What Dentists Want to Know — Listener Q&A #29 – Episode #370

Retirement creates a balancing act—you don’t want to run out of savings, but you want to enjoy that money too. Does the “4% Rule” still work for retirees? On this listener Q&A episode of the Dentist Money™ Show, Ryan and Matt illustrate how the 4% Rule is used. Plus, they explain the scary side of kids’ education accounts and where real estate fits in a well-diversified portfolio.

 

 

 

 

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Podcast Transcript

Ryan Isaac:
Welcome back to another episode of The Dentist Money Show, brought to you by Dentist Advisors, a no commission fiduciary comprehensive financial advisor just for dentists all over the country. Check us out at dentistadvisors.com. Today on the show, Matt and I wrap up the year with a little Q&A. We’re talking about the 4% withdrawal rule on portfolios. Does it apply? What happens in a year when markets go down, does it get altered? Has that been updated? Cool conversation around that. We talk about one of the downsides to saving money for your kids’ future and education in accounts in their own name. Things like feedback parents have given us on some potential downsides there. And then we round out the discussion with real estate, what is it like to include real estate in a portfolio, how should you think about it, what questions should you ask, how do you align any of your investment strategy with your values and your goals, and doing it in the most educated possible way that you can.

Ryan Isaac:
So, many thanks to Matt, that was a great discussion, and we hope you guys get a lot of benefit from this and enjoy it. We really appreciate you tuning in. If you have any questions, whatsoever for us, dentistadvisors.com will probably have the answer and you can schedule a time to chat with us, we would love answering your money questions at dentistadvisors.com. Thanks again, Matt, and thanks to all of you for being here. Enjoy the show.

Jess Reynolds:
Hey, there, it’s Jess with Dentist Advisors. Did you know we recently launched a new service called the dentist money membership, it’s an affordable way to support your personal financial strategy with cutting edge technology and guidance from dental-focused CFP advisors. The dentist money membership includes the elements financial monitoring app, an annual financial check-up, CE courses, an automated investment platform and more. To learn more about the dentist money membership and to get started, go visit dentistadvisors.com/money.

Announcer:
Consult an advisor, or conduct your own due diligence when making financial decisions, general principles discussed during this program do not constitute personal advice, this program is furnished by dentist advisors a registered investment advisor. This is dentist money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to The Dentist Money Show, where we help dentists make smart financial decisions. I am Ryan, and I’m here with Matt. Almost Happy New Year. What’s up, Matt? How’s going?

Matt Mulcock:
Almost Happy New Year and really have kind of a Christmas hangover. How long does the Christmas hangover last in your house?

Ryan Isaac:
I felt weird this year, I have… Just for the audience’s sake, I have a 17-year-old. And we were talking about this earlier, Matt. I feel like my life with my 17-year-old blew by in two years, it went so quickly. And funny enough, it was the day after Christmas, I was driving down to surf and meet some friends, and I was looking at the day after, it was really early, I woke up really early, so it was barely dawn, the lights, the Christmas lights around the neighborhood. Everything was still on. And I felt kind of sad actually. ’cause I was like, “Whoa, dude, the Christmases with my kids are… ”

Matt Mulcock:
Numbered.

Ryan Isaac:
Yeah, they’re ending. I actually felt a little… If that’s the Christmas hangover, I felt a little bit of a drag on that, a little bumped out like wow.

Matt Mulcock:
I feel like the Christmas hangover is different for everyone, and I think there is probably a relationship to…

Ryan Isaac:
Spending.

[laughter]

Matt Mulcock:
Yeah. I think there’s a probably a relationship between the age of your kids and the type of Christmas hangover you have.

Ryan Isaac:
Totally.

Matt Mulcock:
Mine is more tantrums for the week after Christmas with my three and a half-year-old and my 19-month-old, there’s more tantrums in the Christmas hangover.

Ryan Isaac:
[laughter] You’re just tired of it.

Matt Mulcock:
Yeah, just there’s a lot more sassy-ness from my kids, there’s a lot more fighting with them, so for me it’s like, “Alright, let’s get back to normal.”

Ryan Isaac:
Let’s get back to the… Yeah, I remember those days to be like is this break down? They need to go back to school. It’s funny. I was out with a friend of mine who has adult children and they’re all back… He has five kids and they’re all back in town, and we were out this morning and he was like, “Yeah, I’m ready for all my adult kids to just go back to the school at home.”

[laughter]

Ryan Isaac:
He’s like “They drive me crazy man.” It’s funny ’cause I’m in this situation where I’m stressing about my daughter leaving the house, ’cause it’s my first kid, and he’s like, “I can’t wait till my adult kids leave the house, they’re driving me nuts here.”

Matt Mulcock:
We’re all in different stages here, yeah, for sure.

Ryan Isaac:
Totally different. Spending Hangovers, eating hangovers, whatever your hangover is, I hope it treating you well. Recording this. Tomorrow is New Year’s Eve. 2022 is almost done. We’ve got some exciting…

Matt Mulcock:
Wild.

Ryan Isaac:
Episodes coming up. Yeah, I’m stoked for this next month of content, we’ve got some stuff coming up on our year-end review. So for those who don’t know, every year we do a review of data and benchmark averages, which is so fun to do, income spending, debt, net worth collections, all that kind of stuff, I think this year, we’re gonna try to print it in some kind of a PDF format people can get access to, which is kind of cool, we’ve got some what we learned this past year stuff, goal-setting, so I’m excited for this next year of content. Today, we’ve got some Q&A for everybody. Here’s the three questions we’re gonna hit. These, and by the way, if you have questions you want us to hit on the podcast, we love doing this, so you can go to our Facebook group, you can email us DM us, whatever, just get us a message of what you want us to talk about, and we’ll talk about it gladly.

Ryan Isaac:
The first one I wanna talk about came from multiple people in retirement who are drawing down their portfolios. And this is 2022, we’re gonna end… Today’s the last trading day. Isn’t it?

Matt Mulcock:
Yeah, all the headlines. You gotta love it. All the headlines. What do you think they said?

Ryan Isaac:
Worse year since ’08 or ’09 or something, I think is what they say.

