WCI #332: Getting A Financial Plan In Place

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.

This is White Coat Investor podcast number 332, getting a financial plan in place.

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All right, welcome back to the White Coat Investor Podcast. We're recording this almost a month before it runs and by the time you hear this, I will be back from Yosemite, hopefully after a successful ascent of Half Dome next week. We hope so anyway. And while a good portion of the White Coat Investor company is off climbing Kilimanjaro, not me, unfortunately. All right, you are probably aware we have a number of White Coat investor communities. We have a Facebook group. We have the White Coat Investor Forum, which is hosted right on our website. We have the Reddit, which is growing like crazy. By the way, if you love Reddit, come by the White Coat Investor subreddit. It's growing like mad, but we are starting a new WCI community and so I'm going to have our podcast producer, for the first time ever on this podcast, step in and tell you a little bit about our new WCI community. Welcome, Megan.

We are so excited to launch this community. The Financially Empowered Women, or the Few was created to support women on their path to financial success. We, the women here at the White Coat Investor, wanted to create a community where we could come together and learn and build relationships and grow our confidence in this space. Our financial lives are so deeply interconnected with our emotional and mental health and we really wanted to help you make the most of your time, your money, and strike that perfect work life balance. We don't have a lot of other people in our lives who are part of high income households where we can talk about our finances. Candidly, and that is what we really want this community to be. We will have live in person and virtual events. We'll have amazing powerhouse women in the industry come talk to us about investing, taxes, creating a financial plan that aligns with our values, work, life balance and so much more. It's going to be absolutely incredible. At the virtual presentations, once the main presentation is done, we will break into smaller groups where we can ask questions that are specific to us and get answers from colleagues dealing with the same issues. In addition to the live events, we will have a private Facebook group where we can continue our conversations, ask questions and build a community of fantastic, brilliant women. Our first event is going to be on September 26th at 6pm Mountain and we would love to see all of our white coat investor women there. Please join us. Please bring your friends. Sign up@whitecoatinvestor.com Few that's whitecoatinvestor.com Few all.

Right, I hope you are excited about this new group. I hope you sign up for that. Some great things are going to come out of that. We have some awesome guests being lined up. I can't reveal them all because they're not all 100% lined up, but there's going to be some awesome events for the few and I hope those of you eligible to join will join and enjoy that experience. One announcement I've got to make to you today is we just opened Registration. Registration for WCICON 24 in sunny Florida is now open. Early bird registration goes through October 12th. It's going to be a fantastic conference. You can sign up@wcievents.com this is the early bird period so you get a great discount on it and we've got some great speakers coming. Obviously I'll be speaking there. Paula Pant is going to be doing one of our keynote talks there and so if you've followed her over the years that'll be awesome. But we've got our usual tracks. We've got stuff on well being and beating burnout. We've got stuff on finance, both simple and advanced. It's going to be a great conference. It's going to be a wonderful time to get out of the northern cold states like Utah and others will be at that time of year. And to get down to Florida and enjoy that it runs February 5th through 8th, 2024. You can use your CME funds to write it off. If you are self employed. This is a business expense. It is a legitimate deduction so you can pay for it with pre tax dollars. You can sign up wcievents.com look forward to seeing you there. All right, we're going to be doing something new occasionally here on the podcast. We're going to bringing be bringing on what we call Friends of the White Coat Investor, Friends of the Podcast to help answer some of your questions. And these friends are people that you know, that maybe we've known for a long time. Some of them are financial professionals, advisors, some of them are WC icon speakers. Just different people to come in, get new perspectives, new voices on the podcast and help us to answer your questions in a more in depth way and to maybe give you additional opinions. When an area is controversial, it's not a paid sponsor ad, it's not a paid sponsor spot, it's not an advertisement, et cetera. These are what we call Friends of White Coat Investor. So today's friend is SC who you may know as Sarah Catherine Gutierrez. She has spoken at how many WC icons have you spoken at now? Three of them.

Three.

Three. And she is a financial planner, financial advisor out of Arkansas. I've been in her home, it's been a number of years since I've been there and work together in Arkansas. They're helping to educate Doctors, students, residents, etc. And so SC, it's great to have you back on the podcast.

Thank you so much, Jim for having me. It's great to see you again. And if I can, I want to do a huge shout out to my sister and my brother in law who is an anesthesiologist and a big white coat reader. They just welcomed their first son weighing in at 9lbs 12oz just two hours ago. So I am a happy, happy aunt.

So we're going to refer to you as Aunt SC for the rest of the podcast.

That's my name. Aunt Essie.

Yeah. Well, this is pretty exciting. You're also coming out to Utah soon, which I'm pretty excited about. You're going to be running down one of the canyons in my backyard for a half marathon. How did you end up choosing this, this half marathon to run? I mean this is a long way to come from Arkansas.

That's right. Well, while you're going to be ascending, I'm going to be descending. So I'm not sure who's getting the better deal. But yes, a big group from Arkansas is going out there. It's a thing that they do. You know, you can clock a little bit faster speed if you want to qualify for something el else. I'm just there for the ride to have a lot of fun and Utah is where my heart is. I love the beauty of it, so I can't wait to just enjoy the ride and try not to get injured.

Well, September in the canyons here is a beautiful time. The leaves are starting to change. It's still great. Weather hasn't started snowing yet. You're going to have a great time and good luck on your race. I hope you can still walk the next day. It is no small feat to run down 3,000 vertical feet over about 15 miles, so you're in for a challenge, I think.

Well, good luck sleeping on a ledge your first night in Yosemite.

