[Editor's Note: This guest post grew out of an email interaction I had with a regular reader who is a member of a two physician couple. I was surprised to hear that while she had zero debt, he had a rather large amount of debt and thought it would be an interesting story to juxtapose the two. He has elected to remain anonymous. We have no financial relationship.]
It’s no secret that it is expensive to become a doctor in this day and age. The AAMC reported in October 2014 that the average medical school debt for a physician was $176,348 [The DO figure is higher by about $30K-ed.] I have seen the number hover around that figure since I started medical school and always thought that had to be underestimated. Until I met my fianceé.
Background
I met my fiancé during the first month of our internship in Columbus, OH. She was originally OB/GYN (now about to finish as an FP) and I, Ophthalmology. Sixteen short months later we were engaged with a wedding date in June of 2015, the last month of our residencies.
I don’t remember the exact date, but I do remember vividly the first time our debts came up in conversation. She asked for my opinion on whether she should take a large chunk of her savings and pay off the rest of her medical school debt (around 9K) or keep it for an emergency. After discussing this topic she finally asked the dreaded question. “How much debt do you still have?” I paused before telling her…”about $400K.” The look on her face was priceless, but I couldn’t laugh because I imagine I make the same face every time I look at the rapidly rising outstanding interest on my loan statements.
How did this happen? How did two physicians with similar educational backgrounds end up with such a significant difference in educational debt?
Debt Free at Graduation
My fiancé grew up with one sibling, her father was an ophthalmologist in a medium-sized town and her mother was a nurse that stopped working once she was born. When it was time for her to go to college she was handed the reins, by her father, to a very sizable account in her name at a well-known mutual fund company.
With this account she was able to attend a small, private, liberal arts college (with a few nominal scholarships) and private osteopathic medical school and graduate with just over $20K in debt. At the time of graduating medical school, she still had enough funds to pay off her remaining debt, but the interest she was receiving on her funds was higher than the interest rate on her loans. Once this reversed in our second year of GME training she simply made a phone call to her fund manager and “poof,” debt free.
To be fair, my fiancé is incredible with money. She constantly reads finance books and has been very hands-on with her portfolio since she was made responsible for it. At the time she started college there was not enough money in the account to pay for all of her education, but through her interest in investing, she made enough to eventually pay it all off.
Then There Is Me
I grew up in a small town with five other siblings. My father was an engineer and my mother obviously had her hands full at home. Since I was twelve I knew that I wanted to be an ophthalmologist (that’s another story how I made that decision so early) with no understanding of what this would entail. When it was time to go to college my father informed me to try and make a good “cost-effective” decision as he was unable to help me out in any significant way, as I would be his fourth child enrolled at the same time.
Despite that request I chose a private school in Philadelphia that cost about $37K a year total with a $7K annual baseball scholarship. I even graduated a year early, thanks to getting accepted to a 7 year BS/DO program with the nearby osteopathic college. To pay for college I had to take out private loans, as I only qualified for the minimum “Federal Aid” loans due to my father’s salary. Even though he had six children and made less than $100K a year, he was informed that he should be contributing roughly $20K a year to my college costs, based on his FASFA information, which wasn’t going to happen. I was also turned down by over 25 scholarships I applied for as I did not demonstrate “sufficient financial need.” All said and done, I finished college in 3 years with about $90K in overall debt.
Medical school was the same story as far as scholarships and financial aid. I had to cover the entire cost of tuition, and all living expenses, with primarily federal graduate loans. This added up to an additional $240K in debt over the 4 years. The interest rates on these loans the federal government was kind enough to provide me run between 6.8-8%, which is currently 3.3-4.5% higher than my private school loans through a bank. Graduating debt: $330K.
The Residency Years
Through residency I have been on IBR for my federal loans and forbearance on my private loans. My IBR payment has gone from $0 as an intern to $417 my final year. During my first year of residency I made an effort to put extra money into my loans, but soon felt like this was the proverbial “peeing in the wind” and stopped doing so. My annual interest on my cumulative loans has been $23K-$26K a year over my 4 years of internship/residency. I will graduate at the end of June this year with a total of about $430K in educational debt.
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The Game Plan
Since that day of discovery for my fiancé, we have had many conversations on how we plan to tackle such an overwhelming amount of debt. [I actually find it amazing that this post is written by him, not her. That just shows how good she really is.-ed] However, it was difficult to formulate a plan until we found jobs and knew what our salaries would be like. When we began job hunting I was nervous about joining a private practice (especially in urban areas with high cost of living) that was offering starting salaries in the low $100K’s. While I know the income potential down the road was sure to be significantly higher, I was concerned we would end up making minimal payments for a few years and just keep allowing high amounts of interest to accrue.
Luckily for us, we both found jobs with the same multi-disciplinary practice in a town of 45,000 people. As a starting ophthalmologist, I am guaranteed $350K my first year and my fiancé will be making $200K guaranteed as a starting family practitioner. This also comes with a $30K signing bonus for us combined.
So, with $550K in combined salary, I used a “take home pay” calculator at www.ADP.com to estimate that our “take home pay” will be roughly $340K. With that, here is our game plan for Year 1:
- $60K towards housing – We have decided to “delay gratification” and not buy a house right off the bat. Instead, we will rent for $800-$1500 a month, totaling $9600-$18000 for the year. The remaining $42K-$50K will be put aside for a house, along with our, roughly $20K after taxes, signing bonus.
- $80K towards retirement savings – I have no retirement saving thus far and feel guilty for it. My fiancé has started, thanks to a 403B at the hospital, but it is still small.
- $100K towards my loans – I have made my own spreadsheet in Excel that includes an amortization table for all of my debt. I predict that if we stick to paying $8333.33 a month towards my loans, we will have them paid off in October of 2020!
This game plan would leave us with $100K for living expenses, a new (used) car for my fiancé, and an emergency fund with the idea that any additional goes into my loans. Our ultimate goal is to pay off my loans in exactly 5 years (August 2015 to August 2020). This is actually quite doable, without even increasing our planned monthly payment, considering my amortization table does not take into account my weighted interest rate, which will decrease significantly as we pay off my higher interest accounts first, or consolidate once I start working. (Note: I haven’t consolidated my loans because there is no way I could afford the monthly payment that you must begin to pay immediately.)
While this may seem overly aggressive, my fiancé and I both hate debt, and having this goal will help keep us from getting lazy and saying “oh, we can just decrease the loan payment this month to help us buy this/that, we will pay off those loans eventually.”
[Editor's Note: I think the plan is great, and I'm excited to see such a well-thought out plan. However, given the average interest rate of over 7%, I would like the plan better if it included a refinance down to 2%ish variable or 4%ish fixed. I won't be surprised at all to see this debt gone in 3 years rather than 5.]
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Conclusion
Needless to say, my debt seems much less daunting to us now that we know what our salaries will be. However, I do feel for the individuals who may have had to take the same financial path as I did to get through their education and chose a field that doesn’t offer high starting salaries, or a spouse that doesn’t bring in a substantial income. My minimum payment will be around $3500 ($42K annually) once all loans are out of forbearance and my IBR wears off. One of my job prospects was offering $130K starting, which I estimate came to $95K take home. If I took that job, and my fiancé pulled a runaway bride, my loan payment would be 44% of my income! I would likely have to go back on IBR, allowing the government to just gobble up more interest over time, as my salary would eventually rise and I would never qualify for the loan forgiveness in the long run.
I may have made some mistakes along the way, but I think there should be some real concern if an individual can finish undergrad and medical school in 7 years straight out of high school and be $330K in debt. If you would have shown me that number before I started college, I am not sure if I would be where I am today.