Matt Mulcock:
Yep. Worst year since 2008.

Ryan Isaac:
Yeah, so year to date… Okay, So Dow Jones year to date, if it’s… I don’t know if we’re closed yet, I think we’re closed, we ended not quite correction territory. Negative 9.4% Dow Jones for 2022, 9.4.

Matt Mulcock:
Only nine?

Ryan Isaac:
9.4.

Matt Mulcock:
That’s not bad.

Ryan Isaac:
S&P for the year we ended 19.95, not quite a bear.

Matt Mulcock:
Ooh. So no quite there but…

Ryan Isaac:
Skating that edge. The funny difference between the DOW, that’s a lot smaller of an index, but it doesn’t include such heavy tech emphasis, and then the S&P, what was a NASDAQ? The NASDAQ ended down 33.89%

Matt Mulcock:
Is that tech focused.

Ryan Isaac:
Crash territory.

Matt Mulcock:
Yeah.

Ryan Isaac:
Crash territory. So, interesting year. Anyway, the question came because of the year and the question was, “Hey, this old rule of a 4% withdrawal, is that still standard? Is that still a thing? Should you alter it when you’re in a year like this, and… ” So that’s one question we’re gonna hit. That’s a really good question. Another one was about kids accounts, like Kids educational accounts, and I’ll just tease this by saying the scary side of kids education accounts, ’cause I get…

[laughter]

Matt Mulcock:
I can’t wait till number three.

Ryan Isaac:
Are you freaking out?

Matt Mulcock:
Oh yeah. I am scared.

Ryan Isaac:
Number three was also a handful of questions just in the last few weeks, and they’re about diversifying investments into real estate, and this won’t be a huge… There’s not enough time to do the Treaty of what that could be. But we’re gonna hit that a little bit. So anything you wanna comment about before we jump in Matt.

Matt Mulcock:
I’m excited. I’m scared, I’m all the things.

Ryan Isaac:
[laughter] A little worried. Alright. Okay, number one, let’s go back to the 4% rule. Matt, why don’t you tell us what that even is in the first place for those who might not know what the 4% rule is.

Matt Mulcock:
The year was 1994.

Ryan Isaac:
[laughter] I’m actually gonna find that.

Matt Mulcock:
Yeah. It was 1994, I believe a guy named Harry Bengen, or something Bengen, William Bengen.

Ryan Isaac:
Really? I’ll find this in a second.

Matt Mulcock:
Let me know if…

Ryan Isaac:
You’re really serious about 1994, huh?

Matt Mulcock:
I’m pretty sure it was ’94, I am pretty confident in that, but I don’t know, I have not double-checked that before the show, but I’m pretty sure it is that.

Ryan Isaac:
Bill Bengin or Bill Bengen.

Matt Mulcock:
William Bengen. Yeah.

Ryan Isaac:
Yeah, 1994. What?

Matt Mulcock:
: Booyah.

Ryan Isaac:
Stop it. Wow.

Matt Mulcock:
Look at that. Look at that. He wanted to figure out at the time, no one had ever done this work that I don’t think up to that point of like, what is a safe withdrawal rate back tested over the course of several decades? I think he did it over rolling 30-year periods, going back to the beginning of the market, and basically determined that over the course of every kind of market cycle, 4% withdrawal rate is the safe withdrawal rate, he basically said 4% of your portfolio can be withdrawn every year adjusted for inflation, and you can maintain those assets over the course of your life. Right. So just for some quick easy numbers, mainly for me, if you have got a million dollar portfolio, you can withdraw $40,000 in that first year, and then the next year you would adjust it upwards a little bit for inflation, that’s the general kind of idea.

Ryan Isaac:
Yeah, Bill Bengen. You nailed that ’94 Bill Bengen. Here’s something interesting, I just found this. You guys can find this. He wrote an article, someone wrote an article, interviewed him, this man this month, December 9th 2022 on…

Matt Mulcock:
I saw this on Fa-mag.

Ryan Isaac:
Yeah, on Financial Advisor Magazine, which is fa-mag.com, it’s called the creator of 4% rule says, new withdrawal target is 4.7%.

Matt Mulcock:
Booyah, look at that. Is this inflation?

Ryan Isaac:
Yeah, he said, My rule has been updated to 4.7, so it’s no longer the 4% rule, and that comes from my research and adding in a number of asset classes which have increased returns, and he said, When I added US-ed micro-caps in my last round of research.”

Matt Mulcock:
Oh, it’s not crypto?

Ryan Isaac:
Yeah. [chuckle] It did increase volatility, but significantly increased withdrawal rate, that’s what helped bump it to 4.7. And when he created this, he used… His original research was a stock allocation of between 50% and 75%, so that was the range of allocation that he used when he created the first thing. So he’s saying he’s added some asset classes in his update in 2022, so I guess that’s interesting to hear the creator of this saying, in a year like this where we’re ending in almost bear territory and some major indices that his withdrawal rates increased. So. Interesting.

Matt Mulcock:
Now, consider this to the question, the question was, do you adjust it down? Is that correct?

Ryan Isaac:
Yeah, yeah, do you take less out of your portfolio?

Matt Mulcock:
Yeah.

Ryan Isaac:
So how would you address that?

Matt Mulcock:
So I would say as far as the 4% rule goes, do I still believe in it as a general rule of thumb? Yes, I think it absolutely still applies as a general rule. Every single person out there has a specific situation, and there’s obviously caveats and things that could make that, like someone could be yelling in their car right now being like, “This doesn’t work, I tried this,” whatever.

Ryan Isaac:
Totally.

Matt Mulcock:
Just a general rule, I think it absolutely still makes sense. Now to the question of saying, should I adjust that downward? I would say the market kinda did that for you, if you think about it, it’s a percentage, so you’ve got a million dollar portfolio, 4% is 40,000, if that adjust downwards meaning your portfolio, but you’re still sticking to 4%, the raw dollar amount will be less definitely, but the percentage would stay the same, you’d still pull 4%, it’s just kind of the adjustments you’re built into the… Because you’re working with percentages, so the raw dollar would be lower, but the percentage would stay roughly the same.

