Ben White

The Wealth Ladder

11.04.25 // Finance, Reading

A framework on how to think about financial wealth, from The Wealth Ladder by Nick Maggiulli:

Some people have warped perceptions of wealth and what it means to do well financially. If we map the different economic classes in the U.S. onto the Wealth Ladder, we can see this more clearly:

  1. Level 1. Lower class (<$10k)
  2. Level 2. Working class ($10k–$100k)
  3. Level 3. Middle class ($100k–$1M)
  4. Level 4. Upper middle class ($1M–$10M)
  5. Level 5. Upper class ($10M–$100M)
  6. Level 6. The superrich ($100M+)

You’ll note that Maggiulli points out that Level 4 “millionaires” can’t really have the lifestyle that term used to signify from those halcyon days of yore:

From this perspective, you can begin to understand why some people with lots of money don’t feel rich—it’s because they’re looking at higher economic classes or Wealth Levels. People in Level 4 look at people in Levels 5–6 and say, “I’m not rich, they are rich.” Though people in Level 4 are millionaires, they can’t afford to live like the stereotypical rich person depicted in the media and popular culture. Those people, who are in Levels 5–6, can actually afford to fly in private jets and own supercars.

Maggiuli proposes a “0.01% rule” as a framework for determining irrelevant/sustainable/affordable spending that scales with your wealth:

If we assume that your wealth is invested and growing by 0.01 percent per day above inflation, this translates into a growth rate of roughly 3.7 percent per year. This is a relatively conservative annual return, even after adjusting for inflation. Assuming that your wealth will grow by 3.7 percent annually, you could spend about 0.01 percent of your wealth each day and maintain the same net worth. For example, if you had $100,000 invested and it grew by 0.01 percent daily, that would give you ten dollars that you could spend in excess of your income each day. You could spend this money without reducing your long-term wealth.

To put that spending in context relative to the levels of wealth:

Using the 0.01% Rule as a guide, we can demonstrate how the Wealth Ladder relates to spending money. To do this, I’ve listed the six levels of the Wealth Ladder below and how they relate to different spending categories:

  1. Level 1. Paycheck-to-paycheck (<$10k): You are conscious of every dollar you spend. This includes people with crippling debt.
  2. Level 2. Grocery freedom ($10k–$100k): You can buy what you want at the grocery store without worrying about your finances.
  3. Level 3. Restaurant freedom ($100k–$1M): You can eat what you want at restaurants.
  4. Level 4. Travel freedom ($1M–$10M): You travel when and where you want.
  5. Level 5. House freedom ($10M–$100M): You can afford your dream home with little impact on your overall finances.
  6. Level 6. Impact freedom ($100M+): You can use money to have a profound impact on the lives of others (e.g., buy businesses, engage in large-scale philanthropy, etc.).

I like the idea of different categories of spending freedom. He also puts some specific number ranges here to quantify the level of spending that essentially doesn’t matter in a given wealth context:

  1.  Level 1 (<$10k). Paycheck-to-paycheck: $0.01–$0.99 per decision
  2. Level 2 ($10k–$100k). Grocery freedom: $1–$9 per decision
  3. Level 3 ($100k–$1M). Restaurant freedom: $10–$99 per decision
  4. Level 4 ($1M–$10M). Travel freedom: $100–$999 per decision
  5. Level 5 ($10M–$100M). House freedom: $1,000–$9,999 per decision
  6. Level 6 ($100M+). Impact freedom: $10,000+ per decision

I really like this framing, and I think it does broadly map onto real differences in the perception of wealth, what’s easy to “afford,” and how much financial spending can “hurt” when it exceeds its appropriate level.

The things I used to do to earn and save money when I was a student are radically different than what I would do now. And that makes sense.

He argues that generally adding incremental wealth within a level doesn’t really change the types of things you can easily afford. Going from $2 to $3 million in wealth doesn’t make a mansion magically affordable.

But one thing can scale to match any level of wealth:

In truth, the most expensive thing some people own is their ego.

I selected some choice excerpts from Maggiulli’s first book, Just Keep Buying, here back in 2022.

June is DI Month

06.05.25 // Finance

Trainees: It’s never too early, but if you haven’t looked into getting disability insurance yet, you should especially get some quotes in June before leaving your institution after finishing residency/fellowship.

If you know where you’ll be next month, a good agent will be able to compare your available institutional discounts from each location and make sure you get the best deal. My own policy was cheaper with discounts from my training institution.

