WCI #365: Disability Insurance with a Friend of WCI

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 365, disability insurance with a friend of WCI.

Did you know that the White Coat Investor not only has a podcast and a blog, but but several books that will help you on your way to financial independence. These books cover topics such as asset protection and minimizing your taxes to keep.

More of your hard earned money.

They discuss plans for insurance, housing spending, student loan elimination, investing and estate planning. You can learn how to become a millionaire within five to 10 years of leaving residency and how to invest in a sensible, low cost and effective manner with or without the assistance of a financial advisor. There's even a book geared directly toward medical and dental students so you can start optimizing your finances early in your professional journey. Find the book that is right for you at the WCI store, at shop.whitecoatinvestor.com or on Amazon. You can do this and the White Coat Investor can help.

All right, welcome back to the podcast and thanks so much all of you out there for what you're doing today. We're doing another Friends of WCI episode. I'm here with Tyler Scott. Welcome to the podcast, Tyler.

It's an honor and a tremendous excitement to be here. Thanks for having me.

Well, we're pretty excited to have you here. I should introduce Tyler. I've known Tyler for quite a while now actually. Tyler happens to be married to our podcast producer. However, he is a dentist by training, currently works as a financial advisor. We'll get into some more of his story about how he started doing that later in the podcast, but he's also been a speaker on the panels at wcicon. He's been doing columns for WCI for the last couple of years. You've likely read some of his columns and so he's what we call a friend of wci. And so I thought it'd be fun to get him on here, especially given his, you know, newer expertise since he transitioned careers. And he will help me to answer some of your questions here on the podcast. But before we get into that, I want to talk you about some an opportunity that you have and it's a great opportunity and I hope you take us up on it as well, Tyler. But we are opening the call for speakers for WCICON 25. This is going to be in San Antonio February 26th through March 1st is when the conference is in San Antonio.

All right.

But if you want to speak at the conference, you have to apply. It's actually competitive. We had like 250 talks submitted last year by, I don't know how many possible speakers, 150 speakers or something. So you can apply to speak for this@wcievents.com is where you can sign up for that.

All right.

We get lots of applicants, obviously, and we're only going to be selecting about 30 speakers or so. And so the way to actually win, to actually become a speaker at wcicon is, is not to just submit one topic because we already have somebody else doing that topic that we think is going to be awesome. We're not going to pick you to do it too. But if you put in for three or four or five topics, your chance of being selected is much higher. So we do encourage you to submit.

For all the topics that you can.

Speak as an expert on that you.

Think would go well at WC icon.

So don't just speak experience WCicon with your full registration included. Come and really be a part of this three day experience. We'll tell you in August. If you're notified, we'll announce it to.

The public in September. And shortly after that, the tickets will go on sale again.

For it again, sign up wcievents.com all right, Tyler, this is a great opportunity. While we have you on here, I thought to talk about disability and disability insurance. And I mentioned before we started recording, I think we've had the wrong message for the last 12 years at WCI, we spend lots of time getting into the weeds about disability and why one.

Rider should be included, one rider shouldn't, and how much you should have and exactly what company it comes from.

And I don't think we've spent enough time telling people they need something in place, they need disability insurance. This really does happen. And so maybe what we ought to start with, Tyler, is let's have you.

Talk a little bit about your personal.

Experience with disability insurance, then disability and then using disability insurance. So let's have you start by kind of telling your personal experience with that. And I think that'll get the message.

Across a lot more than a more academic discussion.

Yeah, absolutely. So, yeah, as you said, I started my first professional chapter as a dentist. I graduated from Oregon Health Sciences in Portland in 2012, and my intention was to be a dentist my whole life, like most people. And I had a disability insurance policy that I bought right after dental school from principal and the original benefit was $4,000 a month. And I continued to utilize my future benefit increase writer for the first several years as my income started to grow and eventually at like in my early 30s I got our family was growing in size and these increased benefits came with increased premiums and so that started to eat up more and more of our free cash flow. And I was an invincible 33 year old dentist. Nothing could possibly happen to me, super healthy. And I wanted to stop giving so much of my money to the money grubbing insurance companies. And so you know, I stopped utilizing my future benefit increase rider only to find out a couple years later that with principle at least if you don't exercise that rider for a couple years, you don't ever get to exercise it again. And that wasn't a problem because there was never going to be an issue. I was going to be a dentist for 30 more years. Well, fast forward a few years and I'm 37 years old and suddenly I'm experiencing tremendous and worsening back problems. And some of that is normal for a dentist, right? We're not the most ergonomic bunch and some neck and back pain is normal, but this was really bad and it was worsening rapidly. And so I drug my feet to get my medical work done. But as as many my, my good wife Megan encouraged me to, to go take care of myself. And eventually I saw a provider and we got imaging and found out that I had a degenerative back problem. I had the lumbar spine of an 84 year old and it was deemed that I could not perform dentistry safely for myself or to my patients. And at 37 years old I found myself very suddenly filing a claim on my long term disability insurance policy. And I'm happy to talk more about that story and how that unfolds. But the big picture is that to be frank, I liked dentistry just fine. I didn't really love it. I was picked it like I think many of us early in my 20s as a career and I looked around my community, I met other dentists and they seemed like they had a good life. I didn't know that I was signing up for over $300,000 of student loan debt at 7%. I didn't know that the macroeconomics of dentistry had changed significantly since my peer group had advised me to go into that field. And the actual lived experience of being a dentist just wasn't everything that I thought it would be. And so I was burning out. My lumbar spine matched my cognitive condition in many ways. As it related to dentistry. And so I had started experiencing this during COVID where the dental clinics were closed. The back pain was bad. And during those three months when I didn't go to work, my back pain was a lot better. Turns out, not doing dentistry really helped me not be in as much pain. I was much happier, I was a, I was a better husband, I was a more engaged father. And the seed was planted in my mind that maybe dentistry isn't for me forever for a number of reasons. And it was really my friends, my anesthesiology friends, my radiology friends who got me thinking about doing financial planning. They're the ones who told me, hey man, you've helped me get my student loans figured out. You've helped me optimize my backdoor roth and my 401k. You've explained that stuff to me in a way that's more clear than my financial planner ever has. And you could really have a future in this, particularly given that you lived the life for so long. And I had been a white coat reader since I graduated dental school, so you know, I had a sort of self taught basis of knowledge and it didn't. I used that time during COVID to go back to school. I enrolled at Cal Berkeley in the certified financial planner coursework. Loved it. It filled out a lot of my understanding I had learned from you, Jim, through the years. And then my goal was to just do financial planning as a hobby, maybe a side hustle, a little extra income. And with the idea that in time maybe I do part time dentistry and part time financial planning. And so I just, I cold called a bunch of CFPs in my little town in Medford and asked them if I could do free financial plans just for my friends under their supervision. Because you need 4,000 hours or 6,000 hours of supervised work to become a CFP. And I found someone who said they'd let me do it. And so I started doing plans for a few people in town and for my buddies in dental school. And I just loved it. I just absolutely loved it. I had taken my Series 65 exam previous to this, so I was legit and just found this passion. And that all coincided with the worsening of the back pain. And so once I made the successful claim on my disability policy, I took that opportunity to also change careers and to step into something that I feel is a better fit and something that I have absolutely loved these past few years doing.

So you bought a policy. The typical type we recommend here, an individual policy, specialty, specific, own occupation, policy and then basically got a disability that kept you from doing that specialty, but obviously doesn't keep you from doing any work at all. And so now you collect the disability and.

And you're paid for your other work.

Exactly. Yeah. That is the beauty of an own occupation policy.

Right.

