WCI #64: Dealing with Inflation

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahli. Welcome to White Coat Investor podcast, episode 64 dealing with inflation.

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Our quote of the day today comes from Morgan Housel who said investing is not the study of finance, it's the study of how people behave with money and behavior is hard to teach, even to really smart people. I think that's an excellent point and if you haven't read his article the Psychology of Money, you really ought to get a a few minutes together and sit down on a Sunday afternoon and read it. It is fantastic. A masterpiece in blogging, really. I want to talk for a few minutes about podcast guests. If there are guests you'd like to hear on the podcast, please send us an email or a tweet or a Facebook message, whatever, and let us know who you'd like to have on the podcast. If you want to be on the podcast, go to the website whitecoatinvestor.com and under the about and Contact column you'll find a guest post policy. If you want to submit yourself, you need to answer the questions in those guest post policies and we'll take a look at you and consider putting you on the podcast. Let's just do some questions today. This one comes in from someone who's been listening to the Financial Boot Camp emails or reading the Financial Boot Camp emails. Now. If you've never seen these, you're really missing out. Financial Boot Camp is a free email course I put together. You basically get one email a week for 12 weeks and they go through all the basics to get you up to speed with your peers that have been reading the White Coat Investor for years. You know, it goes through disability insurance and life insurance and all the various categories that you need in one succinct email. I'm going to package these up eventually into a book and maybe even by the time this podcast runs. But basically right now it's that information is free to you all. All you have to do is give me your email address. If you sign up for the monthly newsletter@whitecoatinvestor.com then you get these emails completely free. Yeah, each of them have a sponsor, just like this podcast does, but it's a great resource for those who haven't yet heard them or haven't yet read them. So this one comes from someone who's doing this Financial Boot Camp says I'm currently on step number eight of your financial boot camp and I'm working to create a long term goal. You used an example of have a 3 million dollar portfolio by July 2025 such that I can withdraw 4% a year to support a retirement income of $120,000 per year. My question is, do you take inflation into consideration when you create your retirement day financial goal? I'm 30 right now and I've roughly estimated that I'll need about $80,000 annually in today's dollars in retirement at age 65. I also estimated myself 25 years in retirement comes to about 2 million needed in today's dollars. But with the 3% annual inflation rate, it goes up to about 5.7 million, which is obviously a huge difference. Should I work off of the 2 million number or the 5.7 million number? Well, the bottom line is you have to take inflation into account for any sort of long term goal. You know, if you're planning for college in 15 years, you better take inflation into account. But especially if you're planning for retirement in 20 or 30 or 40 years, inflation is absolutely critical to include in your calculations. But there's two places that you can do this. You can do this either with the ending number and instead of working toward, you know, 2 million, be working toward 5.7 million and use nominal returns in the calculation. Or you can leave the end goal as 2 million and use real or after inflation returns when you do the calculation. So when you calculate what your returns are going to be, instead of using perhaps 8% which might be a nominal figure, you use 5% which might be a real figure, and then leave the 2 million the same at the end of the calculation. If you've never done these calculations, they're definitely worth learning how to do. You can do them with any financial calculator or even just an Excel or a Google spreadsheet. The calculation you want to learn how to do is future value. Basically, you put in how much money you have now and you put in what you expect your rate of return to be and how long you have until you want to have that much money. And it spits out how much you'll have. So playing around with that for a few minutes can be really valuable financial planning. If you need some help with that, you can hire a financial advisor. We have some recommended financial advisors such as Mayport Wealth Management that sponsored this podcast or or if you're kind of the do it yourself type but just don't know how to do it yet, I'd recommend taking my Fire your financial advisor online course that'll teach you how to do these sorts of calculations and actually walk you through them and teach you all about how to use Excel to do financial calculations. My next question comes from a military doc. He says I'm a 30 year old single active duty Air Force internist. Thanks to you and Dave Ramsey, I feel I'm starting to do relatively well money wise. I have no debt. My net worth is somewhere around 200,000. That's pretty darn good. At 30, I think I've gotten my savings rate up to almost 50% gross, which I'm excited about. I guess that's why he's doing so well. He saves half his income. It helps when you're in the Air Force because you don't pay that much in taxes and so that