personal finance « Joel Schofer's Career Planning Blog

Figured this is a good repeat due to the update we posted on Monday about disability insurance. Check out my guest post on the White Coat Investor site:

Disability Insurance for Military Physicians

This entry was posted in disability insurance, personal finance, Uncategorized and tagged disability insurance, personal finance.

Guest Post from DI4MDs – An Update on Disability Insurance for Military Physicians and Dentists

Posted on February 24, 2020 Updated on February 22, 2020

(Note: I receive no compensation if you use DI4MDs for your insurance needs. I continue to lose $99 per year on this blog.)

Disability insurance which protects military physicians and dentist’s greatest asset continues to be a very limited market with few insurance companies and agents providing this critical protection. The available plan options depend on which stage of your medical/dental career you are in.

For military physicians and dentists at any stage of their medical career, MassMutual will provide the recommended specialty specific / own occupation disability coverage. MassMutual continues to be the only company that offers a non-cancelable and guaranteed renewable policy to age 65 and is the first policy we recommend. This policy is now available in all states.

For military physicians and dentists who have completed training, Lloyd’s is also available and can work well as a supplement to MassMutual coverage or if there is a medical issue. However, the policy does not contain the same premium and renewability guarantees as MassMutual’s policy.

If you are a resident or fellow and are at least 60 days away from graduating, in addition to MassMutual another option is a policy with Ameritas. However, you should be aware that Ameritas does not cover disabilities resulting from military service when scheduled active duty is more than 3 months. You do have the option of suspending the policy. Suspending the policy locks in your current insurability but does not provide any coverage during the suspension (though no premiums would be due either).

If you are in medical school and more than 180 days away from starting a military residency, in addition to MassMutual and Ameritas you will be able to apply for a policy with Standard. However, Standard will not cover disabilities resulting from military training, action, or conflict. Like Ameritas, you have the option of suspending the policy. Principal and Guardian may also be available if you are still in medical school. However, unlike the voluntary suspension option with Ameritas and Standard, Principal and Guardian require that your policy be suspended once you enter active duty. All medical students can obtain disability coverage without income qualification.

One crucial fact to be aware of when obtaining disability coverage is the medical underwriting requirement. Since military medical exams are extremely thorough and document any medical condition it is important to establish coverage early in your medical career before any conditions or ailments appear. Depending on the medical condition you may be declined coverage, issued a policy with a waiver/exclusion for the pre-existing condition(s) or issued with an increased premium. Even a combination of the latter two is possible. This can be avoided if you apply now so you can have the protection you need later. A policy with an option that will allow you to purchase additional coverage in the future regardless of health can be established to fit any budget. A graded premium structure can also be used to reduce the initial premium outlay for residents and medical students.

There is no better time than now to establish the type of policy you need to protect your medical or dental career in the event of disability. Please contact us below to begin:

DI4MDS – Andy Borgia, CLU and D.K. Unger – www.DI4MDS.com

10505 Sorrento Valley Rd., #250
San Diego, CA 92121
888-934-4637
858-523-7511 or 858-523-7529 after 5pm PT

Screen Shot 2020-02-22 at 7.59.11 AM

This entry was posted in disability insurance, personal finance, Uncategorized and tagged personal finance.

7th Step to Financial Freedom – Saving for Future College Expenses

Posted on February 22, 2020 Updated on February 17, 2020

The 7^th (and optional) step to financial freedom is to save for future college expenses.

Only a small percentage of students get enough financial aid to cover their tuition, housing, books, and fees. As a result, saving for college is a major financial goal for many people. Luckily, it is as easy as 3 numbers…5-2-9, as in using a 529 plan. 529 plans allow parents or grandparents to put money aside in a tax advantaged way that can later be used for college. In addition, those of us in the military who are willing to serve a little longer can transfer our GI Bill to our children, which can help with college costs, sometimes covering them completely. That’s my plan, as I’ve got two kids and two GI Bills.

How Expensive is College?

According to the National Center for Education Statistics, for the 2016–17 academic year, annual current dollar prices for undergraduate tuition, fees, room, and board were estimated to be $17,237 at public institutions, $44,551 at private nonprofit institutions, and $25,431 at private for-profit institutions. If that wasn’t enough, educational costs are increasing at a 6% rate annually.

How Can You Limit Costs?

