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AUDIO - HSP #158 - Rob Joyce
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VIDEO - HSP #158 - Rob Joyce
How do you want to retire? Listen to Rob Joyce explain some of your very realistic options.
At Edge Wealth, Rob is responsible for providing comprehensive wealth management to individuals as well as retirement plan services to small businesses and their owners. Rob has over 10 years investing and focuses primarily on the investment needs of private practice dentists. Rob's wife, Dr. Kristen Joyce, owns a practice in Milwaukee and his first-hand view of the obstacles and challenges of running your own practice is invaluable to his ability to serve the financial needs of dentists.
Rob also serves as a mentor to the NFL's Business Management & Entrepreneurial program which assists the players in their off-field endeavors. He enjoys the passion entrepreneurs bring to the table and is honored to play a role in their success.
Howard: It is a huge honor today to be interviewing Rob Joyce in a suburb of Milwaukee, correct?
Howard: With Ed's Wealth Advisors. I interviewed one of your contemporary partners yesterday.
Rob: Mr. Barr correct?
Howard: Yes. How did he say it went? Did he say it went well?
Rob: Yeah it went great. It was the quickest hour he's ever had. He said you're a great host and he really enjoyed it so we're happy to be on here.
Howard: I always say I feel sorry for you guys a lot because policeman only go to the police academy to learn how to catch bad guys, firemen only want to put out fires. We went to school for 8 years because we really want you to come in and have a broken tooth and be the hero and get you out of pain and fix you all up. Then we find out when we open up our business that we have to do these other annoying things like payroll and marketing and finance. Then your department is that someday your eye hand coordination is going to be so bad that we'll have to retire. I actually hope that I get to die at a chair but you've been doing this for a long a long time with edgewealthadvisors.com.
What's the low hanging fruit? What should dentists be thinking about? Are they really going to retire someday? About what age are they going to retire? Do they usually have enough money? What's the low hanging fruit on what you do?
Rob: The low hanging fruit for us really is just to get a plan and clarity in place. I think much like most people who go to the dentist, they don't want to know. They don't want to know that they have 15 cavities so they avoid going. Dentists do the same thing to their wealth management picture. They don't want to know, they'll "socks" some away but they don't want to get down into quantifiable numbers and plan for retirement.
The truth of the matter is it's really easy. Dentists, for as much compression maybe on business, are in a great position. They do well, they're entrepreneurs, they have a lot of valuable tools to them including free cash flow sometimes. The important thing is is just to plan out how do you want to retire. Howard, I think we differ a little bit in that I'm a wealth manager right? I can't tell you where the stock market's going to go. I'm not going to even try to do it right?
I can tell you that we're going to do our best to hit your goals. I want people to invest for goals, not for dreams. A lot of dentists, you go to cocktail parties and they all want to tell you about a stock that they found and they made 15% in 3 days. That's great. I'm glad they do it. I hope they do it with a little bit of money because it's not their profession and they shouldn't be trying to just get bragging rights.
Our focus is more to bring some clarity to their retirement picture. Figure out the number that they have to get to to retire happily, what they will need in retirement. We go through the basic practices where we can figure out, "Okay. Here's what you need."
If they tell us when they sit down, "Hey I want a Ferrari. I'd like a private island and a couple million bucks in the bank." We've got to get really aggressive about how you're saving retirement today. You're going to have to own a couple of practices, you're going to have to really rip at it. Most of them are just sitting there saying, "If I'm making 80% of what I'm making today, in retirement, I'll be happier than a pig in slop." If that's the case then let's get you there. Let's not try to get 20% when the market's up 15% and let's not just try save zero when the market's down 20%.
Howard: Is that your goal? 80% of the income you're used to? 80%?
Rob: Like I said some people have really big goals and I love those dentists and they're great and they're fun to work with but you always have to bring them back to reality. When it comes to, when you're looking at your income right now, if you can pull 80% of your income out of your retirement along with social security, you're in a pretty good spot. You should be able to live happily.
Howard: You've been doing this for a decade. In your decade experience, how old is the average dentist when they do this? When they retire?
Rob: When they retire? I think it's between 55-58, somewhere around there.
Howard: Wow. Is it really that early?
Howard: Are they doing that because they're burned out and don't like dentistry or because they had a heart attack or cancer or some disability?
Rob: I think they sell, Mike and Andy [inaudible 00:04:27] another partner with our group could talk more specifically about dentists. I've done this in the past three years with dentists specifically. I've been working with investors for over 10 years but my wife bought a practice actually, three years ago, and that's how I got involved in working with dentists. I saw all the pain she went through understanding her practice when she bought it and also the questions that came about because she didn't have the business background but she's all of a sudden a small business owner with seven people depending on her.
That's when I got involved with dentists and the dentist she bought from was 55 and people hang on for a while. The dentist before that was I think 70 when he left. I do think retirement and having enough in the retirement accounts, does fuel the decision of one to sell the practice. You see 2008 happened right? A lot of guys held onto their a little while longer because you don't slaughter the golden goose. That's what brings your income every year. You're going to get one time $500-800,000 payout, great. If you hold on to that you can be making $200 grand a year without too much effort.
Howard: Let's cut to the chase. If one of my viewers is listening to this show right now and knows that Edge Wealth Advisors is a big firm that only does dentistry and they've got an unbelievable reputation. If they wanted to talk to you, how much does it cost to talk to you to get a plan like this? How much is the plan?
Rob: Sure. Our focus is really private practice dentists. Definitely we welcome anyone in. We want to work with growers. We have people who started with zero dollars, set up a simple plan. I help them set up, I walk it through. They either took over practice from their father and their father didn't have anything or he rolled out a 401K and they're like, "What should I do?" We decided to do a simple plan for their practice and they started with zero dollars in the account.
It's a great relationship for me because I get to work with the young dentists who is just like my wife and has the same questions and I can be valuable for them.