really helps you have a high savings rate. We really had a high one while we were in there for sure. My annual Air Force salary is around 150,000 and I make another 75,000 or so moonlighting. In total, I owe six more years to the Air Force. When my separation date gets here, I will have served 11 years active duty. I read your post about how I should really continue active duty considering the value of the pension. I understand that. However, I know I will separate when the time comes simply for the lifestyle. My question is, what is your opinion about serving in the Reserves instead? Well, I don't enjoy active duty as much as I'd like. I like the idea of limited military contact in the Reserves. The information I can find online regarding the benefits is kind of cryptic and I'm struggling to figure out if financially it would be worth retiring with the Reserves opposed to active duty for the pension and health care benefits. Well, a few things we ought to talk about with this letter. First of all, being in the military as a primary care doc is not actually too bad, right? I mean, this doc says he's getting paid $150,000. You know, there's lots of primary care docs that that's all they're making in the civilian world and they're not getting a pension. And so bear in mind that the less your specialty pays outside of the military, the better off you're going to be in the military. Of course, being in the military, joining the military, staying in the military is not primarily a financial question. If you want to be a military doc, then go into the military. If you don't want to be a military doc, you're probably going to be pretty miserable in the military. And while I was in there, I knew a lot of miserable docs that had done it primarily for the money. And honestly, they felt swindled. They felt like they'd been told something by the recruiter that didn't end up being true. And the commitments long, it takes years to pay off those commitments. And if that's not something you want to do with your life, don't do it. That said, when you've served 11 years active duty and you got nine more to that retirement, that is a very valuable benefit. You know, even though it's only calculated on your base pay, it's not calculated on any of your special pays or your allowances that you get, such as your basic allowance for housing, your basic allowance for subsistence. It's still probably a million dollar benefit for a doc. And so you've got to really look at it and say, well, how much would I have to save each year to have a million dollars on the side by the time I would have hit year 20 in the military? And when you run those numbers, you'll often come out with a break even period of just four to six years in the military. So if you've been there longer than that, it often makes sense to stay to 20, especially when you consider the value of Tricare. You know, Tricare might not be everybody's favorite health insurance, but the price is awfully good, especially when it kicks in at 45, you know, 20 years before anybody can qualify for Social Security. And so I think it is often at least a financial mistake for anybody that's been in over 10 years to really be getting out at this point. You've got to really hate being in the military or really have a great opportunity outside the military to be considering separating at that point. That's not really this Doc's question, it sounds like he's decided that I don't want to be in the military, but I'd like to be in the Reserves, which I think is interesting, because being in the reserves is very much like being in the military. I mean, you still get deployed, you still have somebody else telling you what to do. But the benefits of being in the reserves are dramatically less than what they are. Being active duty, for example, instead of getting that retirement starting at, you know, 45 or whatever for a military physician, you don't get anything until you're 65. And so that's a much smaller benefit. And even if you get to convert some of those years of active duty toward that, it's just not nearly as valuable when you got to wait 20 years longer to get it. So I don't think that's an awesome option for someone who's trying to get most of the benefit of being in the military by being in the reserves. Is it a good option for someone who wants to be in the reserves but doesn't want to be active duty? I suppose so. At least you get paid something for it. But it's not this awesome financial benefit out there on the side that should be tempting a lot of people to leave active duty and go toward the reserves. Bear in mind the whole military retirement system has changed recently, though. When I was in, it was basically cliff vesting on that pension. You stayed for 19 years, you didn't get squat. You stayed for 20 years, you got the whole pension. Now it's set up such that you can opt into a system where you get a match into your thrift savings plan. And so you're basically getting some of that money as you go along, even if you leave early. So anybody not staying for 20 years, that's the option I'd take, because you're getting something rather than nothing. You know, if you're staying for 20 years, you've got a little bit more of a debate going. But for most of the people I'm talking to who are running the numbers, those who are willing to stay for 20 years are still going for the traditional pension. So is it worth retiring with the Reserves? I mean, if you're going to be in the Reserves, might as well get the retirement. But I think you need to