Yeah, I hope it goes well. This will definitely be the hardest climb I've ever done, so it's no small feat. I'll tell you all guys all about it when we record another podcast. By the time you hear this, I will hopefully have already done it, but it's going to be a big deal for me, a climb I've wanted to do for the last 30 years. Okay, let's take our first question. You know, since this podcast is supposed to be about you guys, not about us, our first question off the Speak pipe is about student loans. And there's been I just wrote a couple of blog posts, haven't run yet, but they'll be running either just before or just after you hear this podcast about all the changes in student loans. And there have been a ton of changes. But let's take a listen to this Speak pipe and then try to address this question if we can.

Hi Dr. Dolly, my name is Neil. I'm a first year resident in the state of Georgia doing a transitional year right now. I'll start radiology training in Florida next summer. My wife and I are married with three young children and we have about $385,000 of total student loan debt mixed between my med school loans and some of her undergrad and graduate loans. Right now we make 120,000 together as a married couple. And our question is about this new save plan for student loans. I'm not planning on going into public service loan forgiveness, given the job market for radiology and private practice just pays so much more. But my question is, with the new Save plan, it seems like I can get the best of both worlds even without having to change my tax filing status where I could get 0% interest rate in a low monthly payment at least for this year and potentially next year. Re up and still have a low payment even if I have to change the married filing separately. Is there something that I'm missing here because it seems like trying to refinance with a private lender would get me a really bad deal with still 5 to 6% interest that might balloon up over my next five years of training since radiology takes a long time. Thanks for everything you do. I really appreciate the help.

All right, student loans. I don't even know where to start with this question. Where should we start?

Sc I think we start with, first of all, congrats on staying up on the latest and greatest. I think a lot of times physicians just think, oh, I have student loans. One day I'll repay them with all the money I have. And so looking at this so early on in your career is really phenomenal. And indeed, I think this is extremely exciting. It's extremely exciting for new residents, folks coming into training. I mean, just imagine you have the opportunity to watch your student loans get to stay the same amount versus balloon up, which pre Covid forbearance is what a lot of residents had to watch happen. I mean, don't you think this is a great, great new, exciting development?

You know, the blog post I wrote yesterday is titled how to go to Medical School Almost for Free. And the truth is, and it's a series of changes, right? This is a number of changes starting in 2007 through this year that have been made to the student loan programs. They are incredibly generous. Now, in fact, I would actually argue from a policy standpoint, we've probably now made them too generous. But that would not stop me from taking advantage of them. And I don't think it should stop you from taking advantage of them either. But the truth is done, right, you can go to medical school for dimes on the dollar. Now, you might think medical school costs 2 or $300,000, but in reality, for most people, if you do this right, medical school, less than $100,000. It just does, thanks to Save and all the little tactics you can use to keep your payments down and then getting public service loan forgiveness for the rest. You know, medical school in some respects is cheaper than it has ever been. But you have to understand the plans and the programs and the opportunities to do that. All right, so save. Save is the new thing. This is the new repay. And what are the basics of save? Science.

Yeah. So basically, save is replacing repay. And there's a couple things that are pretty exciting about it. So it takes the percentage that you pay. You know, previously in repay and payee, you're paying, you know, 10% of your of your discretionary income. It's going down to five, five for undergrad.

Right. It's still 10 for graduate, 10 for.

Graduate, five for undergrad. And then if you mix them, they give you a weighted average. Thank you for that. Yes. And then what's really cool too is they increase what they consider kind of the poverty line. So what you're essentially doing is getting a lower payment. And if you think about it, in theory, what this means, especially think about it for a physician just coming into their training, you know, you are literally going to be able to pay, you know, a hundred bucks, a couple hundred bucks, just, you know, a very, very small amount. And the SAVE program is adding in the ability to not accumulate interest. So any unpaid interest is going to be essentially taken away. So you're literally going to have a small payment that counts towards pslf. So even if you are not sure you're going into public service loan forgiveness, you're still going to be accumulating those credits towards afford it very, very small payment with save. I can't, I don't know, a ton of other of incentives to move into a different income driven repayment because of how attractive SAVE is. And so this is just going to be great news. And even people that don't go into public service loan forgiveness, they can use SAVE to get ahead on other financial goals. They can be saving for retirement while they're in training or accumulating a lot of cash so that they can, you know, once they get out, maybe refinance the debt if they can get a better rate, pay off a big chunk of it. So there's a lot of flexibility that we now have because of the SAVE program that we could not be more excited about.

Yeah, this is, this is really generous, right? I mean every, there was all this press, right, about Biden's forgiveness plan that you get $10,000 forgiven or if you had a Pell Grant, $20,000 forgiven. Right. It goes to the Supreme Court. Everybody talks about it. It' talking point. Meanwhile, under the radar Doctors are saving 10 or 20 or $30,000 a year in interest. Now, same thing as during the pandemic emergency where your payments were $0 and your interest rate was 0%. It's essentially the same thing now during residency, right? You're essentially your interest rate is 0% and you are saving how much? If you got $300,000 in student loans at 6%, that's 18 grand a year in interest you're saving or most of it, you'll be paying a little bit of it. This is a huge benefit. It's Incredibly generous. And nobody's suing the Department of Education over this. Nobody seems to care. So great for you. Take advantage. It's awesome.

It is great.