On the other side we work with dentists who are near the end of retirement, have over a million in their retirement accounts and are just figuring out how do they live off of this for the rest of their life. What are the prudent things they should be doing in terms of insurance or disability or long term care.
Howard: I was asking how much does it cost for one of my listeners to talk to you to get a plan?
Rob: Zero dollars to talk to me.
Howard: Zero dollars. How do they talk to you?
Rob: They reach me through our website or give me a call.
Howard: What's your phone number?
Howard: They can email you at email@example.com.
Howard: You're saying that what you've been seeing in your firm and you're married to a dentist, is that this is most likely going to come out between 55 and 58 years old and for the average person 55 to 58, if they're going to live off 80% of their income how much money are they going to have and how much of that are they going to fund by selling their dental office?
Rob: Obviously it's depending on the size of the dental office. Assume of your retirement assets that you're going to be able to pull 4% per year. That's the magic number right? You can back into that if you need $100,000 a year what are you going to need to get to $100,000. $100,000 divided by .04 will give you that 2.5 number is that?
Howard: Is that 2.5?
Rob: Is my math right there?
Howard: Let me double check 100,000 divided by .04, you are on the mark. $2,500,000. I want to tell you the biggest secret on how to get that number overnight.
Rob: Let's hear it.
Howard: If I said to you "Rob describe to me an american worth $100 million. Describe this person for me."
Rob: With $100 million?
Howard: The average American. Describe that person who has $100 million.
Rob: Probably has a trust fund or started a tech company.
Howard: He did. But he's dead. If you're worth $100 million, over 90% of them are 80 year old ladies and they're widows and the best way to retire, especially for a young handsome guy like you, you could have just suave and debonair one of these 80 year old women worth $100 million and just wait it out. That's my secret.
I live in Phoenix, Arizona and rumor has it that Phoenix and Scottsdale and Florida, most of them live in these areas. That's my whole retirement plan. When I don't want to do dentistry anymore, I'm going to go start dating 80 year old women in Scottsdale that already have a Ferrari and a boat and a private island.
Of that $2.5 million, let's talk about [inaudible 00:09:17]. What are the tax advantage savings wise? We talk about a 401K. How much can you fund that? What's the taxes on that? Is there other plans? You hear of Roth IRA, these specific terms. Can you go through the common lingo? IRS advantage, tax things?
Rob: Everyone knows the 401K or at least is vaguely familiar with them. They're great savings plans. They're a little bit larger, they're a little bit expensive to set up. There's a record keeper, there's just a bunch of complex paperwork that goes along with it. However they do allow you to put away of your personal money $18,000 a year. $24,000 if you're over 50. You can put away pre-tax $24,000 if you're over 50, $18,000 if you're under. Plus you can do a match, where your company which you own, matches what you contribute up to a percentage of your compensation. That can get you to a max of $53,000 in your 401K plan.
Howard: How do you get to $53,000 if you've got $18,000 and then the employer matches. Would it be a [crosstalk 00:10:24]
Rob: It's a match of your compensation. It's a percentage match of your compensation. The problem is however, is if you say, "Okay great. I'm going to match 10% in my 401K." You have to then match all of your employees the same amount.
If you own your dental practice you can't say, "Hey match me 10 but those guys I want to match 2." It doesn't work that way. The 401K is not often high matches in them but you can get yourself up to $53,000 in a 401K.
Howard: I set mine up when I got out of school in 1987, and I did set up all my employees for it and I do the matching. I didn't think it was morally, ethically right for me personally. I had to be true to myself. I couldn't look myself in the mirror and at 65 walk away a millionaire and then have my assistant Jan, who's been with me since day 1, she's been there 28 years with me, walk away and live off social security and medicare and medicaid. I didn't think that was right.
I also think, I have no data for this, in dentistry we sell the invisible. They don't know if they need a filling or a crown or a root canal, they're trusting us. I think they trust us more when we don't have staff turnover. I think when my patients come in and they've seen Jan there for 28 years and they like her. They just assume I'm probably a good guy if she's standing by my side for 28 years. I think it makes them trust more. I think you make a lot more money when you have less staff turnover and I think a 401K for employees is good business because I think a lot of them ... what percent of dentists do you experience, do it for the employees or just themselves?
Rob: This is where, Howard, being a nice guy really saved you because if you didn't match, you would have been found out by the IRS and they would have been all over your tail for not matching. You have to match as an employer, they all match it's just at what percent do they match and that dictates what they get and what the employees get.
Most do a 3% match which is typical. Then there's a vesting schedule which can go along with it which is for retainment. Say you just hired a new hygienist and he comes on and he's working for you and he's putting away money but he doesn't stick around for the vesting schedule or he's there for two years to get 100% vested. Then he loses your whole match and that goes back into the kitty essentially.
It's kind of like, you tell him when he walks in. "Our vesting schedule is 2 years. You're going to get this match from our company but you have to stick around for that 2 years in order to be fully vested and get that match." Not only is a retainment saying this is so nice of you you set this up for me. Also, I have to stick around. It's a financially good decision for me to stick around because I put that money away.
Howard: Do you need to be a corporation to be a 401K?
Rob: No. LLCs can do. Anyone can do it. The business does it. You set it up with a plan.
Howard: You have to be an LLC?
Rob: Yes. You can't set it up as an individual.
Howard: Okay. You've got to be an LLC.
Rob: Yeah the individual's are the participants and the plan sponsor is the LLC.
Howard: Then give us your best spiel for ... you're probably talking about 7,000 dentists driving to work. Unless you're driving home from work. It could be morning, breakfast, night. Go through the criteria of whether a dentist should do a 401K and if they didn't, if she didn't set up a 401K what would be another retirement plan?