Get your kids to go to a state or public school. Once you’ve got your degree and are working, no one really cares where you went to school. Work ethic, intelligence, creativity, and other characteristics make or break your success, not an Ivy League pedigree. State schools are just fine.

One other strategy is to have your kids go to a community college for the first 1-2 years of their education, later transferring to a four year college or university and getting their degree.

529 Plans

The money in 529 plans can be invested in stock and bond funds. As long as the withdrawals are used for qualified higher educational expenses, the investment gains are free from federal taxation.

As of 2020, you can contribute as much as $15,000/year to each child without incurring the federal gift tax. In addition, you can pre-fund up to 5 years of these contributions, or $75,000 in 1 year. Couples can give $150,000.

Sound too good to be true? Well, it is true, which is why 529 plans have come to dominate the college saving game.

Downsides of a 529 Plan

If you don’t use the proceeds of your 529 plan for educational expenses, your gains are subject to income tax and a 10% penalty. In addition, colleges will consider 529 assets when determining need-based financial aid. If you believe you’ll be eligible for financial aid, you might be better off keeping the assets in your name or the names of the grandparents.

That said, the amount you’ve saved for college has much less of an impact on your financial aid than your overall income does. In other words, families with high incomes will be expected to pay for at least part of college regardless of whether they saved for college.

As Usual, Taxes and Costs Matter

Not all 529 plans are perfect. Each state offers a plan, and you can use the plan from any state. You are not limited to the one you live in.

There may be some state tax benefits if you use your state’s plan, but just like with all investments you have to see if those tax benefits outweigh the other features of the plan. Some states have high fees and expenses or have less than optimal investment options. Some states give you tax benefits no matter which states’ plan you use.

Which 529 plan do I use? Regular readers would guess that I use whichever state’s plan is run by Vanguard, and they’d be correct! Vanguard administers the Nevada plan, which is what I use. They also provide management and services in the Colorado, Iowa, Missouri, and New York plans. Many states, though, offer Vanguard and other low cost investment options.

You find a lot of good information on 529 plans at:

http://www.savingforcollege.com/

Other Types of Accounts

Here is a great table from the Vanguard website that compares benefits offered by 529 plans against various other types of accounts people use to save for college:

	529 Plan	Uniform Gifts/Transfers to Minors Act (UGMA/UTMA)	General Investment Account	Education Savings Account (ESA)
State tax breaks	X
Federal tax breaks	X			X
Low financial aid impact	X		X	X
High contribution limits	X	X	X
Earning potential	X	X	X	X
Access to your money	X		X	X
Age-based options	X
Total flexibility		X	X
Account control	X		X	X

(Source: https://investor.vanguard.com/college-savings-plans/which-account)

As you can see, while there are other options, the 529 offers the most benefits. Some people advocate using Roth IRAs, whole life insurance, or ultra-conservative investments like certificates of deposit (CDs) or savings accounts, but this is generally a bad idea.

You need your IRAs to save for retirement, not college. Saving for retirement is your top priority, even over funding the college education of your children. You can borrow money to pay for college, but you can’t borrow money to retire.

Life insurance is expensive and generally offers very low investment returns. CDs and savings accounts aren’t expensive, but their investment returns are just as anemic. With educational inflation at 6% annually, it will be hard enough for stocks and bonds to keep up let alone life insurance or CDs/savings accounts.

The GI Bill

If you have served in the military after September 11, 2001, you are eligible for the Post-911 GI Bill. It covers four academic years, including tuition and fees, housing, and books up to 100% of the cost of the most expensive public school in your state. For private schools in 2019-2020, it will cover up to $24,476.79 of costs. Some more expensive schools participate in the Yellow Ribbon Program to bring their tuition down closer to what the government will pay. In some situations, you can transfer the GI Bill to your spouse or children.

You can find a ton of information on the GI Bill at this website:

http://www.military.com/education/gi-bill

Specific information about transferring your GI Bill is here:

http://www.military.com/education/gi-bill/post-911-gi-bill-transferability-fact-sheet.html

What’s the Bottom Line?

529 plans have become the go-to account for most people saving for college. Go to SavingForCollege.com to find out which state’s plan is right for you. If you have a GI Bill and are willing to transfer it to your children for their future college expenses, check out the link above for all the details

This entry was posted in personal finance, Uncategorized and tagged personal finance.