But yeah, I mean, look at this. Your payments are smaller because now they define your discretionary income more generously. Instead of your income minus 150% of poverty line, it's your income minus 225% of poverty line. And, and under repay, half of your unpaid interest was waived. Now all of your unpaid interest is waived. You know, I mean, this is super generous. Of course you want to be in save. If you are single, you want to be in save. If you are married to a non earner, you want to be in save. If you are married to a low earner, you want to be in save. Now, some of you married to an Attending may not want to be in save. It's possible you'll want to be in the old PAY program. But even compared to repay, SAVE has the benefit that you can file married filing separately, which you couldn't do under repay. You used to have to go into the PAY program in order to file married filing separately. Now you can do that under save. The only benefit of the PAY program is that there's a cap on your payments, which usually matters once you become an Attending for people with very low debt to income ratios that are still going for public service loan forgiveness. So it's really a very small percentage of people for whom SAVE is not the right IDR program. So I think that's one of the big takeaways of our discussion here, is if you're like, I don't know, icr, ibr, pay, repay, save. I don't know which one to do. The answer is probably save. You know, for almost everybody, it's going to be save. So if you're not in that program, get in that program. If you're just coming out of medical school, enroll in that program. SAVE is the bomb. It's this great new, very generous program from the federal government because they want to make medical school and really college and education in general a whole lot cheaper, a whole lot easier to do.

Can I just add one more thing really quickly to this? Because this is what I think listeners need to really understand about student loans. There's a lot in finances that you really can put into autopilot. And I think if we have any takeaways, what you were saying about the Biden Forgiveness is that the SAVE program is not as simple to understand as the Biden Forgiveness. And so that's why I don't think it's going in the news, but I also think it's one that people could actually miss out on. And what I think any physician listening to this needs to hear, because I have been seeing this with my own eyes, and I'm sure you've been reading tons of mail on this, is that putting things in autopilot on student loans typically does not yield better results. So it doesn't take a ton to get a good student loan plan. If you don't want to do the work yourself, I think you need to hire someone to do it because especially if you're going to public service loan forgiveness, yes, save is really good. But when you come out into your attending level position, you know, before you get out of the ability to get a partial financial hardship and go back into payee, you need to be able to get back into that program to cap your payments at that 10 year amortization on the student loans. So I think the bigger message here is student loans are extremely complicated and you have to understand them. You can't just put your loans into something.

Yeah, for sure. In fact, a couple of years ago, we realized people just weren't doing it right and we started studentloanadvice.com and that's basically just gives advice about your student loans. That's all they do is student loans. And for one flat rate, they will meet with you, make sure you're in the right student loan plan, show you all the tips that you can do to kind of maximize the benefits of those federal programs, help, you know, if and when you should refinance, et cetera. And you know, I think the average they saved people last year was $191,000. So it's been an incredible value for people to use that. And they're pretty busy right now, as you can imagine. But you can still book consults. Studentloanadvice.com is where you do that. All right, can I be the bad guy? I feel like we gotta address this elephant in the room here. You know, with these generous student loan programs, there's a lot of moral hazard, right? And remember, moral hazard is not an ethical term. This is an economic term. Okay? Moral hazard is when people make different decisions than they otherwise would because of, you know, an unintended consequence of a law or policy. So we have made, you know, going to college and paying for it with student loans so attractive now that there's a lot of downsides to this. So let's think about a few of them. One is that people get really mad, right? Imagine all those people who paid off their student loans, right? And now they see all These doctors getting 200, 300, $400,000 forgiven, right? There's a fair amount of legislative risk when people realize what's going on. The doctors are going to medical school almost for free. So that's one downside of these generous programs. Another one is there's almost no incentive whatsoever for medical schools to keep their tuition down now. Right? Because people can borrow the entire cost of attendance. Most of them won't even, like, think about it, because they just want to be a doctor, number one. But number two, if they're savvy about student loan management, they realize I'm probably not going to have to pay this back anyway. And even if I do, it'll be with dramatically depreciated dollars. And so, you know, this affects people. This affects people who pay for medical school using family money, people that, you know, work their way through or their spouse helped them work their way through, people who are actually paying their loans back, people who go to schools where they couldn't get federal student loans, like Caribbean schools, people who don't match, or people who can't get a PSLF qualifying job. You know, all those people are hurt by this increase in tuition that comes from, from these generous student loan programs. I don't know if you've run into this either, because I don't know how many clients you've had that are medical students, but I have medical students emailing me all the time going, I really only need this much money this year, but they're going to let me borrow this much money. I think I'm going to go for pslf. Should I take it all? And so people are borrowing money they wouldn't otherwise borrow and probably not investing it. They're probably spending it. And so people are living their lives differently than they would because these things are so generous. We also have these other things. We got a few medical schools that are free, at least for people of a certain income. We got MD PhD programs, we got the military HPSP program, we got Indian Health Services. We got the National Health Service Corps. Why would you sign up to go to Iraq for four years to pay for your medical school when you can get it all forgiven via public service loan forgiveness? So I predict that in a few years, all of these programs, these contract programs, these MD PhD programs are going to have a lot more problems recruiting people into their programs because the loan programs have become so generous. What do you think about all these moral hazards that have come from these changes to the federal loan programs.

