Dr. Dali (13:27)

Hi Dr. Dali, thank you for everything you do. The advice you provide and the encouragement you provide helps reduce physician burnout. I'm currently a family medicine and geriatrician physician practicing in Illinois. I have been in practice for the past three years currently working for a not for profit organization. My question is that I am currently part of the moon forgiveness program PSLF and plan to provide the 10 years of service. However, my current employer is also providing me with additional loan allotment of $25,000 per year. They stated that in order for them to reimburse me I have to make a payment coverage due to the Supreme Court rulings. I have not been able to make a payment and therefore they stated they can no longer continue to provide that amount. I want to ask you if there are any suggestions you can make in the conversation that I could have with them as alternative ways so that I do not lose the 25,000 dol of student loan assistance that was part of my contract. I appreciate any thoughts and I appreciate all the things you do for all of the physicians out there.

Dr. Jim Dahle (14:42)

Okay, a few thoughts. First of all, as I mentioned earlier, don't give up on pslf. Right? PSLF is almost surely going to be available in some form when this all goes through. Okay. We had a kind of a guest columnist write a post about what the world might you know, there's people out there that maybe aren't totally pro PSLF in the world was basically what the article said. And we got a bunch of feedback on it that people couldn't believe that we weren't advocating more strongly for PSLF to continue on. Well, I haven't really taken a position of advocating for or against pslf. There are white coat investors that are totally for PSLF in its current format. There are white coat investors that are totally against PSLF in its format. How it works is very much a political question. That means reasonable people can disagree about it. So in its current form, PSLF is still basically unlimited. Right? No matter if you have $800,000 in federal student loans, you can get them all forgiven via PSLF by following the rules and making those payments. So that's your plan. You're working for a qualified employer. I would stick with the plan for the most part. And truthfully, this $25,000 employer assistance thing doesn't matter that much. Assuming that your plan is still PSLF and all your loans are federal. Right. It doesn't really matter if they give you the $25,000 and you send it to them or not. Right? You don't have to make payments. You don't have to make payments. The problem with not making payments is actually that it takes longer to get to pslf. So it may be worth going into IBR if you're in Save now, for instance, going into IBR so you can actually make the payments, then not only do your payments count toward the 120 payments you need, but you get that $25,000. I would also have discussion with the employer. This probably isn't going to work, but I would have the discussion of changing the contract. $25,000 to the employer is $25,000 to the employer. They don't Care if they send it to your student lender or if they send it to you, it costs them the same. Right? My employee came to me and said, hey, I'd rather have my pay in this sort of a form. I don't care, whatever, we'll give you that right? So have that discussion. It's probably not going to work because it's probably a bigger employer and this is too much of a hassle for them to do that for you individually. But I'd probably try. In this sort of a situation, you should also check to see if you can make payments, because even those people in forbearance can make payments. And if you make payments, well, then you can get that money to make those payments with. In case, heaven forbid, something happens to PSLF or you go to another employer, then you at least your student loans are that smaller amount from making these payments. So those are the things I would try, but otherwise it may be until your student loans come out of forbearance, you're not getting your share of that $25,000 a year to make these payments with. So what happens when they change the policy so quickly? It's very hard for anybody to figure out what to do with their own finances. Let's try to get some stable policy. I don't even care so much what the policy is, but. But let's try to make it a little more stable. Can we? Okay. Our quote of the day today comes from Morgan Housel who said we think about and are taught about money in ways that are too much like physics with rules and laws and not enough like psychology with emotions and nuance. And that is the truth. Right? Personal finance is 90% personal, 10% finance. It's 90% behavior, 10% math. So controlling your own behavior is probably most important part of personal finance. All right, let's take a question about disability insurance. Hello. I am a female EM resident about to graduate and I've been looking for disability insurance. I've been looking at your website and podcast a lot. I have a specific question for our situation. My husband is an emi. I'm critical care resident and will not complete training for another three years. I feel like I need disability insurance while I'm going to be the sole attending income. But in three years when we have.

Dr. Dali (18:37)

A double attending income, I feel like.