Ryan Isaac:
One of my responses… Thanks for that. I didn’t think about that actually. Yeah, your dollar amount would change because it’s a percentage. My response to one of these people who ask about this, was it’s… There’s academia, and there’s blog writing, and there’s… You can talk technicals all day long, but then there’s real life. And in real life, what do people do regardless of the year, they just say, I need $7000 a month.

Matt Mulcock:
They need their money. Yep.

Ryan Isaac:
[chuckle] I spend seven grand, send me seven, and then when they need a car or replace a roof or fix a burst pipe or something, send me 20. So it’s interesting to debate and discuss, and I think what you’re saying is true, you can plan for this stuff, setting the proper allocation. The whole process of setting, the correct allocation is you near retirement and you’re in retirement, it’s so dependent on your situation and your total term. If your total term is in the teens or it’s 20, that’s different than if your total term’s 40. But in reality, in real life situations in our day-to-day operations of retirees, we just send them the amount of money they need to spend, and no one’s saying like, if someone’s spending 10 grand a month, nobody’s saying, just send me six, I’ll deal with it. I don’t know how. They’re just saying, send me 10, and I don’t know, in 10 years, I’ll have to figure this out later, maybe then it’s reverse mortgage time. So, I think there’s a lot of things you can do to prepare for this stuff, you can definitely have the wrong allocation going into retirement, you can have too little or too much risk or all kinds of things, or like the creator, Bill Bengen.

Matt Mulcock:
Our guy Bill.

Ryan Isaac:
Our guy Bill. He said he updated his allocation to include a little bit more broad diversification of types of stocks to get him, different return profiles, and that changing… There is a strategy that matters a lot, and people do, they can mess that up, but in reality, if you spend 10 grand a month, we’re gonna send you 10 grand a month and we’ll have to deal with it, that’s what real planning is, is like, that’s real life, and we’ll just deal with this as we go along and adjust as we need to.

Matt Mulcock:
Yeah, that’s a really good point. The difference between academia and the spreadsheet versus real life and that…

Ryan Isaac:
Totally.

Matt Mulcock:
Our boy, Bill, is really just dealing with the spreadsheet and he’s not… And that’s his job. What he’s doing right now is publishing work to say, “Again, as a general rule, based on the spreadsheet, here’s what this number is,” but every single person is different. And also ideally, I think in an ideal world, do you get to a place where you sell your practice, you’re now sitting here in retirement and your entire livelihood at that point is just your stock portfolio, probably not, like ideally, that would not be the case, where you have no money in the bank, you’ve got no buffer there, you’ve got no other income sources. Maybe you do, maybe you don’t, but the 4% rule is assuming you’ve got a portfolio, and I think they went off of us, I wanna say when he originated the work, it was like a 60/40 portfolio or 70/30, 60/40?

Ryan Isaac:
Yes, 60/40.

Matt Mulcock:
So also imagine that too, if you are thinking about this from an allocation standpoint, like right now, we just went over the numbers of the S&P’s down about 20, the NASDAQ’s down about 30, whatever. In the 60/40 portfolio, you’re not being exposed… Well, if you’re well diversified, you’re not being exposed to any one market drop, it’s not like your portfolio right now in the 60/40 is down 30%. So it’s much more stable.

Ryan Isaac:
Yeah, it’s totally different. Yeah, and what you’re saying is totally true, it’s really interesting to think about the way people view retirement maybe 20 years ago, and then the way people who are still not retired but getting there, how they view it, and there’s a lot of people, man, who are gonna be holding on to shares of a business, they’re gonna be holding commercial real estate from the building they owned, they’re gonna be teaching. A lot of people have side hustles. The income generation in retirement, I think is a different mindset than it used to be. If someone’s physically, mentally capable of doing it and… Yeah, you’re right, I was gonna say something. There’s also another article on Schwab, this is called Beyond the 4% rule, how much can you spend in retirement? This is from this year too, and just to your point, there’s this chart in there, this actually might be a cool webinar to do with Robbie dude, the 4% rule with Robbie, some charts and graphs. Yeah, Robbie would…

Matt Mulcock:
Oh man, ooh, the charts that that dude could come up with.

Ryan Isaac:
[chuckle] Robbie would geek on this, we should do it. But there’s a chart in here that shows… It’s like you start with a million bucks and what happens after 30 years, and the range runs from 3.5% withdrawal, the 4.2% withdrawal, but the allocation ranges from conservative to moderately aggressive, and I think conservative is 50/50, and I think moderately aggressive is like 75. And so, what’s crazy is… And this is what stocks do is the… This is why TT is so important. The more aggressive the portfolio, not only can it sustain the withdrawal rate, it can sustain a higher withdrawal rate, and it grows over time. So it’s kicking off the income and you get capital growth where the most conservative scenario in their data shows a lower withdrawal rate and less growth, you end up depleting… How about half the portfolio after 30 years, which is still like… Dude, if you start with a million bucks and 30 years later, you’ve got 500 like I don’t know what the problem is. That’s okay.

Matt Mulcock:
You’re gonna be okay.

Ryan Isaac:
So anyway, really interesting data. I think my take away from this would be the spreadsheet answer is very different than the real world life of some people. Your total term number will matter because if it’s high enough, it kinda doesn’t like… [chuckle]

Matt Mulcock:
If you have 30 total term outside of your personal residence, you’re…

Ryan Isaac:
Yeah, we talked about this before, it’s one of those funny situations in investing where you have enough where you don’t have to take any risk, you could take very conservative risk in your investment allocation, or you can take a lot of risk, like volatility risk and grow it even more, and either way, you can still pull off your spending money and it’s not gonna matter, it just won’t matter.

Matt Mulcock:
Well, and what’s kind of interesting right now with the whole freak out over bonds and where rates have gone and all this, it’s actually a good thing if you’re nearing retirement, because if you think about it, we have not had this situation over the last 20 years, particularly the last 10, 15 years, where the traditional retirement was, you kind of flip most of your stuff to bonds and the yields carry you through the rest of the journey. That hasn’t happened over the last 10, 15 years, ’cause the yields were so low, now the bond market’s completely reset, so to say, you can take a good portion of your portfolio at retirement in the next few years, throw it in a bond ladder, at least a chunk of it and generate 4% off of that.

