Mark and Ro recently sat down with Dr. Paul McHale, an emergency medicine physician and practice builder in the Phoenix area, for a conversation that most physicians never get to have.

Dr. McHale spent his first two decades focused entirely on building his practice and caring for patients. The financial side of his life, by his own admission, did not get the same attention. What he discovered in the last five years changed everything about how he thinks about money, taxes, and retirement.

This is Part 1 of a two-part conversation. It covers burnout, the mathematical problem with relying on a 401k alone, and how physicians with 1099 income are sitting on tax advantages most of them do not know they have.

Part 2 drops next month and gets into the exact retirement structure Dr. McHale and Ro are personally using right now.

VIDEO TRANSCRIPT

Mark: Welcome to the podcast. If you are an emergency medicine physician or a high earning medical specialist, you already know what it feels like in a high stakes, zero margin for error environment. Every single shift requires rapid decision making under intense pressure. But what we have seen is that many physicians do not realize that the operational and financial systems supporting their private lives and practices are often misaligned from what is actually faced in the clinical setting.

Today we have Dr. Paul McHale joining us to look at the realities of practicing medicine and how clinicians can structurally protect themselves. Paul, welcome.

Paul: Thanks for having me. I am kind of the opposite of you. I spent my first 20 years on the clinical side. Helped build two practices. Met some fantastic people and turned those relationships into two businesses where we started emergency groups here in the Phoenix area. It has really been the last five or six years where I pulled my head up and realized I could have been a whole lot further ahead than where I am now. There are better ways to plan financially, which I think really helps reduce the burnout and all the other issues we are seeing in modern medicine.

Mark: I saw a lot of what you are describing when I worked in practice management. So many physicians reached out to me frustrated. Not by their patients, but by everything else that distracted them from patient focus. The repetitive tasks, the charting, the liability concerns, working every shift combination imaginable just to end up writing an enormous check to the IRS. I saw doctors saying how frustrated they are with everything except the actual medicine.

Paul: Burnout is a hot topic. Hospital systems try to combat it by sending a pizza or a coffee card. But to me, all burnout comes down to one thing. Imagine you are dropped in the middle of a desert with two options. Option one, you know that if you walk 100 days, drinking two bottles of water each day, you will reach a city. Day five is going to be hard. Day 50 is going to be hard. But you keep going because you can see the end. Option two, you have no idea if you are going to make it out. That is when burnout really sets in. On day 50 when the doubt creeps in, you start to consider giving up.

Burnout is a lack of clarity. It is a lack of someone sitting with physicians and actually mapping things out, putting things on paper that are clear, precise, and actionable. The fact that I now know where our numbers are as a family, I still work. I do not really have to go to the emergency department. But I love it. I go because I want to, not because I have to. That shift happens when you finally have a financial picture that makes sense.

Ro: Let me list the phrases I am hearing because they are going to serve as the framework for what we discuss today. Lack of clarity. Doctors want to map things out. It does not have to be complicated. Burnout is solved with a path forward. And cookie cutter financial planning does not work for physicians.

Let me start with that last one. Cookie cutter financial planning does not work for physicians for a couple of reasons.

Paul: Most advice you can boil down to four sentences. Save more. Take more risk. Work longer. Live on less when you retire. That is financial planning in a nutshell for a lot of people. And I know some great financial planners who do much better than that. But in the physician communities online, those four themes come up constantly. Drive a Honda. Live small. Scrimp and save and hope you live to 65 and do not get cancer.

We make enough money as physicians that you should be able to take advantage of tax structures, real estate, alternative investments, and create a future that is really good without having to live that way.

Ro: Here are the core themes we want to cover today. First, what risks do physicians face? Second, the hard mathematics of income replacement. Third, the concept of optionality and how to build it.

On the first one, the easiest risk to solve is creditor protection. When you build a pension, which we are going to call a cash balance plan, you get extra layers of protection through ERISA. If you are a physician in a homestead state, you have your home protected. You should also be parking money into a pension and other assets like life insurance because you get creditor protection you cannot get elsewhere.

The first step to financial freedom is making sure you do not take a big step backward. Defense wins championships. Pensions and retirement accounts offer extra privileges under ERISA that absolutely need to be taken advantage of.

Paul: Malpractice suits are a constant concern, and we have seen some very large settlements recently. The cash balance plan we started last year was partially exciting for that reason alone. It adds another layer of protection. It takes a chunk of your income, creates future income, and protects it at the same time. It raises the floor.

Ro: That is a good segue to the second point. The hard mathematics of income replacement.

Most physicians, if you ask them what a comfortable retirement looks like, will say somewhere around 20 to 25 thousand dollars a month. That is 300 thousand dollars a year. Using the traditional 4 percent rule, you would need 7.5 million dollars saved to support that.

To get to 7.5 million in a 401k over 25 years you would need a rate of return closer to 18 percent. And all of that money is pre-tax, so you cut it roughly in half when it comes out.

The conclusion is simple. You mathematically cannot replace your income with a 401k alone. Period.

Paul: You cannot get there. You have to be developing other ways to have cash. Whether it is cash flow through real estate, whether it is creating your own pension, you absolutely have to put additional money in beyond the 401k.

But it comes back to clarity. If I know that by working this extra shift the future is guaranteed and will look like this, that is an easy shift to work.

Ro: Step one is protection. Step two is income replacement cannot be done with the 401k alone. Step three is optionality.

Optionality during your earning years means having different types of tax exposure and different types of income stream. There are four things you can do with money. Spend it. Give it to charity. Save it. Invest it. Most people treat saving and investing as the same thing. They are not.

Savings should be non-volatile, safe, and liquid. The problem with cash savings is tax drag and inflation drag. This is where whole life insurance becomes a powerful tool. It is what we use as our family liquidity. We call it an opportunity fund. Over a lifetime it typically nets 4.5 to 5 percent. It provides creditor protection in most states. And it provides liquidity for opportunities that a standard savings account simply cannot.

If someone comes to me and says they have a deal and need 200 thousand dollars and will pay 12 percent plus a personal guarantee, I can write that check tomorrow. That is the kind of optionality that changes what is possible.

Paul: The optionality in retirement is even more powerful. Medicare Part D, IRMAA expenses, and RMDs are all getting more expensive and more complicated. When you walk in with cash balance plans and insurance and money outside qualified accounts, you have the ability to figure out how to actually spend your money efficiently. The more tools you give a good financial professional the better they can do their job.

And by the way, you are going to never worry about money when you retire. You are going to go have fun.

Part 2 drops next month. Dr. McHale and Ro get into the exact retirement structure they are personally using right now, including how to pair a cash balance plan with your 401k so you never have to throttle down your stock exposure in retirement. Subscribe so you do not miss it.

This content is for educational purposes only and does not constitute tax, legal, or financial advice.

If this conversation resonates with where you are right now, a 30-minute deduction call with Mark and Ro is a good place to start. Book at https://ownersasset.com/contact