Dr. Jim Dahle (18:39)

I may not need it. My question is one, do I still need disability insurance? Should we both get it and if we don't need it at that point.

Dr. Dali (18:48)

Do I really need a future purchase rider?

Dr. Jim Dahle (18:50)

Which it seems is normally Recommended, but may not be for our situation. Thank you. What a great question. First of all, thanks for what you're doing. You know, it's interesting, I was just looking at statistics this morning about emergency medicine, which over the last six or seven years has gone from being a pretty competitive specialty that nobody could ever scramble into to kind of lower tier as far as competitiveness in the match. A lot more dos now can match into emergency medicine. A lot more international grads are matching into emergency medicine. A lot more people are scrambling into emergency medicine. Lots of things that went into play for that, one of which was a paper that came out in the Annals of Emergency Medicine, projecting, you know, that there were gonna be too many emergency docs in a few years. And medical students see that sort of stuff and they react to it. You know, if they're on the fence between anesthesia and em, well, maybe they're more likely to go into anesthesia. So it's been an interesting last few years for emergency medicine. But I tell you what, the world still needs emergency docs. So thank you to both of you for what you're doing. I love your question. Not every doc needs disability insurance. What every doc needs is a plan, a financial plan in the event they get disabled. Now, in my case, when I came out of residency, I was the only one working. Katie was home taking care of our oldest, was pregnant with our second. Mine was the only income. Disability insurance was very important for our family. We were not wealthy and we had a sole income that was completely dependent on my ability to turn time into money. And so disability insurance, super important for us at that point in my career. Now, some couples are, you know, maybe they're already financially independent. Right? We've since dropped my disability insurance policy. I don't have any disability insurance anymore because we're financially independent. We don't need it anymore. Other people have a plan to rely on their spouse, right? This is common for dual doc couples, and there's no right or wrong answer here. Some of those couples decide to each buy a small policy on each of them. Some of them just say, we're not going to have a policy at all and we're going to rely on our spouse in the event that we become disabled. Obviously, there's some risk there, right? First of all, you got to be okay with half the income. You also have to be okay with the possibility that both of you get disabled or the possibility that you get divorced and then don't qualify by disability insurance or just have to pay a lot more for it. So there's some risks to that plan. And other dual doc couples decide we're just going to buy a full policy on each of us because we want the coverage and frankly, we don't want to spend less money in the event we get disabled. And so they buy two full policies. All of those are reasonable things. You just need a plan. This is what we're going to do. Write it down and do that. But the nuance in this question I really like. Right, because one is going to be the main earner for a few years and then the other one's going to come online when they come out of training. And so yeah, it's totally reasonable to just buy insurance for a few years. And you're graduating now. I would have told you to buy disability insurance a few years ago. In general, the time to buy it is as an intern, not as a graduating resident. But maybe you're saying we'd just live off the other dock back then. I don't know what your plan was back then. More likely if you're like most white coat investors, you just didn't think about it. You were busy being an intern. So I like your plan. I like the plan of not buying additional purchase rider. But truthfully, the time you usually buy that ability to increase coverage without being able to prove your insurability is for the policy you buy as an internal, then you exercise it or buy another policy as you graduate from residency. Right? For someone who's buying it as they're graduating from residency, you already make enough money that you can buy as big of a policy as you want to buy. And so I don't know that you need it at that point anyway. But certainly if you're planning on dropping this thing in two or three years, you don't need the ability to buy more coverage down the road. Another thing to consider is there's at least one company out there that will let you do a graduated premium, meaning the premiums are very low in the beginning and then higher later rather than a level premium throughout your career. I think most people choose level premiums. I think most companies only offer level premiums. But there's at least one company that will offer graduated premiums. And this is worth talking to your agent about your independent agent that can sell you a policy from any company like the ones we recommend, the whitecoatinvestor.com insurance. You simply go, hey, I think I'm only going to have this thing for three or four years or whatever. So how can we save money, right? Can we drop the future purchase option. Oh yeah, you should drop that. Can we get the graduated premiums and just make low premiums for four years and then just cancel the thing? Yeah, you could do that as well. That's probably a great deal for you. Let's look into that policy. Just have this discussion with them. And I think those two changes are very reasonable for somebody in your situation. But the first thing is have this discussion with your spouse. What is our plan if you get disabled? What is our plan if I get disabled? What is our plan if both of us get disabled? What is our plan if we get divorced? Right. Work through all that, have a plan and then buy insurance as needed to fulfill that plan. Hope that's helpful for you. Okay, let's talk a little bit about bonds. We're going to change gears a little here. Another question off the speed.