What do you think? Will you have more debt than this when you finish residency? What is your plan for getting rid of it? Have you paid off this much debt? How long did it take? What encouragement can you give this couple? Comment below!
My wife and I will be in a similar situation. She will be starting her residency this year and will graduate with debt though. I will have 2.5 times the debt she has when I graduate (private undergrad, osteopathic medical school-financing own education). I also come from a big family, 5 siblings and both parents make under $100,000 combined. I also did not qualify for any help in undergrad and had to finance my own education through part time jobs, loans while also being an athlete for the school.
My wife will start making an attending salary in 3 years and she will begin to pay down her debt. For now she will be utilizing PAYE. Once I start residency we intend to live mostly off my salary as a resident and pay off her loans with her attending salary. I plan on entering a higher paying specialty and paying down my loans as quickly as possible once I finish residency as well.
You’re story is very inspiring to me because we have similar circumstances and I feel the burden of the debt constantly. Your story gives me hope that it paying off a substantial amount of school
Debt can be done.
I did want to ask if if any of the debt from undergrad were private loans? I have a good amount and am not sure how to approach this with the government loans down the road? Thank you for you story and help!
Bone DO,
Yes, about 70K of my debt is Undergraduate private loans. They are variable rate and currently sitting at 3.25% which is lower than my, soon-to-be, refinanced federal loans which I am getting a 3.75% rate for. Therefore, I did not refinance them and will pay the minimum payment on them until I either A) pay off all my higher interest rate federal loans, or B) the variable rate goes up and makes them my higher priority.
Thanks for the kind words, you will make it.
Kudos for taking control of your finances so early! You are starting so far ahead of where we did out of residency over 20 years ago. My husband is an ophthalmologist, and I am a pediatrician. The years we “lived like a resident” after residency were very happy and fulfilling years. They will set you up well for the rest of your financial lives. Keep maxing out retirement, paying down loans, and live on the rest. You are on a great path! Best wishes!
I think this is great. Obviously this is an individual decision, but have you thought about or budgeted for the possibility of children?
Sj,
Children are definitely on the horizon. They are budgeted into the 100K we have planned for living expenses. Remember, that is 100K AFTER TAXES. There is no way we will spend that on ourselves, which is why I mentioned that we can use the excess to pay off loans faster, or use on expenses that come up down the road (ie. children).
Great story, thank you for sharing this. I am curious about the editor’s note “… given the average interest rate of over 7%, I would like the plan better if it included a refinance down to 2%ish variable or 4%ish fixed.” Can the federal loans be refinanced through a private loan? I too have federal loans (totaling $145,000) in the 6-7% range. Since I do not own a home, would I be able to secure a private loan at this lower rate to refinance? Thanks for any guidance you can provide.
Yes, of course you can! There are multiple advertisers on this site who refinance all student loans. You can even now refinance as a resident (see the recent post).
And you regular readers think I talk too much about student loan refinancing! Look how many people still don’t even know about it!
Having a similar story (except without the also well paid spouse), starting with 490k debt I also had planned a super agressive pay back schedule even delaying retirement funding.
However, after starting it the math just ate at me. Higher tax bill and after tax dollars going to nothing but student loans. I ran the math and even if my investment life was decidedly average, it made no sense to not fully fund retirement, especially given that Im SE and can do 53k/yr. I still have some money left over and put it in a taxable at this time, hsa/roth next year. I am no fan of the debt, but Im no fan doing something just cause, the numbers simply do not bear it out.
Since this site tipped me off, I actually just refinanced with SoFi for slightly better rates with a much lower cap (chose variable as I just dont believe inflation will be significant soon enough, and if it is I’ll pay it off or switch to fixed). I was pretty amazed I got refi’d since being SE is a big pain in any financing regard.
I agree with your strategy. There is no reason to not fund retirement account for the sake of paying of low interest debt (10% and below would be my cutoff, but one could argue for higher. However, noone should be paying more than 10% on any debt these days!). The tax advantages make a huge difference in real return. See my example below to see the remarkable difference.
I think it’s a well thought out plan.
The key to this story is the couple being flexible enough to take jobs in a smallish town where they can command high starting salaries right out of the gate. $350,000 starting salary for an ophthalmologist is almost unheard of; that’s what well-established practice owners typically make around my geographic area.
I know many colleagues who were adamant about living either in New York City or San Francisco, and they will likely be paying off loans for a very long time. For this couple, once the loans are all paid off, they have options to move wherever they want to without any financial constraints.
You’re right–this point is crucial. At a typical starting physician salary, paying over 8K per month toward debt is almost unfathomable.
Everyone I know who’s willing to practice in a relatively undesirable area and thus make a lot more money never really have any financial troubles regardless of debt load provided they have any sense of financial responsibility about them.
With those starting salaries, eliminating debt should be no issue. Frankly I don’t really think they need to delay the home.
This seems like a really easy no-lose situation.
Man, I went to a tiny rural area and 1) had my contract completely ignored, and 2) had a wife who ended up hating the whole bit. I’m glad we went – we learned a lot about jobs and each other and such, but just my two bits that not all rural, high paying jobs lead to economic roses. It didn’t end up costing me much, and I probably did still take away ~25-50K for the 1y I worked there over what we would’ve made elsewhere, but it was nowhere near the golden goose we were promised. Contractually.
How could they ignore your contract without their being liable on a number of counts?
utahdogowner,
You are probably right as far as not all rural jobs being what they are cracked up to be.
As far as for the points you made. I don’t know how they could “ignore” my contract. It is quite standard and is the same one that all 130+ physicians in the multi-disciplinary practice have signed.
My wife loves this place because we are only 2 hours from her parents and sister, and we have urban areas 1.5 hours away north, east, and west.
We would love to end up here long term, but we are renting specifically for the fact that we may decide it is not living up to our expectations. The housing market is not strong in regards to homes costing >200K so we didn’t want to get stuck with a house we couldn’t sell down the road. We will not buy until we know for sure we are staying long-term, which should be 12-16 months.
I’ve got to disagree with that. I expect most physicians to put a similar amount toward their loans right out of the gate by living like residents for 2-5 years after residency. $200K starting salary = $50K to live on, $40K toward taxes, and $110K toward building wealth. $8*12= $96K. You can do that plus nearly max out a 401(k) with $110K a year. And for those specialists making more? The debt goes away even faster. Now, if you’re starting at $150K, it’ll be a lower number for sure, but it should still be thousands of dollars a month.
I’m interested in how you estimate that out of 200K, only 40K goes towards taxes.
In CA, I’m getting closer to 80K going to taxes (with standard deductions).
Ding ding ding. You’ve made a discovery worth looking into. It turns out that Californians pay a ton of taxes compared to other folks.
At any rate, I’ve had this discussion every time I throw a tax figure out there. While indeed there are doctors paying more than 20% in taxes on just $200K in income, there are also plenty paying less. In fact, it’s possible to have an income of $200K and not pay income taxes at all.
This strikes way to close to home. As an oral surgeon I have a full load of dental school and a full load of medical school loans. On top of that I have my stay at home wife’s (3 young kids) medical school loans. I’m hoping that 2019 will be my payoff year. I’ve refinanced all of my loans at DRB (1.92 variable over 5) but haven’t refinanced hers because I like keeping the fixed option over 20 years in case something happened to me. her loans have an average of 3.5%, so not to bad. This blog and the book has saved me thousands. Bogleheads.org has also been a great resource. Thanks for guest post.
