Will You be a Millionaire?

Quarter of physicians still NOT millionaires by age 65

https://www.medscape.com/slideshow/2019-compensation-wealth-debt-6011524#5

https://www.whitecoatinvestor.com/physician-millionaires/

https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research

https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research

Common Mistakes in Your Second Job

• Financial Literacy
• Lifestyle Inflation
• Savings Rate
• Investment Risk and Cost
• Insurance

https://www.whitecoatinvestor.com/10-biggest-financial-mistakes/

How much does this cost?

• $640 Monthly Payment

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• $39,500 Purchase Price

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• $45,800 Total Payments
• 5% Interest
• 6 Years
• $6,300 Interest

Opportunity Cost of Missed Investment

Making Exponential Growth Work For You

https://investor.vanguard.com/investor-resources-education/education/model-portfolio-allocation

Continuing Periodic Investments

Start Saving at 25 vs. 35?

Start Saving at 25 vs. 35?

Start Saving at 25 vs. 35?

Start Saving at 25 vs. Save MORE at 35?

Start Saving at 25 vs. Save MORE at 35?

Start Saving at 25 vs. Save MORE at 35?

Start Saving at 25 vs. Save MORE at 35?

Not sure what stock to buy? Just buy all of them

https://www.spglobal.com/spdji/en/research-insights/spiva/

https://seekingalpha.com/article/4135244-warren-buffett-wins-1m-bet-made-decade-ago-s-and-p-500-stock-index-outperform-hedge-funds-and

Investment Volatility Risk Tolerance

Investment Volatility Risk Tolerance

Investment Volatility Risk Tolerance

Investment Volatility Risk Tolerance

Investment Volatility Risk Tolerance

Investment Volatility Risk Tolerance

https://www.portfoliovisualizer.com/backtest-asset-class-allocation

Investment Debt Leverage

25% Return on Investment

(Cash)

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100% Return on Investment

(4x Leverage)

Investment Debt Leverage (Loss)

-25% Return on Investment

(Cash)

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-100% Return on Investment

(4x Leverage)

Investment Debt Leverage (Severe Loss)

-50% Return on Investment

(Cash)

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-200% Return on Investment

(4x Leverage)

Income Tax Brackets

• $170,000 salary

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• How much federal tax?

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• How much do you keep?

• $180,000 salary?

Marginal vs. Effective Tax Rate

0% $12,950 $25,900

Standard Deduction

2022 Federal Tax Brackets

Federal + State Income Tax

Single

Married-Joint

Gross Income vs. Take Home Pay (Single)

Gross Income vs. Take Home (Married-Joint)

Where to put your next dollar of savings?

(Retirement) Investment Accounts

Low Income 🡪 Marginal Tax Rate at Contribution < Effective Tax Rate at Withdrawal

(Retirement) Investment Accounts

High Income 🡪 Marginal Tax Rate at Contribution > Effective Tax Rate at Withdrawal

Investment Account Comparison Calculator

Total Compensation

Financial Planning Checklist

• Net Worth Balance Sheet
• Emergency Fund
• Debt Payment Plan
• Target Goals
• House Down Payment
• Retirement
• Kid’s College

https://www.moneyguy.com/wp-content/uploads/2019/12/2019_12_09_financial_plan_ebook.pdf

• Automate Cash Flow -> Forced Scarcity
• Estate Planning (Will, Trust, DPoA)
• Insurance: Disability, Life, Umbrella
• Employer-Sponsored Retirement Plans
• Company Match
• Max Retirement Accounts (+Roth IRA)

Tax Deductions – Standard vs. Itemized

• Standard Deduction: Better for 90%+ of people

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• Itemized Deductions:
• E.g., Buying house in California 🡪 Mortgage Interest Payments
• Marginal Tax Rate redirected to your cause instead of gov

Internal Rate of Return Calculation Example

• Excel XIRR Function

Miscellaneous Heuristics and Calculations

• Rule of 72
• 4% Withdrawal Rate
• Excel Functions:
• FV = Future Value
• XIRR = Internal Rate of Return
• Value of debt interest vs. savings account vs. bonds vs. stock investing

Miscellaneous Factoids

• Millionaires
• >85% first generation (79% No inheritance, only 3% inherited >$1M)
• Most of it through regular employer 401K and equity in home
• Average age 49 after 28 years investing (even avg <$100K salary)
• 70% lost by second generation, 90% by third generation

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Financial Basics 

for Residents

A Presentation Developed by 

The White Coat Investor

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• These slides were developed by The White Coat Investor, LLC, not a financial advisor, accountant, or attorney.
• The presenter probably isn’t a financial professional either.
• As such, this presentation is for your information and entertainment only and does not constitute formal, personalized financial, accounting, or legal advice.
• The presenter of these slides has not been approved, certified, or trained by The White Coat Investor, LLC. In addition, the presenter may have modified the slides prior to presenting them to you. The originals can be found at www.whitecoatinvestor.com
• The accuracy of any and all information in this presentation should be double-checked using a reputable source.