Once my doctors and the doctors at principal agreed that I could not perform the acts of clinical dentistry, the root canals and the crowns and the fillings, I started receiving my $7,000 a month check. And now I don't make as much being a financial planner as I did as a dentist. But that's okay because I get my disability benefits paid to me each month and that helps fill in the gap and gave me this sort of safety net, this opportunity to transition careers.

Do you wish you'd bought more disability insurance?

I really do, yeah. So the one of the mistakes I made is I got cheap with my premiums. Right. I felt the squeeze as a dad with young kids, and Megan wasn't working at the time. So seeing my benefit increase was great, but seeing the premiums increase was really painful. And so when I stopped utilizing that future benefit increase rider, that ended up being a $2 million mistake.

Right.

I'm very grateful for the $7,000 a month tax free that I received from principal. That's adjusted for inflation. And if I would have continued to utilize my increase rider, I'd be getting maybe 10 or $12,000 a month tax free. And when I started collecting in my late 30s on a policy that pays out till age 65, and when you account for the adjustment on inflation, I made a $2 million mistake because I didn't want to pay an extra $800 a year in premiums.

You know.

You know, I mentioned earlier, we're trying to make sure our messaging is really where it needs to be for all.

Of you out there, all the White Coat investors. And, you know, we've done a lot of work on disability insurance in the last year here at the White Coat Investor, we've tried to make sure, number.

One, that we make it as easy as possible for you to get disability insurance, and number two, made sure we got the very best quality folks with the best training selling you those disability insurance policies.

So we're collecting a little bit more.

Information on you and we refer you out to them, but we're also collecting a lot more information on the work being done on your behalf, and that.

Allows us to increase the quality for that.

But as I see the numbers of people buying disability insurance, I'm shocked how few doctors are doing it because I know the referrals we send from the white coat investor are a pretty big deal in the industry. And it's not that many. I mean, there's 30,000 docs coming out.

Of residency every year, you know, between.

Dentists and physicians and similar docs. So I figure probably half of them at least need to be buying an individual disability insurance policy. And with the insight I now have into the industry, that's not happening. It's not even close. There's a lot of people out there who need insurance who aren't buying insurance. So I just want to emphasize to.

You, if you're one of those people.

Out there and you don't have a solid plan to rely on your spouse's.

Income or something, or happen to have.

A particularly good plan through your employer.

Which most people don't, even if they have an employer provided disability insurance.

And you're just thinking, this isn't going.

To happen to you.

That's too big of a risk for.

You to be taken.

This is your most valuable asset, is.

Your ability to turn time into money at a very high rate, and you.

Need to insure it. So as part of that, if you're out there and you're living on your disability insurance benefit or you are disabled without disability insurance, I'd like to hear from you. I think it'd be nice to bring a few people on the podcast, whether.

It'S the regular episode or whether it's.

The Milestones podcast, to actually point out how frequent this happens. I've met lots of people over the years who have been disabled as doctors, and it's not uncommon at all. But I think too few of us actually know somebody that has happened to. So if that's you, I'd like to hear from you.

You can email us edgaritecoatinvestor.com and we'll figure out a way you're comfortable with and sharing your story on podcast or blog, et cetera.

All right, I think we've teed up our first question from a listener here pretty well, Tyler. So let's start with taking a listen to that.

Hi, Jim, this is Emil. I'm a radiation oncology physician in the Midwest. I'd like to thank you for all you do. You turned me from a financial illiterate to someone who feels relatively comfortable in about six months. My question pertains to disability insurance. My wife and I are both radiation oncology physicians, making about $400,000 a year each, and we have disability through work, up to $5,000 a month. Given that we're both high earners, we wouldn't necessarily need additional disability. But my fear is that given we're starting the family plan and that we typically carpool and spend a lot of time together, that anything that affects one of us could affect both, like a car accident. So I was thinking about taking out additional disability insurance, but I was thinking of just doing it for one of us, probably me, given that I'm a man and it would be cheaper. I would like your thoughts on that. And also radiation Oncology is a specialty that generally does not require any procedures, any use of your hands, other than maybe using a computer mouse. So I guess my question is, is there really a benefit to me having a specialty specific policy as opposed to just an own occupation? I just can't imagine a scenario where I could work as another type of physician, but not a radiation oncologist. Really appreciate your thoughts and advice.

Thank you.

All right, there's a lot of questions in there, a lot of stuff to talk about. Let's get started. You want to start off, Tyler, trying to answer some of Emil's questions?

Sure, yeah. You know, first, let me just validate Emil. I get the hesitation to buy personal, own occupation, long term disability insurance. It's really expensive, but the reason it's so expensive is because it gets used a lot.

Right.

One in six physicians or dentists will make a claim on their policy during their career. That's a lot of payments being paid out. And insurance companies are not the business of losing money, so they charge a lot in premiums. And as we just talked about, I'm one of these people. I'm on long term disability, and I never thought that would be the case for me. And the premiums were off putting. So I get it. And I want to validate the impulse to think twice about buying an expensive product. And at the same time, as we're talking about, I really want to encourage docs to, to be thoughtful and intentional about this choice. And the default should really be to get it.

Yeah. You know, it's hard when it's the two spouse thing.

Right.

I got two spouses. They each make $400,000. Let's not kid ourselves. Most families in America are not going to have trouble living on just one.

Of those $400,000 incomes. Right.

If that is your plan for disability, I don't think it's unreasonable. I don't think that's crazy to go. You know what? I guess it's possible we could both.

Get disabled, but, you know, it's probably not very likely.

And I don't think that's a crazy risk to take. You know, if you are married to a stay at home spouse, if you are single, you know, all kinds of other situations, I think that is too much risk to take. If you spend, you know, a good chunk of your income of that $800,000 income, you know, that second income, if you're really actually using it to live well, you better insure it, right? If it would be a big deal to cut back to $400,000 based on your lifestyle because you got, you know, some really expensive house in the Bay Area, well, you know, maybe that someone who does need to buy coverage. I thought it was very interesting that he talks about having adequate coverage being.

$5,000 a month for each of them, right.

They're living on $800,000. And if they're both disabled in a car wreck, they're now going to live on $120,000. I mean, that is a dramatic change, Right? I get that, you know, you really only needed to insure what you're spending, but there are very few physician families in this country making $800,000 a year.

Who are only spending 120,000. There's not a lot of of you folks out there.

If you are, you're probably hitting FI very quickly and can drop your disability insurance anyway. But I.

They just sound very, very underinsured to me.

There's a big problem though with those employer policies, right? They are not as good. Not only are they not portable, they don't go with you when you go, right? If you change jobs, they don't go with you, but they're not as good. Almost always they're not as good. They got exceptions and the definition of disability is weaker. There's a reason. Your employer buys them because they're cheaper, right? And so you kind of get what.

You pay for in that space. And you don't have as good of insurance through your employer policy.

Anytime you put an employer offered policy up next to what you can buy.

A fully underwritten individual portable owned occupation.

Policy, it's not the same. There are differences and those differences matter. It's not term life insurance where you're.

Either dead or you're alive, right?

There's 50 shades of gray when it comes to disability, and I think your situation demonstrates that. Great, Tyler, you don't qualify for Social Security disability because you can work. It's something you don't qualify. But you do qualify to get your benefit from your own occupation.

Individual policy that you bought.