I think the moral hazards are significant. The interesting thing though, just taking non MDs. So we've, you know, we do retirement plans and so we see a lot of people in hospitals who, you know, work the front desk and have $50,000 in student loans from a college degree they didn't even finish and will never have any hope of actually paying it off. You know, I think that these folks are saying, oh my God, I was sold a bill of goods and what am I ever going to do? PSLF comes around and, you know, they're crying in relief, but they're also saying, I will never ever let my kids go through this. So I do think that the relief is good in a variety of different ways. And I think for people who have actually suffered under the payments, under student loan defaults, I think that's great too. I also hate student loans. Even as much as I love the incentives for our physicians. You know, you can't bankrupt them. I think they're quite un American. I think there. It's a terrible way to do debt. We don't do this in the US like, we don't hold, you know, debt that you cannot ever repay over people like this. So I am hoping that at least on the undergrad level that we are already getting that, that message feedback back that people are not going to just keep paying increasing tuitions funded by student loan debt. On the med school side. Yes. And in fact, I have two med schools where I actually speak to the first and second years and I see them taking out these loans and I'm begging them to set a budget, one that they can use through residency and then into their attending level pay, which minimizes the student loan debt because you don't know what the future is in your first and second years of med school. Like how many people actually know that they're going to go into radiology versus a job, you know, where they're likely going to work at a PSLF eligible institution. I just don't think it's that many. I think it's playing with fire. As you and I have seen, we're seeing debt loads now that are more than one times income. And at that level, you're making very significant life decisions around that debt that you wouldn't have otherwise. And I don't like seeing physicians do that. So I think there are moral hazards around the borrowing. But I do think if we can get enough education to the borrowers that they really don't have a huge incentive to Rack up because of the potential risk that they're not going to benefit from pslf.

Yeah, there certainly is risk there. Not every job qualifies, but there are a lot of jobs that do. You know, if you're willing to go to a different area of the country and, you know, work in a va, work for the military, stay in academia, you know, those jobs all qualify for. For pslf. We need to talk a little bit about refinancing, too. Part of the question we got on the speak pipe was about refinancing. And this is another one of those possibly unintended effects of not only the student loan holiday during the pandemic emergency, but also these new generous rules for pslf, this new SAVE program. This has decimated the student loan refinancing industry. Absolutely. The volume of loans being refinanced is a tiny fraction of what it was just a few years ago. All these companies, I think our sponsor for this episode was SoFi, they're just seeing a whole lot less people. And that's not only because it's more attractive to stay in the federal loan system, but also because interest rates also went up dramatically over the last year or two. So let's talk about when it actually still makes sense to refinance. And I think the first takeaway message that everybody ought to take is if you have private loans, if you have loans that are not federal loans and you can get a lower interest rate, you should still refinance them. You should refinance early and often. And we have links at the White Coat Investor where you get cash back. Currently, we're still giving away our flagship online course for anybody who refinances through our links. It still makes sense to refinance those links. People coming out of Caribbean schools with 10% in student loans, yes, you can still knock off 4 or 5% off your student loans. You're not going to get the 2% that people were getting a few years ago, but it's still well worth your time to refinance. However, I think it is a more difficult decision for those with federal loans.

So I agree with this, too. I mean, we were running some numbers on this as well. You know, we're seeing some refi rates that are really good for our clients right now. And, you know, if you have a 6 or 6.8% federal loan, you know, you're not going in PSLF that, you know, you ruled it out. You're coming out of residency, going into what I call the big doc pay. I mean, you can knock you know, $12,000, $13,000 off a $300,000 loan. It makes a lot of sense in that situation, especially given that we're seeing fixed rates now that are, you know, 5%. Like if, if you can get that five and a half percent even, it still can make a lot of sense. And it's not just for five year loans, we're seeing them for 10 year. The other thing too is I'm starting to see some physicians who, you know, kind of accidentally have gotten into some credit card debt. And you know, we're seeing a lot of lifestyle inflation. That's happened during COVID That was really unintentional. Just, I mean it happened to me. It is really serious just how much things cost more. Right. And, and so we've seen some physicians get into some credit card debt and I was working with one yesterday and we realized, gosh, 30,000 in credit card debt. Let's look at, you know, one of these personal loans. Like so I think that that's also something that people need to realize, like don't let that, you know, sit there. It pay that interest, the 19, 20 to 25% interest month after month after month. Really, really knock that down as quickly as possible.

Yeah, absolutely. I mean, a lot of people just don't realize what a debt emergency looks like. And when you've got debt that's 10% plus, that is a debt emergency, right? I mean that money is, that debt is doubling every seven years at 10%, you know, at 20% is doubling every three years. You know, I mean that is a fantastic guaranteed return to pay back at 10, 20, 30% loan. So it still it makes less sense to carry debt now that interest rates are higher than it used to. You may be more likely to pay on your mortgage, more likely to pay on your student loans, more likely to pay on credit card debt rather than invest. As a few years ago, people struggled all the time with do I pay back this loan? I've refinanced to 2 or 3%. But to the questioner's point, right? It basically didn't make a lot of sense before to refinance federal student loans during residency. You are generally better off in repay than you were refinancing those loans at the beginning of residency. Not everybody, if you're married to another high earner, that's not necessarily the case. But for most people, that decision for your federal loans happened when you left residency. Or maybe if there's a lag in certifying your income a year after you left residency or Fellowship. But that's probably still going to make sense for a lot of people that are paying back their loans. Going from 6.8% or as loans go up now because they'll be higher next year for borrowing medical students to get that down to five or five and a half percent, that's still a good deal to knock a couple percent off your interest rate. All right, well, I think we spent enough time talking about student loans. Let's get on to our next question here. The next one I think is about HSAs and down payments.

Hi, Dr. Dali. My name is Chip. My partner and I are both early career psychiatrists. We are in weekly psychotherapy and currently pay out of pocket for these sessions. We are also saving to purchase our first home in the next few years. Our high deductible insurance plan comes with an HSA account. Should we use the money from the HSA account to immediately pay off these sessions and save separately for a home in our money market account or pay out of pocket for the sessions now and pay them off in a few years using the HSA funds? Thank you for all you do. And we are both avid listeners of your podcast. Thank you.

All right, this is one of the downsides of the speak pipe format, right? You can't ask follow up questions. You get the information you get and you got a riff off of that. What advice would you give in this situation?