think long and hard. If you've been in the military for 11 years and are now considering getting out, if you like serving in the military at that point, I'd encourage you to put up with another nine years and get that pension. Unless you're looking at a very high salary leaving the military. All right, here's another question. For financial advisors that charge a percentage of assets under management, is this assessed annually? Yes, it is. Every year you got to pay that percentage multiplied by your assets. Sometimes it's broken down into a quarterly fee just to keep you confused and to get that money into the advisor's hand a little bit earlier. But that's basically the way it works out. So if you're paying 1% of assets under management and you've got $2 million with that advisor, that's $20,000 a year. If you got $500,000 with that advisor, that's $5,000 a year. And I think it's a really important point because I think too many people that have an advisor, they pay with an asset under management fee are not doing the math and they don't realize that every year they're paying more for less and less advice. It just doesn't take that much more work to manage a 2 million dollar portfolio than a $200,000 portfolio. I've been doing this for a long time now and you know, I've managed a $2,000 portfolio, a $20,000 portfolio, a $200,000 portfolio and a 2 million dollar portfolio. It's all basically the same. It's about the same number of steps I got to do every year, the same amount of work. I guess there's a little more liability as the portfolio gets bigger. But honestly, you know, that's the problem with asset under management fees is as one advisor told me, they're the best kind of passive income there is. But you don't really want to be somebody else's best passive income. I saw a paper that was written to financial advisors recently that basically told them don't discount your fees because nobody's paying any attention to them. And they actually surveyed wealthy financial advisory clients and 90% of them honestly didn't know what they were paying their advisor. And so I think that's a big problem. You know, I don't have a problem with someone hiring a financial advisor getting good advice for a fair price. But you got to know what you're paying them or how do you know if the price is any good? Alright, next question. This one's a long one. Thanks for the work. You do. Wish I'd stumbled on your site when I was a resident. Me too. I'm currently an orthopedic surgeon, 10th year of private practice. Married, three kids. Enjoying life. My husband and I are modest spenders and have reasonably Low interest mortgage, a few student loans at less than 1% interest. We're able to save a lot and are focusing now on funding 529s for our kids. We max out all our retirement plans and IRAs. We have abundant disability and term life policies. We're doing some retirement planning have come upon this long term care issue. I have an aunt that recently passed away and unfortunately drained all of her assets in the last two years of her life in addition to requiring one of her sons to be her primary caretaker. It wasn't a good situation. Another uncle had to move back to Italy because he could not afford the long term care he needed after a sudden decline in health. So this issue is fresh in my mind. I know that long term care insurance is expensive and hard to find. I was offered a universal life insurance plan for 2 million with a long term care rider that allows me to use 95% of the benefit for long term care needs. And the list is extensive including home care, etc. It's indexed to the S&P 500, has limits on losses below 0% and caps on gains above 12%. The premiums are somewhere between 12 and $15,000 per year for 20 years with no additional premiums required after that. Premiums are front loaded. So if we need to skip a year for hardship at some point we have the flexibility to do that. I know how you feel about whole life and I share your sentiments. What do you think about this type of universal life with a long term care writer? Wow. We're mixing insurances, none of which I like, and hoping that somehow if you mix them all together in some way that I'm going to like them. Chances are I'm not going to like them and I'll tell you why. First of all, long term care, right? This is an orthopedic surgeon that is a modest spender. If an orthopedic surgeon that is a modest spender can't afford to self insure long term care, who can? This is fully my plan for long term care. I'm self insuring it. I'm not buying long term care insurance and the reason why is I've actually priced out what long term care costs in my town. I went and looked it up on the website, I looked at the Medicare site, I called up the actual facilities providing this and found out what it costs and I ran the numbers and I realized I can pay for that for years for myself or my spouse without impoverishing the other spouse. So I don't plan to ever buy Long term care insurance, which is a good thing because it's not great insurance, you know, it's not really a very mature market. The people that were offering it at first underpriced it and when they realized what long term care was costing, they basically just went out of business. So people that started buying this stuff in their 40s or 50s had been paying for it for 10 or 20 years and then they ended up with no policy whatsoever. The companies just folded up and walked away. So they went to get more long term care insurance from another company and realized it was dramatically more