The folks at LeverageRx and Pattern can get you quotes for the right kind of policy (own-occupation, non-cancellable, guaranteed-renewable) from the reputable companies quickly. You should always get a few sources of quotes to comparison shop too; insurance is expensive, and you’ll be holding this policy for a long time.

You may ultimately decide not to pull the trigger, but it helps to know your options in order to make the right decision for you (and your family).

((Those are affiliate links. Using them helps support my writing without cost. The information you receive is always free; all agents get paid by the insurance companies and not the individual.))

The Low (Possibly No) Tax for Pre-Tax Argument

10.08.24 // Finance

An important pre-tax vs Roth argument that is often missed, from “Why Pre-Tax Retirement Contributions Are Better Than Roth In Peak Earning Years (Even If Tax Rates Increase)“:

The most powerful argument for a pre-tax account as a retirement savings vehicle is that it comes with the option to convert the pre-tax dollars in the account to Roth at any time. That is to say, the account owner can choose when they want to be taxed on the funds in the account (which is what happens when pre-tax funds are converted to Roth), and make those dollars tax-free from that point on. Which makes it very useful to have pre-tax funds available to convert to Roth in years with lower-than-normal income, such as the years between retiring and beginning Social Security and/or RMDs. During this time, the funds can be converted to Roth and taxed at a lower rate than they would have been during high-income working years, or in later years when Social Security and RMDs push the owner into a higher tax bracket.

Notably, Roth accounts do not have this option: There’s no way to move funds from a Roth to a traditional account and take a tax deduction in a higher-than-normal income year (i.e., the opposite of what someone would do with a Roth conversion). The ability to choose when income is recognized only goes in one direction, from traditional to Roth. So from a tax timing perspective, it’s more valuable to have pre-tax funds, with the possibility of converting them to Roth during lower-income years, than to have Roth funds that stay Roth no matter what.

Which is ultimately why, even if tax rates are expected to go up at some point in the future, it can still make sense to contribute to a pre-tax traditional retirement account. Whether or not tax rates increase, the tax timing opportunities to recognize income from pre-tax accounts will still exist. For higher earners, if there’s a reasonable chance of having several low- or zero-income years after retirement, it can make sense to defer the recognition of some of their income from a higher-tax year into a lower-tax year by making pre-tax retirement contributions.

As in, the Roth conversion option gives high-earners the benefits of a Roth contribution without committing to high taxes upfront. Play your cards right and you could even take out some of that pre-tax money tax-free in retirement too. The article’s discussion of historical taxes is worth the read.

The important counterargument is that, in real life, the effective investment between a maxed-out pre-tax and Roth account is already not apples to apples. As in, $10k in a Roth has already been taxed and is therefore reflects a greater than $10k investment. Many people (including presumably most doctors) investing in pretax accounts do not take the extra money they would need to max out a Roth and invest that in a taxable account alongside their pretax contribution. It’s all a set-and-forget it payroll deduction. So, optimized tax considerations aside, many retirees will end up with more money to spend with the Roth contribution just because they saved more money upfront. The option for a Roth conversion is powerful, but it adds complexity and requires timing, two things investors often struggle with.

Both types of accounts have strengths, and all outcomes are a combination of math and behavior in a largely unpredictable tax context.

A Primer on Disability Insurance for Doctors

07.05.24 // Finance, Medicine

Introduction

Disability Insurance is a boring and expensive but critical component of a physician’s financial plan.

While life insurance pays your beneficiaries when you die, disability insurance pays you when you can’t work due to a medical condition. It insures your most valuable asset: your future earnings potential in a profession after you spent years investing in yourself.

Upfront Summary

  • Disability insurance helps you pay for your life (and lifestyle) when you can’t work.
  • You (ideally) want an individual, portable, noncancelable, guaranteed-renewable, true own-occupation specialty-specific policy.
  • You want that policy as soon as you can afford one, and you want to include at least a few “riders” (options).
    • One is a “future benefit increase” option or equivalent phrasing, which will let you buy more insurance as your income increases without needing to undergo additional medical underwriting.
    • Also important is a “partial” or “residual” disability rider, that will pay you if your income falls because you can’t work full-time or perform certain tasks (e.g. a surgeon who can’t operate to make their full income but can still see patients in clinic).
    • Another is a “cost of living adjustment” (COLA) rider, which will help mitigate inflation.
  • You’ll want a big enough policy benefit to help prevent a lifestyle shock should you become disabled while also still being able to save enough for old age (“retirement”), since the policy you choose will likely stop paying benefits around age 65.
  • The whole thing will probably cost more than you will enjoy paying, but you’ll always have the option to cancel the policy whenever you want once you’re financially secure and don’t need the benefits.
  • Before you get that magical policy, you may want to lock in some basal coverage by securing a Guaranteed-Standard Issue (GSI) policy first, which doesn’t require medical underwriting (see below).