Your stay at home wife went to medical school? What a complete waste of time, energy, and state/federal resources! And she took a spot from someone who would almost assuredly be still practicing. My wife and I are physicians and while she doesn’t work full time, even part time work pays more than many of my friends wives’ full time jobs. She probably wants to stay at home with the kiddos but I can’t let her until our (mostly her) school debts are paid off and we knock the mortgage down a bit. Maybe your wife could do something medical from home? Does she have a medical license? Did she do residency? I feel for you man!!!
I absolutely disagree that education is ever a waste of time, energy, or resources. Parenthood itself benefits from education. And if someone who isn’t currently practicing “took a spot” from someone else, they probably deserved it. If you carry that argument out to its logical end any of us who don’t work 100 hours a week until age 75 “wasted resources” and “took a spot” from someone who would.
Amen, WCI.
Wow. Trolling or are you serious?
*speechless.
This is a good looking plan, but personally, it seems like he would benefit from putting more money toward’s the loans, and less into retirement accounts, at least the first couple years. This is based on the fact that paying off those loans faster has a guaranteed 7-8% return, whereas the market is fully valued at the moment and is likely to see a correction.
It certainly makes sense to put aside the max into and matching accounts, IRAs, etc, but I think that whatever portion of the $80k he had set aside for retirement is not tax advantaged, it should be allocated to the loans instead.
Agree 100%. Unless he can refinance his educational loans to much lower rates, I’m for throwing extra income at the loan debt.
I completely disagree (with emphasis)!
If you factor in the tax savings of using retirement accounts at 30% marginal and also consider the time horizon of the retirement accounts being 30 plus years for compounding, stuffing retirement accounts before paying off debt will put one ahead by 10s if not hundreds of thousands of dollars.
Plus you can refinance the student loans to 2-3% interest, which you should on average beat with a balanced portfolio most years.
Retirement accounts before all other investments is the key to becoming wealthy. Don’t pay off your mortgage, your student loans, or buy a whole life insurance policy (some might even say buying real estate, although you will get disagreement here) until you have made maximum contributions to retirement accounts.
WCI, if I am wrong, please correct me.
Like many things, the answer is “it depends,” and mostly on the interest rate. But in general, I agree with your sentiment for low interest rate debt. If your portfolio, especially with the 401(k) tax advantages, can’t beat 2-3% a year long-term you’ve got bigger problems than student loans.
BCB – actually, the marginal rate at their income is 39.6% and the most tax savings they can generate is about 14K (by maximizing both of their 401Ks). Since they are both just starting out, it’s unlikely they are at partner status and thus wouldn’t have access to other tax deferral vehicles. Also, at that income, they are phased out of exemptions, student loan interest deductions and limited to 80% of their itemized deductions (although wouldn’t make sense for them anyway since they don’t have a mortgage or property taxes). Also, the argument you make about benefiting from compounding on their retirement would also apply to their debt where compounding works against them. Finally, as readers of WCI, we are all smart and long term investors who are impervious to short term market corrections. However, in their case they are literally gambling with marginal dollars that could have had a guaranteed short term return of 7% in student loan interest savings vs. uncertain market return. {but I’m definitely with White Coat here, they seriously need to refinance – that rate is ridiculous}. But even still, I would argue – pay down student loan debt first even at low interest rates. But the ultimate point is, at $340K net salary with no kids, they could easily do both: maximize their 401K AND throw a ton of money at paying down debt.
Other comments:
1) Their plan includes saving 40-50K for a year plus 20K in signing bonus. Where will they put that? A minimum interest bearing CD or money market at 1% if they are lucky? Why not put all that towards student loans too! Then they can get a doctor mortgage (the mortgage rates are still very low) at 3% or so with no down payment.
2) 80K towards retirement – after 36K towards both 401Ks, 11K towards both Roths (backdoor), where will the other 33K be invested? Unless they qualify for other tax advantaged accounts, the only other thing I can think of is an HSA at annual max of 6,500 for both, that is if they qualify with their HDHP. And they can’t do a 529 yet. That means that 33K is going to go into a taxable investment account. Again, in their situation, I would think it’s a safer bet (and higher return, unless they refinance) is to pay down student loan debt to get a guaranteed return.
My thinking is the priority of where every next dollar goes is as follows: 1. pay down debt, 2. maximize your tax advantaged accounts, 3. maximize your kids’ tax advantaged accounts 4. taxable investment accounts.
They could do a 529. Just have themselves be a beneficiary and change later. But most importantly, there’s nothing wrong with using a taxable account for additional savings. While a retirement account is better, a taxable account isn’t that much worse.
Ally – I just put 30% as a general number and it is definitely low ball. Their marginal tax rate depends on their state, how much they can tax defer, etc. I think we agree that they can do both, pay down debt and fund tax accounts fully. I was responding to someone who said that they should pay down the student loan faster by not funding retirement accounts. That would not be a smart mathematical decision under any circumstance, but especially if they refinance their loans to 2-3% as we both agree they should.
Quick example assuming that one has unlimited ability to fund tax deferred accounts and a marginal tax rate of 40% and has $100k to stick in a retirement account or to pay down loans at 3%.
You could invest $100k in retirement account or pay down $60k in loans. $60k compounded annually at 3% for 30 years is about $145k. Compounding $100k at 8% (I believe this is the average return of the market over long time horizons historically) is over $1 million dollars.
I don’t know anyone who would trade $145k for a million dollars. Would you?
In addition, the couple could find creative ways to create more tax deferred retirement saving by starting a business. Moving into a small town practice, they may in fact be partners from day one. But if they cannot finagle additional tax deferred accounts, they should invest their money not pay down more low interest debt. One consideration would be real estate to get some of the depreciation tax benefits and inflation protection.
The decision to pay off low interest debt ahead of funding retirement accounts is not mathematically sound, given that these people are likely to have long stable careers (with two incomes I might add). Advising someone to do pay down down 3% debt first is paying (significant!) additional money for emotional comfort (feeling better about not having student loans or a mortgage).
If people follow the basic tenants of this web site, the difference between these two strategies has minimal real consequences because everyone should have enough to live a fabulous and luxurious lifestyle with money left over for heirs. But I still favor the mathematically superior path.
Depending on the local/regional litigation landscape, retirement savings are likely to confer relavent asset protection over student loan paydown, if there are doubts at the margin. Does this tip the scales?
That would be a fairly minor effect, since likelihood of being sued above your limits is so low.
My general recommendation is to do it all by spending less. A new doc should max out all his retirement accounts, save up a down payment for his house, and pay off all his student loans by living like a resident. There’s no choosing between them. Paying off low interest debt is far better, mathematically, than buying a boat. Math and behavior are two different things sometimes.
true, true
Ally and BCB,
My “fiancee” and I love the arguments you have both made and are learning a lot.
First, I am in the process of refinancing with DRB to hopefully a 3.5% fixed 5 year repayment plan (underwriter has not provided me their offered rate yet).
So assuming that is my new rate, how would you budget out 340K?
We are planning to put our first year housing (48K + 20K) portion into mutual funds and would only touch it if we needed money for a down payment. In the following years, we would use that budgeted 60K for the mortgage payment, and whatever we don’t spend would go into investments.
The 80K retirement may be a little much the first year, especially since I am not sure how much I can throw into tax deferred accounts. As WCI noted, we can absolutely start 529’s for our future children. I don’t see why we wouldn’t have taxable accounts. I can tell you we will not be starting businesses or buying real estate, I have other hobbies I want to spend my time on.
100K for loans, I think that is appropriate. And the 100K for living expenses after taxes is absurd. I mentioned above that extra we do not spend will be going into my loans as well, which I expect to be substantial.
Is it stupid to be tossing money into taxable accounts? If not, do you have any recommendations? My fiancee has worked with Vanguard since they managed her trust and she even has a personal finance manager there that will do her taxes. I believe she plans to continue using them and place our money in their retirement accounts (she keeps mentioning 60/40).