Disclaimer

Your Second Job

• Med School/Residency made you a clinical expert
• No business training
• No personal financial or investment training
• A Pension Fund Manager in a “401(k) World”
• Family CFO
• Not automatic

Financial Basics for Residents Financial Literacy

Your Second Job

• You must spend time learning about finances/business
• You cannot win the game if you don’t learn the rules
• Hire professionals to teach you, not just do it for you
• You must also spend the time to take care of your finances/business
• You cannot be “100% clinical” and be financially successful

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Financial Basics for Residents Financial Literacy

Initial Financial Education

Financial Basics for Residents Financial Literacy

• Read 4 books
• Personal Finance: Personal Finance for Dummies by Eric Tyson
• Investing: The Bogleheads Guide to Investing by Taylor Larimore et al
• Behavioral Finance: How to Think About Money by Jonathan Clements
• Physician-Specific finance: The White Coat Investor or Financial Boot Camp by Jim Dahle
• The cheapest, easiest, good financial book to get through
• If You Can by William Bernstein (16-page free PDF) www.etf.com/docs/IfYouCan.pdf
• Put a written financial plan in place

Continuing Financial Education (CFE)

• Read one good financial book each year
• Follow a good financial blog, reading 5-10 posts/month
• Listen to a good financial podcast

Financial Basics for Residents Financial Literacy

Student Loan Management

Financial Basics for Residents

Student Loan Burdens Worsen

• Mean debt in 1999 ~$122K (inflation-adjusted)
• Mean educational debt in 2020
• $260K for DOs
• $205K for MDs
• ½ of indebted docs have more
• $300K-$450K is becoming more common
• Government won’t refinance them when rates fall
• Current resident loans? 5.4%-10%

Financial Basics for Residents Student Loan Management

How Bad Can It Be?

• Monthly payment on $400K at 7.5% = ~$4,900 per month for 10 years
• If gross income = $210K and net income = $161K, $4,900 per month is 37% of net income
• It’s only getting worse

Financial Basics for Residents Student Loan Management

We’re from the Government and We’re Here to Help

• ICR
• IBR
• PAYE
• REPAYE
• PSLF
• If you have federal loans, you need to become or hire an expert in these programs

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Financial Basics for Residents Student Loan Management

The Income Based Repayment Programs

Financial Basics for Residents Student Loan Management

The Income Driven Repayment Programs

• Payments have nothing to do with interest rate
• Payments have almost nothing to do with debt burden
• They are based solely on income and number of people in your family

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Financial Basics for Residents Student Loan Management

IBR

• Income Based Repayment
• The New, Better ICR (lower payments, more hardship features)
• Only income-based plan allowed if you have FFEL loans instead of Direct Loans
• Payments are 15% of discretionary income (if you borrowed before 1 July 2014) or 10% (if you borrowed after)
• Taxable forgiveness after 25 years of payments if you borrowed prior to �1 July 2014 or 20 years if you borrowed after
• Payments count toward PSLF

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Financial Basics for Residents Student Loan Management

PAYE

• Pay As You Earn
• The New, Better IBR
• Not eligible if loans from pre-2007 or if no loans after 2011—must use IBR instead
• Payments = 10% of Discretionary Income with a maximum of regular payment on a 10-year plan
• Taxable forgiveness after 20 years of payments
• Payments count toward PSLF

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Financial Basics for Residents Student Loan Management

REPAYE

• Revised Pay As You Earn
• The New, Better and Worse PAYE
• Payments = 10% of Discretionary Income WITHOUT a maximum
• Taxable forgiveness after 25 years of payments (20 for undergrad loans)
• Payments count toward PSLF
• Subsidized interest during residency
• Higher Payments AFTER residency

Financial Basics for Residents Student Loan Management

PSLF

• Public Service Loan Forgiveness
• ICR, IBR, PAYE, and REPAYE payments count
• 120 on-time payments while working full-time for a 501(c)(3)
• Tax-free forgiveness
• Most residencies and fellowships are 501(c)(3)s
• Most academic positions are 501(c)(3)s
• Many doctors working at non-profit hospitals are not employees of 501(c)(3)s
• VA, military, CHCs, public health, etc.