Yeah. Let's talk about employer provided policies and I'll share some of my personal experience. When I was disabled, I was actually working at the dental school here in Salt Lake. And so I ended up making a claim on my personal policy and on my employer policy. And I really learned some things in that process. So there are some real limitations with employer policies you mentioned. One, they're not portable and you can become uninsurable during that time you're at this job, right? What if you get cancer and you want to leave this job at some point? Well, good luck getting a personal policy. You know, you're stuck at this job or stuck hoping you find a job that's going to have another group policy without underwriting. I have a client who didn't get a personal policy after residency, went and took a PSLF qualifying job. Almost there with PSLF and his plan was to leave in a couple of years. Well, last year he got Ms. At 35 years old and now he doesn't know exactly when or if the disease will progress and is afraid that he's going to be heavily reliant on this workplace policy. So the non portability is a big deal. Also the denial rates are higher. So my personal experience, it took about five months to get through the entire process on my personal policy with principal and it required a lot of paperwork and phone calls and back and forth. But overall it was not terrible experience. I had a 90 day elimination period so they paid me some back payments and then things have been pretty smooth since then. But boy, my employer provided policy with the Hartford was an absolute nightmare. It took over 9 months, it took at least 10x the paperwork and time and emails and only to get denied for the exact same condition under which I was approved at principal. So you know, if you know someone out there with a Unum or Hartford policy at work that got approved, you know, that would surprise me. The denial rates are just a lot higher on those employer policies. They're also not non cancelable and guaranteed renewable. Your employer can change or drop the policy at any time. You have no contractual guarantee of continued coverage. A sort of pragmatic thing I see with my clients is they say, oh yeah, you know, I went to the new hire presentation and HR said that I'm covered up to 60% of my salary on this employer policy. And I say, oh cool, send me the, send it to me, I'll look at it. And there's a little asterisk next to the 60% and that asterisk is the payment cap. And I Most often see these cap at $10,000 a month, sometimes $15,000 a month. And boy, that can be news to a lot of people. If you make 5, $600,000 and you thought you were insured to 60%, suddenly you're getting $10,000 a month, if you can even get it, that insurance may not be adequate for you. Also, these policies have a bad habit of saying that their own occupation, but when you read the fine print, their only own occupation for two years and then they revert in many cases to an any occupation policy. The benefits are taxable. That's something you've talked about Jim, on the blog. Because the employer policies are often paid for with pre tax dollars. The employers are getting a tax deduction for paying that benefit. So the IRS says, hey, if you're paying the premiums with pre tax dollars, we're going to tax the benefits benefit. So you have to reduce your projected benefit by some reasonable tax rate. It may not be your current rate as your income is going to be lower on disability ostensibly, but some portion of that benefit will be going to the government. And then one of the biggest surprises to me was when I went through this that I found out that the benefits can be reduced by any work I do or reduced by my quote unquote capacity to work based on my education and ability. So the lady at the Hartford told me that if I am approved that after two years of benefits, my benefit would be reduced by the salary of any job available within the Salt Lake metro area suitable based on my education. So if they could find a job that they deemed was appropriate for me, they would find out what that job paid and reduce my benefits accordingly. So to recap all that, if you have an employer policy, that's great, it's certainly better than not having one. But in my opinion it is not something that you want to rely on exclusively to provide for income replacement in the event of your disability.

Now when I was paying for disability.

Insurance, I don't pay for it anymore. Now that we're financially independent.

I had two policies. I had an individual policy that I bought.

Mine was through the standard that I.

Bought, you know, top notch portable policy. I picked it up during residency, exercised.

An increase on it, and then I.

Had one from my employer and the benefit of the employer1. The reason I kept that is it didn't have the exclusion on it that my individual policy did.

I had an exclusion and if I got injured climbing or doing something like that, it wouldn't pay.

And so that was the benefit that's.

Why I kind of split my coverage. I. I had the good policy that.

Didn'T cover climbing and the not as.

Good policy that would cover climbing. And so that may be one reason to use your employer policy. But I like the idea of not relying on it exclusively. I think there's a lot of wisdom to that.

So, yeah, if we've convinced you that having a personal policy is probably a good idea, the next question that comes up often is, well, how much should I buy? How much coverage is enough? And I'll just say that reasonable people can disagree. And ultimately, the way I frame this for clients is the deliverable on insurance is really peace of mind. That's what you want. You want to be able to sleep well at night, enjoy your life, not be stressed out about this stuff. So I tell people to get enough that they have peace of mind that that's the metric they should use. But some of the guidance that we provide in that conversation is that for first, the coverage needs to be enough not just to cover your expenses, but also any college savings you're doing for your kids and particularly your retirement savings as well. These policies stop paying at age 65 or 67, so they are not a retirement plan. You still have to save for your own retirement if you don't want to live on Social Security. Now, that being said, to Emile's question here, being married to another high earner is a pretty nice insurance policy unto itself. So I think it's reasonable to consider carrying less insurance on each of you than if this was a single provider home. But I don't think it's reasonable to have it on just one person and to sort of arbitrarily choose the male because it's less expensive. It's more expensive for women for a reason. Their chances of making a successful claim are higher. And so that's priced in. Another consideration that can justify less coverage is what I talked about earlier. You know, the example of my own story. One of the benefits of an own occupation policy is that you can probably still work. You probably did not get hit by a bus or fall off of Half Dome with Jim.

Although if you fall off Half Dome, you are probably not disabled. I might point out you're going to need to collect on that insurance policy, but it's not your disability insurance.

All insurance has value for different activities. So yeah, you probably didn't get hit by the bus. Right. And so like, I can't do clinical dentistry safely for myself or my patients, but I can be a financial planner. I could teach Didactic classes at the dental school. I could review insurance claims for a dental insurance company. And again, I don't make as much at this job as I did as a dentist. But that's all right because the disability fills in the gap. Also, Megan works now, which didn't used to be the case. And we found ways to cut some expenses, you know, post disability. So buying insurance is not the only way to return your financial life to pre disability levels. There are many levers you can pull. I just want everyone to be thoughtful and intentional about what their plan is in the 17% chance they find themselves in this situation.

Absolutely.

Well, at least Megan's got a really good 401k plan.

Right? That's the important thing.

Did you mention about how they don't really pay after age 65 or 67? Did you mention that?

Yeah, yeah, yeah.

I think that's a really key point. You have to have enough benefit not just for your expenses, but also to keep saving for retirement on the benefit. Otherwise, it's only Social Security when you.

Get into your mid-60s.

Yeah. So a lot of important stuff here. If you need help, you're like, I don't know who to trust. I don't know where to get disability insurance. We put that together for you. I say we here at wci. Obviously I have a conflict of interest here because we have advertisers that sell disability insurance.

Tyler doesn't have a conflict of interest. He's a fee only advisor.

But I have a conflict of interest. But these are people we vetted. They work with dozens of white coat investors every month. Dozens, hundreds maybe. And if they're not doing good service, we hear about it very quickly and we either fix it or we get.

Them off the list.

But you can find all them. Whitecoatinvestor.com insurance.

That's the place to go.

All right. Emil asked more stuff we need to talk about, one of which he didn't ask about but should have. It sounds like his big fear is.

Both of them getting in a car wreck.

And I think it's important to point out that most disability is not trauma. It's not falling off half dome. It's not getting in a car wreck. It's medical. People get cancer, people get degenerative disc disease, People get rheumatoid arthritis, people get Ms. That's what disability is. That's what people are going out on for disability.

They're not going out on a train accident. So I think that's an important point to make. Make.

Do you know Any statistics on that, Tyler? What the percentages are medical versus trauma?