Srijan (24:19)

Hey Jim, this is Srijan from New Hampshire. Glad to hear that you are doing well and I'm very thankful for all that you do. I've learned a lot from your show. I have a question about bonds as you get closer to retirement. So I understand that during your 30s, 40s, 50s, bonds are a good diversifier based on their correlation with equities. But what I'm wondering is when you're about to retire, are you in bonds for those same diversification reasons or is it because you want to have that predetermined cash maturing or coming in at a given time? Trying to help out my dad who might retire in about five years. We're trying to decide what to do with new money coming in this year for the bond allocation. Initially we were thinking to go 50, 50 to TIPS and nominal bonds. For the TIPS we were just going to buy them on Fidelity. And for the nominal bonds, I was doing some research and thinking to do either a bond fund like BND or just buy an individual five year treasury note. Now what I noticed is that the total inflation adjusted return for a fund like BND is pretty close to zero. Which got me thinking, why even invest in nominal bonds in the first place? Any advice would be greatly appreciated. Thank you so much, Jim, for all that you do.

Dr. Jim Dahle (25:38)

Okay, let's talk about bonds. Bonds are one of the two main asset classes out there, right? Stocks and bonds. Stocks tend to have higher returns in the long run. Bonds tend to have more stable returns. Both have their advantages, both have their disadvantages. It's worth understanding both of them. Now there's other asset classes, right? You can get into real estate and there's lots of speculative asset classes out There art and collectible cars and cryptocurrency and empty property. And there's lots of things out there that you can invest in these alternative investments if you want. But everyone ought to at least consider owning some stocks and some bonds. Pretty much think everybody ought to own some stocks and most people ought to own some bonds in their portfolio. There are a few benefits of bonds. One is their returns are much more stable than stocks. Now, I know the last few years it didn't feel like that because 2022 was the worst year ever for bonds. In all of recorded history, 2022 is the worst year for bonds. Why was that? Well, because interest rates went up 4% in like six months. Rising interest rates are very tough on bonds, right? Because now you can buy a bond that pays 4% higher. Why would you buy the old bond? So of course that one has to be discounted enough until the yield on the two bonds are equal. So when you look at recent returns for bonds, if that period includes 2022, the returns are going to look terrible. So if you're looking at returns over the last five years, over the last 10 years, bond returns do not look awesome. Take 22 out of the mix and they don't look so bad. Though the other thing to keep in mind is you don't want to invest Looking in the rearview mirror, the best projection of your future bond returns is the current yield on the bonds. This is for high quality bonds like treasury bonds, right? So if they're yielding 4%, that's about what you should expect as a return out of those bonds. You shouldn't expect whatever they returned in the last five years and project that into the near future. That's not the way you invest now. If interest rates fall dramatically, your returns are going to be higher. If interest rates rise some more, your returns are going to be lower. And that's just the way bonds work. They're very sensitive to interest rates now. So why do people include bonds in their portfolios? Well, a couple of reasons. The first one is that uncorrelated assets are generally a good thing in your portfolio. And the correlation between high quality bonds and stocks is about zero. That's a good thing, right? For example, the correlation between US stocks and international stocks is like 0.8. That's dramatically higher than zero, which is what you get with the bonds. So that correlation is a good thing. When stocks zig bonds are much more likely to zag. So you get that benefit of a diversified portfolio. You also get a less volatile portfolio because bond returns Whether positive or negative, tend to be much more muted than stock returns. Adding some into the portfolio of stocks decreases volatility. That makes it easier to hold the portfolio. In a nasty market downturn. You simply become better at buying and holding and staying the course. And so it's really important. The worst thing you can do is put all your money into stocks and then panic sell in a bear market. Right, because most bear markets will resolve themselves in a year or two or three or five or whatever. And if you panic, sell, and you sell at the bottom, especially if you do this late in your career, it's very, very hard to recover from that financially. So the key is to not overestimate your own risk tolerance. And until you know what your risk tolerance is, you're probably