Financial Basics for Residents Student Loan Management

PSLF

• Why PSLF Works
• Lower payments during training
• Amount forgiven = difference between residency payments and regular payments
• Amount forgiven equals about what you owed at med school graduation
• PSLF usually best option if you qualify
• PSLF Side Fund (to hedge against legislative and career risk)

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Financial Basics for Residents Student Loan Management

The Other Option

• Student Loan Refinancing
• Impossible after 2008 Global Financial Crisis
• Possible again starting in 2013
• Typical rates for an attending with good financials
• Variable 5 year of 2%-4%
• Fixed 5 year of 3.5%-5%
• Variable 10 year of 3%-4.5%
• Fixed 10 year of 4.5%-6%
• You can typically get these once you have an attending contract in hand

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Financial Basics for Residents Student Loan Management

Student Loan Refinancing

• You must qualify
• All docs not offered the same rates
• You may not be offered the same terms
• Highly dependent on debt levels, income levels, and credit
• Now possible to refinance during fellowship

Financial Basics for Residents Student Loan Management

Student Loan Refinancing Companies

WCI has negotiated lower rates and cashback with some refinancing lenders.

Discover your options at www.whitecoatinvestor.com/student-loan-refinancing/

Financial Basics for Residents Student Loan Management

• Splash
• Earnest
• ELFI
• Credible
• Laurel Road
• SoFi
• 10+ more

Refinancing in Training

• $100 a month payments in training
• Refinance private loans
• REPAYE may be better for federal loans
• Compare effective interest rates
• Don’t refinance until sure about PSLF

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Financial Basics for Residents Student Loan Management

Disability �Insurance

Financial Basics for Residents

Your Greatest Asset

• Protect your greatest asset
• 2019 Average physician income: $313,000
• Typical career: 30 years
• $313,000 X 30 = $9.39 Million
• Physicians really do become disabled
• 12%-18% of Americans currently disabled
• Up to 1/3 will have a disability of at least 90 days
• Up to 1/8 will have a disability of at least 5 years
• 90% caused by illness
• Docs have higher rates of musculoskeletal and mental disabilities

Financial Basics for Residents Disability Insurance

Long-Term Disability Insurance

• Pays a monthly benefit If you become disabled for > 90 days
• Benefit generally tax-free unless premium paid by employer with pre-tax dollars
• You can generally insure up to 60%-70% of your income

Financial Basics for Residents Disability Insurance

Long-Term Disability Insurance

• Buy it now
• How much?
• Current spending plus
• Retirement Savings (Most policies only pay to ages 65-67)

Financial Basics for Residents Disability Insurance

Individual vs Group

• Individual policies
• Stronger definition of disability
• Portable
• More options
• More expensive
• More difficult underwriting
• Group policies (employer provided)
• Weaker definition
• Often non-portable
• Must take what is offered
• Cheaper
• Fewer pesky questions and possibly no exam at all

Financial Basics for Residents Disability Insurance

Riders

• Residual/Partial disability
• A must have
• COLA
• A must have in first half of career
• Future Purchase Option
• Most residents should buy
• Catastrophic Disability
• Consider just buying larger policy
• Retirement Rider
• Only worth it if you cannot buy as large of a policy as you like

Financial Basics for Residents Disability Insurance

Saving Money

• Long-term disability insurance is expensive
• 2%-6% of monthly benefit
• $200-$600 per month for a $10,000 benefit
• Consider individual + group policy
• Buy from an independent agent
• Ask for discounts
• Women–Look for Unisex policies
• Cancel unneeded riders
• Consider graded premiums
• Cancel policy when you become financially independent

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Financial Basics for Residents Disability Insurance

Term Life �Insurance

Financial Basics for Residents

More Income Insurance

• Must buy if anyone else depends on your income
• Also consider covering a stay-at-home parent
• Pays a tax-free cash benefit upon your death
• Term is “pure” life insurance
• You die during the term, it pays

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Financial Basics for Residents Term Life Insurance

Term vs Whole Life Insurance

• Inexpensive
• 10-year policy = $17/month for a $1M benefit (healthy woman)
• 20-year policy = $27/month for a $1M benefit (healthy woman)
• 30-year policy = $45/month for a $1M benefit (healthy woman)
• Unlike disability, women cheaper than men
• Useful for income protection during your career
• Whole life = life-long death benefit plus low return investment
• Costs 8X-20X as much for same benefit
• A product designed to be sold, not bought
• 75% of physician purchasers regret their decision

Financial Basics for Residents Term Life Insurance

How Much to Buy

• Decide what you want the money to do
• Allow spouse to never work?
• 25X annual expenses
• Pay off house?
• Pay for college?
• Remember federal and most private student loans are forgiven at death
• Add it all up and round up to nearest million
• Typically $2M-$5M for most docs

Financial Basics for Residents Term Life Insurance

Use Roth �Retirement Accounts

Financial Basics for Residents

Retirement Accounts Rule!

