've heard before to stop playing when you've won the game.

And TIPS are Treasury inflation protected securities.

Exactly. So they're basically inflation index bonds. And the idea behind those, and they're not like a screaming deal right now, they actually have negative real yields right now. You go buy a five year and it's like minus 1% real is what they're selling them at. But the idea was when you could get them with at least a 0% real or 1% or 2% real rate on them, then you could at least keep up with inflation with it without really taking on significant risk. All right, so we're going to talk about some more people with first world problems here. We're going to talk about some trusts. We got a question from John here. I think it's about my trust, which we're just putting in place as we're recording this. So let's take a listen. Hello, Jim, this is John from Minneapolis. Congratulations on setting up your family's will and estate plan. I did the same thing about two years ago, but I've been a bit lazy about changing my beneficiaries to my trust. I was wondering if you could explain how you went through that process. Was it difficult? Did you have to get notarized forms to add a secondary beneficiary of your family's trust? I also have a question about something on one of my 401k plans that is asking if I want to waive what is called the qpsa. I'm not sure if I should waive that or leave that in place. Basically, it sounds like if you die, your account gets put into an annuity that is paid out to your spouse, if that's the beneficiary or primary beneficiary. I'd rather have what the asset allocation is currently in my 401 go to my spouse rather than an annuity. So can you explain if the QPSA should be waived and any other tips you have about setting up secondary beneficiaries with respect to a trust? Thanks for everything you do. Bye. All right, so great question, but I think there's a little bit of confusion, if not in your mind, in the minds of some of our listeners. We're talking about two types of beneficiaries. When you make a trust, there's a trust document written up that talks about the beneficiaries of the trust. And so it's important not to confuse those beneficiaries with the beneficiaries of your retirement accounts, for instance, or your life insurance policies or your annuities or whatever, okay? Because those are set up by the trust document. The beneficiaries of your trust are from the trust document what the trust document says. That's who's going to benefit from whatever is in the trust. However, what a lot of people want to do is they want all of their money when they die to go through the trust. And if you want that to happen, the trust has to be named as the beneficiary. And usually not a secondary beneficiary, usually a primary beneficiary, unless the first beneficiary is your spouse. And then the second to die, it goes into the trust. That happens a lot as well. But how do you do that? Well, it depends on the institution, Right. If you want to change the beneficiary of Vanguard, you log in vanguard.com, you get the text from your phone, you put that in there, and then you're in and you go to beneficiaries and you change it. I mean, that's all there is to it. You just do it online, you hit enter, and you got new beneficiaries. You can change what percentage goes to everybody. It's super easy. Now, every institution might be a little bit different, you know, if you want to change it on your life insurance policy, maybe you got to fill out their form and send it to them. But this is an important part of setting up a trust, right? Because if you don't ever actually put anything in the trust, if you don't rename it so the trust owns it or you don't make the trust the beneficiary of it. You just wasted a lot of money and time and effort on setting up a trust. If there's nothing in it, you're not helping anyone. So that's an important part. You know, it sounds like you set up a trust a couple years ago and you still haven't really funded it or gotten it all set up. Remember, the first part doesn't do you any good unless you do the second part. And that might be if this is a revocable trust and you're just trying to avoid probate with stuff that might mean retitling your house, might mean retitling your vehicles, your boat, whatever. Setting up your will so that anything left over goes into the trust. You got to make sure you take care of all those steps. If you only do half of it, you're just going to leave a mess for your executor to unwind, and everyone's going to be looking at each other going, why didn't you. Why didn't you bother fixing this while he was still alive? He could have saved us a lot of time and effort.

And this is your reminder, whether you have a trust or not, to go in and actually choose your beneficiaries in all your accounts. Because that's a step that a lot of us forget. And then when something happens, and then it's a mess.

Yeah. Because if there's no beneficiary at all, it gets paid to your estate. And that's not what you want. You want especially a retirement account. Right. Because you can stretch these things for 10 more years. You want to go into a person most of the time, or at least you want your trust set up so that it doesn't have to withdraw it all at once. A bigger problem, I think, is people don't change their beneficiary when they need to. Right.

If you get divorced.

If you get divorced, change your beneficiaries. Otherwise all your money's going to your ex. Right. So evaluate those beneficiaries every now and then. What else can we say about trusts?

Yeah. Thank. And his QPSA question.

Oh, yeah, the qpsa. So we had to Google this. We didn't know what QPSA was.

Yeah. It's annuity. So if you don't want it to happen, then don't choose that.