better off erring on the side of too conservative of a portfolio. Heaven forbid. You start out your life with a 6040 portfolio. You go through a bear market or two and you're like, you know, that's really no big deal for me. I totally get this long term thing. I'm going to now bump it up to an 8020 portfolio. I think that's a much better way to do it than to start out as 100% stocks because somebody told you you should be 100% stocks. And then you panic in your first nasty bear market and you don't even invest anything in stocks for the next 20 years. That is a much bigger tragedy than if you just held a little bit too much in bonds in the beginning. So I generally counsel people, figure out what you think you ought to be, dial it back just a little bit until you go through a bear market. It really doesn't matter what your returns are the first two or three or five years anyway, right? It's all about how much money you're putting into your account at that point. So if you get a little lower return, it's really no big deal. And figuring out your risk tolerance is far more important in those situations. Okay? Another reason why bonds can be good is because it's possible for bonds to outperform stocks even in the very long term. Now, historically, if you look back in the U.S. i think there still hasn't been a period of 20 plus years where bonds outperform stocks. That's not necessarily the case in other countries. And Even in the US I think there's been a 10 or 15 year period or two where bonds did outperform stocks. For example, look at the lost decade of the 2000s, the return on the S&P 500 in the 2000s was pretty darn close to zero. I think it was slightly over zero. But from 2000 to 2010 that's basically what it was. Now part of that is because that included the tech meltdown of 2000-2002 and included the global financial crisis in 2008, 2009. Right. So you get two big huge bear markets in a 10 year period and well, guess what? Stocks didn't do that. Awesome. Well, bonds did a lot better over that 10 year period and that can happen for longer periods of time. There's no guarantee that stocks will outperform bonds in the long run. That is not a guarantee. And so that's another benefit of bonds. Something else that's available with bonds is they can be indexed to inflation. Right? There are I bonds, you can do that. Tips, you can do that. You can't really index other asset classes to inflation. Right? I mean in the long run, gold seems to keep up with inflation, more or less. You know, you're ounce of gold bought a nice man's suit 800 years ago, it buys a nice man's suit today. It basically keeps up with inflation, but not in any sort of short term way. Although to be fair, tips don't necessarily correlate perfectly with inflation either. People go back and they look at 2022 and they see, oh wait, TIPS went down in value in a year when inflation was really high. Well that's true because real interest rates went up and interest rates have a much bigger effect on the value of your TIPS than the inflation adjustment each year does. And so that is true. Now, did TIPS do better than nominal bonds that year? Yes, they did, but they certainly didn't do awesome in a year with pretty high inflation. So keep that in mind as you buy bonds. Now you can buy individual bonds. I generally only recommend people do that with Treasuries. If you're buying municipal bonds, you're buying corporate bonds, you're buying mortgage backed bonds. I think you need a diversified portfolio of them. I think you probably ought to use a bond fund. But there are some benefits to just buying individual bonds. You know when it's going to mature, you're not going to have a loss of principal, at least on a nominal basis if you do that. So some people make a bond ladder, for example, they want to have a certain amount of money to spend every year. And so they start building this ladder of bonds that mature every year for five years or 10 years or 30 years. A lot of times they'll even use treasury inflation protected security at Tips to do this. And then they know they'll have that amount of money in real dollars at that date. And that allows them to have some guarantees in their income and what they can spend throughout their retirement. And they like that. It's also fine to just use a bond fund. It's a very simple way to do it. But bear in mind there is a possibility that you get hosed if all the other investors bail out of a bond fund and they end up having to sell bonds low. And that can hurt you as the remaining person in the fund. And of course, there is also the possibility to lose principal in that bond fund because the fund itself, to maintain its plan, its method of investing, maybe it's trying to hold bonds of a certain maturity. They may end up selling bonds low as well and buying new ones to replace them. So the managers can cause you to lose principal in a bond fund, which you wouldn't if you held an individual treasury bond to maturity. So for those reasons, some people would prefer