• Asset protection
• Most states protect 401(k)s and IRAs from your creditors
• Estate planning
• Easy to designate beneficiaries, plus stretch IRAs
• Cheaper rebalancing
• No taxes due upon selling an asset
• Better behavior
• Penalties make it less likely you’ll raid the account inappropriately
• But there are still plenty of ways around Age 59 ½ rule

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Financial Basics for Residents Use Roth Retirement Accounts

Retirement Accounts Rule!

Lower taxes = Higher returns

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Financial Basics for Residents Use Roth Retirement Accounts

Source: Retire Secure by James Lange

Roth vs Traditional in Residency

• Tax-deferred = up-front tax break
• Tax-free (Roth) = tax-free at withdrawal
• You will probably be in a higher bracket in retirement than in residency
• Use if no fed student loans or no REPAYE subsidy
• Tax-deferred (traditional) contributions can reduce IDR payments, increasing REPAYE subsidy and PSLF
• Use if getting a REPAYE subsidy or going for PSLF
• Be sure to get any employer match
• Ask HR for plan document and read it

Financial Basics for Residents Use Roth Retirement Accounts

A Written �Financial Plan

Financial Basics for Residents

The Secret to Physician Wealth

• Make a lot of money
• Don’t spend a lot of money
• Make your money work as hard as you do
• Don’t lose your money
• Creditors, Taxes, Death, Disability, Speculation
• You’ve already won the game (the rest is easy)
• Convert your high income into a high net worth

Financial Basics for Residents A Written Financial Plan

The Secret to Physician Wealth

• Live like a resident while in training
• Continue to live like a resident for a few more years
• Carve out a massive chunk of your income with which to build wealth
• Pay off loans
• Save up down payment
• Max out retirement accounts
• Then enjoy the good life after 2-5 years

Financial Basics for Residents A Written Financial Plan

Look at the Numbers

• Average Resident Salary: $60K
• Average Attending Salary: $320K
• Taxes $88K
• Living expenses $60K
• $172K to build wealth
• Pay off loans
• Save up down payment
• Max out retirement accounts

Financial Basics for Residents A Written Financial Plan

Look at the Numbers

• How long will your loans survive against a $172K/year onslaught?
• $100K = < 1 year
• $200K = 14 months
• $300K = < 2 years
• $400K = < 3 years

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Financial Basics for Residents A Written Financial Plan

Have a Written Plan

• First attending year is the most important year of your financial life
• Much easier to grow slowly into your attending income than cut back later
• Don’t blow your best chance to achieve financial freedom
• Plan out what you will do with your first 12 paychecks BEFORE you ever �get them
• Hit the ground running with a written plan

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Financial Basics for Residents A Written Financial Plan

Contract �Evaluation

Financial Basics for Residents

Be Careful Moving into the Real World

• 50% of doctors change jobs in their first 2-3 years after residency
• Toxic jobs
• Bad partners
• Your career goals change
• Do not buy a house until you are in a stable personal and professional situation
• Golden handcuffs
• Rent for 6-12 months until you know you like the job and the job likes you

Financial Basics for Residents Contract Evaluation

Know What Your Contract Says

• Know your value
• MGMA Data
• Ask residents ahead of you for details
• Consult salary surveys
• Best negotiating position is another job acceptable to you
• Have contract evaluated by health care attorney in the same state as job or a national contract evaluation service
• Money is fungible to most employers
• Trade benefits you don’t care about for benefits you do or for more salary, leave, etc.

Financial Basics for Residents Contract Evaluation

Know What Your Contract Says

• How is your paycheck is determined
• What happens if you leave
• How much notice
• Non-competes
• What happens if you are fired
• How much notice
• Non-competes
• Partnership details

Financial Basics for Residents Contract Evaluation

For free unbiased financial tools and resources, go to�whitecoatinvestor.com

Have Money Questions?

• reddit.com/r/whitecoatinvestor/
• facebook.com/groups/whitecoatinvestors

Listen to the �White Coat �Investor Podcast

• Top 5 millionaire professions (not doctors)
• Dumb doctor deals
• Update portfolio visualizer trend (show tool)
• Try calculator for future value
• Rule of 72
• Example property investment vs sale growth (opportunity cost)
• Buy or rent home?
• Opening quiz on concepts / words???
• Trust, Step-Up in Basis (Estate Tax)
• 529
• Roth/After Tax, Pre-Tax Deferred, Taxable
• Whole vs. Term Life Insurance

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Highest & Lowest Paid Specialties

https://www.whitecoatinvestor.com/how-much-do-doctors-make/

https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research

https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research