Yeah, I actually talked with Matt Wiggins at Doc Insure, one of your recommended providers for disability insurance. I talked to him last night in preparation for this and he was telling me that 60 to 70% of the claims are illness, not, not an injury. And yeah, it's what you mentioned. It can be autoimmune disease, neurodegenerative diseases. He said there's a ton of mental health claims and yeah, you only get paid out two years for that. But depression, anxiety, alcoholism, these things take root as people burn out. And so, you know, sort of Emile's point, I hear a lot and this notion of what I just call the difference between proceduralist and quote unquote thinking physicians. And so from the psychiatrist, I hear a lot like, what are we talking about? Own occupation. I just sit here. I'm not a vascular surgeon. And so how am I ever going to get disabled? Well, if you get throat cancer and your job is to talk to your patients, that's going to be a real problem. If you get rheumatoid arthritis and you can't type chart notes, that's going to be a real problem. And so I think it's a reasonable consideration, but it's in my opinion, not a reason not to do it. And you know, Matt talked to me last night about how the pricing of the policies is reflective of that. And he said, you know, anesthesia and OB and neurosurgery and dentistry.

Dentistry, super expensive. Yeah, yeah.

Because it, how those are the people making claims a lot. You know, if the surgeon puts his hand in the snowblower, you know, that's the end. And that's not the case if, if you're a psychiatrist. But because of that, the premiums for pediatrics and psychiatry, it's a lot lower. So to a meal I would say, hey, you're going to get radiology pricing. So don't feel like you're getting, you know, paying someone else's premiums in some pooled product. And the other thing Matt pointed out is that those quote unquote, lower paying premium specialties like peds or psych, that an own occupation policy is only like 10 or 15% more expensive than in any occupation policy like Social Security.

You know, when we're talking any occupation, we're talking about qualifying for Social Security.

It's gotta be that bad.

Yeah, so it's kind of a no brainer. There's, it's a tremendous value add to add the ONOC specific. I Mean, in any case. But in Emile's case, if you're like, oh, hey, I'm a radiologist, you're not going to be paying that much more for an onoc. And you, you know, I know you're sitting there, you know, reading films, clicking buttons, but more things than you realize can get to you. If you end up with a neuromuscular issue like me, and you can't sit and chair in the dark reading films for eight hours, you might find yourself on claim in ways you didn't realize.

I got to correct you too, Tyler, because these are two different specialties, Radiology and radiation oncology.

Two very different things.

And lots of radiologists these days, proceduralist, they're doing all kinds of procedures with their hands.

And so I've never done a radiation oncology rotation or anything. I don't know exactly what they're doing. But from Emile's description, it sounds more psychiatry. Like, as far as your physical use of your body. That's not always the case for radiologists, though.

But that's all worked into the pricing. I totally agree with you, right? If you're a dentist, if you're an orthopedic surgeon, you're paying pretty good premiums.

For the fact that it doesn't take.

As much of a disability to disable you. You know, emergency medicine's there as well. Not quite as expensive as those specialties, you know. And as you move into pediatrics, as you move into psychiatry, as you move.

Into PM and rs, you move into.

Radiation oncology, that's already priced in.

You're already getting a discount for the fact that you're. You're less likely to have something that's going to keep you from doing your own.

But, you know, the bottom line with disability is get something in place, right? I mean, I feel bad for Tyler, right? I mean, Tyler got disabled, can't do dentistry, his income went down. But you know what? He did find something he can do that pays reasonably well, right? In the terrible situation where you're utterly and completely disabled and can't do anything, you know, that's when you really need coverage. And so, you know, having something in place is better than nothing for sure. In the event that that's the sort.

Of thing that happens to you. But for most docs, I think it's worth getting a known occupation policy.

And what that usually means for most.

Of these carriers, these insurance companies, is.

That it's specialty specific. It's not like you pay a different amount just to cover your specialty in most cases, than it is to cover.

You as a doctor. Right. They price it differently because they view your occupation as the specialty.

But it's not like you can just go, oh, I just want own occupation.

I don't want specialty specific. That doesn't really. That's not really a thing. I think it's important to understand.

All right, have we beat disability insurance like a dead horse yet? I think we have go buy some disability insurance. If you don't have any yet, you can cancel it. When you're financially independent, you don't have to have it forever. And in fact, I think that's a pretty good idea. Some of the companies will give you graduated premiums, you know, where you pay.

Less in the beginning and then the.

Price kind of goes up over time. Well, if you're one of those super savers that's going to hit FI at.

45, that's a really good deal because you get the low premiums while you're actually paying them, then you cancel the policy. So not a bad idea.

You can learn more about it from the agents. They're in it every day, all day. They know the ins and outs of all these policies and show you all the policies from the big five carriers.

And help you get the one that's right for your carrier.

Age, gender, specialty, state and medical conditions.

So you can find all that@whitecoatinvestor.com insurance.

All right, let's talk about a different subject. Let's talk about HSAs.

We've got a question on the Speak pipe about them.

Hi, Dr. Dali. This is Jill from Minnesota. First and foremost, I want to thank you and everybody at Wacos Investor for all the work that you do on behalf of us physicians. I know my personal financial literacy has greatly improved thanks to your work. I have an HSA question for you. My wife and I are both physicians. Her healthcare plan does have an exclusion on spouses who are offered medical coverage through their own employers. So therefore, we've crunched the numbers and figured that it was most cost effective for her to have her children on her plan and me to be on my individual plan through my own employer. The question comes with HSA contributions. Historically, the whole family has been on high deductible plans. So we have either had one of us contribute the entire family limit or split it between the two plans so that our tax return does reflect a maximum family contribution. But this year we're expecting the arrival of a child, and so my wife will not be on that high deductible plan since I am on A high deductible plan that only covers maintenance. Am I able to still contribute to an hsa? A follow up question would also be I plan to save our receipts from her medical care during her pregnancy for this year. Are those costs still eligible for HSA reimbursement?

All right.

Yep. We put a 90 second limit on those speak pipes. So if you got a really long question, you gotta talk fast. You can skip all the nice things you say about me at the beginning. That gives you more time to ask your questions.

Question.

But I think we got the gist of his questions. I, I think the questions are pretty easy. His questions have right answers. There's not a lot to debate there. But let's debate about HSAs anyway. And tell me what you think about HSAs. Tyler.

Yeah, so first, great question. Love talking about HSAs. Good for him for using it. And I get this question in a lot of different forms every year and on its face it seems like it should be a pretty simple question, but in reality the math is really complex and these decisions are really hard. I heard a BYU professor compare this to playing three dimensional chess because there's so many moving pieces with deductibles and coinsurance and out of pocket maximums, marginal tax rates, investment return assumptions. And so she said that she'd have to charge someone $25,000 for the consultation to have any chance to get a right answer. So if you're feeling lost on these decisions, just know that that confusion is justified and founded. So first let me just say I'm allergic to the assumption that just because someone is having a known high healthcare expense, that that automatically means you should not use the high deductible health plan which allows you to save into the hsa.

You don't even think that should be a rule of thumb that high spenders.

Should avoid high deductible health plans?

Not necessarily. I just, I think it is more nuanced than that. So sure, the high deductible health plan has a higher deductible, but that's only one of myriad variables to consider.

Right.

The first is that the premiums are often meaningfully higher on the non HSA plan. It's not uncommon for me to see a family save two, three, even $4,000 a year on prem premiums. With the high deductible plan, that's a pretty big head start on your total annual health care expenses as a household. And that's before we start looking at the triple tax protected value of the hsa.

I think it's really important that you actually look though, because I've been surprised. I have people come to me, send me emails and go, my HSA plan is actually more expensive than my PPO plan. Well, should I still use it? And the answer, of course is probably not.

Right?

Yeah, there's a lot of variation. I'm amazed you would think the HDHP plan, the high deductible health plan, is always going to be cheaper than whatever the other plan the employer is offering. That's not always the case though.