Okay, so this is, this is so common. Okay, I have fallen into the HSA trap and let me just explain. First of all, to make sure that everybody's on the same page of why this caller has a just a great understanding of the dilemma that he's in. So when you open an HSA, it's not like the old FSAs where you put money in and you lose it. HSA, you put money in, you get a tax deduction. And the government doesn't have any time horizon where you have to spend it. So you have an advantage to keep the money in there, particularly knowing that as long as you use it on health expenses, when you take it out, you pay no taxes, then you owe no taxes. And then if you put the money in investments over time, you also don't have to pay capital gains tax when you take it out. So we call that a triple tax advantage. So what happens is, is you're, you think, oh, this is great. You know, I'll put money into the hsa and that's awesome. Maybe one day I'll have this nice little nest egg in retirement. But then you start paying health expenses. Out of pocket. And I think that there's something that lights up in the brain that tells us, like, alarm, alarm, alarm, like, this is too much money. I'm. I'm having to pay up to $1,500 on my high deductible healthcare plan before my insurance kicks in, or in my case, you know, $4,000 or $6,000. And so it feels so bad that you want to look to your hsa, even though you kind of have this vague notion that, you know, it's kind of good to keep the money there. So this is what I would recommend to the caller and to anybody on here. If you have an HSA strategy where you're taking advantage of this triple tax advantage, you are essentially putting money into your retirement plan. It's part of your retirement nest egg. And so you really want to avoid using it as much as you can, and you want to keep funding it at the maximum levels that the government allows every year. And so what's difficult about this is that, yes, you then have to put those sessions, the costs, into your budget. And so the way I do it, and if this is helpful for folks, I create my own savings account next to my checking account, and I just auto deposit, you know, 500 bucks or more every single month into that account so that when my, you know, kid has strep throat and we end up in the emergency room like we did last month, and I get a bill for a thousand dollars, then the money is sitting there and I'm less tempted to go out and use it. It's very, very difficult to move from the FSA where the government is like, you better spend this or you're going to lose your money to this different system. And I think that's why our wires are crossing when we're not sticking to the course on the hsa. So if you can, I would say, put off the savings on the house or lower the savings in favor of this HSA and stay that amazing course that you originally set out.

All right, I'm going to push back on this one a little bit because there's really two schools of thought here. First of all, we got to explain a few things. With an HSA, right? If you take the money out before age 65 and spend it on something besides health care, you not only have to pay taxes on it, but you have to pay a big penalty. If you take it out after 65 and spend it on something besides health care, you don't have to pay that penalty, but you do have to pay taxes on it if you take it out at any time and spend it on health care, then you don't pay the penalty, you don't pay taxes on it. But obviously the longer you can leave it in there to benefit from this tax protected growth, the better. So there's really four things you can do with HSA money and the first two are obviously worse than the last two. All right, the first one is take the money out and spend it on something besides healthcare before age 65. That's clearly a bad idea. Don't do that. A second option is to take money out after age 65 and spend it on something besides health care. Not ideal, but it's no worse than your 401k or your IRA. This is a stealth IRA for you. This is not a terrible thing to do with your hsa, but it's not ideal. Ideal is to spend this money on health care so you get the full triple tax free advantage. So that leaves you the two options. Right. And Sarah Catherine's preference is that you leave the money in there. Yes. You save your receipts so that any money you spent on healthcare you can then take out later and spend it on a sailboat or whatever. Tax and penalty free. Right. But mostly you're trying to keep the money in that account and you're spending your taxable money or your general earnings, your cash flow on your health expenses. The other option is just spend as you go and what you don't spend stays in there and multiplies over the years. This has the advantage of not having to keep track of all those receipts. Right. Not having to worry about having this massive HSA in retirement that you're not sure what you're going to do with. Let me tell you about my HSA and why I think about this problem. I have $160,000 HSA. $160,000 HSA. Right. Because I've just been putting the maximum into it for the last 15 years and never took any money out. And I'm doing a kind of a crappy job keeping track of the receipts. Let's be honest, I've got receipts, but I don't know that I have all the receipts. Right. I'm not doing a great job tracking them. And this is the worst account to leave to your heirs because when your heirs inherit your hsa, it is all taxable income at their ordinary income tax rates. When they die, when you die in that year, it's all in one year, the whole thing. And so this is not awesome to inherit. So it's fine. If you're charitably inclined and your plan, anything you don't spend on healthcare and retirement is to leave to charity, that's fine. But if that's not your plan, then you want to have this money spent before you die. And if you're starting to get a really huge hsa, it's okay to spend it as you go along. I don't think you should feel bad that you're using your HSA for what it was designed for. And it certainly is a lot less hassle than keeping track of all those receipts for many, many years because you might not have enough expenses in retirement to spend a 3 or $400,000 HSA in retirement and then you end up with this less than ideal account to leave to your heirs. What do you think? Did I convince you?

Sc no. No you didn't. So the majority, like the biggest expense in retirement is healthcare. I mean it is, it is literally like one of the biggest swing factors in budgets. So even if you didn't save your receipts, I think there's a really good chance that you would end up with, with enough expenses for an hsa. And, and you know, it's so funny, it is pretty shocking to hear the amount in your HSA. I've got about 60 in mine. I thought that was a lot from doing this strategy. But yes, I mean, I guess there's some point where maybe you stop saving into it and just use it.

That's the case. There's no point in stopping saving. Right. Because at worst it's a stealth IRA or you use it for your charitable bequest. I don't think it's, I'm not, I don't want to tell people, don't put more money in your hsa. I'm just saying maybe it's okay to spend it on health care.