Ryan Isaac:
True. Very true.

Matt Mulcock:
Absolutely, it is a real case scenario now.

Ryan Isaac:
Very true. And I think if you threw that bone out in front of the dog, Robbie, he would chew that thing up for a while.

Matt Mulcock:
Oh yes.

Ryan Isaac:
That would be a fine question.

Matt Mulcock:
Let’s do it. Let’s do it.

Ryan Isaac:
We’ll do that. I think it’d be cool. So yeah, that’s my take away from it. I think, like a lot of things it’s just gonna highly depend on your situation. Your total term is gonna tell a lot of the story, and I think ideally, if you’re in a situation where a year like this actually does affect your portfolio in a way that maybe your total term isn’t super high and it’s… You kind of have a more moderate or conservative allocation, you can’t afford to take the volatility risk, you really need to squeeze a lot of conservative time out of that portfolio. I think it is prudent to go like, “Alright, well, maybe this is the year that we don’t travel as much, maybe this year, we just don’t buy much stuff or we just don’t give a lot of Christmas to the grandkids or something.” Like its okay.

Matt Mulcock:
Yeah.

Ryan Isaac:
It’s okay to cut back if you can, I think that’s totally fine to do that and you’re like it’s totally fine.

Matt Mulcock:
Yeah. To your point, I think it depends on how reliant are you on that portfolio, is that it? Is that all you have? I’m not saying that negatively, I’m saying if that’s the case, then yeah, you need to probably make some concessions.

Ryan Isaac:
Alright. The scary side, the kids investments. [laughter]

Matt Mulcock:
I’m like shaking. I don’t know what you’re gonna say here, I’m terrified.

Ryan Isaac:
So I’ve had a lot of questions about… And we get this question all the time like, “Hey, I wanna save some money for the kids, how can I do it?” We’ve done quite a few episodes on ways that you can save for kids, whether they’re on payroll or off payroll. There is a situation though, where I think a lot of parents that I’ve talked to lately have thought about this, and it kinda makes them feel like, “I don’t know actually.” So the scenario is when… Every time I say this, I think about the gray area that I’m like, “Should I mention this or not.” But…

Matt Mulcock:
Mention it. Now you have to.

Ryan Isaac:
The scenario is, you say… Yeah. You say like, “Yeah, I’m gonna put my kids on payroll. Me and my CPA agree, we’re gonna put the kids on payroll, they have official duties and I can pass an audit, whatever. I’m recording this, whatever. And you pay them. And a lot of people will do this, and they’ll pay their kids up to the standard deduction personal limit, which next year is…

Matt Mulcock:
It’s going up to 14 grand, I think next year.

Ryan Isaac:
So 2023, 14,000, which means you have a kid on payroll, you can pay them up to that standard deduction limit, which we think is 14,000, and they don’t, they wouldn’t have to file a return or pay any taxes because it would be wiped out with their standard deduction that’s really high. So technically, and in most cases, if you have a kid on payroll, the money that they receive has to be received and then put into accounts in their name. They earn the money, they’re on payroll, it’s their earned income, and so it would go into a checking account in their name or Roth IRA in their name.

Matt Mulcock:
We use earned loosely. We use earned loosely.

Ryan Isaac:
Yeah. Bunny, your spouse and kids on payroll have very loose definitions of earned.

Matt Mulcock:
Of earned, yeah, it’s paper definition. Yeah.

Ryan Isaac:
 So they have their earned income and for the most part, their earned income has to go into accounts in their own name, checking, savings, Roth, brokerage account. I said gray area, and I just wanna give fair attention to the fact that some people do put their kids on payroll, and then they just keep their payroll money and then they spend it on family expenses. This is not tax advice.

Matt Mulcock:
We’re not naming names. We’re not naming names.

Ryan Isaac:
You better talk to your CPA. And I’m not naming names.

Matt Mulcock:
You’re not recommending this.

Ryan Isaac:
You better talk to your CPA. I’m just saying this exists where… And I…

Matt Mulcock:
A guy I know.

Ryan Isaac:
A guy I know, a friend of mine, and a brother-in-law. And you’ll always hear this from people who write tax books and go on speaking tours about tax strategy or like TikTok now.

Matt Mulcock:
Yeah. The TikTok that’s…

Ryan Isaac:
TikTok’s financial advice is nuts.

Matt Mulcock:
It is amazing.

Ryan Isaac:
It’s so wild.

Matt Mulcock:
I might join TikTok just for that.

Ryan Isaac:
Just for the financial advice?

Matt Mulcock:
Yeah. You know what we should do? Sorry, really quick. We should do a show…

Ryan Isaac:
Yeah, a reaction video.

Matt Mulcock:
We just do a live reaction video to TikToks.

Ryan Isaac:
To TikTok finance advice.

Matt Mulcock:
TikTok’s financials.

Ryan Isaac:
I’m done. We’ll, just do that in that weekly thing we were talking about.

Matt Mulcock:
We’re doing it, okay.

Ryan Isaac:
I love it. Anyway, so… But people do this and it’s not like… It feels a little gray because you’d have to probably keep some documentation and there’s probably some lines here that you and your CPA need to be comfortable with. But people will put their kids on payroll. Let’s say you pay your kid 14 grand for that year, on payroll. But you… Let’s just say you keep all of it in the… In your own checking account. And then you hold that money to pay for things like their portion of a family trip or their soccer dues or their… It could be for their schooling or their music lessons or their swim team things, or…

Matt Mulcock:
One piece of advice I will give on this.

Ryan Isaac:
Yes. Yeah, please.

Matt Mulcock:
If you’re doing this, right? Be careful with what you’re paying for. Everything you just named Ryan was perfect, which is like ancillary extra type stuff.

Ryan Isaac:
Yes. Yes.

Matt Mulcock:
You cannot use that money if you’re going down this road, a guy I know who’s doing this.

Ryan Isaac:
Okay. All right.

Matt Mulcock:

If you’re doing this, you can’t use it to pay for their groceries or like have them pay you rent.