Rob: Sure. What's simple is ... we do a lot of Simple's for doctors. I'll tell you why. I talked to you about the 401K. It's probably from an administrative standpoint, it depends on numbers and a lot of different. Generally $5,000 a year to administer a 401K. Which can get expensive for someone just starting out and only has four or five employees. It's like, "Hey, I don't need all that overhead. I don't want to start that. It's not worth it for me." Simple plans are simple. They're very easy to do. Most of our dentists will do simple plans. It allows you to put a little less money away compared to that $18,000 but it still does give the employer match up to 3%. You can't go past 3% of their compensation every dollar that they put in.
Simple plan I think is great. If there's a dentist out there listening who just started practice and is six months in and sees cash flows are good, talks to their accountant, talk to a guy like Mike Barr and says, "Hey. Cash flows are okay. You're steadying out. You should feel comfortable. You should probably look at a retirement plan." For two reasons, one, like you said you're going to want to retire one of these days. You're going to want to stop and you want to have a little money in the bank when you do so.
Two, it's a good tax savings, tax advantage to do so because you're putting away money for yourself and for your employees pre-tax. Three, it helps retain some of your employees. They're going to be pretty fired up when they realize they can save some money pre-tax and they can get a matching contribution.
Typically, from a dentists their staff is not, there's not five executives at a dental office right? It's usually one executive making all the decisions. Probably getting paid the most and a number of underneath. In compensation, what it takes to do a simple plan and to match their employees compensation is not a huge expense. It's not going to take you down in a year.
Howard: When you say a simple plan, are you just saying simple plan like an adjective or are you saying a legal term that's set up by the IRS?
Rob: It's called a simple IRA. 401K is the most complex but you can put away the most money. Costs a pretty good amount. Simple is the simplest, costs the least and is really easy to set up. It's very simple to do. We use Van Guard for our platform. Van Guard's been spoken really highly of, I like them a lot. Low cost, high performance. It's the best of both worlds and that's who we use for our investments.
Then I would come in and help them set up a simple plan, talk to all their employees, let them know this is available to you, then they can decide if they want to participate or not.
Howard: I don't' want to assume any of these listeners are ... I have an MBA and I want you to go in and explain the Van Guard. I want you to go into specifics because you start off saying, "Yeah you might be able to pick a stock and make 20% in 3 days or whatever." When you're talking about getting out of school at 25 and retiring at 65, explain what an index fund is, explain why you chose Van Guard as opposed to a mutual fund or just some terminology for the listeners?
Rob: I think the two biggest things and I think it's come into fashion lately and I'm happy it has is passive investing. The best way to passively invest is with an index fund, which simply tracks an index whether it be the SMP 500, which is the 500 companies of the United States. It's a proxy of the US economy. There's FXI which is China, which has obviously been int he news lately. It's having a little volatility to it.
Different companies have set up these different index funds to track a certain index across the country and across the world. You can have commodity indexes. It is not trying to pick specific stocks and outperform any one index as mutual funds typically do. Mutual funds will go out and say, "We're going to go out and hire the 10 brightest guys. They're going to analyze the hell out of the stock universe and they're going to pick the 10 that they like the best in this defined sector. If you like that come with us, we're going to invest your money."
Typically they're more expensive to do that but in the long run it's expected that they don't outperform. You can dig into the research and people have come up with statistics that said index passive investing is the best way to go. People have come up with information saying mutual fund investing is the best. I think it's dependent on the environment but overall if I'm talking to a guy about 30 years, I want to be pretty passive on about 80% of his money.
That's where we go. Van Guard is mentioned in Warren Buffet. He mentioned them in their letter. They got a huge bump because I think they passed a trillion assets mostly because he said, "If I was going to invest today I would put 80% in low cost index based funds. I like Van Guard." That one comment obviously shot Van Guard. Van Guard's great to begin with but that shot them even further.
Howard: You want to know how old I am?
Rob: Are you going to let us know this?
Howard: I've got a funny warm up. I actually grew up in Wichita Kansas and went to Omaha Nebraska where Warren Buffet lives to go to Creighton University. The reason I did that, it was the only undergrad university that I even knew of that had their own dental school. They filled their class from their undergrad and it was just a great environment. I signed up for business 101 and it was this 70 year old Italian instructor with long hair. He was just an eclectic great guy. He would give us 10 extra credit point if we went to this guest lecture on Friday night from 7-10 and write up 100 words on what we thought of him. Guess who it was?
Rob: Warren Buffet huh?
Howard: I should have taken all my college money and put it in Berkshire Hathaway and then went and got a job at Taco Bell. I would have...
Rob: You'd have a Ferrari and private island. We'd be doing these down there.
Howard: What these guys are saying to try to simplify it is that if I pick a stock picker, that fund is going to cost me a couple of percent every year. What percent would that fund cost me whereas if I get an index fund, and he's calling it passive investing because they just ... a computer picks the stocks if you've got the Fortune 500, you've got a stock in each one of those Fortune 500 so there's a very little fee.
What is the difference in the fee before form like a Van Guard to like a [crosstalk 00:20:15]?
Rob: You take Van Guard's like a mutual fund it can be anywhere from 75 basis points to 1%. Even for on the mutual funds, some of them get pretty high. 1.25, 1.5 isn't awful to see. The Van Guard funds I use and I have to be careful of is what we talked about. The Van Guard funds I use can range anywhere between 12 basis points and 23 for the most part.
Howard: Explain the basis points. That flew over someone's head listening?
Rob: 1% equals 100 basis points. If I say 18 basis points, that's 18/100ths. When you look at the spread there that's money going into their pocket that they don't have to pay someone to pick.
Howard: If you could talk to the average 5,000 graduates that walk out of school in May, what would you tell them? You'd tell them to set up a simple IRA?
Rob: Yeah. First I would tell them to go with an associate dentist and get a few years under their wings so they can understand the business side of it. Howard, I think you're pretty lucky. You had a business mind and when you came out you could hop right into it. I think most dentists struggle to get the business side of it, the HR and all the cash flows and the operations. It's not what they want to focus on.