It certainly should be cheaper because you're paying more of your own money when the kids got strep throat, you're not paying 30 bucks for the copay, you're paying 350 bucks for the office visit. So we would certainly expect it. But I agree with you. I'm astonished sometimes at the lack of logic in the pricing of the premiums. So yeah, I agree that the rule of thumb is let's just not assume anything and let's look thoughtfully at each person's three dimensional chessboard to the degree we can. Now, theoretically, let's say you are saving premiums, you have a logical plan, so that counts as favorable. And then we get our first layer of tax protection, right? We get a guaranteed tax savings on our contribution equal to our contribution times our marginal tax rate. So if you're in the 35% federal bracket and the 5% state bracket, then your $8,300 HSA contribution this year saves you over 3,300 bucks on taxes. And that's not a tax deferral like a 401k. That's no tax ever. That's a really valuable tax savings, right? So now we've saved a couple grand on premiums and we've saved another few grand on taxes. Our head start on the high deductible health plans, pretty big. And then if we're not contributing, we also lose out on the value of additional compound interest over time.

Right?

We can do the math on the after tax value of $8,300 into an HSA versus 8,300 into a taxable account and compare the value in 30 years and we can see how much we're missing out on by not filling that HSA bucket and using our stealth IRA appropriately. So these are largely quantifiable values that I think can and should be compared to the difference between your out of pocket maximums on both plans. And I'm just here to tell you that in most cases when I do this math, the HSA comes out ahead even if you are having surgery or.

A baby next year, you know, that's a good point. I'm not sure I've thought about that. But there really is the big head start. And you gotta look at that high.

Deductible health plan and look at what.

The maximum out of pocket is, right? If the maximum out of pocket, let's say your tax savings in this case.

Is five grand between the premium and.

The taxes, if the max out of pocket is not more than five grand higher than it is under the PPO.

Or whatever low deductible plan that you.

Have, you may not be coming out ahead. It's hard to know how much to add for the power of compound interest over the decades. That's a pretty fudgy factor, but it's worth something. It's not worth nothing. So you may very well be right that lots of people would still come out ahead.

Boy, you sure do have to run the numbers.

All right, let's answer the questions. He asked. He asked. So he only gets to make an individual contribution amount this year.

So for 2024, that's $4,150. You can't make a family contribution, which for 2024 is $8,300, unless he puts.

One of the kids on his plan. You only need two people to be a family, right? You only need a parent and a child or two spouses. That makes you a family. You can make the family contribution. So if you had 13 kids, you could put 12 of them with one parent and you could put one of them with the other parent and still make a full family contribution. So keep that in mind.

You may want to split people between it.

Let me just chime in on that. One thing I see people forget a lot is that that amount, 4,150 individual or 8,300 as a family, is inclusive of any employer contributions, right? This is not like your 401k where you just put in your 23,000 and they put in whatever and you don't have to adjust. It's 8,300 employee plus employer.

Yeah, that's an excellent point. All right, I think we may have a little bit of debate on his next question. I see your notes here on our. On our recording notes. I think you're wrong. But make your case for his next question about whether those receipts can be saved.

Okay? It's my understanding, I'm very open to be wrong. It's my understanding that if mom, who's on the non HSA plan, if she has a baby and we save $7,000 of receipts and she's not covered at the time that the medical expense was incurred. If she was not on an HSA plan that we can't fast forward 20 years and go back and reimburse ourselves 7 grand from the HSA because that expense happened at a time she was on a non qualifying plan. But I learned something new every day so I wouldn't bet my kid's life on it.

Yeah, I think you're wrong and I'll tell you why. Let's take the 20 years out of the equation because I think it's irrelevant, right? The question is, can you use your HSA dollars to pay for the healthcare of somebody in your family that is.

Not currently on a high deductible health plan?

And I'm pretty sure the answer to that is yes. Once it's in the hsa, you just have to use it for health care expenses that they don't have to be health care expenses incurred while you're under a high deductible health plan. That rule only applies to making contributions. It doesn't apply to how the money is spent. How the money is spent is, it just has to be spent on health expenses for you or your family. And so I, I'm pretty sure that, that, that that's legit, that you can actually keep that. Now if the insurance company paid the expense, right? That's not legit. This is money you paid for health care, right? It's deductibles, it's co pays, it's, you know, things you're getting receipts for because.

You wrote the check or use your credit card or whatever.

If the insurance company pays for the.

The delivery or for the appendectomy or.

Whatever, you can't use that cost in 20 years and somehow use that to take money out of your HSA tax.

Free and buy a sailboat with it in retirement.

But you can use it to buy.

Health expenses that are legitimate in the list.

There's nothing in the IRS guidance on HSA withdrawals. Number one, that says you have to take them out in the year you spend the money, and number two, that you can't take it out and use.

It for medical expenses even after you're on a totally different health care plan.

And that includes for you, right? So let's say you're using a high deductible health plan for five years and then you change, you go to a.

Low deductible PPO plan or whatever, but.

Now you've got this $80,000 HSA you saved up. Well, you can still use that. You're not excluded from using that just.

Because you no longer have a high deductible health plan.

I'm pretty sure I'm right. If somebody thinks I'm wrong, email us in and we'll get it corrected on a future podcast episode. I also, as you know from listening.

To the podcast, Tyler, I'm wrong a lot too. But I'm pretty sure I'm right on this one.

Great. I hope you're right. That would simplify it and be a boon for everyone. What I certainly think we agree on, or maybe just to clarify for people, that in the save your receipt strategy, which is a great strategy, let's do the fast forward 20 years and you reimburse yourself 30 grand or whatever because you want to buy a boat before you're 65. The only reason you would need the receipts is if you get audited. It's not like you need to include the receipts with the tax return. And, you know, the probability, the statistical probability that anyone's going to come looking or asking is probably low. Now, I think you should keep your receipts, I think you should scan them and keep them on a hard drive. And that's a good and ethical practice. Just practically speaking, in the real world, it's not like you're. There's some way to upload all this document when you're filling out your tax return 20 years in the future. Is that fair?

Right.

But I think if you claim 50 grand in a year, that's a pretty big red flag. I think there's a pretty good chance the IRS is going to ask questions.

About that, you know, because it's not.

The way most people are using their HSAs.

The way most people are using them.

Is spending them as they go. And I think it's fine to save the receipts and pull the money out in one big lump sum after you've allowed allowed compound interest to work on.

It for a number of years.

I think it's perfectly legit. I just expect to get a letter from the IRS about it.

If you pull out $60,000 in a year and hopefully you've got an IVF bill that you can send to them.

And say, yep, I really did spend it.

But I think it's important to keep those receipts.

And you make a good point about scanning them.

Right.

You'll notice the ink used on receipts is crap ink on crap paper. And if you go back and look at some of your healthcare receipts, two years later, there's nothing on the paper. Anymore, it's gone. So I think you really do need.

To scan them if you're doing that technique.

One other thing that I think is worth mentioning here, at the risk of being in the weeds a little bit.

But we never get in the weeds on this podcast.

Tyler.

Impossible. So this was new learning for me, just like I learned something just now and I thought it was interesting. Which is the option to have adult non dependent children on your HSA plan and they can contribute a separate and additional $8,300 to their own HSA even when they're on their parents plan and even when their parents have already put the 8300 in for themselves.

Whoa.

I've never heard of that one. That's cool.

Yeah, I read this in a Kitsis article, which Meg can link to in the show notes. But yeah, so if, let's say we've got. Right, because the Affordable Care act allows kids to stay on until age 26. Right. So let's say you've got a 24 year old and they are no longer meeting the definition of a dependent, but they're still on the plan. Well, they can put in their own family maximum with either their own money or mom and dad can put the 8,300 in and that'll eat up 8,300 of their annual gift tax exclusion. But under either scenario, the adult non dependent child can claim the $8,300 deduction on their tax return.