Ryan Isaac:
Yes.

Matt Mulcock:
Like if they’re a minor, you just… They’re dependent on you. You cannot use it for essentials.

Ryan Isaac:
Yeah. So I was just trying to see if I can get a quick answer to this. There is… What you’re talking about is, there is kind of… I don’t know what this is. There is a legal standard of like financial assistance you have to give to minors in your household that you’re the guardian over, you have to. And that is like food, shelter, clothing. Education, medicine, I don’t know.

Matt Mulcock:
Yeah.

Ryan Isaac:
So yeah, but this is kind of funny to me, but I mean dude, if you put your kid on payroll and then you take three family vacations that year and you’re like, “No, your job is paying for your plane ticket and your Disney ticket, and your scuba gear, and your scuba lessons and the crews pass,” I don’t know.

Matt Mulcock:
And it makes sense on paper, right?

Ryan Isaac:
Yeah.

Matt Mulcock:
If theoretically, right?

Ryan Isaac:
So, yeah. And so anyway, that’s kind of a deviation, it’s as a whole other tug. I just wanna bring that up as like, it’s not the only scenario that if your kid is on payroll, they have to have accounts in their name. That’s not the only scenario. And I don’t wanna be ignorant to that and pretend that there’s not something else that exists.

Matt Mulcock:
Yeah.

Ryan Isaac:
But that there is a kind of a gray area and definitely a CPA thing. But the scary thing that I was talking about.

Matt Mulcock:
Here’s the scary one.

Ryan Isaac:
This is just a thing that I don’t think a lot of parents realize especially, when the numbers get a little bit bigger. Which is, if your kid is on payroll and they have accounts in their name and their money starts to build up, let’s say it’s a brokerage account, which when they’re a minor is called a UTMA or a UGMA. It’s just a fancy term for brokerage account for a minor or a Roth IRA. It’s gonna be in their name. The thing about it is when they turn 18 and in some states 21, but mostly 18 around the country, it’s their money. They will get notices from the bank, TD Ameritrade, Schwab, Fidelity, whatever. They’ll get notices like, “Hey, this is your money, where can we contact you?” [chuckle]

Matt Mulcock:
Yep.

Ryan Isaac:
And I have… That has stopped some clients of mine from putting their kids on payroll.

Matt Mulcock:
Mine too.

Ryan Isaac:
I don’t want the tax deduct… Yeah, yours too. I don’t want the tax deduction because I just don’t wanna deal with this. So I’m gonna keep the… I’ll keep the money in my own accounts somewhere and then I’ll just divvy it out how I feel like it at the time of college or first home down payment or whatever. Okay. Here’s a question though, Matt. I’m sure you’ve had this conversation and parents are like, “Oh yeah, I don’t want my kids to have that at age 18.” There is a scenario though, where you build up, let’s say you just have a brokerage account in you and your spouse’s name and you build up, I don’t know, a few hundred thousand dollars for the kids after 20 years and you start divvying out money. There could be a gift tax situation when you start shoveling out money for things. The limits are pretty high and you can pay directly to financial institutions or schools directly, and then it doesn’t count against your gift tax limit. But that’s another caveat too, to to doing it that way to avoid giving it to your kids.

Matt Mulcock:
Yeah, I think this all comes down to… ‘Cause I’ve had the same thing where, I’ve told clients like, “Hey, just so you know, if you do this, the second they turn 18, in some states it’s 21, but most states it’s 18.

Ryan Isaac:
Yeah, most it’s 18.

Matt Mulcock:
So when they turn 18, the money is theirs. And I’ve had a few that are like, “Nevermind. I don’t wanna do that.”

Ryan Isaac:
Totally.

Matt Mulcock:
But most I’d say still do it, and then they just are like, “We’ll just deal with it and try to like to educate them and teach them on what to use this for.” But again, to your point, like legally, we cannot hide this from them if…

Ryan Isaac:
Yeah, we can. Yeah, we can’t.

Matt Mulcock:
We can’t. It’s funny, when I worked at Fidelity, this would actually would come up quite a bit where we’d get call-ins from people like young kid, like I call them kids ’cause now I can, ’cause I’m almost 40.

Ryan Isaac:
Yeah, you’re old.

Matt Mulcock:
Yeah, I’m old. But we’d get calls from 21-year-olds that are like, “There’s this account that my parents have been hiding from me, it’s my money.” And legally, we had to transfer that money to that kid, there’s nothing we could do, ’cause they could sue. So they just sue and they’re like… So Fidelity and brokerage houses like, “No, this is their money, they are of age now.” So to your point of like, you could just put this money away in a brokerage account in your name, save the money and then just divvy it out the way you want, kind of like under the gift tax or exclusion amounts, I think that totally works as well, it really comes down to like any of these topics of, what are your priorities? What are you trying to accomplish here?

Ryan Isaac:
Yeah, and I’ve heard people ask, and it is a good question, well, can I do something with estate planning, and keep it from them? I think the answer is yes. Where I haven’t seen a lot of this is most people with not hugely substantial numbers for their kids, they don’t go through the process of estate planning to set up untouchable trust for the kids for a $25,000 account, and people just don’t usually do that. If there is a substantial money though, yeah, estate planning can do this, and I imagine that there’s trust set-ups where you can put away money for a kid and lock it in a trust with certain conditions or anything.

Matt Mulcock:
Oh yeah, they absolutely are. I don’t know if you can do it the route of like, you’re paying them through the practice and then also locking it up, that’s probably not something you could do, but you could absolutely lock away money, save it for the future within a specific type of trust, and then lock it away where they can’t touch it until a certain point for sure, and remove it from your estate.

Ryan Isaac:
Last topic, this is a big one, it’s a huge discussion, and I’d actually like to do this with a panel of different real estate people, I’ve been thinking about this, I would love to… We have some good friends that are in real estate investment development kind of commercial area that we talk to and use and have clients talk to all the time, to vet deals. We know people who are in the private real estate money fundraising world for all kinds of private real estate debt funds, real estate funds, all kinds of things that it’d be fun to get a panel of those people and maybe some people who do local syndication type little groups, and do a panel of like, “Hey, let’s explore this world of private real estate investing,” that is so much more than just like, go buy some single-family homes for yourself or the building you work in.

