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  • Saving 20% gross

    I read an article by wci yesterday on Doximity and am still confused about this.

    When saving 20% of your gross in order to not be a poor doctor down the road does saving for a house downpayment count? Would you be able to dip into this money for an investment like an office building or a different real estate investment or do you need to save for all of these things from a separate percentage of your income?

    Also if my wife doesn’t work do you need to up that percentage or is that still the advisable number?


    Thanks in advance!

  • #2
    It's meant to be a guideline for 20% just for retirement. Everything else is extra. Good luck.

    Comment


    • #3
      I personally wouldnt count it, its going to your living expenses, not your retirement savings. Yes you'll have equity and it would be amazing and beneficial if it grew nicely, but thats not the primary purpose.

      Wife working or not doesnt matter as much. Your gross is your gross and expense are expenses (now and future).

      Comment


      • #4
        At least 20% of your income should be invested in savings that buys you freedom down the road.

        Step 1 is figuring out how much you currently invest.

        Step 2 is coming up with a written investor policy
        statement on how you will get to that number and how you’ll invest it

        Rome wasn’t built in a day. Take gradual steps to increase your savings rate. Make it a goal to save more each year than the year before. As you pay off debt that becomes an easy goal to achieve.

        It helps if you can take WCI’s advice to live like a resident: https://www.whitecoatinvestor.com/live-like-a-resident/

        Or Physician on Fire’s advice to live on half: https://www.physicianonfire.com/half/

        Comment


        • #5
          I think the idea is to save 20 percent of gross household income to retirement ( generally index funds). Anything going to your emergency fund, future car/ house/big expense/whatever should be saved on top of the 20 percent. So for example, last year our gross savings rate was about 32 percent. In the first few years post residency you can substitute aggressive student loan paydown for the retirement savings. If you are wanting to have real estate investments in your retirement portfolio and know what you're doing, money saved to invest in real estate could count as part of that 20 percent, but primary residence generally should not count towards that as it's really not a retirement vehicle- it's a lifestyle choice and place to live.

          Comment


          • #6


            When saving 20% of your gross in order to not be a poor doctor down the road does saving for a house downpayment count? Would you be able to dip into this money for an investment like an office building or a different real estate investment or do you need to save for all of these things from a separate percentage of your income?
            Click to expand...


            20% of gross should be minimal total retirement savings.

            First dibs that should go to tax advantaged savings like 401K with matching, backdoor Roth, HSA etc. Then the rest goes into index funds, maybe bonds, maybe real estate.

            So in a 500K income 100K should be savings. If you have money left after daily expenses, taxes, vacations, emergency fund etc you can invest that too so as to achieve FI sooner.

            Comment


            • #7




              I think the idea is to save 20 percent of gross household income to retirement ( generally index funds). Anything going to your emergency fund, future car/ house/big expense/whatever should be saved on top of the 20 percent. So for example, last year our gross savings rate was about 32 percent. In the first few years post residency you can substitute aggressive student loan paydown for the retirement savings. If you are wanting to have real estate investments in your retirement portfolio and know what you’re doing, money saved to invest in real estate could count as part of that 20 percent, but primary residence generally should not count towards that as it’s really not a retirement vehicle- it’s a lifestyle choice and place to live.
              Click to expand...


              When factoring in aggressive loan payments to pay off loans in 2-3 years after residency the amount left to live on seemed very low. Like let's say I made 300k, about 200k after taxes worst case scenario if I stay in the current state I live in, 60k in savings, then 100k to pay loans aggressively does not leave much else to save for a down payment on a house or anything. I guess the move would be to put less towards loans?

               

              This is all theoretical I am in still in school and was just running some numbers in my head.

               

              Thanks to all for the responses so far. Very helpful.

              Comment


              • #8




                At least 20% of your income should be invested in savings that buys you freedom down the road.

                Step 1 is figuring out how much you currently invest.

                Step 2 is coming up with a written investor policy
                statement on how you will get to that number and how you’ll invest it

                Rome wasn’t built in a day. Take gradual steps to increase your savings rate. Make it a goal to save more each year than the year before. As you pay off debt that becomes an easy goal to achieve.

                It helps if you can take WCI’s advice to live like a resident: https://www.whitecoatinvestor.com/live-like-a-resident/

                Or Physician on Fire’s advice to live on half: https://www.physicianonfire.com/half/
                Click to expand...


                 

                I feel like for me mentally, It would be better to start with a higher savings rate and taper down if I feel like I have a nice enough portfolio. I know myself and I feel like trying to scale back is a lot more difficult than just never experiencing the higher disposable income.

                Comment


                • #9
                  Some further thoughts:

                  1. 20% just for retirement is the clearly benchmark, as far as I know it's a WCI/Bogleheads # that is a function of normal career vs. Trinity study data. I actually think it's a bit conservative but I'm fine with that. At most MD income levels this seems like it's more aimed towards wealth rather than just comfort. Again, not a bad thing. If you make $300k and decide to save $40k/year until retirement w/ a 30 year career at 6% that's $3.3M. Sure that'll be worth less in 2050 than it is today and you might not get 6% but that's to enjoy retirement w/ presumably a paid for house and no kids on the payroll. I personally like 20% b/c like most WCI forum folk I am shooting for wealth not just comfort.