expensive. And so they end up paying for nothing basically. The other problem is you end up with, you know, having to fight the insurer for what they're going to pay for, you know, and you end up having to pour through the details of the policy and you get nickel and dimed and you end up having to fight for somebody else to pay these expenses. Far better if you are able to to self insure this risk and then you're a cash buyer and you have all the flexibility to go anywhere you like and buy whatever services you like when you need them. You not buy them when you don't need them. Now who can self insure this? Well, I think you're going to need a seven figure portfolio to do it at a minimum and probably closer to 2 million plus. But most stocks are going to want to have a portfolio about that big when they retire. And so I think most stocks ought to be able to self insure this. There's basically three categories of people when it comes to long term care insurance. You got those with not very many assets at all. You know, maybe a five or low six figure portfolio. These people are basically going to spend down to Medicaid levels and then Medicaid is going to pay for their nursing home. Then the people between that level and where you can self insure this is, you know, mid to high six figures, maybe low seven figures. And these people are worried if they're married that one spouse going into the nursing home is going to spend all the money and leave the other spouse impoverished. These are the people that ought to consider long term care insurance. But I think most stocks ought to be able to save enough, especially if they find the white coat investor in their 30s or 40s to be able to self insure that need. Now if you're single, even if you have a high six figure portfolio, what's the big deal if you have to spend your own money for long term care, even if you're going to run out of money. At that point you're spent down to Medicaid and you're like anybody else. And so again, if you're single, I don't see a huge need for long term care insurance. Okay, so that brings us to this question. For some reason, this doc doesn't want to buy long term care insurance, despite the fact that she seems to want some sort of coverage for long term care needs, whether she needs it or not. So instead she's looking at a cash value life insurance policy. Well, this is just another bell and whistle stacked onto a cash value life insurance policy to try to sell them. Remember, these things have huge commissions. Those who sell them get paid very well to sell them. So they try very hard to do so. And so if they can put a rider on that allows you to access the cash value or even the death benefit to pay for long term care, well, they think that's the cat's meow because they find somebody like this doc who's had a family member recently who had long term care needs and they use that emotional sales ability to sell a policy that, you know, the doc probably honestly doesn't need. This particular policy is not a whole life policy. It's not even a variable life policy. This is an index universal life policy. And these have all their own problems. In addition to the issues with long term care, just like a whole life policy, you know, you get negative returns for the first few years. Somebody's got to pay that commission to that agent and it's got to come out of your premiums. Plus the insurance company's got all its own expenses and wants to make a profit and that kind of thing. So the bottom line is you're not even going to have a 0% return until you've had this thing for five, 10, maybe 15 years. So it's not a great thing to buy just for a long term care need. You're probably better off buying long term care insurance if that's what you want. Well, how these get sold most of the time to people is people that are afraid of the stock market. They want stock market gains without taking stock market risk. And somehow the agent selling is able to convince them that this vehicle is going to do that for them. The truth of the matter is, most IUL or index universal life products are going to have a return very similar to whole life insurance products if you hold them throughout your entire life. And what's that expected return? Well, probably in the 4 to 5, maybe 6% range if you hold the thing for Decades and decades until your death. Most of those whole life policies only guarantee returns of about 2% a year. If you hold it to your death, you know, you don't get that 2% in the first five or 10 years. The bad returns are very much front loaded and the better returns, I'm not sure I'd ever call them good, but the better returns occur toward the end. And so before you buy one of these policies, you've got to realize this is like getting married. It's till death do you part. And if you want to divorce yourself from it anytime sooner, it's going to cost you a lot of money. So you need to know the ins and outs of how this thing works, know the pluses and minuses, the upsides and downsides, and really understand what you're buying and be okay with it because getting out of it's going to cost you a lot of money. So in this case, I'm not sure I'd recommend this doc. Buy an IUL policy for the long term care benefit rider that they they've put on it. I think that's just another method being used to sell these things to people that probably shouldn't be buying them in the first place. Alright, next question. I'm planning to quit my job and start as an independent contractor with plans on partnership for next year. Do you