Now, even if they're not married, they don't have any kids, they can still do the family contribution.

That's my understanding from the article. I trust Kitsis. He didn't write it. It was a guest post on his blog. But no offense, I find that to be a equally valuable resource for me in my financial learning. And those are very long, detailed blog posts, so we can link to that. And that's how it's outlined there.

Yeah, that's pretty interesting. So the justification is that you have a family because your parents are also on the plan. It's interesting. I'm a little unsure about that, but I can totally understand why you'd be.

Able to do an individual contribution at a minimum 4,150.

I mean, the rules are that you're covered under a high deductible health plan and no other health plan, and you can make an HSA contribution.

There's no other rule, you know, so that's pretty cool little trick to think about. I'll have to read the article and.

Decide whether I believe you can actually make a family contribution.

If you're single, that seems a little over the top, but let's look that up and get a little more information about that.

All right, let's talk for a minute about these folks that get into super complicated HSA situations. Two doc family. They each have work for a different employer. They've each got a different high deductible health plan, they're each getting matching dollars.

How do they split up their HSA contribution?

Yeah, this is part of the 3D chess, right? There's a lot to consider here. And so yeah, let's say both, we've got two working spouses, they both have access to a high deductible plan and it can be good for them to each be on a separate plan, particularly if they both get employer contributions. Because that's free money, right? It's like your 401k match if, if the employer is going to put in two grand on each side. You know, that's, that's nice. That's free money. Also, once you get to age 55, that's when you're eligible for catch up contributions in the hsa. And so if you're on two different plans, will you get, you both get the additional catch up contribution. So that's nice. The drawback to being on two different plans is if you're all in a car accident or you all have a ton of medical expenses in the same year. Well, now you have two deductibles, two out of pocket maximums you need to hit instead of just the one family deductible or limit. So that could potentially be more expensive. And then I don't know if you know more about this Jim, but you know, he mentioned that something he said like there's an exclusion on my wife's plan from health insurance because he's covered at work. I don't think that's legal. I think there can be spousal surcharges if one spouse has access to health insurance but you opt onto the other spouse's plan anyway. But I would be surprised if it's legal to outright exclude someone from, from an insurance plan. That's an unknown for me.

Maybe they just use the wrong words to describe it.

A big employer, I think they're unlikely to break the law if they've got.

Some decent HR folks there.

And that may be what they're referring.

To is just that there's an extra.

Charge to have more family members on the plan. Lots of places work that way.

I mean here at WCI, as you.

Know, the employee has to pay 20% of the premium.

And so the premium is going to.

Be higher if you have more family members on it.

And so your 20%, of course, would be higher.

And maybe that's the sort of thing that they're talking about, I don't know.

But yeah, the decision about whether to all be on one plan or to split it up, that. That's part of the complication. And it feels like a simple question, but man, you can. When you really go down the rabbit hole, it. It becomes complicated 3D chess.

The good news is you're only playing around with, you know, $8,000 a year.

Or so and whatever the premiums are. And so it's not the hugest piece in your financial plan, most likely. So hopefully, even if you get it a little bit wrong, it's no big deal.

All right, let's do our quote of the day before we go to our next question. This one's from Jack Bogle said, don't look for the needle in the haystack, just buy the haystack. And of course he's talking about index.

Funds rather than looking for the next Nvidia.

Just buy all the stocks. And guess what?

I owned Nvidia before it got big. And so that's what you do too, when you buy the haystack by using index funds.

All right, our next question comes in by email. Hi Dr. Dali. Thank you all for all you've done and continue to do to help our community. Even with your April Fool's jokes that occasionally give me an mi, I'm incredibly.

Grateful for the wisdom and knowledge you provide.

By the way, if you're not yet aware that April Fool's post about PSLF being canceled was just an April Fool's post. All right, VSLF is still out there.

So don't panic too much. And anybody who got an MI from it, I'm very sorry. Hopefully you recovered okay.

All right. I am a 42 year old married radiologist making about $450,000. My question is about simplifying our investments under your guidance. I've recently fired the financial advisor. I've been working this since I finished residency and I'm excited to deal with DIY my investments and be rid of the 1.25% AUM fees that advisor was charging.

Wow. Well, I'm glad you were able to get away from that.

Remember, my advice when you fire your advisor is to first have your plan in place, then fire your advisor.

Of course.

After reviewing the holdings in our IRAs and taxable account, I found they contained 37 individual stocks, 29 ETFs, 18 equity mutual funds, four bond funds and three CDs. All right, I agree. The advisor needed to be fired. The taxable account is a market value.

Of just over 1.4 million with about.

150,000 of unrealized gains that are mostly long term. But due to the active trading, some.

Have been owned less than a year.

Active trading, a gazillion individual stocks, 29 ETFs.

Yeah, this is not someone who's been getting high quality advice.

And the worst part is they're not.

Paying a fair price either. Huge AUM fee.

My intention is to switch everything to a simple three fund portfolio. That's fine. With an overall 8020 asset allocation, that's probably fine too. How do I go about this? Should I sell all these funds before or after I transition to Vanguard? Should I wait until everything has long term capital gains treatment? So I just owe 15%. I'll just clean it up now. Knowing some that will be taxed at a higher rate. Also, we just found out that our roof needs to be replaced. My wife's car died when it rains at Pours. So we're suddenly facing about 80 grand of unexpected costs. Show you some of the proceeds from the sale of the taxable account funds to pay for these expenses or utilize a HELOC for the roof and finance the car. Thanks in advance for any insights you can provide. This is the sort of thing that drives people to a financial planner, isn't it, Tyler? They start getting all these questions about what they should do next. And so there's a lot of good stuff here. We're going to talk about legacy investments, we'll talk about debt, debt versus investing and we'll talk about capital gains taxes. So why don't you go first, Tyler?

Give your thoughts.

This person just walked into your office and needs financial advice.

Yeah, I'm glad you're here. I'm glad you're improving on your situation. Good for you for taking it on. And yeah, there's plenty to talk about first. Maybe just a cleanup of something I heard there that some information about what he's expecting his long term capital gains tax rate to be. So it is true that at your income your federal long term capital gains tax rate is 15%. But the state of Ohio is going to want some of that. And because you make more than $250,000 on your modified adjusted gross income, you're subject to the net income investment income tax of 3.8%. So your long term capital gains rate is 15% federal, 4.8% Ohio, 3.8% net investment income tax. And that tax is of course part of the Affordable Care act to help pay for that plan. So, bad news. Your long term capital gains rate is 23.6%. Now, that being said, whatever capital gains rates you pay, even a mix of short or long term, in this case, is a pretty small portion of your overall taxable account balance and sounds like pretty close to what a year or two of AUM fees would have been anyway. So my initial impulse is to just clean this all up at once. So, yeah, the math, if you've got $150,000 in gains, 23.6%, you're going to owe about $35,000 in taxes, maybe a little more. If some of them are short term. And $35,000 is about 2, 2.5% of your $1.4 million taxable account, I think that's a pretty small price to play for creating simplicity and is only two years of what you would have paid your advisor anyway. Now, that being said, so my impulse is to clean it up at one, all in one motion. But a lot of times a lot of the gains can be traced to just a small number of stocks or funds and, and sometimes it can be worth hanging on to a couple of the keepers so that you can avoid those taxes if that feels painful to you. Now, that can be a little complicated. To maintain these legacy investments, build your three fund portfolio and have an overall asset allocation that you want. So I tilt towards simplicity, but I wouldn't provide any major pushback if you decided to keep two or three of the winners for a little while.

