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Low Savings rate with high WAR

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  • Avatar WiscDoc 
    Participant
    Status: Physician
    Posts: 11
    Joined: 07/04/2019

    Hi all,

    I am an orthopedic surgeon 4 years into private practice.  Salary keeps going up, currently I am maxing out my profit sharing 401k, funding an HSA and backdoor Roth IRA’s for myself and my wife.  After the retirement accounts are filled I have been throwing the rest at debt.  My savings rate last year was a paltry 7.8%, but my WAR was 41%. Last year we paid down 240k of principle.  A vast majority of my debt is the buy in to my practice (1.1 mil paid down to 790k on a year loan at 5%).  Student loans at 136k down from a start of ~300k.  Our goal is to be debt free except our mortgage by December 2023.  Should I slow down on the debt and put more into taxable accounts.  Current net worth is 620k, with 225k spread across our retirement accounts.

    Should I be concerned about such a low savings rate since we are aggressively paying down our debt?  Stay the course or balance the savings rate and WAR out a bit?

    WiscDoc

    #228414 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1004
    Joined: 01/11/2017

    WAR?

    #228415 Reply
    Avatar WiscDoc 
    Participant
    Status: Physician
    Posts: 11
    Joined: 07/04/2019
    #228421 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4405
    Joined: 01/08/2016
    Splash Refinancing Bonus

    20% to retirement.
    Rest to loans,. Then taxable.
    Ignore the war par fubar stuff.

    #228428 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2806
    Joined: 01/03/2017

    I thought you were going to be a baseball player with a high wins above replacement stat.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    Avatar WiscDoc 
    Participant
    Status: Physician
    Posts: 11
    Joined: 07/04/2019

    That would also help my retirement accounts.

     

    WiscDoc

    #228444 Reply
    Liked by Zaphod
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1004
    Joined: 01/11/2017

    Ultimately it won’t matter as long as your income is so high and spending controlled. So what you prefer.

    I like having liquidity so paying off mortgage not a priority for me. Since 2003 and finishing residency, it has paid off with excellent investment returns, now I could pay off mortgage several times over with taxable money. I may start selling bonds to pay down mortgage but, meh.

    #228453 Reply
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 207
    Joined: 12/28/2016

    Pay student loans (which may not be deductible for you) before practice loan (interest is deductible). In general at 5% interest, it may not be a bad idea retiring debt. Depending on your income, your mortgage interest deduction may be worth less if your itemized deductions get phased out.

    #228491 Reply
    Avatar WYDOC 
    Participant
    Status: Physician
    Posts: 3
    Joined: 01/09/2017

    Good point

    #228493 Reply
    Avatar WiscDoc 
    Participant
    Status: Physician
    Posts: 11
    Joined: 07/04/2019

    Thanks HumbleInvestor.  Should I pay student loans first even if they are 3.2% fixed vs 5% on the practice loan?  Would feel great to just get the student loans gone.

     

     

    WiscDoc

    #228496 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 91
    Joined: 05/25/2019

    Wealth accumulation rate.  https://www.whitecoatinvestor.com/how-much-should-i-be-saving-the-30-rule/

     

    Click to expand…

    I am new here.  However, after reading the article, which said:

    Wealth Accumulation Rate (WAR) =
    % Gross Income paying down debt + % Gross Income savings rate

    Well, capital gains from investments such as stocks or real estates are not included in this formula.

    That is not wealth accumulation rate to me!

    My wealth accumulation rate is calculated by = this year net worth – last year net worth.

    Net worth is calculated from assets-liabilities.

    If any of you have not been calculating your net worth yearly, I am encouraging you to do so.  It represents your overall financial health.

     

    Back to the question, you are in great position, congratulations!

    5% interests is quite high, I would pay off that debt.

    If the interest rate is below 4% (student loan), I would put extra money toward taxable accounts.

     

     

    #228502 Reply
    CM CM 
    Participant
    Status: Physician
    Posts: 1168
    Joined: 01/14/2017

    Fund tax-sheltered accounts, then pay off debt (assuming you always keep enough liquidity to handle miscellaneous needs and adverse surprises).

    Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried bags for Cyd Charisse (gracious). Hosted epic company parties after Friday night rehearsals.

    #228513 Reply
    Liked by Zaphod
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1807
    Joined: 02/11/2019

    When in doubt you can always do a little of both

    “Never let your sense of morals prevent you from doing what is right.”

    #228515 Reply
    Avatar EndoRobert 
    Participant
    Posts: 69
    Joined: 01/12/2019

    Last year we paid down 240k of principle.

    Click to expand…

    You keep maxing out your profit-sharing 401k, HSA, backdoor rIRAs, AND throwing another quarter of a million dollars + at building wealth (debt, taxable, etc) over any extended time frame and you’re gonna win the game, regardless of order IMO. (I’m admittedly too debt averse but I wouldn’t pass up guaranteed 5%.  Another caveat is that your workload needs to be sustainable.)

    #228518 Reply
    Liked by CM, Lordosis, Zaphod, Tim
    Avatar EM->CCM MD 
    Participant
    Status: Physician
    Posts: 76
    Joined: 07/23/2017

    Don’t worry about it, you have the all-star break to recover and plan for the rest of the year.

    Whoops, wrong WAR.

    #228526 Reply

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