I think understanding how much of that business part aspect of owning your own practice really is takes a couple of years. Do that first and contribute to a simple at that time. Then when you own your own practice, start with a simple. It's simple, it's low cost and you can put some money away for a couple of years.
Things go really well, you talk to Mike Barr, your accountant. He says, "Look you've got so much money you don't know what do do with. Let's look at 401Ks, let's look at profit sharing with cash balance plans, etc. etc." That is not a conversation for most dentists that they can have on day one or even day90 of owning a practice. You want to get your feet grounded. You want to feel good.
I would say look at doing it right away. Even more than that it's just come up with a plan. Whether it's talking to me or any advisor, come up with an idea of what you want your life to look like.
Howard: You said the simple plan you could put away $12,500 a month and with the 401K it was $18,000 a month?
Rob: Not a month. A year.
Howard: I mean a year. The Simple was $12,500 so if you put that away from 25-65 would you be close to that $2.5 million?
Rob: Now you're testing my math here a little bit.
Howard: It's only a 40 year fixation.
Rob: It's 40 years plus let's say we compound it at 8-9%, you're going to be relatively risky because you have time and you're going to hopefully buy these dips and invest in a disciplined way. You're not going to get to $2.5 million but you're going to be pretty well off. I'm trying to think of it in my head right now what we'd be at.
I think what's important is to understand something, you need $2.5 million or you need $100,000 a year. Social security, which hopefully is around when the dentist coming out is retiring is going to kick in some of that $100,000. It's now $24-30. Now that takes you down and you need $70.
Howard: How much is social security? Right now I'm 53 this week so when I get there I think they've moved it up from 65 to 67, is that right?
Rob: You'll be 66-1/2. You reach 66-1/2 by April 1st you can start saying give me my money.
Howard: Do they give more if you wait a couple of years? Do they do that?
Rob: They do. It goes up 8% every year until you're 70. It's not 8% compounding, it's 8% on whatever. Say you would get $100 every year when you hit 66-1/2. If you wait til you're 67-1/2 it's going to go to $108 a year, if you wait one other year it's going to be $116. You're not compounding that 108, you're just going from your base and you get 8% a year until you're 70.
Howard: It starts at 66-1/2 and they do that all the way to 70.
Rob: Mm-hmm (affirmative). For the most part it's 66-1/2. You have to put your age in because they are having people work longer. In certain age ranges it's 66-1/2. Some are 66. Some of us are ...
Howard: I've got to tell you a personal story about my uncle. He finally passed away but he sweated out his social security this whole life because he lied about his age to get into World War II. You had to be 16 and he wanted to go fight so he lied. At 15 he moved his birthday over a year and joined the Navy. He was always sweating out that someday social security was going to call him up and tell him that he's a fraud and a criminal and a fake. We kept saying, "We're pretty sure there were no computers back then." They probably couldn't even go in and find the piece of paper you signed.
Rob: What a cool uncle though. If you're signing up to fight that's a guy I want to meet. He lies so he can fight. That's awesome.
Howard: Yeah he went to Okinawa for the whole war. We know you need to start saving and we know the longer you save the better you're going to do. We know don't go try picking a stock because you do root canals you don't do stock picking. What other low hanging fruit advice would you say on what you've learned?
Rob: I think that discipline is probably the biggest thing when it comes to investing. 5,000, probably 7,000 by the time this one comes out. I think you're gaining popularity Howard. There are some dentists sitting there thinking, "I can do this all on my own. These advisors don't do anything because I call them up and I ask them, hey where's the stock market going? And he can't tell me anything. I don't need him." That's not what an advisor is for. I said that at the beginning and that's what we're here for. You advisor should give you clarity, execution, and discipline.
If you can do those on your own, if you can pull all your assets together and say, "You know what, I know where everything is, what it all looks like, how it's historically grown over the past and where I'm going to be at when I retire." You may not need. You can go in and get into the software, you can execute, you can keep yourself in a disciplined investment schedule. You might not need an advisor. Absolutely, you might want one [crosstalk 00:27:05].
I think this is a really key point. Market timing is a really dangerous game to get into. People say, "Well I don't market time. I just invest." If you put a thousand dollars into the month one quarter and then $10,000 into the months the next quarter, you effectively, passively market timed. You put a bigger bet at a point different in the market.
When it comes to an advisor, he should keep you on a disciplined schedule of investing and re balancing so that you're not market timing. As much as that can do great for you if you bought the bottom this morning you would be up 4% already just today alone. It could do great wonders for you but if you put it in on Monday because you thought, "Hey this looks good." You're down probably 7%.
Howard: I'm old enough to remember my freshman year in college in 1980 when interest rates went to 21%, unemployment was double digit, inflation was double digit and everyone thought the world was going to stop. Then I lived through black Monday in '87. Right when I graduated. I graduated in May and that happened October. I'm sitting here like, "Oh me, oh my." Then of course the March of 2000 internet bubble stock. Then 2008 Lehman's day collapse and now China just collapsed. You're right. When people asked me they said, "You've been to China, what do you think of that stock market?" It's like when you go to China every single person is busy working.
In the long run you can't bet against that. They're all working and most of them are all working from about 7am to 6pm six days a week. They'll tell you their hardest day of the week is Sunday because that's when they've got to go do all their house and personal stuff. I like the analogy that the stock market is, in the long term, it's like walking up a hill but watching the daily stock prices is like staring at the yo yo going up and down as you're walking up the hill.
Imagine if every time you came home your neighbor yelled, "I'll buy your house for $100,000." Then the next day you came home, "I'll buy it for $200,000." Every day you had to hear that noise.
Rob: Getting nervous.
Howard: You know you're going to live in your house and if you live in it 10, 20, 30, 40 years I'm sure it's going to go up in value and your stocks going to go up in value. It's very hard to get emotional humans to look at the long term instead of the short term.