Eye Guy,
First off – thanks for opening up and letting us throw advice at you :). It’s always easy to theorize about other people’s money – so obviously do what you need to do based on your own situation, but nevertheless thanks for your consideration. I think we all (WCI, BCB and myself) agree that there is nothing wrong with taxable accounts, maxing out retirement and paying down student loan debt. Where the rubber meets the road is the order and priority of doing all those things. In other words, none of us would recommend NOT doing one of those things in favor of doing the other. Another thing we all agree on is refinancing (which you are already doing) and doing all (debt repayment AND retirement savings).
So in my argument the priority would be to maximize any and all tax deferred and then tax advantaged retirement/college savings accounts first. Unfortunately, at your taxable income you’re losing 40 cents for every dollar you make. Plus, your income phases you out of a lot of typical deductions. That is why I stress using what you can to try to reduce your taxable income and pay little less in taxes. So if you both qualify for 401Ks, then maximize both at 18K each. That will save you about 14K in taxes. If you qualify for an HSA (meaning you have a high deductible health plan at work that meets the qualifications) then you can potentially put away another 6500 (that’s for both) into an HSA (which is also a reduction to your taxable income). If you have access to anything else (solo 401k, sep IRA), then do that too. Next go tax advantaged accounts like maxing out both backdoor Roth IRAs, funding 529 for your niece/nephew (per WCI advice).
The next step is where I think BCB and I have differing opinions. I would argue paying down student loan debt with all your means possible even at 3.5%. (Whereas BCB would say – put more in taxable investments – but please correct me). I think maybe the difference of opinion is I am female and BCB is male (again, assumption, and don’t judge for gender stereotyping just yet – I will explain). Yes, I agree with BCB that over the course of the historical market returns 8% is the average. So when you compare 8% to 3.5% – I can do math – 8% is better. However, the market is not a fixed rate CD. That 8% got there by at times very large fluctuations. Statistically speaking the next fluctuation is likely to be down given we’ve been on a rise for 6-7 years. So, I could hypothetically get a larger return (or not – hence the market risk) OR I could get a guaranteed 3.5%. Yes, that is a losing strategy over the long term. But what if things so south in the short term market, and I’ll be left with 400K debt, a losing portfolio, rising interest costs, no house (or huge mortgage debt) and a baby on the way? This is where, as a female, the emotional does matter. Maybe the Eye Guy’s fiance would relate more to me on this one?
The thing is, at your income being so high, I think it would be very easy to pay off student loans very quickly, after maximizing all available tax advantaged accounts first. I would still argue not saving for a downpayment and doing a 0 downpayment doctors loan. Mortgage debt – I’m totally with BCB here – do not pay off early. The rates are so low – definitely invest in taxable investment accounts first and just pay the monthly payment (that is if it is a 15 year mortgage).
So to sum up here is my recommended priority, but again, do what you think is best for your family: 1, tax advantaged retirement and savings accounts, 2, pay down refinanced student loan debt, 3, taxable investment accounts.
Your $68K of money set aside to buy a house in a year or two (or three) should NOT be in stock mutual funds. When you need the money the market may have contracted and your $68K could be as low as $50K or less. Better to put that money in something more definite- CDs, money market, bank- or even pay that much extra off on your loan but then pay that much less (if it pays your minimum) when you need the house money.
I agree. Just put the money you’re saving for a home and the additional money above your tax deferred and roth retirement towards the loan. The only valid argument against that would be if you refinanced the student loans at a very low interest rate and wanted to try to beat it in the market. But at 7-8%, you should just max out your student loans.
Other points. Also went to a private liberal arts school (about 30k year). One of 8 kids, no financial support. Graduated with <5k in loans (took out a few grand in deferred loans one year because i figured it was interest free money). Of course I had more scholarships, including academic on top of athletic, but also worked 40+ hours/week. Actually saved my first year of medical tuition too. I think he made the wrong choice picking a school that gave him a drop in the bucket towards his tuition in exchange for pretty much working an additional full time job (college athlete is a full time job). Also, although it's not an option for everyone, picking a medical school with reasonable costs should be a priority for most as well.
Always think it's a bad idea to stop doing everything you can to reduce your debt burden. So tired of hearing the excuse that it doesn't seem to make a difference, I want a better lifestyle now, and it doesn't compare with the money I'll make later and how easy it will be at that time. Too many people don't make any effort to control the amount of loans they take out, don't make any effort to repay any of them, don't work an extra job, etc, etc. But then complain about the costs of being a doctor. I'm supposed to feel sorry for someone bright enough to be a physician but too dumb to work on controlling the costs associated.
Was in the same boat as this guy (except I choose the medical school with 24k/year in state tuition), and finished residency with a net worth of 150k. All that said, sounds like at least he has a plan, and he'll be fine in the long run (sounds like the wife will at least ensure that).
Gabe,
I agree with you, I likely did make some poor choices in where I attended college and med school. I can tell you I was not very “financially mature” when I was 18 and made my decision of college. The medical school was a guaranteed acceptance once I got accepted into the 3+4 program. I could have probably tried out my luck at getting into a cheaper medical school, but at the time I was more than happy to be guaranteed acceptance.
I don’t want you to feel sorry for me, that was never the intent of writing this piece. I’ll do just fine after I graduate in a few short months.
As far as being “too dumb” to manage the cost of my education…I worked summer jobs in undergrad (best I ever made was 4k which went towards living expenses), didn’t work during my undergrad school year (was taking 22-24 credits per semester to graduate a year early), shadowed Ophthalmologists the summers of medical school, and am not allowed to moonlight (residency policy). I pay IBR and tried to pay extra into them but again this has been a “drop in the bucket.” Could I have done more? Yes, I could have lived in a van and showered at the local library, but I don’t think I am “dumb” for taking the path I did.
It’s easy to be cynical when your path went more smoothly than those you criticize. We could all say Ethiopians are “too dumb” to get out of starvation and poverty rather than look at why it continues to be an issue. So why are so many medical school graduates coming out with enormous debt? Maybe because FASFA continues to expect parental contributions towards a 22 year old’s tuition, directly affecting any additional grants or scholarships. Maybe because undergrad/med school tuition rates continue to skyrocket because they know the federal gov. will hand out lump sums of money at high interest rates without batting an eyelash.
Bottom line, I think educating our “dumb” 18 year old’s aspiring to be doctors about the true cost of doing so, and how to do it as cost-effectively as possible is a good first step. I plan to talk to pre-medical societies in my local high schools/colleges and help them avoid the pitfalls I have made.
I commend you for being able to make it out of residency with a positive net worth, that could not have been easy. However, to call any one who graduates from medical school with debt either dumb, lazy, or anything else is just an easy way to ignore the fact that someone is taking advantage of people willing to do any thing to reach their career aspirations.
Eye Guy- Really wasn’t directing my comment at you as much as the system as a whole. Certainly wasn’t trying to call you dumb, and apologize if it came across that way. I’m just amazed at all my bright colleagues who don’t spend a fraction of the effort that they exert toward becoming a physician with making some logical financial decisions. I had a lot of luck/blessings along the way to make it to where I am, but I also worked hard and made lots of sacrifices as well. I expect most people will finish residency with student loans, I just think that it should be possible for most to have a reasonable debt burden, even without any financial assistance (case in point myself). Its simply tiring to hear from my colleagues about their huge debt burdens when they’re living in a nicer house than me, drive ridiculously nicer cars than me, take expensive vacations, carry credit card debt, etc, etc. I routinely give out the advice that you shouldn’t spend more than about 2x your expected first year salary for an undergraduate education (recently to my lil sister). If you’re getting a degree like psychology, you just can’t afford to spend 150k if you’re paying for it yourself (if your parents want to pay for it, whatever, I probably wouldn’t for my own kids). I agree the system takes advantage of people trying to reach their goals, I’m just surprised that it suckers in so many bright minds as well.