But you know, saving. And also saving receipts is not crazy anymore. So a lot of these companies do make it easier for you just to upload them. I actually have just an old fashioned file or I just throw them in and I just note when I paid them. But you know, it's if you have like an easy to adopt system where you're not having to do anything really arduous. I also think that, you know, we believe in really good processes and systems that don't require much thinking at all. And so maybe adopting something like that could also help mitigate the risk.

Yeah, for sure. I need to systematize it better because your file idea seems great until you go back in there five years later and you realize all those receipts, the ink fades on them, so it's gotta be electronic. If you're saving receipts, you've gotta scan them in or take pictures, keep a file on Google Drive or whatever. You gotta have a system. I know some of the HSAs or automatically build this into the HSA. I don't think mine at Fidelity does. I don't think they have a system for saving receipts, but I know some of them do. I think Lively does where they help you save the receipts.

But I think my old one at HSA Bank, I think allowed us to do that there. And now you have me freaked out. Now I'm going to go look at my oldest receipts and see if they're starting to.

Yeah, maybe I just don't do a good job taking care of receipts. You know, this is an ongoing issue for me.

Do you keep them in the sun?

Yeah, I just lay them out on the driveway. I don't know why it keeps disappearing, but. All right, let's get to our next question. This one is by email and they ask. You won't like this, but I don't have a written financial plan yet. You're right, I don't like that, but surveys show about 50% of white coat investors don't actually have a written financial plan. The questioner continues. I've started working on it. I've listened to many of your podcasts and read many blogs and really value your suggestions. I have an extra $200,000 in cash, extra in cash, and I'm thinking about investing it. That's probably a good idea. As we know the current market situation is not great. Stocks, bonds and real estate are falling. Did I miss something? Because stock market's up like 14% year to date, but bonds have not been awesome. They've been okay this year, but were terrible last year. And real estate certainly has its challenges. At any rate goes on. Usually bonds have a long bear market when the Fed raises interest rates. Okay, well, if they keep raising them, that's certainly going to impact bond prices. Should I divide $200,000 in 12 and invest each month with the plan of investing more when the market has a larger drop? Like invest $10,000 each month and add $5,000 or $10,000 more if the market has a large drop. What would you do if you had to invest $200,000 in the current market? I'm aware that you are not a financial advisor. Well, I guess that only applies to me, but I value your opinion more than a financial advisor. Well, how about we give you an opinion from both. All right, who wants to go first? You want to go first on this one, Scott?

Sure. So I say don't do the financial plan. It sounds like you're paralyzed by it. Sometimes in finances, perfection gets in the way of progress. And so what I want to emphasize here is that a financial plan is great. It's great for goal setting, it's great for figuring out how much you need to save in order for you to retire at a certain time, for creating your own personal investing statement, whatever. But really in the end, it's the financial planning process that's going to bring you value. And this just like I was talking about the hsa, you need a process more than you need a plan. If you were to write a financial plan and have it be successful, 90% of that financial plan that is important is being able to see spend less than you make. That is what eludes so many physicians. And so I just want to take a minute to say first of all, congratulations, like you are executing on a financial plan whether you realize it or not. Now if you're 50 years old and you have $200,000 in savings, you know, from a 15 or 20 year history, you're probably not saving enough. But let's say you're still pretty young and you're, you're maxing out your retirement plans and if you were to add the trailing 12 months of deposits into your retirement plans and you know, in these savings deposits and you divide that by your trailing twelve month income and it's more than 20%, then I would say pat yourself on the back. Like that is really, really great, hard to do. That is the majority of a financial plan right there. But then you've got the next hurdle, which is the easiest one. When we have people who come in and their big problem, it's a very high quality one, is I've got cash laying around. That's fantastic because now all you need is a good system in place for getting that money out of there, getting your brain out of the investing game and just dollar cost averaging all of your new dollars, in this case existing dollars, into the market. I liked your original plan. Divide by 12, put that money, automate that dollar amount into a brokerage account. If you use mutual funds, you can even automate the investing, get it in there, but at the same time have all new money coming in there at the same time. And Jim, I'm sure you have an opinion on trying to guess market cycles. I have an opinion on that. It can't be done it really can't. You know, even people who do this all day long really can't do this well. And the data supports that. And so the fact is, is that anything we think is happening bad in the economy, the market knows and it's priced it in already. So what you're trying to do is not Invest for a 12 month horizon. You're investing for a decades long horizon. So your goal is to get that money working for you as quickly as possible, but also as behaviorally the way your brain can behaviorally tolerate it. So obviously it would be better if you just threw the money in now, regardless of what's going to happen in the market. But a lot of people have a hard time tolerating that. And so if you just set your clock, the 12 month one, get it in over 12 months, I say congratulations, that's a fantastic financial planning process.