Matt Mulcock:
Yeah.

Ryan Isaac:
Like it’s vast.

Matt Mulcock:
Despite what HD…

Ryan Isaac:
It’s way bigger…

Matt Mulcock:
Despite what HDTV will tell you, it’s much more complex than that.

Ryan Isaac:
[laughter] These people have $50,000 salaries and they’re picking out 10 million beach houses.

Matt Mulcock:
Yeah, exactly.

[laughter]

Ryan Isaac:
And this one is not good enough. Where do you guys get your money? What happened? So the question… Okay, this comes up in a lot of ways. Let’s make the disclaimer right now that we are not anti-Real Estate, and yes, our business does have a specialty. We are financial planners, like extreme organization, data monitoring analytics of your personal financial health through proprietary indicators that we invented called the Elements, and we’re an investment advisor, we build public stock and bond and mutual fund and ETF portfolios like, yes, we do that.

Matt Mulcock:
And we believe in it. We believe that’s…

Ryan Isaac:
And we believe in it, and… Yeah.

Matt Mulcock:
And one of the best, if not the best way to build wealth over the next 30, 40 years.

Ryan Isaac:
And especially for the average majority of dentists, it’s such a great vehicle. And that’s our specialty, that’s all we’ve done for 15 years, and we’ll continue to do it. And people who want that path, we’re a great fit for that, but, that is not to demonize any other way of building wealth, and that’s not to say that that’s the right way for everybody. I don’t think there is a right or wrong way. If we broke this down into three main asset classes, you have a private business, you have, which is like your practice or whatever.

Matt Mulcock:
Check, check. Check.

Ryan Isaac:
You have public businesses which are just stocks, okay? And then you have real estate, that’s three main asset classes, and there are sub-categories of all those. None of those are right or wrong. You can be no stocks, no real estate, and have 12 practices and just be balling, right?

Matt Mulcock:
Yeah. You’ll be just fine.

Ryan Isaac:
Yeah, you can have one tiny practice, no real estate and a giant stock and bond account and be balling. You can have no stocks, one tiny practice, and a huge real estate portfolio, and you can be balling.

Matt Mulcock:
Balling. There’s a lot of ways to be balling.

Ryan Isaac:
There’s a lot of ways to be balling here.

Matt Mulcock:
Yeah.

Ryan Isaac:
This is what we’re trying to, you can be a baller in a lot of ways. There’s no right or wrong. The question is what are you willing to deal with? Because all of those scenarios have different pros and cons and stuff that you have to deal with and what can you stick with? I think those are my two biggest questions for people. And if you’re gonna pick a path, are you picking it with a lot of education in mind? Like, did you get sold on something and so you’re just like kind of like going gung-ho into something? Or do you know, because of research and a lot of like study and thinking and a lot of information that this is a path that you want to deal with and you can stick with for decades. Because any one of those, none of them are fast. There’s no such thing as immediate passive income that one of those gives you that another one does not. That’s not real. And what can you deal with and what can you stick with? I think those are my big questions when someone wants to get into this. But that’s kind of like where we’re beginning with this conversation.

Matt Mulcock:
Yeah, I think that’s exactly… That’s spot on. And the other thing I’d say to this is, I always come back to this idea of, what game are you playing? What is this all for? Meaning, and this is why I think we come off as anti-real estate, I’m gonna call it out right now. We come off as anti-real estate sometimes because we call out the idea that you can just get in, “to real estate,” and we call out the idea that you’re getting in… A lot of times, we see people getting into it for the wrong reasons, meaning it’s way more fun and sexy to be talking at a Christmas party about how you own a couple of fourplexes with your buddies…

Ryan Isaac:
Than some stupid mutual funds.

Matt Mulcock:
Than some stupid mutual funds. It doesn’t sound, like it’s not fun. But it’s like, what is the whole point of this? The point is to win the game of wealth, not win the game of perceived status, and so that’s where we, I think sometimes get a little bit frustrated with people when it’s like, we sense you’re not really asking the questions from a place of, “How do I more efficiently and effectively build wealth that fits my specific values, goals, needs, drivers,” right? It’s more like, Hey, I wanna get into real estate ’cause it sounds fun.

Ryan Isaac:
Yeah, or I went to a thing…

Matt Mulcock:
I went to a thing and guy…

Ryan Isaac:
And it sounds like it’s easier.

Matt Mulcock:
It sounds easier and it sounds sexy and more sophisticated, right?

Ryan Isaac:
Yeah.

Matt Mulcock:
And, yeah.

Ryan Isaac:
Totally. I love that you said values and goals, because I think that’s a thing that as a financial advisor, because we’re the person involved and we see a big picture in our client’s lives because of the way that we do business, but we’re also not emotionally tied to any of this stuff, this isn’t our situation, this isn’t our spouse, our business partner, we’re very cold and calculating about it. So you’re totally right, man. When you hear somebody wanting to kind of just take a new, a new path from what they’re doing, that might be totally working, someone might be heading down a path and it’s working. You’re like look at this…

Matt Mulcock:
You’re winning, you are winning the game.

Ryan Isaac:
You’re doing it. And they kinda wanna just make an abrupt turn. That’s okay. Life is full of abrupt turns, I’ve taken plenty. And some are good, some are not. I mean, whatever, like I am a big fan of abrupt turns, that’s fine.

Matt Mulcock:
I love abrupt turns.

Ryan Isaac:
I like… I do. But I like what you said about values and goals, because all of these things, like whether you’re building a big DSO and a bunch of practices, or you want… You want to be a long-term real estate investor with a big portfolio or you just want to amass a lot of liquidity in stocks and bonds and mutual funds, the… Those things are relevant until you figured out, “Well, what do I actually value? What are my goals? And what do I actually value?” And I think it does…

Matt Mulcock:
And what’s the why? What’s the why behind this?