Finance Friday Articles

Posted on February 21, 2020 Updated on February 20, 2020

This one from Forbes is certainly interesting:

Valentine’s Day Massacre: U.S. Navy Eliminating $40 Billion In 6 Weeks

Here are my favorites this week:

Fiology: The Study of Financial Independence (FI)

High Earner Not Rich Yet – How to Avoid Becoming a HENRY

The Benefits of a Fixed Asset Allocation Portfolio

Here are the rest of the articles:

8 Perks of Being a Side Hustle Business Owner

Adding Up the Costs of Your Investments

Choosing Life (Insurance)

Dealing With the Guilt of Early Retirement

Disability Insurance: Your Plan B to Passive Income

FarmTogether Review: A New Investment Platform

Garbage Time

How to prepare your portfolio for the coronavirus outbreak

Inflation-Adjusted Annuities No Longer Available: Now What?

Keep On Keepin’ On

Losing My Balance – Should You Still Invest in Bonds?

ONE PORTFOLIO RISK TO RULE THEM ALL

Physician Mortgage Loans 2020

Some Lessons From 92 Years of Market Return Data

Student Loan Refinance Ladder: A Case Study

The Biggest Problem in Finance?

The Biggest Risk in Crypto Today

The Biggest Wealth Levers

The Courage To Be Disliked: Change Your Life Because You Can

The Getting Rich Quadrant

The Importance of a Legacy Binder: The “ICE” Binder

The Price of Admission

Top 5 Ways to Spot (and Avoid) Investment Scams

When You Were Born > Everything Else

Who Owns Stock in America? The Answer May Surprise You

You Will Always Regret Sacrificing Love For Money

This entry was posted in personal finance, Uncategorized and tagged personal finance.

Personal Finance for the Military Physician – A 2020 Update

Posted on February 16, 2020 Updated on February 15, 2020

Here are the slides I used for this podcast, in both PDF and PPT format:

Personal Finance for the Military Physician – A 2020 Update – PPT

Personal Finance for the Military Physician – A 2020 Update – PDF

This entry was posted in personal finance, Podcasts, Uncategorized and tagged personal finance.

My Research on Crowdfunded Real Estate Investing

Posted on February 15, 2020 Updated on February 15, 2020

I periodically suffer from investment boredom because good investing is boring. Investing in all the world’s stocks and bonds through low cost index funds is effective but not very exciting.

Whenever I get financially bored, I consider adding a 5th asset class to the 4 that are already in my investment portfolio (US stocks, international stocks, US bonds, international bonds)…real estate. While I know for sure that I have ZERO interest in becoming a landlord, crowdfunding real estate investing has opened up a new way to passively invest in real estate.

While I ultimately decided (once again) NOT to add a 5th asset class and keep my financial life as simple as possible, anyone interested in researching this can benefit from my thorough investigation. Here are all of the blog posts I read during my research in outline form. Enjoy!

Real Estate

This entry was posted in personal finance, Uncategorized and tagged personal finance.

TSP Changes and Finance Friday Articles

Posted on February 14, 2020 Updated on February 13, 2020

According to the January/February 2020 Thrift Savings Plan (TSP) Message from the Executive Director, a few important changes are coming:

5-year Lifecycle (L) Funds—Later this year, we’ll offer more investment options when we introduce new L Funds in 5-year increments. You’ll be able to pick an L Fund with a target date that more closely matches your intended retirement date. Each L Fund will continue to vary your investments automatically to adjust your exposure to risk as you get closer to retirement and give you the potential for long-term growth. Learn more about our Lifecycle Funds and individual fund options.

Automatic enrollment percentage increase—Beginning October 1, 2020, new participants will be automatically enrolled in the TSP at 5% of their pay. This change also includes Blended Retirement System (BRS) participants automatically re-enrolled in the TSP on or after January 1, 2021. The increase will allow new participants to get the full matching contributions from their agency or service. If you are currently an active participant and are not contributing at least 5%, then you’re missing out on free money. Increase your percentage today by logging into your agency’s or service’s electronic payroll system and upping your contribution amount.

Here are my favorites this week:

10 things I wish I’d been told in my 20s

Investing Basics for Physicians With Little Time or Experience, Part II

Make Less Keep More

Short Term Investing

Here are the rest:

A Real Estate Goal Every Investor With Kids Should Consider

Asset Protection for Physicians Through the Life Stages

Banks, Bitcoin, bond funds: Where is your money safe in an era of cyberattacks?