I agree that this questioner should be congratulated. Having $200,000 in cash is no small accomplishment. I mean, if I brought you on the Milestones to Millionaire podcast, I'd be screaming how awesome you are and how we can use your example to inspire others to do the same. Lots of people retire with less than $200,000. You know, you're wealthier than the vast majority of people in the world and many, many Americans just by having that $200,000. So con on that. But I'm going to push back on this. I think it's really important to have a financial plan, and I'll tell you why. Because this dilemma you have, I would have every single month. Now, it might not be $200,000, it might be 5,000, it might be 10,000, it might be 100,000. It just depends on what kind of a month and how much money you make. But every month you've got this dilemma. I got cash because I live on less than I earn. What should I do with it? And when you have a financial plan that tells you I am putting 25% of my money in a US total stock market fund and 20% in real estate and 20% in bonds, that's just what I'm going to do every month. When you have that plan, you don't have this question. Because every month I have cash to invest and I invested according to my written financial plan without regard to whether stocks are going to do well in the next few months or bonds are going to do poorly in the next few months. I don't know what's going to happen. So I need a plan that doesn't require me to know that in order to invest. And if you have a plan that requires you to know that and you don't know that, you're going to be paralyzed and you're going to be sitting on $200,000 in cash, not knowing what to do with it. But behaviorally speaking, your fear is that you're going to lose money. You're going to put a bunch of money into the stock market and then the stock market's going to drop 10% next month. When you really dive deeply into your psyche on this issue, that's what you're afraid of. And I want you to quit being afraid of that. You need to just get rid of that fear. You are not investing this money for next month, you're not investing it for next year. This is money you won't be spending for 20, 30, 60 years. It's not going to be down in 60 years. I promise it will be up in 60 years. Okay? So even if it drops right the day after you invest it, you're still going to be okay because you're not investing it for tomorrow, right? If you needed it tomorrow, you'd leave it in cash. You need it in 30 years and it's not going to be down in 30 years. So put it into stocks, put it into bonds, put it into real estate. People are afraid to put money into the market when the market goes down, right? Because they're like, oh, the market's probably going to keep going down. It's been going down. People are afraid to put money in the market when it's at all time highs, right? Quit looking, who cares? I promise it will be worth more in 10 or 20 or 30 years than it is right now. I don't know how much more. Maybe you'll only get 2% returns over the next 10 years. Maybe you'll get 12% returns over the next 10 years, I don't know. But in the long run, you're going to make money. Quit being paralyzed by this fear of short term loss. Get your money invested at least your long term money. Get your long term money invested and quit being fearful about short term loss. That's why I think, you know, when we get into this dollar cost averaging versus lump summing, I'm a huge fan of lump summing for just that reason, right? If you believe the market goes up most of the time, you want your money in the market as soon as you can. And the soonest you can is lump sumning. Because even if you dollar cost average this big sum of money, you have over six months or over 12 months or whatever. At the end of that six months or at the end of that 12 months, all your money's in the market. It's all in there. And if you're not afraid of having it all in there, then why are you afraid about having it all in there now? It doesn't make any sense. This isn't logical. But if it makes you feel better and actually gets you investing, fine, spread it out. Over 12 months, it's better not investing it at all. But I think it's definitely an inferior solution to lump summing. So I would encourage you to get a grip on your emotions, get a grip on what your real fears are about investing and just lump sum the money in. That's what I'd do with it. If I had $200,000 in cash, that was long term money for me, it would be invested tomorrow. It really was not convinced. I mean, what do you do? If you, if this were your $200,000, right, that you just inherited, let's say you inherited it, right, Would you spread it out over 12 months or would you invest it tomorrow?

I'd invest it tomorrow. But the thing is, that's obviously the best financial decision. But what we're talking about here is getting over the hurdle to take action. So what if he's listening to us and he's like, okay, I'll do the lump sum and then it's like, okay, next week. And then next week, you know, puts it off, but then, you know, alternatively saying, okay, let's just do 10,000 and that gets you to do it today. And then you set up an automation that on the 18th of every month my checking account is going to shoot this money into my brokerage account. I won't even see it. And it's going to automatically invest those mutual funds that you talked about. Maybe that's what he needs to get over the hurdle. So I, you know, I'm really in the scheme of things. You know, I'm not sure it's going to really have a huge financial impact one way or the other. And if it gets you to take action, I am all about what can you do to take action, which is why I love financial plans. My God, I'm a financial planner. But if a financial plan and writing the perfect plan is standing in the way of action, then why not just start taking some action, get some positive momentum towards that action, learn a little bit about yourself along the way and let that kind of inform your financial plan. So I think it's I think we've got somewhere that's, that's closer to us agreeing on where he's going to land. But I just believe in just a little bit more kind of immediate action. Whatever you have to do to get over your brain hurdles is what I would do.

Yeah, I agree. Getting moving is what we need to do here. And if DCA dollar cost averaging this lump sum in over a number of months gets you moving, that's great. But I agree. This is someone who would really benefit from an automated investing plan. You know, that money going in without looking at it, without having to worry about what the market's doing. And then you pick your head up in a couple of years and you're like, wow, I'm wealthier.

You know, and, you know, he's probably already doing that. You know, he's probably already doing that in his retirement plan. A lot of people don't think of retirement plan as your own investing, but it really is. The money is coming out of your paycheck, and it's every single month going into that account and buying. And so what I was also suggesting is not just having that plan for the old money, but if you know that you're going to have an additional $5,000 after you've, you know, maxed out all of your tax advantage savings just sitting in a savings account, have all 5,000 of that transferred out automatically. Automated. You can literally set this up with Schwab, Fidelity Vanguard. They'll pull. Pull that money for you, and then they'll make the investments and you never even see the money.

Yeah, I think that helps a lot of people that are having trouble getting over the hurdle of investing for sure. Because it's a chore. It's a chore for me to go in every month and invest the money. It's like, okay, I gotta figure out what's been lagging. Where's the money gotta go? How much am I putting the orders? You know, it's a bit of a pain. There's some real benefits to automating it. Okay, our quote of the day today comes from Margaret Bonanno, who said, being rich is having money. Being wealthy is having time. Ask yourself, would you trade places with Warren Buffett? I wouldn't. I wouldn't trade places with Warren Buffett. I'd be dramatically wealthier as far as money goes, but not necessarily as far as time goes. Would you trade places with Warren Buffett? Sc.

No, no. Time, time, time.