Ryan Isaac:
What’s… That’s the why. That’s the why. Why are you doing this? What do you value? And I think that is what gets frustrating to be this person on the outside looking in to these decisions, and you can kinda just see like, this isn’t matching. This is not… Something’s not matching here, and it’s a frustrating feeling because you’re kind of trying to be… You don’t wanna be shooting down someone’s hopes and dreams and ideas, and you wanna be curious with people and you wanna explore ’cause I totally value that. I think that’s a great characteristic to be curious and exploring things, but at the same time, you can kind of feel like someone’s… Someone is just stressed, and so they’re trying to take this abrupt turn out of stress and not out of they’re… Their values aren’t driving it, their stress is driving it, or the hype is driving it, or fear is driving it, and you’re just like, “Oh man, something just doesn’t feel like it’s jiving here. Can we slow down? Can we just ask some more questions? “And so. I like that you…

Matt Mulcock:
And also it could be… It also could be greed, it could be envy. It could be you heard a story of some guy who is did this and that and you’re like, “Well, I wanna go do that,” and it’s like, but if you just stay on the path you’re staying on. You’re working three days a week, you have plenty of time with your family. You’re putting away 25% of your income, like, why deviate from that unless your values, goals, drivers, and needs have changed.

Ryan Isaac:
It aligns. Yeah. And it aligns.

Matt Mulcock:
And if that’s the case, let’s talk about it, but if not, don’t get wrapped up into the hype and the status-chasing and all that, and that’s where it comes from is, I’ve actually… You and I both, Ryan, I think, had a lot of conversations with people where real estate in a portfolio absolutely makes sense, and they’ve done the right due diligence or we’ve helped him find the right people to do…

Ryan Isaac:
How many clients do you have that have significant net worth and are very successful in real estate?

Matt Mulcock:
Tons.

Ryan Isaac:
Tons.

Matt Mulcock:
A ton of people.

Ryan Isaac:
Tons.

Matt Mulcock:
Tons of people.

Ryan Isaac:
Yeah, tons.

Matt Mulcock:
And we think it’s a worthy pursuit to be adding some real estate into your portfolio, just, again, thoughtfully and in a way that actual… And intentionally. That’s the biggest thing is when it lacks intention or if it’s kind of on a whim, like if I have to hear one more person tell me I just wanna get into real estate, I wanna scream, ’cause I’m like, what does that even mean?

Ryan Isaac:
Yeah, yeah, yeah, totally, man. It is a sudden emotion, and a sudden… Like a new stress in your life, is that… And especially in a year where if you have a practice and your practice like dipped a little bit in collections, or a year where you have a lot in stocks and bonds and mutual funds and the market went down, and you’re feeling new stresses and new emotions and there’s just new events in your life that put new pressure on you.

Matt Mulcock:
And you’re asking, does this really work?

Ryan Isaac:
Yeah, totally.

Matt Mulcock:
And it’s been a bad year, right?

Ryan Isaac:
Totally, yeah. Questions are great. Curiosity is great, exploring is great, and I just think that’s a good overarching principle of any path, any investment path as an investment advisor, you’re just like, I just want to be asking… I just wanna slow down and I want just us to be asking, why? Why are we doing everything? And there is no right or wrong, there is no good or bad, mostly, there’s some stupid stuff. There’s some bad decisions you could make, but what is the why, what are your goals, and what are your values, and if something has shifted you dramatically out of nowhere, that’s probably a time to just slow down a little bit and ask some questions like What is really pushing me towards this? What am I really feel… I’m feeling these things, what does that really mean before I go make a big change in life? So, this took a different turn than I thought it would be.

Matt Mulcock:
[chuckle] It always does.

Ryan Isaac:
It always does. What I wanted to say, what I’ve been having in these conversations is like the private real estate investing world is gigantic, and I think over this next year, Matt, I would love to do… We can make a good concentrated effort to bring on some experts in that area, and it’s more than just the person who develops commercial real estate, and it’s more than the person who does personal real estate investing, duplexes, or single family homes or apartment buildings. It’s those people, it’s like big funds, who source things, it’s people who are in the medical, dental, commercial space, the retail space, it’s people who finance private debt funds, you can have real estate in your public portfolio, you can buy what are called REITs. R-E-I-T, Real Estate Investment Trust, you can have real estate type returns and dividends, passive income, “Passive.”

Matt Mulcock:
Passive.

Ryan Isaac:
In quotation marks, that are different than stocks, you can have that just in your portfolio and it can be liquid. And so my point is, let’s ask the right questions, if we’re going down a path that it feels like very emotionally charged, maybe let’s slow down a little bit. Let’s ask some more things. Let’s be more curious about what’s going on. And let’s learn. Let’s learn together. If you do have a passion and an interest in, and real estate aligns with your goals, values, and you can deal with it and you can stick with it, then let’s investigate, there isn’t one way to do real estate.

Matt Mulcock:
No, there’s endless ways. Yeah.

Ryan Isaac:
It’s a giant ways. Aren’t you surprised by how many things… I have clients in the middle of the country, in small towns in Oklahoma, putting together like cool little small four and five-person syndicate groups, and they’re just turning projects every 24-36 months successfully. There’s people in big cities renting out Airbnbs and condo, it’s huge, the way that you can participate in real estate is huge. So let’s just do it for the right reasons, ask the right questions, take our time, be curious, align, everything you’re doing with your values and goals, and then go where it leads us.

Matt Mulcock:
Yeah.

Ryan Isaac:
I think that’s totally fine.

Matt Mulcock:
Yeah. And the last thing I’ll say on this, from a passive income standpoint, ’cause we hear this a lot, right, I think people equate passive income.

Ryan Isaac:
Well, it’s a marketing pitch, dude.

Matt Mulcock:
Yeah.

Ryan Isaac:
That’s what people are… And if you ever go to a thing and they’re just like, passive, passive, passive, like that’s, there’s no… Besides tax-free, there’s no bigger marketing pitch than passive income, there’s no bigger pitch.

Matt Mulcock:
Exactly. And I think as a… I think a little, kind of, a little something to take away from this of saying, this is a kind of a law, we’ll call it, we’re just gonna throw out a law. A law of Passive Income.

Ryan Isaac:
Matt’s Law. Matt’s Law.

Matt Mulcock:
Matt’s Law.

Ryan Isaac:
Okay. Love it.