Anyway, you will have plenty of income to pay down your debt quickly, and sounds like you’ve got a great plan. You really didn’t dig a very deep hole, and you’ll be out of it quickly. My wife is probably at least half the reason our financial situation is excellent, so you made a brilliant choice there ;).
Also a year saved in schooling is probably worth a huge additional cost of medical school. (That year is worth 350k, so just think if you live like you did in undergrad for that year, you basically would end up nearly debt free). So…even if the decisions were perhaps questionable to begin with, sounds like they’ve worked out nicely.
While my crystal ball is pretty cloudy, I agree that a 7-8% guaranteed return is pretty attractive at any time.
Aureo and Dr. Yellen,
Thousands of investors/traders and trillions of dollars have come to the conclusion that the markets are always ‘fully valued.’ This valuation is determined by settlement prices of exchanged securities, notes, etc., not by outsmarting the market. Only exceptions are major information developments when the markets are closed, which don’t take long to adjust.
This is an interesting article and nice to know the backgrounds. Not everyone can be as fortunate as others. My wife is the MD (FP w/OB). She is the first in her family to even go to college. She had to foot everything on her own. I came out relatively debt free, but I don’t have the income potential. I graduated with a BME degree when people weren’t sure what it was, and everyone wanted advanced degrees or 5 yrs experience, and I graduated with a 2.92 (A- at my school was 3.66, not even 3.67 and so on). So a decided B average, much higher than the 2.66 B-, 154 credits and it was engineering (25% drop out). Yet the grad schools didn’t care. It wasn’t a 3.0 so I got a lot of rejections. I finally got one place that didn’t feel right. I left. I saved the newspaper article that came out later as proof that I did the right thing. My PI had falsified data, lost all funding and all research assistants.
In the meantime, I was picking up jobs I could as I followed my wife through her medical school and residency as she racked up debt. My wages ranged from $18/hr to 50K/yr, but I wasn’t in one place long. We used my money to pay expenses, but it didn’t pay her debt, as she was racking up. We now have everything consolidated at DRB with much better rates, but for a while we were on IRB as loans ranged from 6.8-8% just like you. Our debt was blossoming. We do all we can to keep it under control but she is the bread winner with 210K salary plus bonuses each year. I’m a stay at home parent. It makes more sense. All money I’d be earning would go to childcare and we’d have even more taxes. When the children are in school, I will go back to work and we’ll be dual earners and my wife will be on production and an estimated 250K a year at that point.
You are lucky you pull in 1/2 million. But you know what it’s like to struggle and start from very little. Thank you for sharing the background and comparison. (We are currently down to under 230K in loans now, I celebrate each milestone 🙂 )
Adam,
Thank you for the kind words.
My little brother just finished his 3rd year of P&G engineering, I hear it every day from him that engineering majors are extremely difficult.
I hope all continues to go well for you both.
As an ophthalmologist, I say Kudos to you for planning like this and more importantly finding a job with a starting salary of 350K. (The average starting salary for an ophthalmologist is about 150K). Taking this job in a non-urban area will help you overcome your debt as quickly as possible. This may not be a decision everyone is comfortable with but clearly a great decision for you. Good luck on your future financial ventures. I also like WCI’s recommendation to refinance as soon as you start your new job.
we see opthalmology (depending on general or subspecialty) range from $150k – $220k typically (plus production incentive). $350k is on the high end for sure… – Jon w Contract Diagnostics
That really surprises me to see how little ophthalmologists make. I’m pretty sure that’s a dramatic reduction relative to other docs over the last couple of decades.
WCI – I should clarify – those numbers are starting salaries. It’s not uncommon for private practice opthalmology as a partner and ASC ownership to be in the very high 6 figures, and we know some in the $1MM+ range with various verticals. – Jon w Contract Diagnostics
That’s about what I’d expect.
napoleondynamite,
Starting job salaries in the Midwest (we are going to rural WI) were 2-2.5x higher than any other locations we looked at, including rural Pennsylvania, Asheville and Charlotte, North Carolina and Charleston, South Carolina. These locations all offered any where from 130K to 180K. However, the job I ended up accepting was still 50K higher than any other offer I received in Wisconsin.
For my fiancee, offers were all within the 150-200K range.
Thanks for sharing your story. You and your partner are on track to continue to make many more right decisions than wrong ones. Keep reading the good financial books and blogs (WCI has been a great help to us all in that regard). As you emerge from debt, in addition to the nuts and bots of finance, keep an eye toward how you structure your estate and ensure asset protection for your family. It can be easier to do this as you go rather than fixing and reorganizing things near the end of your career. Keep the lines of communication about money open with your partner. Your attitudes toward money will likely evolve over time and you want to both be headed in the same direction.
Good luck!
Great article! I always remind my wife’s coworkers who are just out of residency and wonder if they should pay off their student loans first(upwards of 400k). I tell them “The greatest return on your money, will be to pay off your student loans first. You will never find a monthly return on investment as great. Imagine the fun it will be to have those large payments going to you, instead of someone else.”
ONLY after maxing any matched retirement fund contributions
Thanks for this post, WCI! Very timely. I am a recent emergency medicine residency grad, started out with $205,000 of med school debt and it currently sits at $184,00 and I have also wrestled with how much of my monthly income (take home about $14,000) to put toward paying down the debt vs. saving for retirement. I recently refinanced through DRB at 3.75% fixed for 5-years (was previously 6.8%). While my monthly payment on my med school loan has increased, I wonder with the lower interest rate if I should now try to max out my retirement contributions and just make the minimum payment vs. aggressively pay down the debt over the next 2-3 years and contribute less to retirement. I also recently purchased a house on a doctor’s loan (0% down, 15-year fixed loan) after renting for the first year out of residency. What do you think? Any thoughts or advice would be appreciated.
You’re choosing between two great things-maxing out retirement accounts and paying off debt. Either are so much better than spending the money that it doesn’t matter much which you choose. I’ve written a bit about it before though:
https://www.whitecoatinvestor.com/student-loans-vs-investing/
What is everyone’s viewpoint on low interest rate loans? I have about $70,000 left at 2.75% which I have been making minimum payments on and directing the rest of my income into a taxable account (already max my 401k at $52,000 per year due to being part owner of our practice and max backdoor roth IRAs for myself and my spouse). I figure that, on average, I will make more on my investment than what I will end up saving on loan interest.
I’m in a similar boat, Tommyboy. I struggle with these loans, knowing that the interest rate is so low (mine are under 2%) that they are not worth paying off, but also hating having that debt. This is a point of debate in ourhousehold. So far, I am slightly overpaying them as a happy medium.
Many of us are in this boat….I have had similar debates with WCI and others on this site about this. Mine are at 2% as well. It is really tough to justify paying them down when the math says to invest in almost anything and I will get a better return. However, having the debt hang over you is annoying too. I could have paid off the debt x 3 already but instead have invested it and payed down the home mortgage some (which is at 3.5%…really about 2.5% after tax deductions) The idea for me is that my primary home is untouchable from lawsuits, the loan rate is higher (albeit minimally), and if I die my wife will have more substance in the house and my student loan debt is forgiven and she would never have to pay it off. Very hard for me to justify putting any extra money into the student loan other than to appease my personal desire to be debt free. Mathematically it is just plain wrong.
