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Advice for two new physicians

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  • Advice for two new physicians

    Hey everyone, thank you in advance. I have been reading your comments and thoughts since graduating fellowship last year and this is my first post. Hopefully I have been doing this right thus far.

    Wife and I new physicians (34 and 33 yo) in Florida, 1 year into our first hospital employed job. No children but plan for the near future. We live in a MCOL and just bought our first home after making sure this is the job/area we hope to stay at for next few years. Cars were bought in cash and we do not carry credit card debt ever.

    Annual income: $650K base with potential for bonus. Realistically should be earning around $700K including bonus until wifes salary decreases in 2 years.

    Student loans refinanced after fellowship last year. They are on autopay with goal to both be payed off in 5 years. We pay ~8500K each month into this.
    • $73,600 @ 3.47 fixed
    • $318K @ 3.239 fixed
    • $477K @ 3.125 set for 15 years
    • 401K from employer 31K for me, 19K with 6% match for each of us (VTRLX)
    • Wife has 3K from 403b during residency in another account
    • I have a Roth IRA: 28K which I was funding during residency
    • VTSAX 50K
    • Emergency savings: 60K in HYSA with Ally (if 1% is considered HY)
    • Checking/Savings: 133K
    • I have own occupation DI privately and short term provided by employer. She only has what is offered through employer
    • Malpractice through employer
    • Auto and home
    Eventually would like the option to scale back to part time. Her prob in 5-10 years, myself realistically 20 years. At this time we do not want to be very active in trading and would like to be on a more set it and forget it plan as we are still learning how to invest. We are conservative spenders but do enjoy vacationing and going to nice dinners once in awhile. We are hoping to have children and would like to set them up with an educational fund. We will both likely need new cars in the next 3-4 years.

    1. Are we doing this right at all? I feel we have excess in low yield checking/savings but not sure what to do whether dump all into loans vs more in taxable accounts? Our loan rates are decent, but it seems would be doing better by investing with a higher return in ETF’s.
    2. HSA is not available to us, any value starting a 529 or wait till kids are around?
    3. Any recommendations for her 403b account? We both need to do backdoor Roth for this year should we fund through that?
    4. Insurance wise I know we need to make some moves. We just started looking at term life which seems easy enough at this time. We are considering a 2-3 million for me and 1 million for wife, likely for 20 year coverage. Do we need umbrella coverage? If so what should I be looking for in a policy?
    5. Should we look for diversification outlet via real estate at this time or wait till loans are payed off completely?
    6. Any other advice or criticism is appreciated!

  • #2
    To summarize, you have around 300k in assets and 900k in debt. Your assets are divided between retirement accounts and taxable accounts, with around 243k liquid, and 80% safely in FDIC insured bank accounts.

    In theory, putting more into taxable investments and less into cash could potentially yield higher growth in the long run, but that decision comes with greater risk. My personal feeling is that in these times of covid things are more unstable economically than more normal times, so in your shoes I would lean conservative and continue to hold a significant cash position as you are currently doing.

    As far as the biggest current risks:
    Income: What areas of medicine do you practice? Is there any unemployment risk for either of you? Many hospitals and groups are anticipating more layoffs in the near future. Are you at risk?

    Markets: The market has been propped up by massive government stimulus in the form of extremely low interest rates and massive financial spending. This stimulus money has to dry up at some point. The next few years are very likely to be highly volatile. While no one knows the direction of the market over the next few years, that direction is just as likely to be down as up.

    In your shoes I would not invest in the market in a major way. I would:

    1. Continue to maintain a significant cash position
    2. Spend perhaps 50k from your current cash position,half to early loan pay down, and half to VTSAX, maybe even a monthly amount that is on autopilot.
    3. Balance in all things is good, by paying down loans a bit, that is a guaranteed return. By investing regularly in taxable, you establish good investment habits, and a higher potential investment return. By conserving a good chunk of cash, you are prepared for the worst if one of you gets laid off, you can continue to pay the mortgage.

    Others may be less conservative than me, but that is how I see it.


    • #3
      Pay off the debt!!


      • #4
        Another thought, pay off the smallest loan of $73,600 in full with some of your cash right now. That will eliminate one monthly payment completely. That makes you safe in terms of your monthly cash flow. Then going forward, as long as the income remains stable, put a few thousand each month into your VTSAX taxable account. You will still have a significant cash position for these uncertain times.


        • #5
          1.) You're on a very good path. $133k in your checking/savings is probably excessive. How much is 6 months of expenses? I'd put the rest towards your student loans. I'd focus on paying off your loans as fast as possible.

          2.) I'd wait.

          3.) Can you roll it over to her new 401k? I'd probably just do that to make it easier instead of having an extra account to keep track of. What do you mean with your backdoor Roth by 'funding through that'?

          4.) Get however much you/your future family would need if one of you dies. It wouldn't be a bad idea for your wife to get her own DI policy outside of her employer. Yes to the umbrella insurance. Most umbrella policies are very similar. Make sure your underlying insurance policies (house and auto) carry the appropriate amount of coverage.

          5.) No to the real estate at this time.

          6.) You guys rock.