Read More →

Need-Fulfilling Strategies & Future Self-Continuity

05.28.24 // Finance

Via Loaded by Sara Newbomb:

“Specifically, when the future self shares similarities with the present self, when it is viewed in vivid and realistic terms, and when it is seen in a positive light, people are more willing to make choices today that may benefit them at some point in the years to come.” —Hal Hershfield.

Hershfield’s research suggests that the more we visualize our future self as really, specifically being just like us, the better we are able to act on current plans that feel deprivational to provide for the future.

Does your salary come from your employer? Not at all! Your employer is simply renting your time and skills. Your salary is the result of your internal resources being turned into a valuable asset that you lease to your employer in the form of labor. Your skills are the asset. Your salary comes from you.

You are your most important asset-generating resource to nurture and protect.

Just like your future self doesn’t benefit if you go sprinting on the hedonic treadmill, your future self also doesn’t benefit if you burn out so badly that you jeopardize your ability to work in your profession at a high level. You have needs now and in the future, and neither should be ignored.

Newcomb’s nice section on needs starts with our old friend Maslow:

It is quite true that man lives by bread alone—when there is no bread. But what happens to man’s desires when there is plenty of bread and when his belly is chronically filled? At once other (and “higher”) needs emerge and these, rather than physiological hungers, dominate the organism. And when these in turn are satisfied, again new (and still “higher”) needs emerge and so on. This is what we mean by saying that the basic human needs are organized into a hierarchy of relative prepotency. —Maslow, 1943, p. 375

I’m not sure I’ve ever read a single word from the “hierarchy of needs” primary source before.

Then, we combine that with this less staid perspective of wants versus needs:

Every moment each human being is doing the best we know at that moment to meet our needs. We never do anything that is not in the service of a need. There is no conflict on our planet at the level of needs. We all have the same needs. The problem is in strategies for meeting the needs. —Marshall Rosenberg

And she brings that around to personal finance:

How many times have you tried to cut back on a certain expense only to find yourself splurging later? This comes from the fact that what we have called wants are actually needs. The core message of Rosenberg’s work was that every action a person takes is intended (consciously or unconsciously) to meet a basic need, and that our needs are universal. Any one of our needs might feel more important than another in a given situation, depending on the person and the circumstance. On one day, you may feel a powerful need for intimacy. The next, you may desperately seek solitude.

[…]

Very often, when people are trying to make ends meet, their first strategy is to start cutting expenses. While this is a great instinct, and we often do want to cut back on our spending, the problem with this approach is that if you do not take the time to ask yourself what need that expense was meeting, you will find that your new budget is very uncomfortable. Just like a dieter who restricts himself too much only to find himself eating an entire pizza in a late-night frenzy, we can do more harm to our finances than good by ignoring our needs when we cut our expenses.

Her rule of thumb:

If everyone cannot have it at once, it’s a strategy, not a need. Dig deeper to find the real need.

Wants are strategies for filling needs. The need is non-negotiable, but the strategy is mutable.

The SAVE In-School Loophole

05.01.24 // Finance

I wrote about this last September, but it’s important enough that I’ll repeat myself with more bullet points and shorter sentences.

The Summary

  • The new SAVE student loan plan has a generous unpaid interest subsidy: every dollar of accrued interest that isn’t covered by your monthly payment is waived.
  • SAVE also has a feature (“loophole”) that allows some borrowers to enter repayment early and benefit from that 100% subsidy on unpaid interest, effectively making qualifying loans (Grad PLUS loans, old loans from undergrad) interest-free while in school.

The Background

  • The SAVE plan’s 100% unpaid interest subsidy is a significant benefit, especially for those with low incomes that allow for qualifying $0 payments.
  • Normally, you cannot enter repayment for the loans you take out while in school. As in, you cannot enter repayment during medical school for the regular Direct Unsubsidized (“Stafford”) loans you take out to pay for medical school. Ditto for undergrad loans during undergrad.
  • There are two exceptions: 1) Grad PLUS loans 2) Regular Direct loans taken out for previous schooling (e.g. undergraduate loans while in graduate school)

The Benefit

  • Graduate students like medical students with undergraduate loans can waive the in-school deferment and enjoy 0% interest on those undergrad loans during graduate school.
  • Graduate students with new PLUS loans can waive the in-school deferment and also benefit from the subsdized interest rate during school.
  • (The income limit for an individual to have $0 loans in the continental US is ~$32,800, so you can earn some money and still do this.)