I don’t think there is a wrong answer to this questions. Both are great answers and in the end the differences usually don’t amount to much. It really comes down to what makes you happy, if having a bigger retirement account sooner does it, go for it! If the debt free feeling will do it, go for that! It’s not like we are talking about maxing a 401k at the expense of a 25% credit card…that’s a no brainer.
I agree with Ricky’s response; remember that no matter which option you go with, you’re making smart financial decisions and you’re really just mincing some details which shouldn’t change much in the grand scheme of things.
For me, I like to look at paying these low interest rate loans (2-2.5%) as comparable to the fixed income portion of my portfolio.
Let’s say you’re young and you set your asset allocation to something aggressive like 90/10 or 80/20, instead of putting some money into a bond fund or CDs or however you want to set your “anti-stock,” you can put that money towards paying off your loans, essentially getting a guaranteed rate of return of whatever your interest rate is. 2.5% might not sound good when you’re comparing it to your stock returns over the long haul, but you’d take a 2.5% CD if it were offered to you right now.
Thinking of investing versus paying off loans this way should help satisfy both your desire to save intelligently with your spouse’s desire to remove the yolk of debt. After all, you did come up with your investing plan and asset allocation together. Don’t let these small potatoes be something that stresses you two out financially.
Readers should keep in mind that in most states, the home equity is NOT untouchable in lawsuits.
Regarding this WCI, do you think putting your primary home under a LLC or a Corp figure is worthwhile? It seems to me the “burden” of setting up a LLC is nothing compared with the potential benefits.
We bought an umbrella insurance policy for $2 millions (costs around $400/yr from our car insurance company) and titled our house for joint tenancy in the entirety. My wife practices in Indiana (medical lawsuits are capped in that state) and we live in Chicago.
Our greatest lawsuit risk is not medical, but a car accident or something where they learn that my wife is a doctor and decide to shoot for the moon. At which point, the umbrella policy should be a strong defense (or cushion if we lose). If we lose and the judgement is more than $2 million, then we can continue to live in the house (but would not have rights to the equity).
The key is the “potential” benefits. How often are they used? I figure I have about a 1/10,000 chance of being sued above policy limits in any given year. How many hoops are you going to jump through to minimize that risk? And how well will an LLC work in your state, especially if it is single member.
Many times the LLC can protect you from something that the LLC does, but it doesn’t always protect that asset from personal lawsuits, especially the single member type. So if you have a rental and the person is hurt on the property, they can sue the LLC and take the rental if it has any equity, but not personal assets. However, if you are sued personally you could be forced to liquidate your interests in an LLC you own to cover the costs of the judgement. Since you are not suing yourself if you slip and fall at your house, probably would be more hassle for little reward.
Thank you Ricky
Exactly, there is both internal and external liability. LLCs are best at protecting your personal assets from internal liability, although in many states there are significant external liability benefits (i.e. limits on charging orders.)
When we grappled with paying off low interest rate loans versus investing, we looked at two scenarios for ourselves. First what we would for sure save by paying off loans over “x” time period versus what our best guess of investment returns might be over that same “x” time period. We were surprised at how small the difference was in absolute dollar terms. We opted to pay down the low rate loans when we considered it that way. An article that helped me decide was from Kitces where he discusses the equity risk premium you should build into your mental games if you chose to keep loans while investing. It relates to paying down mortgage vs. investing, but it applies to student loans vs. investing as well. Hope it helps.
https://www.kitces.com/blog/why-keeping-a-mortgage-and-a-portfolio-may-not-be-worth-the-risk/
I dont understand that time frame as it doesnt make sense. The loan ends at whatever day, but the beauty of the investment is that it continues to compound for as long as you or your heirs may live.
You can of course construct it to get the result you want, and sounds like you wanted to pay down that debt.
I think you are over-thinking and, yes, I am over-simplifying, but it is just an example of what for us helped us arrive at a decision regarding investing vs. paying debt which is what Tommyboy asked. I wasn’t sure about paying down debt, and my husband was against it. Our math and our personal situation changed our minds. Your math and your personal situation may lead you to a different conclusion with the same numbers. We don’t all think about finance the same way because life has dealt each of us different cards. Sometimes it is helpful to see a different view. If our way of thinking about it doesn’t help you, just ignore it…
1. We do not have a lump sum to pay off debt so we determined an amount that was truly extra monthly savings for us. (We always fund retirement fully. We have kids 529’s done.) We looked at what adding that amount to our monthly debt payment would save us in interest and how it would change our payoff date. Our loan is 3.125%.
2. Next, we looked at what dollar cost averaging that extra monthly amount into our investments would potentially give us by the now earlier loan payoff date. We used an optimistic return going forward of 9%.
3. The difference in the above numbers was surprisingly small. So we decided to pay down debt. Once the loan is paid off, we will have a higher amount that we can invest monthly.
Caveats: We are turning 50 this year so the sequence of returns issue is something we are taking into account. At 30, we might have looked at the same numbers and come to a different conclusion. We acknowledge that we have a risk tolerance that may be too high for our current age. It has served us well, but our plan was always to reassess about 10 years out from retirement which is where we are. We do not need the risk we are taking to meet our goals. Also, I have watched my parents have to withdraw from retirement savings to pay down loans. It is frustrating to my dad to pay his highest marginal tax rate to withdraw the money to pay off loans. We hope to avoid that scenario completely. Now of course if something changes we will adapt. If inflation shoots up, we might stop pre-paying the debt. If the market corrects, we might also stop and start investing the monthly amount. Just like in medicine, we make the best decision we can with often uncertain data. Then, we reassess and reevaluate over time. Good luck and best wishes.
Personal Finance is both.
It of course always depends on the details. Where you are at your stage of things is super important, a dollar invested in your 50s is simply going to be worth a whole lot less than in your 30s so that should be taken into account. It also loses big in the piece of mind side of things at this stage. As well as your current and needed risk to achieve your goals and sounds like you didnt need much risk for where you are.
Thanks for the excellent explanation.
Since Im at the other end of the spectrum it makes sense the other way around, as does yours in your situation. It depends…always the right answer.
6 years ago my brother (our de facto money adviser) urged us to max investments rather than pay off 4.7% mortgage as we got closer to retirement. We felt like Dr Mom that we weren’t convinced stock market earnings post tax would be as good as interest on mortgage even after tax benefit from mortgage interest deduction, and knew for sure retiring with $2500 less a month in fixed expenses (mortgage payment) would make living off his pension (which we soon chose to do- my job palled a few years later) much more feasible. But we’re 50s; if we were 30s I certainly would max our tax deferred pension savings and would probably not pay off mortgage/loan any earlier than I had already budgeted for since I’d prefer the flexibility of selling out of stocks to pay loan minimums if we lost or decreased income, over trying to refinance a loan/mortgage for a larger amount right when income drops. (I’m a worst case scenario type of gal. Almost EVERYTHING turns out better than I have worried about.)
Thanks. It makes sense. Just depends on how risk adverse you are I suppose. Our current plan is to make larger payments on our mortgage each month while still putting some away in the taxable account. It’s a good compromise for us.
Do you also happen to post on SDN?
See above. We also do both. IDK what SDN is. This site is the only place I post. My time for finance is finite. I enjoy how WCI presents his information and allows many varying views. And, mostly everyone stays civil in the comments. I truly enjoy seeing how others think about finance. It challenges me to consider our finances from angles I might not otherwise see.
Investing it is a no brainer, after inflation thats almost a free loan and there is ultimately a time limit on it and none for investments that have a much better chance at greater returns.