have any posts about where to get affordable health insurance for individuals and family as independent contractors or practice owners? This is one of the side effects of our crazy health insurance market, right? I mean, people either go to the government to get it, they go to their employer to get it. And so there's very few of us that are in the same boat as me where you actually just go out and buy your health insurance on the open market. I know exactly what health insurance costs. I know exactly how much I'm going to need in retirement to pay for health insurance because I write a check for it every month. I know what health insurance costs. It costs my family about $1,300 a month for a high deductible plan. A little bit more if you include the dental benefits. And that's just what this stuff costs. If you've never bought it for yourself, you're probably going to get sticker shock the first time you go to do so. It costs more than all my other insurance combined. So where do you buy it? Well, if you're a doc, you're not going to qualify for any subsidies on the exchange. So there's not really any point in going to the Obamacare exchange. You might as well go get a health insurance broker that works down the street, sit down with them, have them show you the options in your area and buy the one that matches what you need and seems to be best priced. You don't pay any more to buy it through a health insurance broker. So you might as well get their expertise to help you get the best one you can. Another option you might want to consider are these health sharing plans which generally have kind of a Christian focus on them, but these are often have the equivalent of premiums. They call them shares that are less than half as much as health insurance. Now it's not health insurance. There's some significant differences there that you really need to be aware of. You dump your health insurance and pick up one of these health sharing plans. But for a lot of people, including a lot of docs, they're really happy with them. You end up paying a lot less money out. And yes, you have to self insure some of the smaller things. But I've yet to hear of somebody who said the company did not pay as they agreed to pay. And when I say the company, I mean all the other people in this company cooperative that basically, you know, send you money when you have a health need. Okay, this one comes in via Facebook. Do you know if there are any free able accounts? I just found out that my State, Georgia charges 350amonth. An able account is a lot like a 529, but it's for disabled kids or disabled people. And basically it allows you to have, you know, some tax advantages and saving money for disabled people. Most of them have some relatively low expenses, just like 529s. These are all state specific. Some states don't even have them. I don't think Utah has one yet. I have to double check though. But typically like a 529, there's some fees. I mean it costs money to run this program. In Georgia, apparently they're charging 350amonth. I think that's pretty typical. Might you be able to find one that's a little bit cheaper in another state? Maybe. But you're going to pay some fees anywhere you go and you know, it's probably going to be somewhere between 30 and $100 a year. So I don't know that I'd go crazy because George is charging you 350amonth. That's probably very reasonable. Okay, here's another question that came in via Facebook. My tax advisor and I are unclear. Can you use an LLC as a pass through business or does it have to be an S corp for a physician making less than $350,000 per year? Joint. This question bothers me because the tax advisor is unclear on how this tax law works. Why would you go to a tax advisor when they're unclear on how something works? I mean, if you're having to teach your tax advisor multiple things, you probably need a new tax advisor or maybe you should just be doing it yourself. But in this case they're talking about the pass through business deduction. And if you're a doc with taxable income under 315,000 married filing joint, you qualify for this if you're self employed. And so that's a great deduction. That's new this year and I hope if you qualify for it you become very familiar with it because it can be really huge. I'm not going to qualify for it on my physician income because our total income is over that $350,000 limit. But the white coat investor income is going to qualify because it's not a service business as defined in the law. And so that's going to be a huge deduction for us this year. We're pretty excited about it. But the question is, can you use an LLC or does it have to be an S corp? Well, an LLC isn't a taxed entity. An LLC if there's only one member in it is taxed either as a sole proprietor or as a corporation. And if you've made the S election, an S corporation, if there's multiple members of the llc, you're filing either as a partnership, as a corporation. And so an LLC is basically disregarded as far as the IRS is concerned. For all they care, you're a sole proprietor, you're a partnership or you're a corporation. And so no, to get this deduction you don't have to be a corporation, you can be a sole proprietor or a partnership. And so no reason to incorporate just to get that deduction. Sometimes there are reasons to incorporate, particularly an S Corp in order to save some Medicare tax. But as a general rule that is not what you need to do in order to get this deduction. Alright, here's another question I got. I'm sure you get this question