The Risk

  • PLUS loans have higher interest rates and origination fees. While the interest rate will be lower in school with this loophole, the origination fee is unavoidable. If/once you make enough money to lose out on the unpaid interest subsidy, PLUS loans have higher rates.
  • The temptation to try to exclusively use PLUS loans to benefit from the subsidy is risky as the SAVE program isn’t codified in law, and PLUS loans cannot be converted to conventional unsubsidized loans. You’re also really not supposed to, your school may not let you, and those schools that do could ultimately get in trouble for going out of order and lose access to the Direct loan program.

The Plan

  • Contact your servicer and request the removal of the in-school deferment.
  • Choose the SAVE plan and make monthly payments. Unless you are gainfully employed, it will likely be $0. If you have a working spouse who earns a substantial income, you may need to file taxes separately in order to exclude their income and benefit the most from the subsidy.
  • You will need to repeat the process every semester for new loans as your school will update your servicer that you’re in school and the servicer will automatically apply the in-school deferment.
  • If for some reason you want to stop repayment (e.g. get a good job while in school, get married and don’t want to file taxes separately), no biggie. You still have access to the in-school deferment while in school.

PSLF?

  • The extra effort and decreased interest have no benefit if you achieve Public Service Loan Forgiveness (PSLF), as PSLF is a time-based program. It doesn’t matter how much you owe.
  • However, this technique could still be a reasonable hedge given you never know what kind of job you’ll end up wanting/taking.

 

 

Post-match Life Research

03.27.24 // Finance, Medicine

Post-match fourth year is a great usually “less-stressful” time to get your required education in personal finance. My free book is a nice, readable, and to-the-point primer on the essentials of personal finance including student loans. Read (or download it) here. Note that the new SAVE plan has simplified the student loan part for the majority of borrowers going forward.

* * *

Not everyone should try to buy a house during residency. With the recent housing boom and higher interest rates, home ownership is probably out of reach for a larger proportion of residents than at any other time in recent history.

But, if you are considering trying to buy a home as a trainee, you’re likely going to need a physician mortgage. One quick way to get your feelers out to several potential companies at once is LeverageRx, a totally free handy platform that will let you rapidly comparison shop multiple physician loan lenders.

* * *

Senior medical students are also eligible to try to lock in their eligibility for disability insurance. Disability insurance isn’t cheap—and you may not be able to afford it on your current budget—but again this is a great time to at least learn about it and price out some options and see. A small ~$2k/mo benefit medical student policy will often cost in the $40-60/mo range and will lock in future insurability. The folks at LeverageRx and Pattern both offer a great no-cost no-commitment way to see what your choices look like.

It’s always good to price out different options through different agents, and it’s possible the discounts available through your medical school affiliation are better than the ones you’ll have access to as a resident. Also, you’re unlikely to get younger and healthier. It’s worth doing some due diligence.

Life insurance, on the other hand, is straightforward: if you have a spouse or dependents that are relying on you, you need term life insurance.

* * *

(Those are both affiliate links, which means that using them supports this site at no cost to you. My aging book is just free, no strings attached.)

Private Equity & Piracy Metaphors

11.17.23 // Finance, Miscellany

Time horizons, incentives, and moral hazard: a very enjoyable easy-listening zoomed-out discussion of the Private Equity industry on the Freakonomics podcast.

If you find the discussion of healthcare and PE on this site and others to be too tedious and haven’t learned more about this very large and very important industry, this is a great well-produced episode.

It includes an interview with Brendan Ballou, author of Plunder: Private Equity’s Plan to Pillage America.

(Which is not to be confused with These Are the Plunderers: How Private Equity Runs—and Wrecks—America by the Pulitzer Prize­­­–winning Gretchen Morgenson…there’s a theme here.)

SAVE Can Save Lots of Interest, Even When in Graduate School

09.19.23 // Finance

Every new student loan plan has created some presumably unintended management strategies (i.e. “loopholes”). Over the years, some features have been removed from newer plans, like the “payment cap” from IBR & PAYE that previously capped your payments at the 10-year standard amount no matter how much money you earned. Others have been codified, like the “married filing separately” loophole that allows you to exclude your spouse’s income when calculating your monthly payments (present with IBR/PAYE, excised from REPAYE, but now back in SAVE).