Time's valuable.

That's it.

All right, our last question today is about Defined benefit plans. And you know, most of the time when we're talking about these with doctors, we're talking about cash balance plans. But let's see what they're talking about.

Hi Jim, my name is Ben. I'm an anesthesiologist in Arizona. My small practice has a defined benefit plan that allows almost unlimited contributions. It also allows this money to be invested in a self directed manner. And it's not limited to a certain stock bond ratio. I can place it into my choice of brokerage. I use Vanguard. Some of my partners are putting 150k a year into this plan and I'm becoming a partner this year. I plan to do the same. Does this sound too good to be true? All the other defined benefit plans I have heard about have much more limitations. We have an actuary and an account manager who's the fiduciary for the plan. And our practice has no other employees, just the partners. Thanks for your help on this question. Thank you for all you do.

Wow, there's a lot of red flags with that plan. First of all, what's a defined benefit cash balance plan? This is like an extra 401 masquerading as a pension. So it has to follow the pension rules, but it can be invested, you know, stocks, bonds, et cetera. And what most people end up doing with these is after 5 or 10 years or whatever, for whatever reason, they find an IRS valid excuse to close the plan and they roll the money into their 401. That's what most people are doing with these big defined benefit plans. Why the contributions can be higher is because they're actuarially determined. And so they're often higher for people in their 50s or 60s and maybe not so high for people in their 30s or 40s because it has to act like a pension due to all these pension rules. And so the contributions are definitely not unlimited, particularly if you're young. Maybe if you got a whole bunch of older partners, somehow you're sharing the same plan. But you know, that makes me worry a little bit that somebody that's young and early in their career is allowed to contribute $150,000 into their plan. Just by comparison, the people in my plan that are just coming out of residency are allowed to put 5,000 or $7,000 into it. Our previous plan, they were allowed to put $30,000 into it. 150 is a big contribution into a defined contribution plan. So I worry about the validity of this plan from that aspect, not even talking about the investments that are allowed in the plan. What worries you about this plan?

SC yeah, I would just be worried. So the devil's always in the details on these plans. And so I echo a lot of what you've said. It is possible that you can put quite a bit into the plan by not having any non highly compensated participants. That's going to help with discrimination testing which often does lead limit what partners can put in. Also limits the cost of it. So it's a really, you know, potentially good setup because it is only partners that are participating. But I just really think that's a lot of money and I would not go into this without an independent person who is not making any money on this, administering this plan to be able to ask the right questions and be able to look at, you know, what kind of plan it is, how it works, you know, why you should trust it and go from there. So you know, hire a flat fee advisor, you know, someone who can, you can just pay by the hour, by the, the engagement.

Yeah, yeah. And we're talking about a retirement plan expert here, somebody who sets these things up. Here's the deal with the investments, right? A defined benefit cash balance plan is generally invested pretty conservatively. In fact, putting it into Even like a 60% stock, 40% bond portfolio is considered, you know, pretty out there for a defined benefit plan. And we're talking about this just being self directed by the participants. They can invest it in Ethereum and Bitcoin and real estate futures and Apple stock and whatever, right?

Yes.

I mean the problem is if your investments lose money here, the company has to put more money in. The company in this case is you. So that might not be such a bad thing for you. You may not care if you got to contribute another $200,000 this year into this plan because of investment losses. But that is the risk is that you got to come up with this cash and put it in the plan. So as a general rule, what people do that have 401ks and defined benefit plans is they invest the 401k a little more aggressively and they invest the defined benefit plan a little less aggressively. That's where their bonds tend to be and they're less aggressive allocation. So this idea that people can just invest it willy nilly, this would make some of the people that set up these plans that are on our recommended list go ballistic to see a plan like this, I can tell you that. So I think what I'd do is I'd go to our retirement plan page, talk to a few of those people about your current plan and the risks of doing it the way you were doing it because I think they are not insignificant in this case. Yes, everybody wants a huge contribution. Right. But you can save all this money on taxes, but you got to do it right too. And I worry this plan is just way too aggressive. All right, well, it has been great having you with us SC to talk about these listener questions and to offer a different perspective than I often have. I'm not going to call it an argument, but I think it's useful. It's valid to have more than one perspectives on especially controversial questions. And I like controversy. So we try to make things as controversial as we can sometimes. But it's been great having you here with us and I wanted to wish you all the best on your training for your half marathon. How many half marathons have you done?

3.

3. So this is old hat for you.

Well, not running all downhill, so. And I wish you the best too on climbing Half Dome. That is quite the lifetime achievement.

Yeah, hopefully. Hopefully it all goes well. But thank you so much for being with us today on the podcast.

Yeah, thank you for having me.

All right, well, that was really fun. I enjoyed that a lot. We're going to try to do a few more of those with various friends of White Coat Investor. Let us know how you like them. Obviously we like negative feedback in private, so send us an email editorwhitecoatinvestor.com if you don't like this format for some of our podcasts, you can use that method too if you do like it. Or just give us five star reviews. Our most recent five star review said. And this one comes from Tactical Magic Said. Best financial podcast period. I've been listening to the podcast for years and can easily say this is the best financial podcast out there. Objective, carefully researched and accurate. Whether you're an md, an MBA like me on the path to fi, or just trying to figure out whether the whole life insurance policy your brother in law's friend is trying to sell you is a good idea. The White Coat Investor is the best place to start. Thank you to Dr. Dali and your team for everything you do. 5 stars. We appreciate that review that helps us to spread the word about this podcast. All right, don't forget you can sign up for the Financially Empowered women, our new WCI community, whitecoatinvestor.com few F E.

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