A lot of dentists are readers. I've spent the night in hundreds of people's homes and the one thing that all dentists, physicians, and lawyers have is they have 100+ non-fiction books and they've read them all. Whenever I'm at someone's house that's not a dentist, a physician or a lawyer, almost always there's no books in the house except for some fiction like People magazine and 50 Shades of Grey. These guys are readers. If there was a young kid and he wanted to get his hands around all of this, what's on your best reading list?
Rob: The Misbehavior of Markets is a great book. It's by [Mandelbrot 00:30:11]. If you know the Mandelbrot set, IBM, PHD, really brilliant guy. Did some statistical research basically selling that statistics are pretty much lies when it comes to the markets and that they misbehave more regularly than we believe or than the statistics would tell us. Good book, good read. Other than that The End of Poverty is a book by Jeffery Sacks and the Origins of Wealth is another great book. It's a bible book. It goes back to just how we look at wealth and where the foundations were.
It's a piece of it. The author went over to Africa and they asked him. He was in a village and they asked him, "How many cattle do you have?" He says, "I don't have any." The people in the village are like, "This guy's so broke he doesn't have any cattle." That was what was wealth to them was cattle.
Now I think we flipped it. Now it's, "What's your stock portfolio?" That's what the dentists want to talk about. What stocks do you have in your portfolio because that's an indication of wealth. That book, the origin of wealth is a great book too.
Howard: Who wrote that and when did that come out?
Rob: I don't know who wrote it but it's been out since 2003 at least.
Howard: Yeah I liked Peter Lynch's Beat the Street. I also love to go to my idol. I like to listen to people who did it and Warren Buffet beats everyone on the planet. He's 80+ years old. He's a good town boy from Nebraska and I just like going to his website, Berkshire Hathaway. I think once a year ...
Rob: His annual letter yeah.
Howard: To read his annual letter. You feel like you're sitting in a rocking chair next to your grandpa. Here he is old enough to be my grandpa just telling me, "Settle the heck down. Here's the story." Einstein said, "If you can't explain to someone you probably don't understand it." Warren Buffet can just explain the entire investment world in one letter, once a year and it's a great piece.
What else did you want to talk about? What else should these guys know? You also served as a mentor to the NFL's business management and entrepreneurial program. I used to read in the papers all the time that the average person who made all that money in the NFL, about four years after their career was over basically had lost all their money. Is that still true today? Have they been working on that at the NFL? Are they any better investors passively?
Rob: The NFL is doing their part. They have the programs that universities across the country and they definitely have the resources there for the players. I give a lot of the credit to the players. I think this number is getting a lot better. There are some real success stories. Unfortunately, like you know, the media like to harp on the bad guys. Look how much money this guy blew. Not often are the good stories out there.
A roommate of mine in college, Jeff [Fayne 00:33:07], ended up playing. Had a 10 year NFL career, great guy. We did some things together. That's how I got involved with some of the NFL players. He has a business empire down in Florida that he's been building up since he was playing. He knew when he was playing that this is coming to an end. He didn't know it would last 10 years but he knew that. I would like to say, if he's out there he'll listen to this. He's an all star, he's a great guy, but he's not the anomaly. There's a lot of other guys in the NFL that have passions that they want to follow and they're finally getting the mentoring and everything they need through the NFL programs and through mentors.
I like to look at the NFL and the entrepreneurs a little bit and then transitioning that to the dentists. I think the biggest problem the dentists have is that they don't understand that they are an entrepreneur once they buy that practice. The difficulties that they come into. Some of the best things that they can do, best practice that they can do when it comes to it. A lot of that is managing their business and figuring out what are the best decisions and getting the best people on board.
I think what we do here at Edge is great. I'd say we're number one in the business of providing these services to dentists but I know that there are others out there and it's just a matter of getting out and finding them. My wife definitely wouldn't have found Edge. It was fortuitous. They were doing a sale and they were a blessing to her throughout her purchase. It was great. You can lean on your accountants a lot.
Howard: What all does Edge Wealth Advisors do? What all are there departments?
Rob: There's Edge advisors, the business services so we'll handle everything. Accounting, wealth management, mergers and acquisition, we'll do hygiene coaching. We'll help them out on that. We have an insurance side to it for disability, for life, and then we also have a marketing arm too that can handle and help you out with logo design, website.
We design it to be a one stop shop to help the dentists out there. I feel like we're pretty unique and maybe know of other groups, Howard, out there that do the same thing. There's a real value I think to having a dentist find a single group that he really trusts and appreciates. That starts with Mike Barr the accountant and he just provides so much trust with these people who are probably making next to either getting married or deciding to go to dental school one of the biggest decisions of their life. If they're buying or selling a practice. It's huge right?
Howard: I always thought it was interesting and I'm guilty of this too, that I flew to Key Biscayne five different times for a week to learn about dentistry at the Pink institute, I flew to Mich., I went to LVI, I go to all these places and dentists always want to learn how to make something. They always want another recipe to make another souffle in someone's mouth. You sit there and beat in these guys that, "Okay you make something but you also sell something and you've got to watch the numbers." It's people, time and money. They just almost never want to do the money part.
If you're a young kid and listening to this, my 28 years of watching graduating classes, the ones that do the best is if their mom and dad owned a business. I don't care if it was a dairy farm, a dental office, a restaurant. If your dad worked on the assembly line and your mom stayed home and make cookies you missed about a thousand dinner conversations that really impact your dental office. I think the luckiest dentists out there are the ones who's mom or dad was a dentist. They don't even realize what they learned through osmosis listening to mom and dad talk at the dinner table.
If you have no free enterprise experience, you're going to get blindsided when you open up that office.
Rob: What about you? I like the title, it's [inaudible 00:37:08] right? From a retirement picture how do you feel about the upcoming years and when do you feel like you would hang it up? How do you determine that?
Howard: I think you've got to stays true to yourself. I can't think of anything more miserable than sitting on the couch watching Oprah Winfrey all day long or sitting by the side of a river with a fishing pole. Golfing to me is a blast for about three holes and then I don't get it. I like to tee off, grab a beer from the beer cart lady, eat a hot dog, talk but I always look at retirement as the worst case scenario if something physically ever happened and I lived to be 60, 70, 80. I always looked at it as worst case scenario.