          • #6
            1. Checking/Saving/Money Market etc: 3-6 months worth of monthly expenditures for emergency fund, depending on how secure you feel in your jobs, plus a cushion for your current monthly expenses. The rest I would personally just throw at your student loans. It's scary to put 100k at once in there, but it's guaranteed return (unless you're going for forgiveness) and it sure is nice to see that loan balance go down significantly.
            2. Can you even start 529 before you have kids? I know you need to assign a beneficiary to each account. I suppose you could put it in your sig other's name then change beneficiary later. I'd tackle other things first.
            3. Look into rolling over 403b to her 401k to simplify things. Start backdoor Roth-ing fresh.
            4. Your total term life sounds reasonable. Could look into splitting your 3 million into 2 and 1 million with different term lengths. As you accumulate wealth you need less insurance and 1 policy will drop off. Umbrella slightly lower on the urgency but you'll need to cover above and beyond currents insurance limits for auto and home accidents.
            5. Personal decision. I'd wait til you get your loans under control.
            6. Macallan 12.


            • #7
              Originally posted by White.Beard.Doc View Post
              To summarize, you have around 300k in assets and 900k in debt. Your assets are divided between retirement accounts and taxable accounts, with around 243k liquid, and 80% safely in FDIC insured bank accounts.
              You are counting the mortgage in the debts without including the value of the house in the assets. Unless they somehow owe 477k on a house worth nothing the statement that they have 300k in assets and 900k in debt is not true and makes them sound like they are in far worse shape than they are.


              • #8
                You have $196k in cash making 1% or less with $300k in loans at 3%+. I'd take $150k of that and crush half of it now.


                • #9
                  Pretty much what others have said... but I'd only take out the smaller student loan. I'd keep cash around to invest given how crazy this year has been. I personally think you're too leveraged to go on a real estate endeavor with no background doing so (I'm assuming, but most people who like active real estate here mention that they do it already, not that they're thinking about doing it).

                  I wouldn't set up a 529 until your loans are paid off.


                  • #10
                    dude you are dominating!!!! and Florida no less!!! I'm jealous- I'm in NJ with a 10% marginal state income tax rate which is killing my wealth

                    1. I would first refinance those student loans rates are even lower and there is no cost to refinancing them and you can do it as frequently as you can tolerate the paperwork. Then I would invest in taxable but very personal decision. I myself when it comes to "pay off debt vs invest" I choose to invest given potential higher return, but keep your plan to have all that student loan debt paid off in 5 years.

                    You didn't mention an asset allocation in your financial plan which is very important. Just make sure you choose stock/bond ratio that fits your risk tolerance.

                    2. Don't do 529 given any extra money just pad your retirement. I would only start until you have a kid. Life can throw you a few curveballs. On a personal note me and my wife needed a fertility specialist was a little dicey if we could have kids luckily worked out- you never know.

                    3. rollover her old 403b into her new work 401k unless the option at her new job are crappy. Not sure what you mean about fund through the backdoor Roth. You should do Backdoor Roth along with maxing out your work 401k's

                    4. Yes get umbrella!!! as a doc you are target for being sued and it's mad cheap. get it through your auto or home insurance

                    5. I would wait until student loans are paid off, but then again I'm not a big real estate fan given I'm busy enough.

                    6. sounds like you are more financially literate than I was, but other advice: Don't buy whole life insurance like I did!


                    • #11
                      I'm debt averse so I'd be working like crazy to kill that debt ASAP. Figure out what you need for a 6 month emergency fund, and then plow everything else into paying off the debt. With a $650k income, if you live like a resident for another few years, you could easily slay that debt to nothing. Its an amazing feeling to have those huge debt monkeys off your back.


                      • #12
                        Pay off the smaller higher interest student loan today. Continue making the $8500/mo payments at the larger 300k loan. If you get a bonus throw it at this loan. You should be able to get rid of this quickly. Continue to max out retirement accounts and BDR. Eventually you can have newer cars and upgrade the house. I would get an umbrella now.


                        • #13
                          normally I'm a big fan of starting up a 529 before you have a kid (with me as the beneficiary), but considering you're in a no-income tax state, that's another reason to not start that. You get no deduction. You have too much in cash. I'd use most of that $133 to crush the $73,600. With the remainder, fund Roth IRAs. Are you guys putting at least 20% to retirement? Make sure you'd doing that. Crush that $318k out in the next 2-3 years, perhaps putting most of the remainder of the ~$59k towards that. Then start a 529.


                          • #14
                            Maybe I am reading it wrong.
                            income $650k
                            retirement savings $38k ([email protected]) per year!That’s 5.8%!
                            Retirement savings needs to be 20%, $130k and then attack the student loans.
                            401k, bdRoth then taxable invested for long term.
                            Then payoff the student loans and your living expenses.
                            Save for retirement, pay yourself first.


                            • #15
                              Originally posted by Tim View Post
                              Maybe I am reading it wrong.
                              income $650k
                              retirement savings $38k ([email protected]) per year!That’s 5.8%!
                              Retirement savings needs to be 20%, $130k and then attack the student loans.
                              401k, bdRoth then taxable invested for long term.
                              Then payoff the student loans and your living expenses.
                              Save for retirement, pay yourself first.
                              Thanks for the advice!

                              We have 19.5K in 401k x 2 = 39K + 50K in VTSAX + 12K in BDR (planning to do that very soon) -> 101K saved from this year. So we still have some room to reach that "goal" of 20%.

                              Do we just keep pouring insto VTSAX? Beginner question but is there ever too much in taxable safe ETF/mutual funds?