Matt Mulcock:
A Law of Passive Income is it requires one of three things, and oftentimes all three or a combination of the three, and it’s time, energy, and capital, you cannot have passive income without at least one and or possibly all three of those things, right? So just think about that, and that applies to any asset class, time, energy, capital, someone’s time, someone’s energy, someone’s capital. And if it’s not yours, you gotta pay for it, right, meaning it may not be your time.

Ryan Isaac:
Someone’s time, you gotta pay for their time, yeah.

Matt Mulcock:
Someone’s time. You gotta pay for someone’s time, which is a RIET or a private syndicate or a fund, you gotta pay for someone’s energy, the same thing, or you have to take those things on, or capital could be your own capital or could be a combination of yours and the bank’s capital. All I’m saying is, don’t get it twisted, like that doesn’t apply to real estate, and it only applies to stocks or vice versa, anything that’s going to be for your business, anything that’s gonna kick off passive income, yeah, ’cause the dental practice could be… We’ve seen this, we’ve seen where a dental practice becomes a passive income source for a dentist, right?

Ryan Isaac:
Yeah, you put out associates and it’s kicking off revenue, but like how long did that take? It wasn’t passive.

Matt Mulcock:
How much time, energy, and capital did it require to do that.

Ryan Isaac:
That was not passive.

Matt Mulcock:
Exactly. If you’ve got five million dollars right now, in cash, could you go buy up a bunch of real estate and create passive income, of course, but how long did it take you to get that time…

Ryan Isaac:
To get your $5 million?

Matt Mulcock:
Or to get that money. Yeah, so I just wanted to throw that out there ’cause I, again, this gets twisted a lot of just this idea of passive income. It’s like, okay, well, that rule, that law we just created out of thin air, applies like that…

Ryan Isaac:
Time… Say it, time.

Matt Mulcock:
Time.

Ryan Isaac:
Energy.

Matt Mulcock:
Energy. And Capital.

Ryan Isaac:
And capital.

Matt Mulcock:
You cannot…

Ryan Isaac:
TEC.

Matt Mulcock:
TEC, there you go.

Ryan Isaac:
CET, ECT, ETC, EC, CET.

Matt Mulcock:
Something. One of them.

Ryan Isaac:
I like all of those.

Matt Mulcock:
CTE.

Ryan Isaac:
CTE is mostly right.

[laughter]

Ryan Isaac:
There are some acronyms here, it’s Matt’s law of time, energy, and capital for passive income, and if you’re hearing an opportunity that offers passive income without one or all three of those things involved…

Matt Mulcock:
It’s not real.

Ryan Isaac:
It’s a sales pitch, it’s marketing, it’s marketing. Just like most like tax-free, tax-free, it’s marketing. Dude, it’s just marketing.

Matt Mulcock:
Yeah, and I will say that… Sorry.

Ryan Isaac:
No, you’re fine.

Matt Mulcock:
The more layers between you and whatever this asset is, or whatever this solution that they’re presenting, the more layers, meaning the more people, the fund or whatever, the less… Or the more money it will take for less payout.

Ryan Isaac:
Yeah.

Matt Mulcock:
‘Cause you’re paying for those layers.

Ryan Isaac:
Dude, it’s like, you can go into some private real estate, small group in your town and buy up some like old InstaCare facilities or nursing home and stuff, or you can go to Vanguard and buy their VNQ, is that the VNQ REIT? And your Vanguard return is still in real estate, but it’s so much more efficient, it’s liquid, it’s… Your returns are gonna be smaller ’cause your risk is lower. Or the private venture that your money is locked up, you could lose it all, you don’t really have transparency and you don’t really know who’s doing the accounting, and it’s only five people in your city and who’s an expert, that has more risk, so your return should be higher, that’s…

Matt Mulcock:
Or you could remove all layers and go do it yourself, but then what are you doing?

Ryan Isaac:
I’ll go do it. Exactly.

Matt Mulcock:
You’re taking all your time…

Ryan Isaac:
Time, energy, capital.

Matt Mulcock:
And all your energy and capital, and the opportunity cost of not focusing in dentistry. So I just wanted to bring up that concept, ’cause I think that hopefully that helps with this mindset of like, whenever I hear passive income, okay, am I thinking what time energy and capital am I either paying for or having to use myself, whether that be in real estate or whether that be in someone’s pitching a crypto or stocks or whatever it is. That rule will apply to all asset classes.

Ryan Isaac:
Dude, I love it, time, energy, and capital, Matt’s law, everybody, Matt’s law of passive income, everybody.

Matt Mulcock:
[chuckle] There it is.

Ryan Isaac:
That’s gonna be sure.

Matt Mulcock:
That’s gonna be sure. Let’s do it.

Ryan Isaac:
Good talk, Matt. Thank you.

Matt Mulcock:
Great. Great talk.

Ryan Isaac:
That was a good…

Matt Mulcock:
I love this Friday afternoon chat.

Ryan Isaac:
Yeah, right, the New Year’s Eve eve chat, I appreciate it. Thanks to all of you who tune in every week as you do, our audience and listenership grows every month and every year.

Matt Mulcock:
We love you. We love you.

Ryan Isaac:
We do, we really do. I appreciate that, we appreciate that. If you ever wanna chat with us directly, it’s super easy, it’s non-committal, which is my favorite thing in the world. Go to dentist…

Matt Mulcock:
Non-committal is my middle name.

Ryan Isaac:
[laughter] Go to dentistadvisors.com and just sign up for a free chat with one of our advisors, we’d love to talk to you about what we do or just answer some of your questions and put you in the right direction. We love doing that, so get in touch and ask us your money questions. Matt, thanks, again, Happy New Year to you.

Matt Mulcock:
Happy New Year. It was great.

Ryan Isaac:
And we’ll see you guys… This comes out next year, but I was gonna say we’ll see you next year, but we’ll see you this year, so…

Matt Mulcock:
We’ll see you this year. Happy New Year.

Ryan Isaac:
[chuckle] Happy New Year. That already happened, everybody. Thanks for tuning in and catch you next time on another episode of Dentist Money Show. Take care, bye-bye.

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