One of the most interesting things we did is we talked about that 4% a year away so if you want an amount of money and divide it by .04. My idol mentor dentist Kenny Anderson was my next door neighbor. He's in Wichita Kansas. He's still practicing at age 50. Let's just say for hypothetical purposes that this year he only made $100,000. $100,000 divided by ... what would you divide that by?
Rob: 80% so he needs $80,000.
Howard: No a risk free rate, what would be the average risk free rate on a government bond? 5%?
Rob: Typically you can get 4% on a portfolio without taking too much risk at least in this industry environment. Risk free rates are really low right now.
Howard: If he only made $100,000 this year and you divide that by .04, that's equivalent for Kenny to have another $2.5 million packed away. I just don't think it's healthy to stop working. When I look at these dentists who are 40 years old and they say they want to retire at 50, I'm like, "Dude you're a fireman. You show up to a house on fire and there's two kids and a cat and dog in there and you don't want to go put it out?" Is it that you don't like the people you're working with? Is it because you're doing procedures that you could be referring out to any of the nine specialists?
I told this story a million times that one of my friends said to me one day, he said, "I'd rather be taken out in the backyard and be beaten than do a root canal." I'm like, "Dude. You cannot ever do a root canal again because if it forces you to burn out and quit and depression and what have you, you're going to lose millions." You're not making any money on a root canal, you're never making any money if you hate what you're doing. Look at how, when I got out of school all the theories on substance abuse.
The country of Portugal has flipped everything down. They're saying people are self medicating because their environment is horrible. If you fix their environment the substance abuse goes away rapidly. The last thing a person needs when he's doing substance abuse is to be spanked and thrown in a cage. Someone should show up and take the same resources for the money it'd take to put him in prison and say, "How can we help you?" What do we need to do to help your life? Then you help that persons life and then they no longer need to shoot heroine in their arm every day.
Then the other thing I point out is that the most costly thing most dentists do, they always complain about their $250,000 student loans. I always tell them their first divorce will cost 5 times that much money. When you look at divorce, a third of it is substance abuse. Something's wrong with their environment, they're self medicating. A third of it is sex but another third is money. On these financial things these are things you need to talk about with your spouse and humans are social animals. They always want to tell you what you want to hear. They never want to talk about the 4,000 pound elephant in the room. Dentists they just can't sit down with their spouse and say, "Look. You spend a lot of money. Quit spending money." Divorce research shows that if you have two savers, they're twice as likely to stay married as if you have two spenders.
The same thing with employees. If you've got a crazy staff member that just lives way above their means, every six months to a year they're going to be standing in front of you wanting a raise. If you've got a saver working in your office it's one of the last things on their mind.
Rob: Morals aside, and we joke about it here. It's funny you brought it up, Howard. We joke about it but it's kind of tongue in cheek. The best financial decision that you can make is to not have a relationship with one of your friends or your coworkers or some girl you hired because she was cute. She didn't know how to do the job but you liked her and she likes you. The best financial decision you can make is to not go that route. At that point there's the divorce happens there's an asset evaluation. They're going to look at your practice and say, "Well you have a million dollar practice here and she's going to get half because you guys have been married 30 years." How are you going to come up with $500,000 to give her. You're not going to sell your practice because we now you have to work twice as hard to make up for the fact that you just gave your ex-wife half of everything you have. Or your ex-husband if it goes that other route.
I can make people all the money in the world just by keeping them disciplined and having them invest and all that. It does get to a bigger situation of you need to communicate with your spouse and keep your marriage healthy. That's good for you from a moral perspective and a great life perspective. Financially, it's better for the both of you.
It really does, it is [inaudible 00:42:55] and I think we're seeing it a little bit less I'd like to think because as you mentioned there are two incomes now on a lot of the younger dentists that we have working with. There are a lot of husband and wife dental teams. Not in the same office, I think that would be terrible. I know my wife couldn't work with me if I was to ask. A lot of them are husband and wife dental teams so they come together over that and they're talking and speaking more and the communication is open. Fingers crossed that that divorce rate maybe at least among dentists goes down.
Howard: I just saw a piece of research that said if you were a professional, masters degree or higher, and you married someone with that same degree and higher, that you only had a 9% divorce rate. Part of that is you're both making the same money, you both have a job, you're both educated and can communicate, and I see in my small sampling of opinion that I've lectured 1,500 times is that women dentists always marry a male dentist about 30% of the time. The other 70% of them are like you. They've got great jobs, accountants, CPAs, bankers, lawyers, physicians. Too many of these male dentists they marry someone who has no intention of ever working a day in their life. Which is okay if you're not a spender.
If you're at home bored all day because you don't have a job and you're driving around in a Mercedes Benz getting manis and pedis and lunches and flying around and all that stuff. It really causes a lot of problems.
Rob: I don't know if you see it at all, but we're seeing a flip on the when there's a female dentists, a lot of times their husbands if they didn't meet at dental school, a lot of times [inaudible 00:44:49]. Mike would be a better one to gauge it. A lot of the husbands aren't working now. They're taking the backseat and they're raising the kids. They're not working outside the home. They're raising kids, they're running around, but it's a weird switch on an industry whereas before it was like, "Hey husband you have to mind the fact that your wife is at home working hard all day taking care of these two kids. You might have had a tough day but you need to go back and communicate and make her realize that she's special in your life."
Not it's kind of a flip that the wife is now working and the husband's at home. I'm not privy to the conversations with those dentists that we know that the wife works and the husband doesn't' but I think it's a new dynamic in dentistry. I don't know if you see that too or not.
Howard: One time one of those stay at home dad's came out to me and said that it hurts his ego to know that he's a stay at home dad and his wife makes so much more money. I said, "Well just try not to think about it while you're vacuuming."