Yeah. If you don't want your spouse to get an annuity, don't choose it. But here's the deal, right? Remember retirement accounts, the general goal, the general guideline, the government has for retirement accounts is you can't screw your spouse, okay? You can't somehow keep your spouse from being protected also by your retirement account. So there's all these things. When you move money out of a retirement account, a lot of times you need your spouse's signature to do it. And so you got to keep in mind that everything to do with the retirement account and how you get money out of it, they're thinking about your spouse. And so this sort of thing is put in place thinking, well, what if my spouse doesn't know how to manage money? Let's put an option in there so they can just annuitize it and my spouse will have an income for the rest of their life and doesn't have to think about it. And so they're coming from a good place with this sort of a suggestion. But if you don't want it to happen, you don't have to have it happen. Your spouse can just roll your retirement account into theirs when you die. It's just a simple rollover. And then they have a bigger IRA or a bigger 401 or whatever. It gets rolled into Hope. That ANSwers the question qpsa new term to me. But it's just annuitizing the annuity or annuitizing the retirement account when you die. All right, so our last question today is another one on estate planning. This one is from email. My extended family has been blessed to have significant success in business. Awesome. The success has brought many complicated trusts, dividends, et cetera. First world problems. That's what we're talking about today. With the dividend trust payments, our financial situation has changed drastically. We want to be good stewards of these blessings, but I also want to live the core tenets of a white coat investor. So the issue I'm having is with the complicated nature of these trusts income and tax implications. I'm struggling to see in a future where we are not tied to the same advisors and lawyers that set this up for our extended family. Do you think I should accept at a point that we need to work with these trust lawyers, accountants and advisors, or should I push on ahead as a do it yourselfer managing this large amount of income? Additionally, I've considered a hybrid option employing a WCI sponsored pay per hour advisor to act as a guide in both dealing with these trusts and the people that come with it. And also continuing to try to simplify and handle our finances myself. What do you think? What do you tell them?

I like the second option. I mean to have someone else look over the situation and just make sure it's not costing you too much money and they're doing a good job. And to continue to try to simplify and handle your finances, your personal finances, while learning about what's going on in the trust. I think that's a great idea. Why not? Right?

Yeah. I mean, I'm a do it yourselfer at heart. I'm not the most hardcore do it yourselfer on the street. That's a pediatrician that lives down the street. Right. But I'm pretty hardcore as a do it yourselfer. And at this point in my life, I have three attorneys. We have an intellectual property attorney, we have a general business council attorney, we have an estate planning attorney. I'm working with a different attorney with my parents for their estate planning planning. You know what? You're not going to be an expert in every trust, every legal question out there. You're going to need to use attorneys at some point in your life and that's okay. Don't feel bad getting an attorney when you need an attorney and pay them what they're worth and get good advice. Don't be penny wise and pound foolish when it comes to that sort of a thing. So yes, I think you're going to need to work with, if not those attorneys, if you really hate them for some reason or you think they're giving you bad advice or you don't trust them, then sure, get new attorneys. But you're going to need attorneys, at least one to help you sort this stuff out. And this is the one that you're presumably parents or grandparents or whatever trusted. Why not start there? That's a reasonable place to start. Same with accountants. If you want to try to do your own trust tax returns, be my guest. If you want to do your own, you know, S Corp returns, yes, they can be done by yourself, but at a certain point you got to go, I've been successful enough. Is this really how I want to use my time? Am I really qualified to do this right? We now have an accountant doing WCI's tax returns every year and they went back and they changed a couple of things. They were trivial things, but a couple of things that I was doing wrong on the S Corp tax returns. And if I'm getting things wrong on them, I know most white coat investors, if they try to do really complicated stuff on their own, are probably going to get some of it wrong. So don't feel bad using an accountant. You certainly have the money for it. It sounds like so do it yourselfing is fine, but don't be a rabid. Do it yourselfer. Get advice when you need advice, and if that means talking to a financial advisor, you know, a classic financial planner, asset manager type to get a second opinion, I think that's a great step. It's fine to pay for some hourly advice for a second opinion. Lots of people do that every year, even though they manage their own assets. Honestly, when it comes to all this, when it comes to preparing your taxes, setting up wills and trusts and that sort of thing, or managing your money, managing your money is the easiest part. Asset management is not complicated. A handful of index funds is really all it takes and you can do that. But don't assume that because you can do that, you can also handle all that other crap too. So I would definitely there's room here to find a middle road and even room to get an advisor just to keep an eye on the other folks and make sure you're not getting hosed. And it doesn't mean you got to pay them 1% of your assets the rest of your life. You can pay somebody a flat fee or an hourly rate to get that sort of a second opinion.

Absolutely.

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