Yes, I would like to know where in the world an FP makes 200K first year out of residency. I’ve been in practice 14 years and I think I made 130 my first year, now at 189K. I have 166K left of student loans (consolidated under Sallie Mae then paid the whole thing off with a HELOC at 2.89% years ago when my cheaply-bought house appreciated, so I also get a tax deduction on the interest). I am aware that practicing in NJ, which is supersaturated with health care workers, limits my earning potential, but I’m stuck here now.
WCI, maybe you could write an article covering what new docs need to look for in a practice, I know you have done something like that, but specifically the various structures of salaries that exist and how those will play out for a doctor over the years. I got no education in this and joined a local FP/Urgent Care practice out of residency that actually paid an HOURLY wage, yes, it sounds crazy to me now, but I really had no idea what I was doing. I wish my residency faculty members had helped me consider this choice more carefully. Had I joined a partnership practice or one of the many local hospital-owned groups, I would have eliminated my debt that much sooner. Instead, I labored as an employee for someone else’s business profits for 7 long lost years. I then joined a local solo FP who told me I would get salary increases every 3 months for the first year as I grew my patient panel until I was at a decent FP salary, then told me 3 months later that his practice simply was not bringing in enough patients to give me a raise (so I left of course)! I am now an employee of one of the groups owned by the largest teaching hospital system in the state and very happy with my compensation package, but I feel like I’m way behind where I should be at this point had I made different decisions along the way.
Good luck to the new doctor couple who posted this article, a plan is the first step!
I don’t see anything wrong with an hourly rate. Most emergency physician positions work that way. $150 an hour * 120 hours a month * 12 months a year = $216K, a very liveable wage.
That said, I prefer a position that leads to ownership at some point. I’m not sure that your issue was the structure so much as the particular deal that wasn’t very good.
I don’t think FP jobs that pay $200K are all that rare. I Googled this one pretty easily: http://phoenix.craigslist.org/evl/hea/5002430096.html (Urgent care.) Here’s another: http://www.simplyhired.com/job/m-f-outpatient-fp-minimum-200-000-base-incentives-job/staffphysicianrecruiter-com/4pvu4dv76r Many hospitalist positions in community hospitals (including mine) will hire you at a better salary than that. A regular poster here who goes by “Joseph” moved to Alaska for a substantial salary increase (much less than $200K to much more than $200K.)
There’s no doubt in my mind that maximizing your income is just as important as saving a good chunk of it and investing it well. It is simply far easier to save money when you’re making $250K instead of $150K.
Location is an important topic. Just a plug to “read the book”! WCI does talk about it…although not in extreme region-based detail. After residency we just wanted a retreat and didn’t really understand we were being underpaid to the average bear.
We have since learned the power of no sales tax, no income tax, and an extra $24k each year for having a pulse. It is now a hobby to interview (tax-deductible!) around the country and compare to other offers we get in Saudi Arabia, Canada, and New Zealand.
World travel is important to us but we also have a better understanding of the pricetag and value, too. When “it didn’t matter” it was because of our ignorance.
I’m gen Peds 1st year out and will make a little over 200. The FPs I met early on in the group make a little more. So the jobs are out there!
njfp,
If you made 130K in 2001 (14 years ago) that is roughly 172K using a simple online inflation calculator. In a saturated NJ by the way. We are moving to rural WI, so I think that explains the additional 30K she is being offered to move to a technically under served area.
I can tell you that we talked to 4 of the other FP’s she is joining and all of them only continued to improve their salaries after going to strictly compensation.
We did a lot of homework and hope that we made the right decision, but only time will ultimately tell. I think it would be fun to come back 1-1.5 years later and write a follow up post on how every thing is panning out as far as jobs and budget goals.
Kudos to the poster.
However, no mention of babies, part-time, time-off, or infertility treatments.
Debt makes a person less marriageable, with different male/female preferences. Women in their 30s, with high debt, ovaries dyeing, and beauty fading are on track to be old-maid-spinsters. Men in their 30s with high debt, mutation-laden sperm, and big incomes remain marriage-attractive for longer.
Lucky for this couple that HE was the debt-laden , and not HER.
I’ve been surprised how many threads I’ve seen on the Bogleheads forum where someone has seriously considered not marrying someone because of their massive student loans.
Among the welfare-class, marriage is nonexistant because the women would rather be married to BigGov than to a human man. This behavior has crept up the SES ladder to the middle class. In the professional class, marriages rates will dwindle because of the debts.
I married someone in the middle of racking up over $350k in debt. And I was happy (and lucky) to do it.
Should have mentioned:
Me = Male
She = Female
As a single female physician in her 30s with high debt from a private medical school alone, and with my “ovaries dyeing, and beauty fading,” I must say I am quite happy and not particularly worried about my rank as a commodity on the marriage list. I am proud of my achievements thus far, as well as my ability to live a rich and satisfying life as an independent individual. If marriage isn’t in the cards for me, I would like to think it had nothing to do with my debt.
I was wondering when someone would reply to that comment. I’ve been surprised to see how many times on the Bogleheads forum the debt of a potential life partner comes up. Here’s one example:
https://www.bogleheads.org/forum/viewtopic.php?f=2&t=162334&newpost=2438903
(And this potential spouse only owed $60K!)
jz,
My fiancee and I both laughed out loud reading your post.
Babies: I hope included in our 100K after tax money we have budgeted to live off of.
Part-time and time-off: When a baby comes, my wife plans to take her maternity leave time. She will be on strict compensation by the time we have our first so this will decrease our income. It will first come off of the 100K we have budgeted to live off of, then I think we can funnel some off our 80K for retirement. Either way she plans to return to work, which is only 4 days a week for full time.
Infertility treatments: I hope your not a soothsayer and warning us of some unforeseen issue, but we will deal with that if it arises. (Is any one putting money aside for this?)
I would marry my fiancee even if our situation was reversed. She may be 31, but she is still beautiful, fit, and I believe still with all functioning parts.
Keep in mind that the above budget plan is for our first year out. We will try to stick with a similar plan once we move to compensation, but I expect, or at least hope, that my income will definitely increase based on what the Ophthalmologist ahead of me has been able to do. This bump in salary should be able to offset any decreases my wife may see secondary to time off for maternity, etc.
I think your plan is fine. I’d pay off the loans faster, rather than fund retirement as the interest rates are quite high. An even better idea is to turn your paycheck over to your wife and just let her deal with it, since she’s proven that she knows what she’s doing!!
I agree. Allocating $100,000 for living expenses, which do not include the housing costs since they are factored in elsewhere, is a HUGE number. They could live off far less without any hurt and out additional money to the loans and get them paid off a year or two faster.
DTSC,
Amen! (From my fiancee.)
Fiancé is a man. Fiancée is a woman.
Sounds like the couple have a good plan and hopefully the discipline to carry it out. The beauty of doctors is that they have high incomes and can pay off almost any mountain of debt in a short time with a little effort. The other end of the spectrum is the private school masters in special education, or PHD in sociology, or bottom of the class law grad who can’t pass the bar, all with $400k in debt and nothing but a $35,000/year salary.
Craig,
I embarrassed to say I never actually knew fiancée was a word until you commented. I used it in all my comments, thanks to you.
PS. I did leave off the accent aigu as I didn’t take the time to learn how to use it until replying to your post.
Did anyone else notice the story today about the stock market? We officially hit the third longest bull run in the history of the market….and we are closing in on the the second longest bull run. I (my money) have loved this “running of the bulls”, but am always curious what happens to people who read and write on this site when the bears awaken from hibernation. It will make no difference to me since I still have 20 years of saving for retirement, but since today was a “landmark” day thought I would comment on it.
Are you suggesting many people won’t stay the course they planned? You’re probably right. I was surprised how many Bogleheads threw in the towel in 2008. Better to underestimate your risk tolerance than overestimate it.