a lot. Yes, I do. My wife and I are trying to decide whether we should go ahead and buy a home at this time versus keep paying my loans down aggressively and put off home buying for another one to two years. First, a little background. I'm currently finishing my first year in private practice as a Radiologist. We decided a few months ago to move to a new location, be closer to to family now that we have a little one. So our new location and a new job. Currently I still owe about $125,000 in student loans at 6.8%. Refinance those suckers. Geez. If you're paying back down your student loans and you have 6.8% refinance them. I managed to pay about 100,000 off since graduating from fellowship last June. That's pretty awesome. I think so. At that time, about 225,000 total, our plan was to pay off my loans completely and save up for a down payment on a home. Currently I have enough to completely pay off my loans today, but that would clean us out. But I think we kept on this course. We could certainly have them paid off completely by the end of the year. Those guys are doing awesome. That's true. Living like a resident. My concern is that in doing so we'd be starting from scratch again, getting a down payment for a house. And by the time we'd be able to put 20% down again, we might be talking about interest rates in the 5 to 6% range. We probably will end up having to spend about 600,000 to a million for a house where we're going to move. So that increased interest rate could really hurt. Another option would be to utilize a physician's loan versus a 30 year conventional mortgage, probably with PMI at this time, and put down as much as possible. Eventually we'd hope to refinance to a better rate with a fixed 15 year mortgage and pay the student loans off over the next two to three years. To complicate things even more, I also worry that any house we buy now may not be our forever home. As I know from the online course, we probably need to be committed to living there at least five years to make it worth our time to recoup 15% in and out fees associated with home buying. I'm just unsure the best course of action. Sage advice would be much appreciated. Well, this doc's not only doing great, you know, aside from the fact that could have saved a few thousand in interest by refinancing loans, but actually understands all the relevant principles here and outlined them in the question. There isn't a right answer to this question. Right. The problem is there's really two questions here. The first one is do you rent or do you buy? The second one is do you spend more on housing now or do you wait before you spend more on housing? So the answer to that first question is that it's okay to buy when you are in a socially and professionally stable situation. The longer you're in the home, the more likely you are to come out ahead on that decision. At five years, I think it's about a 50, 50 proposition. The answer to two is that it's a very individual decision. Would it be okay for this couple to ramp up spending now? Yes. Yeah, probably would. They're doing great. They've got solid income. They've got a relatively low debt to income ratio. They've got basic financial literacy. That, of course, would probably mark the end of their live like a resident period. So would they be better off financially to delay moving up in housing for another year or two? Yeah, absolutely. But at a certain point, you know, you don't want to be the richest guy in the graveyard either. I think in this case, they're not very far out of residency. Delaying another year or two isn't a big deal. I think I'd probably do it. Would I delay another five years? Probably not. Then, of course, there's always the option of taking the physician loan, which isn't a bad option either, especially if you've got better uses for your money like maxing out retirement accounts or paying off high interest student loans, etc. Sometimes a down payment isn't a super high priority when it comes to your cash needs. It does give you a better deal on a mortgage most of the time. However, I think the big thing here, this stock's panicking a little bit about rising interest rates, right? He had a very reasonable plan, but then he sees interest rates going up and he's like, well, I don't want this million dollar mortgage at 5 or 6% when I could get it today at 4%. You know, when I see that kind of reasoning, I think about my first mortgage for the condo Katie and I bought in 1999. It was 8%. You know, even 6% seems very cheap to me. You know, that's cheaper than the second mortgage we got on our second home. And so these very low interest rates are pretty new, relatively speaking, for those buying homes. But even if you had to pay an extra 1% on a $500,000 or $600,000 mortgage, that's only 5 or $6,000 a year. It's not the end of the world. And if it helps you get a much better start on your financial life to delay a year or two, even if you end up paying a little bit more in interest on the mortgage, I think that's usually a good move. But you know, this is a very individual decision. It's not like there's a terribly wrong answer here. Okay, our next question comes in from the forum. I own the Vanguard 2020 target date retirement fund in a taxable account. I want to transition to just purchasing the individual components of such a fund myself. And that way purchase more tax efficient bonds. Because remember the bonds and the target date retirement funds, nominal bonds, they're not municipal bonds that are tax free. And when you're a DOC and you