to have a little more complexity in their life. Manage your portfolio of bonds themselves, individual bonds, rather than having a bond fund manager do it. I think most people just lean toward keeping it simple and using a bond fund like bnd. I think that's a perfectly fine bond fund. It owns all the corporate bonds in the U.S. all the treasury bonds in the U.S. all, mortgage backed bonds in the U.S. it's a very diversified bond portfolio. And I think it's perfectly reasonable to have it be part of your or your parents portfolio. Now, in general, most people reduce the volatility, the risk of their portfolio as they approach retirement. Those are the most important years for your returns. If you've heard of the phrase sequence of returns risk, that's what we're talking about the last few years before you retire, your first five years or so in retirement. Having bad returns then especially while you're also withdrawing from the portfolio, can have a big impact on how much you can spend in retirement, whether you run out of money in retirement with a certain level of spending. So a lot of people do dial back the risk in those last few years before retirement and the first few years in retirement. And some people continue to dial back that risk throughout their retirement. There are some good arguments for and against that practice, but for the most part, that's the time to be thinking about some way to deal with sequence of returns risk. And for a lot of people, the way they do that is just by having a little bit more money in bonds or by building a bond ladder like I discussed. So I hope that's helpful to you. You probably ought to get some bonds into your parents portfolio if you're helping them to manage it. You never know when a big nasty stock market crash is going to come that isn't going to come back for a decade. It could happen. And having some bonds in there that aren't necessarily going to do that may be a good way to continue to survive financially in the event of something like that. Hope that's helpful. Next question comes in by email says I'm a longtime follower of 10 plus years and a fellow emergency physician now turned intensivist Is bond interest for a high earner a modified adjusted gross income of greater than $250,000 essentially taxed at a higher rate than ordinary income due to the additional niit. So let's talk about niit, right? This is Obamacare tax, for lack of a better term, PPACA tax. And the way it works, okay, is that if you go earn money and it's more than $250,000 a year, you pay 2.9% in Medicare tax on that money plus 0.9% in Obamacare tax for a total of 3.8%. If the money is unearned, like from bond interest, you pay 3.8% in NIIT. So it's the same whether money is earned, whether the money is unearned. If it's ordinary income, you're going to pay the same amount of money. So no bond interest is not taxed higher than your ordinary income is. That said, if you're in a higher income tax bracket, you probably ought to look into whether it's worth investing in municipal bonds. Municipal bonds are federal tax free. If it's a municipal bond from your state, it's also state tax free, income tax free, and for those in higher brackets, a lot of the time the after tax yield on municipal bonds is higher than you will see from non municipal bonds. So I hope that's helpful to you. Okay, Another question comes in by email. A couple of questions actually about retirement numbers. I understand picking a number to aim for retirement and the rough calculations on how to achieve it what my income would be based on that target. But I am lost as to how to best estimate what the target should be. Sure, I can do 25x, but I am early career earning $400,000 on a W2 a year and have trouble imagining what I will need or want to live on when retirement ultimately hits. So any help or tips or tricks would be greatly appreciated. This is what happens when you start Planning for retirement early, right? I'm a big fan of you planning for retirement early. I'm a big plan of you starting to save for retirement early. I'm certainly a big fan of you becoming financially literate and learning how all this money stuff works. The problem is some of us, by our very nature, are super planners. And we want to plan out every detail of what our life's going to be like 30 years from now. And we got to just relax. We got to just relax and realize things can be adjusted as you go along. So pick something you think is reasonable and change it when you think change is warranted. Expect your tastes and your spending to rise a little bit if you're like most people. Let me give you an example. Katie and I wrote up a financial plan in 2004, right? I was finishing my PGY one year. Maybe it was the start of my PGY two year. That's when we wrote our financial plan out. The amount of money we thought we needed at that point in order to have enough to never have to work again was about $2.7 million in $2004. That works out to be like $4 million today with inflation. Well, as