A small loophole in REPAYE became a big loophole with SAVE based on its 100% unpaid interest subsidy. In the SAVE plan, whatever interest isn’t covered by your calculated monthly payment is entirely waived. Negative amortization is a thing of the past. This is true even for $0 payments, meaning that those with low incomes functionally have an interest-free (0%) loan.

This is a great perk of being in repayment for many borrowers, including medical residents (as I wrote about here).

It’s also an incentive to try to enter repayment as “early” as possible. There are two scenarios where a medical (or other graduate) student can do this:

1. Waive the In-school Deferment for Undergraduate Loans

For regular Direct loans, you cannot enter repayment until you leave school and finish the six-month grace period. You can consolidate after graduation to waive the otherwise mandatory grace period, but you can’t change their in-school status while still in school.

You can waive the in-school deferment for loans from previous schooling. From the Official PSLF FAQ:

Q: If I return to school and qualify for an in-school deferment on my Direct Loans that are in repayment, can I decline the deferment and make qualifying PSLF payments while I’m in school?

A: Yes. You can decline an in-school deferment on your loans that are in repayment status and make qualifying payments on those loans while you are in school. In this case, you must contact your servicer and request that the in-school deferment be removed. Remember, in order for your payments to qualify for PSLF, you must be employed full-time by a qualifying employer while you attend school.

Those graduate students with loans from undergrad can therefore enjoy a generous unpaid interest subsidy for their undergrad loans while completing their graduate studies. For many medical students, 0% undergrad loans during grad school can easily reach five-figure savings.

Also, these extra years of $0 payments during grad school will also qualify for the baked-in long-term currently-taxable (not PSLF) IDR loan forgiveness. Not relevant to most doctors, but certainly relevant to many others.

I wrote about this “loophole” way back in the Further Facets of Income-Driven Repayment chapter of the book.

2. Waive the In-school Deferment for Current PLUS Loans

PLUS loans are technically never in-school status; they’re automatically placed in an in-school deferment.

That in-school deferment is actually optional for PLUS loans. Yes, you can contact your servicer and waive the deferment for PLUS loans. With the current PLUS rate of 8.05%, that unpaid interest subsidy leads to substantial (potentially massive) savings.

Note that you may have to repeat this process every semester as you take out new loans.

Ben Braun has a nice article in Doctored Money about his successful implementation of the PLUS loan method.

Caveat: PSLF

This extra effort and decreased interest have no impact/benefit if you achieve PSLF. PSLF is a time-based program; you don’t get a gold star if the amount forgiven is higher or lower.

This technique would still be a reasonable hedge given the uncertainty of the future even when planning for PSLF.

PLUS to the Extreme

Historically, most students would like to avoid PLUS loans. Their interest rates are always 1% higher than the corresponding rates for standard direct loans (hence the “plus”), and they carry a much higher origination fee (aka “loan fee”), 4.228% instead of the usual 1.057%.

They simply cost more, and needing to take them out also means you’ve borrowed more. Borrowing more money makes people sad.

With this loophole, there’s an argument for trying to skip out on regular loans and just take out PLUS loans. The overall slightly higher rate would be more than mitigated by the 0% rate during school.

Functionally, the government has opened a backdoor into “subsidized” loans (that don’t accrue interest while in school) that used to be available for graduate students until 2012. The irony is that with the SAVE program, PLUS loans are now a much better deal than they’re supposed to be.

Note that there’s an immediate downside to this in that higher loan fee, so there’s actually an upfront cost that’ll take several months to break even on.

Take Home

Entering repayment early isn’t a bad idea at all. It wasn’t a bad idea during the REPAYE era, and it’s frankly a pretty amazing deal with SAVE.

I don’t know how easy it would be for the government to specifically close this loophole, nor how interested they will be in doing so. Some legislators would love to shutter the PLUS program, but I suspect it’s relatively safe. For the conventional loophole implementation, there really isn’t any downside: If you want to put your loans back in deferment while in school, that is always available to you as long as you are enrolled accordingly. So there really isn’t any risk as far as I can tell.

Trying to exclusively use PLUS loans out of order just to benefit from the subsidy is, I think, a much riskier venture. The SAVE program isn’t codified in law, and you can’t convert PLUS loans to conventional unsubsidized loans, so that’s a one-way street I would not personally recommend.