FY 2021 DOD Budget Request Seeks 3% Pay Raise for Service Members

How Real Estate Investments Go Bad

Make Spending Money Music to Your Ears: Spending Equalizer

Not So Common Student Loan Debt Forgiveness Programs

Should You Invest in Gold?

Some Bull Market Reminders

Start of tax season 2020 is prime time for scammers

Tesla -Believe It or Not?

The 4% Rule, HSAs, and Healthcare Costs in Retirement

The Passive Income MD Podcast

Troops would see another big pay raise under White House budget plan for 2021

Three Years Retired from Surgery and all’s Well with my FIRE Life

What You Can Learn From Your 1099 Forms

What the hell happened to Mint?

Why It’s Harder To Get Rich Off Stocks Than Real Estate

This entry was posted in personal finance, TSP and tagged personal finance, TSP.

White Coat Investor Tip on Pensions and Finance Friday Articles

Posted on February 7, 2020 Updated on February 6, 2020

I’m including this tip of the month from WCI’s newsletter (with permission) since it is relevant to just about everyone who reads this (subscribe to his newsletter here).

White Coat Investor’s Newsletter Tip of the Month – Pensions and Your Asset Allocation

A lot of people wonder how to incorporate their various sources of guaranteed income into their asset allocation. These include:

Social Security,
Pensions, and
Immediate Annuities.

They wonder if because of their low risk that they should consider them “bond equivalents” and increase the stock:bond ratio in their portfolio to make up for the presence of these guaranteed sources of income. I believe there is a better way to look at this dilemma.

Rather than including them in your asset allocation and calling them bonds (which they are not), I recommend you leave them out of your asset allocation entirely. That’s right. Just leave them out. But when you go to calculate how much income you need from your portfolio, subtract the guaranteed income first. Let me explain:

Let’s say you need $120K to live on in retirement and are getting $40K from your Social Security. Instead of trying to calculate the present value of your Social Security income stream and adding that to your portfolio, just subtract that $40K from the $120K you need. Now you need your portfolio to provide $80K of income. Using the back of the napkin 4% rule to make the calculation you need a $2 Million portfolio in addition to Social Security. Easy peasy. If you also have a military or other pension or have purchased a Single Premium Immediate Annuity (SPIA) or two, you can subtract those too.

$120K income need minus
$40K Social Security minus
$20K Pension minus
$10K SPIA equals
$50K needed from the portfolio. ($50K/4% = $1.25 Million)

So how should the presence of this guaranteed source of income affect your asset allocation? Well, it can go two ways. First, you could decide that now that you have all or most of your fixed income needs covered by these guaranteed income sources that you now have the ability to take on more risk. Or, alternatively, you might decide that since you have guaranteed income sources covering so much of your spending needs that really don’t need as much from your portfolio and can afford to take less risk with it. Perhaps these two factors cancel each other out and it doesn’t change your asset allocation at all.

What about other assets? Should they go into your portfolio? A lot of people wonder about their home and their mortgages in particular. While a mortgage acts like a very safe, very short-term “negative bond” (paying off a mortgage provides a guaranteed return equal to the after-tax interest rate), I wouldn’t include it in the portfolio. Nor would I include the house. Or your practice. And maybe even not your side gig small business. The main reason why is that it really complicates portfolio management. You know, the buying and selling and rebalancing you do periodically. For example, let’s say you included your house. When you are young and relatively poor, that is going to make up a massive portion of your portfolio. And later, when you are older, hopefully it will make up a tiny portion. How’s that going to work with trying to keep percentages equal? Same thing with a mortgage or a small business. And imagine trying to rebalance? What are you going to do when stocks poorly, take out a HELOC? Do yourself a favor–leave that stuff out of your portfolio and just let the presence of those things affect your overall asset allocation only as they change your need, ability, and desire to take risk. Don’t try to actually put them into your asset allocation.

Here are my favorites this week:

Practice Minimalism To Improve Your Financial Health And Quality Of Life

THE BEST CREDIT CARDS FOR ACTIVE DUTY MILITARY

When Does the Federal Deficit Matter?

Here are the rest of this week’s articles:

7 Things I Still Love About Turbo Tax in 2020

Considering a Syndicated Real Estate Investment Opportunity? What You Should Know

Crash Course in the Japanese Stock Market Collapse

From Great Fortunes to Gone

How one decision can help you save for retirement

How Should I Save for College? Plus a 529 Plan Hack

How to Generate Over $5,000 Per Month With One Airbnb Property