Legacy investments can be tricky. Lots of people have this question. They finally became financially literate and then they realize they're sitting on stuff they.

Want to change away from and there might be consequences to it.

Point number one that I think everyone needs to have crystal clear in their mind is if it's in a retirement account, if it's in an IRA, if it's in a 401k, 403, 457b fine benefit plan, whatever, HSA, a 529, whatever, there are no tax consequences to selling it. So if you got something you don't want, sell it and buy what you want, right? No consequence at all. Two, you actually got to figure out what your gains are on every position and every lot of every position in that taxable account. And this probably calls for a spreadsheet. And if you're not okay with Spreadsheets, you probably shouldn't be managing your own money.

I mean, you really need to be.

Able to do that sort of a.

Thing in order to, to make proper decisions and be your own financial planner or investment manager.

So make a spreadsheet every lot of every security in that taxable account and figure out what the gain on it is. Some things you're going to have a loss on. These legacy investments you don't want. Great, sell them.

Right.

Not only are you not having to pay capital gains taxes on it, it's going to help reduce your capital gains taxes from other things. A lot of other stuff you don't have gains on, or it's a minimal gain. Great, sell that. And now let's see what you have left that you have significant gains on. And maybe you've already taken care of three quarters of the problem in your taxable account. You might be down now to three ETFs and four individual stocks or something just because of the way things naturally work. Now at that point, you got to start going, is this something I can build around?

Right.

So let's say you want to own, you know, the ETF vti, right? That's the Vanguard Total Stock Market Index etf. It's a great fund.

It's my favorite fund. Right. I got 25% of my money essentially in that or something like it.

But let's say your legacy holding is the iShares ETF ITOT, which is their Total Stock Market Index Fund ETF. It's the same thing, right. There's no way I would realize capital gains on ITOT in order to switch it to vti. There's no way it's the same thing.

Yeah, you got to have two holdings in your account. But there's absolutely no downside to holding it long term.

So, you know, don't sell stuff like.

That that you're okay holding.

Even if it's an S&P 500 index fund, even if the expense ratio's a little higher than what you'd get at.

Fidelity or iShares or Vanguard.

You may not want to sell that.

Sort of a thing, but if you.

Got a terrible holding that you're like, wow, this is a 1.8% expense ratio, actively managed mutual fund.

I do not want this thing long term.

Well, now the only question is, do you sell it now or do you.

Wait until you have a year and save the long term capital gains taxes?

I'm the type that likes to wait a year. I hate paying capital gains taxes at.

All, much less Short term capital gains taxes, I'd probably wait a year.

The first thing I'd do is I would say, do I have to pay these at all? I'm a fairly charitable person. We give a lot of money to charity every year. That is a great use for your legacy holdings, right? Just flush them out of your account.

Give them to your, you know, charity.

Of choice or give them via a donor advised fund.

Then you can get rid of them right away and you get, you know.

All the charitable benefits. You do have to have owned it.

For a year though to do that by the way, to get the full tax benefit from donating it.

So I think that's a great way if you're 85 and not in great health and you're going to die soon, right? Don't be realizing gains. Just wait until a step up in basis of death.

Let your heirs take care of it and they won't have to pay any capital gains taxes either.

So make sure somebody's actually going to.

Pay the capital gains before you realize them early on.

But hopefully you can simplify things down and then you can look at each individual holding each individual lot and decide.

Am I going to build my portfolio.

Around that and just hold on to it or am I going to sell.

It, bite the bullet, maybe use some.

Of the losses from selling the losers.

To eat it up or even pay some capital gains taxes on it in order to clean it up.

But I'm not a big fan of.

Paying capital gains taxes.

I pretty much don't.

I haven't really.

I don't pay capital gains taxes. I've got far more losses than I'm.

Probably ever going to use in my.

Life unless I ever sell WCI or.

My home, that sort of thing. But for the most part I don't pay capital gains taxes. So it would be a real change in my habits to start paying capital gains taxes.

Tyler, maybe you're a little more comfortable.

Paying them, but I don't pay them very often. I don't like paying them.

If I had to to get out.

Of a crappy portfolio, I would. But I think twice about every single thing I was selling for a gain and I'd probably wait until it was a long term gain at least.

Yeah, we don't want to make unnecessary donations to Uncle Sam when we don't have to. And you know, just my lived experience of work. I've worked mostly with early and mid career physicians and they're growing in their financial acumen. You know, they're getting there, but they want it to be simple. That's the what comes through is like I have this thing and now I've realized there are my ways. You know, I want to pay the stupid tax and surrender my whole life insurance. I'm willing to pay 20, 20 grand to clean up this taxable account and just get to the other side. There's something soothing about it and calming. They don't have to fret about what happens next. And I think that's reasonable as long as it's intentional when it's quantified and they say yes, I know that I'm paying X dollars in capital gains and I do that knowingly and willingly in exchange for simplicity and peace of mind. That's fine. Not everything has to be optimized in every case.

Yeah, the old behavior versus math.

Yeah, behavior versus math. The old classic argument.

I'm really learning that in this job personal finance is about 90% personal and maybe 10% finance on the best days. And I'm maybe more marriage counselor than I am financial advisor. There's a lot of things going on that don't have to do with numbers. But your point's about donating the big winners to charity is great. And yet figuring out if you've got even a maybe Voos in there, right? The S&P 500 fund that has a high enough correlation with VTI that I don't think someone needs to liquidate that. They can build around that pretty reasonably. But not if you bought Snapchat for $65 a share and it's worth $11 today. It's time to move on from GameStop and AMC and those things. The and then the other question there to I'll take a stab at see what you think. To answer their question, should they sell everything in the current place it's in or after it goes to Vanguard? I don't think it matters that much. My impulse is to do a in kind exchange to Vanguard first and then sell everything at Vanguard. So you just get 1099 tax documents from one place and that's maybe easier to keep track of in the name of simplicity. And you know, we'll point out it's not always possible to do an in kind exchange on every security. If Vanguard doesn't offer that security, you're going to have to liquidate it to cash anyway. But do you have an opinion on the order of operations?

I mean you do. You ought to look at commissions sometimes.

They do cost you if you're a super expensive brokerage or something. I've done in kind Transfers before my parents portfolio. And it was cheaper to sell them once they moved over. I think we came over from this.

Is a long time ago.

This is when Fidelity and Schwab were charging commissions, I think. I think it was a little bit cheaper. We moved it in kind and then ended up cleaning it up once it moved over is my recollection. It's been a long time, though.

But as a general rule, when you're escaping a bad advisor, people just want to get out, get my money over to the other place. And usually you have to liquidate your IRAs, et cetera.

You don't have to liquidate your taxable accounts. They can usually be transferred in kind. Usually the place you're going is going to have lower fees because now you're cognizant of fees. Now you're financially literate. So you're usually better off waiting until they get over there and then selling them. Half the time you're waiting for the gains to become long term anyway. So it's no big deal to wait a little longer.

All right, we got to talk about.

The roof and the car.

Yeah.

This is a millionaire we're talking about who's talking about borrowing money to buy a car.

Borrowing money to put a new roof on the house. And they got a million dollars in.

Taxable assets to do it.

Yeah, yeah. So to just answer the question directly, yes. Use the proceeds from the sale of the taxable account cleanup to pay for the roof, pay for the car. HELOC rates are really high right now. Car loans are much better, and I'm just allergic to that behavior, regardless of rates. And I'll add, take some of the proceeds. And I'm presuming based on the nature of the question that we don't have an adequate emergency fund in place. So let's also set some of our proceeds aside into a high yield savings account or the money market at Vanguard, you know, maybe typically three to six months of expenses. And let's park those somewhere liquid and safe so that the next time the furnace goes down or the transmission blows, we've got cash set aside and we're not taken aback by that expense.