we got close to that and exceeded that, we realized, you know what, we kind of do like spending a little bit more money. And so our number, using the 25x rule of thumb, had to necessarily go up as we decided we liked spending more money than that. That's probably the case for lots of people. So pick something reasonable and change it when you think change is warranted. Okay, A second question says my spouse is stay at home right Now. I plugged some random incomes into the Social Security calculators and it seems that even with a modest income arbitrarily picked at $5,000 a year, you could pay minimal self employment taxes and collect over $3,000 a month in Social Security, assuming you wait the full retirement years. Is it worth it for my wife to create a solo gig that she makes and reports a minimal income to collect Social Security payments when we retire? Any magic minimum numbers to hit? Well, the problem with this plan, which is not a terrible plan, but there is a big problem with it, the problem is that the alternative is pretty good and takes zero work. It appears that this questioner did not realize that your stay at home spouse qualifies for half of your benefit at full retirement age just based on being married. So if you got a DOC working and a stay at home spouse, right, the doc's gonna get 100% of their benefit. The stay at home spouse is gonna get 50% of the DOC's benefit. So that's pretty darn good. You know, a doctor that works for 30 years is gonna have a pretty high Social Security benefit. And half of that is still better than a whole lot of people have. And if the doc dies first, well, the spouse gets the doctor's benefit, not the half of the doctor's benefit. And so it goes down from $1,500,000 of the doctor's benefit to one of the doctor's benefit. But that's pretty good, right? That's the alternative for the spouse. Never going to work, never earning anything, not starting this minimum solo gig seat. So that much is true. That said, Social Security is somewhat progressive, right? The return on your investment in the beginning is pretty darn good, right? They talk about bend points with your Social Security benefits, and I think I'm just now passing the second bend point in my career. Katie's nowhere near the second bend point in her career, but she's now got a benefit that's more than half of my benefit, you know, projected out. And so the amount of work that she's done has earned us a little more money than what we would get if she were just getting half of my benefit. And so this can make sense, especially if your spouse actually wants to work, wants to work a significant amount. But if your spouse just works a little bit and gets that kind of minimum Social Security benefit, just barely gets the 40 quarters in, this is probably not going to be more than 50% of your benefit. So I think I probably wouldn't bother. That said, if your spouse wants to go work for other reasons, this could be one of the benefits of doing that. Hope that's helpful. As I mentioned at the beginning of the podcast, SOFI could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. Visit sofi.comwhitecoatinvestor to see all the promotions and offers they've got waiting for you. One more time, that's sofi.com whitecoatinvestor Sofi student loans are originated by Sofi Bank NA member FDIC. Additional terms and conditions apply. NMLS 696891 all right, thanks. For those of you leaving us five star reviews and telling your friends about the podcast, a recent one came in that said, jump started my financial education. Love the show, only wish I found it sooner. Great primer to stimulate learning about finances for a doc, especially for someone who isn't quite ready to dive into reading a few financial books. Five stars. Great. I appreciate that review. That does help get the word out to others about this podcast. Don't forget, if you're interested in doing paid surveys, go to whitecodeinvestor.com survey heaven forbid you don't have any surveys for you. It's not like it takes you a lot of effort and trouble to apply for these things and see if you get screened out of them. Some of them are even starting to pay you a few bucks when you do get screened out of the surveys, which I think is a nice change we've been pushing these companies to make for doctors because people get really bitter when they spend five minutes trying to see if they qualify to actually take the survey and then they don't and they don't get paid for their five minutes of time. So now you get a few bucks at least for those five minutes of time with some of the survey providers. Let us know if you're having a good experience with them. Let us know if you're having a bad experience with them. We'll take them off the list and replace them with people that are going to treat white Coat investors right. All right, thanks for being here. Keep your head up, your shoulders back. You've got this. We'll see you next time on the White Coat Investor 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.