Suggesting this and that more and more Whole life salesman will be bashing your site (of course incorrectly)….
As I frequently tell them, they’re not my audience and I really don’t care what they think of me and what I write.
I ignore market corrections. My otherwise spendthrift Dad (not so dumb- not living off SS only yet at 78, but we fear his 60 yo wife will be before she dies) inoculated me by advising me at each of those market correction events since 1980 how much his wealth (his TIAA-CREF pension- he’s, of course, a mathematics professor) had contracted. IIRC he lost 35% in (one of?) the 1990s contractions. So all I do after I hear about a big crash (in one day as they often occur, or over a few months) is update our figures from the websites and comment to my husband “We lost $300K since I last updated the numbers” or whatever. I noticed some news a year plus out lamenting how the markets still sucked so bad since the 2008 crash so I redid our figures and was able to tell him that we were way up already from prior to the crash, and certainly recovered from it. Sad for any who got spooked and sold low.
I do not mean to ruin the party but what bothers me is that this bull market has been fueled by the longest run of the lowest interest rates in the entire recent economic history. So it is not impressive after all. And this is what the media should be focusing on.
Whether impressive or not, far better to participate in it than to miss it like many have by selling out in 2008-2009.
100% agree WCI. We all participate and benefit from it. But it does not hurt when people acknowledge that the expansionary monetary policy is pushing the market upwards.
Deep risk and shallow risk, sir. The protracted bull presents risk that most investors here should ignore.
Further, what’s to suggest the bull doesn’t persist for another three years before reversion, at which point, if you have not sold, you may still be higher than at the present?
Exactly.
And really it doesnt matter at all why its happened, thats a political bent which is totally irrelevant. Your money either appreciated or it didnt. You dont get less dollars based on a value judgement of how they came about. The only useful part to that would be culling your wins based on your turning point views…which is historically unlikely to succeed.
Hopefully investors here have or had REBALANCED their portfolios yearly or if it changed dramatically
Great story. Hits home with me as a two physician household with a lot of debt from the start.
My only disagreement would be with the money side aside for a house. Why? Take that money and either invest it or pay off more loans. I am constantly fascinated with everyone’s obsession with home ownership, especially doctors right out of residency who are hundreds of thousands in debt. There’s no rush guys.
The main reason I have been able to “right the ship” is living like a resident from the day a graduated residency 5 years ago (Thanks WCI!!!). This includes renting a modest place right for my family of 4. When will I buy a house? When my student debts are gone and I can put 20% down on a 15 yr fixed mortgage, thats when.
i live in Canada and many of my ophthal friends bill over 1 million straight out of residency. After overhead but before taxes, they may take home 800-900k. Usually we are incorporated (tax shelter) so we pay about 13% in taxes and only take out what we need and invest the rest. Even as an FP, I make about 350k after overhead but before taxes in my corporation, and I have a 130k salary as clinical faculty at the local medical school. Interesting how incomes are different. I did med school in the U.S. so always interesting to compare what I would be making had I stayed.
That is interesting to hear. The general belief in the States is that Canadian doctors are subject to crushing regulation by the government’s Single-Payer health system. I always perceived that Canadian doctors made less than US ones.
This is obviously filtered from propaganda mostly from the right-wing media to suggest that Single-Payer would be bad for doctors. In many ways the US system is terrible for everyone but mostly low and middle income patients.
Every time I talk to a Canadian physician I get jealous. Getting paid the same day you submit a claim, no “self-pay” patients, far less hassle, and oftentimes, just as much or even more income.
Out of curiosity, what is your marginal/effective tax rate on that salary? What province are you in?
I only pay about 14% on the money made in my corporation. I also deduct a lot of business expenses (car, gas, conference fees, entertainment etc). In my personal earnings we pay about 30%. We try to keep our money in our corporation to defer taxes and keep it invested. We also have accounts similar to 401k and Roth accounts (tax free savings which you can use to save money and anything that goes in is tax free. Contribution max is 10k a year). You can withdraw money from tax free savings account anytime but you can only repay it back the next year. We use this as another income stream (we get about 150 a month in dividends from this account tax free). I work in BC.
The downside of leaving money in the corporation is I can’t easily withdraw it without triggering a huge tax bill. I could borrow from my corporation for big purchases but would have to pay it back.
Cost of living is a bit more expensive here but I think it works out in the end. We do pay health care premiums (130 a month for our family) but other provinces don’t have this. We pay more taxes but we have lower malpractice. We may end up working in the U.S. again one day just because my wife’s family is there but I think financially it’s easier. The system has its problems but so does the U.S.
Oh the other thing is most of us in Canada are in private practice. That means no benefits no pension no paid vacation. We pay for our own overhead. It’s just like running a business which fewer physicians in the U.S. do now.
I appreciate this post greatly! The docs, students, and spouses that check this have to as well. To Dr. Dahl, this site is awesome absolutely love it!
My wife is in her 3rd year of medical school soon to make the decision on practice. She is debating between surgery, ER, and pediatrics but leaning probably towards pediatrics. She loves surgery though so its been tough to decide! She is looking for a lifestyle that will allow her to be close to our children. I am a pharmacist working full-time but expect to go to part-time once she (we) start(s) residency. I am 3 years out of pharmacy school with 90k debt remaining from both undergrad and graduate school. We like the author of this post vary on how funds were available to pay for school. My wife had her bachelor’s degree taken care by scholarship and parents, but we are taking the full ticket of medical school which is approaching 200k fast.
In the past 3 years, we have been able to put 20k in Roth IRA’s and 14k yearly in my 401k. We set up a HSA account for my wife this year with hopes to mazimize. My son and I are on my work’s plan which there is $ benefit to use but we both are healthy. I would rather have an HSA but my work does not offer. As for the debt, I have my loans set to extended which allows me to hit the 6.55% interest loans the hardest averaging around 1100 per month. I consider SOFI and DRB in the past but feel like I should stay with federal for protection in case I get in an accident. On a side make around 118k per year. I would love to hear suggestions on what we could do better.
Thanks again!
Why not buy insurance against the accident? Probably far cheaper than the interest.
I need to explain better. I am worried if I die my wife would inherit that debt so by keeping the loans federal if I die then that won’t be an issue for her. I actually do have a life term policy so maybe I should take the risk anyways.
Thanks
Another comment- I like the flexibility in the federal loan payments too where with DRB I would have a set payment. I have 10k worth of loans that are 2% which I am sitting on which were private. Majority is around 6.55% amount = 60k roughly. The others are around 5%.
I’m pretty sure student loans would not transfer to your wife since you are the one that signed for them, however if that is your main concern, increase your term by about 200k for a 10 year period and that will take care of your debt after taxes and be much cheaper then paying the interest on 6.5%
If there is even anything other than a serious love for a certain specialty (which imo is hard without living it), she should consider doing the shortest one with the most money likely to be made. In all accounts it would just be better as you make more, have more time, and your loans cant compound long before you get at them. I really wish I did a shorter residency, my loans doubled over 7 years of res/fellowship. Surgery is terrible for family life, at least the residency, but real life isnt much better, though people do it all the time.
SouthDakota,
Glad you liked the article!
2 things:
1) Peds or Surgery…so very different. That being her two choices alone tells me that she should do peds. If she has any doubts tell her to do an elective in surgery and mirror exactly the way the 1st year surgery resident lives for the entire month (come when they come, leave when they leave, etc.) Ultimately the best choice would be Ophthalmology…I kid, I kid.
2) You can read the FAQ portion of DRB and they clearly state that in the case of death your loans will be forgiven.