Rob: That made him feel better?
Howard: That was just a joke but the bottom line was all of this though, at the end of the story, all of it. Back to Warren Buffet, he says that 95% of all CEOs spend 95% of their time trying to raise their overhead. Human's think they're busy when they're spending money. They secrete hormones, they feel better and they're accomplishing something. 95% of the time, they're not ever accomplishing anything.
The same thing with spending. I can't believe how these dental students on student loan money think they need a $30,000 Honda Acura. Are you kidding me? I didn't have a car in undergrad or the first three years of dental school. The first six years I didn't have a car and you need a brand new $30,00 Honda Acura. Then they get out and think, "Well I'm a dentist so I'm going to have to live in Scottsdale and then I'm going to have to get that big house." It's kind of like the difference between exercising and dieting. You exercise to stay fit but your abs are made in the kitchen. You can't exercise away a Whopper with cheese. That would probably be a 6 mile run just to break even. You can't work harder than you're spending.
I want to ask you another benchmark. You're talking about $12,500 a year in a simple IRA or $18,000 year in a 401K, or if you're over 50 like me, it could be $24,000. Is there another benchmark like a percent of revenue? If someone said forget those numbers because the incomes vary, what percent should I be saving a month and put away before I see it so I don't spend it?
Rob: We never really looked at it that way. When I look at the way I personally try to do it when we look at our assets at the end of the year and we obviously have our living expenses, we try to do 1/3rd, 1/3rd, 1/3rd. This has no financial, this isn't any kind of philosophical this is how it works for us. Just in our minds with my wife, if we have a net income at the end of the year in excess of what we've used to live on, we try to do a third to paying down student debt or her debt to buy her practice. A third to savings and a third for a vacation or fun or the new couch or sofa that hasn't been replaced in a number of years.
I think that's a great way to do it from [inaudible 00:48:04] it keeps you disciplined so that at the end of the year if your practice goes really well and you have $60,000 net income and free of taxes, you can put $20,000 towards paying down a student debt if you still have it or $20,000 towards paying down the practice if you bought it just a few years ago. $20,000 into an IRA or a taxable account. It's nothing wrong with taxable accounts. I think that's a big misnomer out there. And $20,000 to going on a vacation or getting that living room set that you really wanted or doing the landscaping that you really wanted. I think it's just a good way to go about it.
Howard: I want to discuss this. This is an emotional question that shows up on Dental Town a lot. A lot of emotional humans they don't like that debt and it weighs down on their psychology that they have debt. It's student loan debt and it might only be like 6% interest. Other people are saying, "Why would you pay down debt on student loans at 6% when you could have it in a fund making 7% or 8 or 9. Talk about that. What's the emotional right answer there?
Rob: The emotional right answer is that 6.8% debt, after tax is pretty nice. I would pay down a 6.8% debt. If you think, if I go 100% into the SMP500 it averages 9.6% since 1928 to 2014. That's great. You're taking a ton of risk on ...
Howard: What is that number again? 9. What?
Howard: Since what year?
Rob: 1928 to 2015.
Howard: Wow. Answer that exactly then.
Rob: You can get 9.6 right? You're thinking if I can get 9.6 why would I pay off 6.8? Because 9.6 after you're in a tax bracket of 28, .28% is going to be ... it's actually a 7% return. You're like I'm still ahead of that 6.8. you're taking on 100% risk of the stock market.
Howard: When you say 6.8 you're saying that like an exact number. Is that about the average interest rate you're seeing on dental student loans?
Rob: If you have 2.1 definitely don't pay those off. The federal loans. Don't pay the 2-2.5 off. Keep those but then the 6.8 I know it's on my wife's I know it's on some of our clients. 6.5, 6.8 in there that's what you have to beat from the market perspective. But you get 9.6, that's 7% after tax, you're going to get that average from 1928 to 2015, but what if that year is ... you start with 2008 and you're down 36%. That's fully realized. You don't have a tax benefit form losing that much.
Now you're automatically really behind the bus. You're going to get slammed because you started in the worst year. The 9.6 only makes sense if you start thinking about it over a 30 year term. You start talking about it on, "Okay I'm going to do it because I think it's going to work this year for my loans that I can make the spread on this." For me I like paying down the student debt. I'd pay down the student debt. I wouldn't necessarily pay down the practice debt. You're sitting at the practice income, the revenues, should pay that down. You obviously have a business expense and a tax deduction against your revenues for paying that interest every year.
Assuming you have a practice that's doing well, making money, it's going to be hard in the later years, 70 years down the road to find deductions. To find something to pull down your revenues so you're paying less taxes within your business.
Howard: You're talking about something else that dentists have, they went and worked for a dentist like me, that have a 401K or they're working for corporate dentistry or whatever. Now they're no longer going to work there and you hear television commercials, "Roll over your IRA or this or that." Will you talk about roll over the IRA? Will you talk about IRA and what happens if you worked for a group practice or corporate dentistry and you have some 401K and now you are going to your own practice?
Rob: We'll take an example. Let's say Dr. Smith has a 401K at some big corporate dental group he worked at and he socked away $10,000 over the year. He now leaves and he starts his own practice. That $10,000 will sit in that 401K and it will sit in exactly how he had it invested. Five years ago when he started that he said, "I want to invest 100% in China." Every dollar, $10,000 in the Chinese stock market. FXI, it's an ETF. I love it. China's great. It's going to go up forever. Once he leaves that money stays in that 401K account and he won't be able to act on it or make a change until he rolls it out, what's called a traditional IRA.
He'll roll it out. The plan sponsor will deliver it, he'll start an account and we can help him set it up. [inaudible 00:53:43] basically then accepts the money from the 401K to an IRA. Now he has a traditional IRA with $10,000. He can continue to contribute to that if he doesn't start a simple. If he does start a simple he can still contribute it's just deducted the amount that he can contribute. We can go through specifics but those are probably [crosstalk 00:54:05].