have bonds and taxable, you're probably going to want the municipal bonds. I'm thinking about the California specific fund because I lived there. I've owned this for more than a year. I've made over $4,000 in profit. Should I sell it and start from scratch? Does it make more sense to keep it and just use future invested dollars to start purchasing the individual components? I would appreciate someone helping me crunch or understand the numbers between these two choices. Well, if you sell it today, you're going to owe 1500 bucks in taxes on it, payable at the long term capital gains rate, which is probably 23.6%. You know, that's not the end of the world. $4,000 gain, 23.6%. What's that work out to? About $1,000 in taxes. So you could just start over there and sell it and move on. Another option is just to stop, stop reinvesting the dividends, don't put any more money in it and let it ride. But eventually you're either going to leave it to your heirs, give it to charity, or you have to sell it and pay the capital gains. Meanwhile, it's going to be kicking out that tax inefficient nominal bond, nominal bond interest. And you know, that's probably not something you want to deal with for the rest of your life. Nor do you probably want to deal with a holding in that taxable account that's only a few thousand dollars. And so I think in this case I'd probably move on. You just realize you've made a mistake. Remember, when you're starting a taxable investing account, there's a little bit more hassle when you make mistakes up front. When you're doing it in your Roth IRA or your 401k, you can basically sell with no tax consequences at any time. If you made a mistake, you just correct it. No big deal. In a taxable account, especially if you've got significant gains that may not be worthwhile. In fact, when you talk to lots of Older investors in their 70s, 80s, 90s, they they've got all kinds of legacy holdings in their taxable accounts and they're basically just waiting to die to pass those tax free to their heirs. Try to be smart about what you put in your taxable accounts. That means tax efficient investments like Total Stock Market Index Fund, Total International Stock Market Index Fund, municipal bonds, whether inside a mutual fund or outside a mutual fund. Try to be smart as you begin investing and taxable account. And if you ever have a need to just flush some of those investments with big gains, you can always donate them to charity. That's what we do with our highest gaining taxable investments. We give them to the charity, we get the full charitable contribution deduction and neither the charity nor us pay any long term capital gains taxes. Okay, here's one from a resident in orthopedic surgery about to graduate, planning to do a one year fellowship. Says he's accepted a job in my hometown with a guaranteed salary of 500,000 per year for three years. Sounds pretty awesome. After that there's potential for significant bonuses without a buy in. I owe $355,000 in student debt. I've done four years of IBR qualifying for Public Service Loan Forgiveness. My fellowship year does not qualify as it's not a 501C3, but my job afterward is my plan has always been to go for Public Service Loan Forgiveness. But now that I have that much student debt at 7.5% and SoFi has an offer to me to refinance for 4.5%, I'm thinking of bailing on the Public Service Loan Forgiveness and just paying $6,000 per month and getting rid of my debt in six years. The reason being, as you know, is because I'm concerned Public Service Loan Forgiveness will be capped, repealed, disqualified for my income bracket, etc. Knowing that I'm asking for advice and there's no right answer, if you or me would you bail on Public Service Loan Forgiveness to get the lower interest rate rate and a solid plan, become debt free in six or seven years or less, or stick with Public Service Loan Forgiveness and risk legal changes? Or after six more years of payments with the 7.5% rate going to get forgiven and not being there and me being stuck with a big pile of debt I could have paid off as a young attending? Thanks. I mean, this is someone that's already made four years of payments toward Public Service Loan Forgiveness and knows he's going to be working at a 501. This is a no brainer go for Public Service loan Forgiveness. You're going to be debt free in six years under either plan if you're planning to spend six years paying off the loan or whether you get forgiveness in six years at six years till you're debt free. But here's the way you hedge your bets on this. If you are going for public Service loan forgiveness, you still make big huge payments toward your student loans as though you are paying them off in a typical two to five year live like a resident, period. But you make them to yourself and to your investing account. And that way, if something happens to Public Service loan forgiveness and you get hosed because the program changes and Congress decides they hate doctors again, then you take that money from the investing account and you pay off the loan. Either way, you still get out of debt in the same period of time. That's the way I'd hedge my butts if I was going for public Service loan forgiveness. The one downside to that is if it ends up going under, you paid 3% more in interest than you otherwise would. But that's a relatively minor cost for the potential to get hundreds of thousands of dollars forgiven. All right, that brings us to the end of today's episode.

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