Well, the best, the best part about that right now is it doesn't cost you anything.

Right.

Stick your money in the Vanguard Federal Money Market fund. You're making 5.3% right now.

Right.

There's almost no opportunity cost to having.

Cash sitting around right now. So why not have a little bit bigger emergency fund?

Meanwhile, if you want to borrow money.

For emergencies, rates are through the roof, you know, you can't even get.

Medical students are borrowing right now. A lot of people don't realize this. Their PLUS loans are 8.05% this year.

Right.

That's for school. That's as good as it gets right now.

You think your car loan is going to be dramatically better? Only if you overpay for the car.

Yeah. So this gives me a chance to also talk about one of my favorite financial planning strategies or tools that's been really meaningful to me in my life. And that's what our founder refers to as squirrel funds. Sarah Catherine Gutierrez, who's been on the podcast before, she's from the south, and so she says really lovely, quaint sounding things like we should create squirrel funds, by which we mean we recommend that clients set up a High Yield Savings account, and preferably one that allows them to create buckets or sub accounts within the High Yield Savings Account. I personally use Ally for this. So Megan and I just have a joint High Yield Savings Account, one account number, but within it we've opened a number of different buckets or squirrel funds, and into each of those buckets they're named. The buckets are earmarked for different categories of inevitable future expenses that we know will happen. We just don't know exactly when they'll happen or exactly how much they'll be. So for example, we've got a travel bucket, a home bucket, an out of pocket health care bucket, etc. So we send $833 a month via automatic monthly transfer. I don't have to do anything. And it just goes into our home bucket within Ally sits there and earns interest. And then when we need a new, you know, L shaped couch, you know, a sectional sofa these days is ten grand or you know, our roof needs to be repaired. We already have the money set aside in the bucket. And the rest of our automated monthly smoothed out financial plan is not impacted by this large episodic expense. This actually just happened to us last fall. We bought this house in Salt Lake two years ago. It was a rental before this. And we knew it was not well taken care of as a rental. And so sure enough, the furnace, the air conditioners, the hot water heater, they were all integrated somehow. The whole thing went out. I got a bunch of bids and was horrified to learn that it was like $44,000 to get it fixed. And that is a lot of money at our house. And that would have really derailed the rest of our automated financial plan that would have impacted how much I can Put in the girls five 29s, whether or not I could do my backdoor Roth or max out our retirement accounts. But I was really grateful that for many years I've been sending money to my squirrel funds. And so I had 30 grand built up in the home bucket and I needed to dip into my emergency fund as well. So I want to make the point that squirrel funds and emergency funds are two distinct and separate ideas. The squirrel funds are for inevitable expenses that we just don't know when they'll happen. The emergency fund is the safety net that sits underneath the squirrel funds. So I got 30 grand out of my bucket, got 14 grand out of my emergency fund. I paid the H Vac guys with my credit card so I could get my 2% cash back. And then I paid my credit card bill from the squirrel and emergency funds and the rest of our financial life wasn't impacted. We didn't have to start eating Alpo or anything. We, we were able to make it through unaffected. So I just want to plant that idea out there. I, I wrote a blog post that talks about this, about moderate, some considerations for quote, unquote, moderate earners. And so I would suggest that for our emailer as well, not just to shore up these short term cash issues with the proceeds of his cleanup efforts, but, but also maybe to consider an ongoing strategy to set money aside regularly so that the next time you need a car, there's already cash built up.

Yeah, there's nothing quite like cash when you need cash. You know, I think there's another important.

Point we can make off this.

And that's the amount you're putting in there. You said $833 a month is what.

You'Re putting in there.

And the first thing I think about when I hear that is, boy, I want all those people graduating medical school and wanting to buy a house to hear that number and say that that is the cost of ongoing expenses with your house. It's going to be a roof here.

It'S going to be a garage door.

Here, whatever it's going to be H Vac goes out. But that's what it costs. And people don't think about that. They just think about the mortgage. They don't realize that a mortgage is the minimum amount you're going to pay for your housing and rent is the maximum amount you're going to pay for your housing. Because when you're renting, all that stuff's.

The responsibility of the owner of your landlord.

So I think it's important to realize that it is not an insubstantial expense to maintain a house. You know, this is a little bit different from a sinking fund. Have you heard that phrase, a sinking fund? This is for like, if you got to make your. You got to make your life insurance.

Payment once a year, you're on an annual payment and, you know, each month you got to put some money toward that.

And so you put money in every month, put $150 in there every month. And after a year, the bill comes due again and you've got the money sitting there and you send it to.

The life insurance company.

This is much more something that you don't know when you're going to spend it. You don't know exactly how much it's.

Going to be, and so you just keep putting the money in there.

I think the classic example for a.

Squirrel fund, as you call it, would be a car, right?

I tell people, when you pay off your car, make that the last car loan you ever have. Keep making yourself payments, just make them to you. And that way when it comes time to buy another car, you have the.

Cash to do it this time. And I think that's a pretty cool trick at Ally bank that you can do that. I've used Ally bank in the past. I never divided up the account.

We just kept a spreadsheet that basically said how much was in each one.

Of the different squirrel funds.

And as our wealth grew, we eventually.

Got to where we're like, this doesn't matter anymore. We're not going to do this anymore. We're just going to lump all our cash together. But we sure did the exact same thing for many years. So I think it's a great practice and definitely endorse it. All right.

Megan's given me that look. I think we've been going too long.

So we better start wrapping this up.

Did you know that the White Coat Investor not only has a podcast and a blog, but several books that will help you on your way to financial independence? These books cover topics such as asset protection and minimizing your taxes to keep.

More of your hard earned money.

They discuss plans for insurance, housing spending, student loan elimination, investing, and estate planning. You can learn how to become a millionaire within five to 10 years of leaving residency and how to invest in a sensible, low cost and effective manner with or without the assistance of a financial advisor. There's even a book geared directly toward medical and dental students so you can start optimizing your finances early in your professional journey. Find the book that is right for you at the WCI store@shop.whitecoatinvestor.com or on Amazon. You can do this and the White Coat Investor can help.

All right, don't forget, call for speakers. The conference February 26 through March 1, 2025 is going to be in San Antonio. Join our world class speaking team. Yes, we bring back some of our most popular speakers every year, but we try to have new speakers every year as well. You need to apply by June 15. There's hundreds of applicants each year, but that doesn't mean you won't be one of the ones selected. You can increase the odds of that.

By submitting multiple topic submissions.

So don't just speak experience wcicon. Get your full registration included and be.

A part of that three day experience.

Sign up@wcievents.com will tell you by August.

Announce it to the public by September 1st.

Thanks. For those of you leaving us a five star review and telling your friends about the podcast, a recent one comes in from Brad who said, what a great podcast I recently started listening to. The White Coat Investor podcast quickly became my go to source for financial advice. The host is a real asset to the show. His expertise and insight are invaluable and he delivers the information easy to understand format. Topics covered are so varied and relevant.

That I never got bored listening.

From investing advice to personal finance, Dr. Dali covers it all. He also interviews some amazing guests that bring even more value to the show like Tyler. Today. I would highly recommend the WCI Podcast.

Anyone looking for sound financial advice, no matter where they are in their journey. Five stars. We appreciate that review.

Tyler. Any last words of wisdom before we let people go?

No, I'm very familiar with that look you're getting from Megan, so we better be done.

All right, well keep your head up, shoulders back. You've got this. All of us here in the White.

Coat Investor community are here to help.

You be successful with the finances, your.

Career, your family and your life. So we'll see you next time on the podcast.

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