Howard: Go through more specifics. You said 401K and then a simple IRA. What's really the difference in a simple IRA and just your own personal IRAs? Is there no difference there?
Rob: Simple is sponsored by an employer. You can only have a simple if you work for an employer. My wife's practice is Joyce Family Dentistry. She has a simple plan. Every one of her employers can join that simple plan and it acts just like an IRA in the fact that the money is contributed pre-tax and it comes directly out but it comes directly out of their paycheck.
When you look at a traditional IRA that's started outside of a company, that's just you going to someone and you sitting down and, "Hey Rob Joyce, I want to start an IRA. I want to start saving for retirement." "How much do you want to put away?" "Well I can put up $5,000." "Okay we're going to start you an IRA first. You can put up the $5,500 in an IRA every year. Traditional IRA, that money isn't taxed until it starts coming out. Gross tax deferred." On a traditional IRA you also get a deduction for the amount that you contribute in the year.
That's the difference in a traditional IRA, is you going independent saying, "Where do I go? I need to start saving." A simple is set up within an employer that has the same characteristics from a tax situation as an IRA.
Howard: You also said at the beginning of the program that most of these dentists that you see in the last decade are starting to retire about 55 to 58. If you took a 30 year mortgage on a home off of 58, that means that you got into a house at 28 and now at 58 you don't have a house payment. That's not what I see. I keep seeing dentists every 7 or 8 years trading up to a bigger house. Some of them are just buying Taj Majals. When you're talking about retiring at 58, would you like to see the house paid off? Would you like to see the student loans, all the debt paid off?
Rob: Yeah. Unless there are some really large retirement assets behind it with a net income from that 4% pull will cover all that debt easily. I want to see debt paid off. The worst ... not the worst but debt payments are no fun when you have a fixed income. Surprises can happen and surprises suck usually when you're retired. The last thing you want is to get a surprise and then also have a mortgage to pay off. You're saying, "Wait. I only planned this out that I'm going to live on $120,000 a year." You don't want any surprises and debt compounded.
Howard: There's a lot of psychological issues going on. I saw a lot of studies that showed that kids who were coming to age, 16, 17, 18 during the '93 to 2000s bull stock market run where the NASDAQ just kept doubling and doubling and doubling. A monkey could make money in that thing. Had par hires spinning lies.
I'll never forget my four boy's grandpa hadn't had more money than any of us but he grew up in the depression and he would never spend any money. Still to this day he won't spend any money and he's got more money than me and you combined and he won't spend it and that's probably why he has so much.
I also think the greatest thing that ever happened to me is when I walked into college and it was 1980 and interest rates were 21%, inflation and unemployment went double digits. Those debts skyrocketed and I'm from Kansas so a third of my class were farmers. A couple of those farmers lost the family farm and dad went into the barn and shot his head. He just couldn't believe he was losing a 3, 4, 5 generation farm.
You're right. When you get on a fixed income and then the economy tanks and interest rates go crazy, it can get ugly and it's always the best to have one eye on your retirement plan and then your other eye on costs. You've got to beat into dentists head, Just because you're a doctor you don't need to eat out 19 out of 30 meals. That's about the average. You don't need this big house because that's just really some trophy. The more simple you live, the less money you need. Then you're not going to be stressed. Then you're not going to be coming home from work wanting to during or stressed or all this stuff.
You don't have to learn how to place dental implants or do root canals because you're trying to pay for a trophy house. Just relax. Quit spending money. Get simple.
Rob: The one thing I would kind of emphasize or liked, I was listening to Dental Town podcast. I can't remember who it was but they were talking about passive income and it was on real estate. I know a lot of dentists like to get into things and I wouldn't pull them away from doing that. I think it was a great podcast on how to get into getting passive income. I like diversifying your income streams. You're going to be a dentist forever, you're going to have a retirement income and that's going to provide income.
If you have some real estate that you have gotten into to you can get into and that's going to pay you. You have the mortgage paid off in 30 years, that's about the same time you'll be retiring. That income will just help you live. I like that diversification. It was a great podcast on Dental Town. I think they hit it on the head on how to start. If someone wanted to get in [inaudible 00:59:16] I know some advisors like, "No, don't do any of those things outside of what I handle." One, they're not getting paid on it and two they don't have any control of it.
I wouldn't take a dentists [inaudible 00:59:30] away especially a younger dentist who's like, "Hey maybe I want to dip a toe and be prudent about it." It was a good podcast, good thoughts to diversify your income stream and retirement.
Howard: On that last note I'm going to remind the viewers why does not a single company own 1% of the cattle industry? You'd think with McDonald's and all these big corporate that Walmart would own 20% of all the cattle. You know why corporate America though there's no publicly traded company holding cattle farms? Because most all cattle farms run at a loss. They're an accountant during the day and they think they're making money on the side and they're doing this cattle business. They don't realize that they're losing 20 cents a pound every time they sell this cow. I'm always a stickler, stick with what you know. If you decide that you're going to be a condominium developer or real estate developer just remember there's guys doing it full time, 60-80 hours a week and they've been doing it for 10, 20, 30, 40 years. You start competing with those guys and you're a dentist, you can get your ego handed to you in a cup.
Rob: I think that podcast was talking about find the mastermind. You need to be a passive guy that supplies some capital, gives some here's what I think, here's where I live, but find someone to team up with on that kind of stuff. If it's outside of dentistry find a team mate.
Howard: I want to tell you thank you so much for spending the the time with me. Tell your lovely wife I said hello and I hope to see you on the Dental Town board. You should go to the finance section and answer more questions. We have 51 sections on Dental Town. Root canals, fillings, crowns whatever but financial investing is one of the biggest threads we have and they're debating all day long how to pay off student loans.
Rob: You'll be seeing Edge coming up there and they're definitely welcome to write us too if they have any questions. We're here for them.
Howard: Okay buddy. Thank you for your time.
Rob: Thank you.