                  2. I don't think it's a great idea to "goose" your number with other things (house payments, student loan payments etc). Call that something else but I wouldn't call it a savings rate personally. I know this is a subject of controversy and I truly see both sides, I just find it a little weird when people say things like "I have a 50% savings rate b/c I save 20% and put 30% towards my loans."

                  3. If you're going for 20% I think you do need to consider everything even a lower-earning spouse. That said I do tend to count employer match in the numerator but not the denominator so I could be appropriately accused of inconsistency on this point.

                  4. A big part of the value to me of committing to a 20% savings rate is that it causes you to get real very quickly on your lifestyle. If you can't save 20% (esp counting match as I do) from day #1 you can't afford your lifestyle. I'm always encouraging my residents to set their savings as automatic (401k, profit sharing, etc) so they never know what 100% paycheck looks like. When you start playing games with your retirement figure (e.g. CA real estate) my guess is that you're just going to work longer.

                  Comment


                  • #10
                    Great question from the OP. Thanks for the insight!

                    Comment


                    • #11
                      It's a ballpark rule of thumb.

                      I get lots of questions "does it include this or that" and if this or that only applies for a year or two, then who cares? If you only save 10% for retirement this year because you were saving up a down payment or paying off student loans, no big deal. But if you only save 10% for retirement every year for decades, there are going to be consequences of those decisions.

                      The reason I tell people 20% is so they realize that 3% isn't going to cut it. 18% might be fine. But you need to get into that ballpark for the long term.
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011

                      Comment


                      • #12







                        I think the idea is to save 20 percent of gross household income to retirement ( generally index funds). Anything going to your emergency fund, future car/ house/big expense/whatever should be saved on top of the 20 percent. So for example, last year our gross savings rate was about 32 percent. In the first few years post residency you can substitute aggressive student loan paydown for the retirement savings. If you are wanting to have real estate investments in your retirement portfolio and know what you’re doing, money saved to invest in real estate could count as part of that 20 percent, but primary residence generally should not count towards that as it’s really not a retirement vehicle- it’s a lifestyle choice and place to live.
                        Click to expand…


                        When factoring in aggressive loan payments to pay off loans in 2-3 years after residency the amount left to live on seemed very low. Like let’s say I made 300k, about 200k after taxes worst case scenario if I stay in the current state I live in, 60k in savings, then 100k to pay loans aggressively does not leave much else to save for a down payment on a house or anything. I guess the move would be to put less towards loans?

                         

                        This is all theoretical I am in still in school and was just running some numbers in my head.

                         

                        Thanks to all for the responses so far. Very helpful.
                        Click to expand...


                        So if you are paying loans off in 2-3 years, you could hold off on any retirement savings and put everything in to student loans. So you would live on 60k and put the rest to student loans. Then when those are paid off you start saving for a house, putting 20 percent into retirement, etc. Some would split the difference- live on 60k, put 10 percent to retirement, the rest to student loans. If you are making 300k out of residency you should be able to give yourself a little bump in lifestyle and still put money to retirement and loans pretty easily. The trick is to not immediately increase your living expenses to 100k right out of residency.

                        Comment


                        • #13







                          I think the idea is to save 20 percent of gross household income to retirement ( generally index funds). Anything going to your emergency fund, future car/ house/big expense/whatever should be saved on top of the 20 percent. So for example, last year our gross savings rate was about 32 percent. In the first few years post residency you can substitute aggressive student loan paydown for the retirement savings. If you are wanting to have real estate investments in your retirement portfolio and know what you’re doing, money saved to invest in real estate could count as part of that 20 percent, but primary residence generally should not count towards that as it’s really not a retirement vehicle- it’s a lifestyle choice and place to live.
                          Click to expand…


                          When factoring in aggressive loan payments to pay off loans in 2-3 years after residency the amount left to live on seemed very low. Like let’s say I made 300k, about 200k after taxes worst case scenario if I stay in the current state I live in, 60k in savings, then 100k to pay loans aggressively does not leave much else to save for a down payment on a house or anything. I guess the move would be to put less towards loans?

                           

                          This is all theoretical I am in still in school and was just running some numbers in my head.

                           

                          Thanks to all for the responses so far. Very helpful.
                          Click to expand...


                          So...now do you see where "live like a resident" comes from? You will be living on about $40k after tax for YEARS of residency. On that income you will have a roof over your head, enough to eat, bills paid. You will be absolutely FINE as a resident on $40k after tax and savings. And here's a little secret. Half the households in the US live on less. So, after training, you squeak out like 2 more years of living like a normal American, and get your debt paid down...and then you are home free to live the house-saving, jet-setting life of a Dawkter! A little delayed gratification goes a LONG way.

                          Comment


                          • #14
                            An investment in an office building or other real estate certainly counts as saving. It may or may not be a good idea but it is saving. Mostly assume you have maxed out your tax favored space. If your tax favored space is huge, hundreds of thousands per year, then maybe that good investment outside would be worth considering.

                            Buying a house to live in, as opposed to an investment property, does not count in this sense.

                            Comment


                            • #15
                              I think the 20% rule is a great way for someone just starting to pay attention to their finances to quickly figure out if they're saving anywhere near enough.  If I had calculated my savings rate my first couple of years of working, I would have quickly realized I wasn't even close to 20%.  So, I think it's a useful figure to spread widely because a lot of people need to hear it early in their careers, ideally in residency or earlier so they can start their career with realistic spending and saving habits.

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