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Oblivious and awakened – How can I mitigate the damages?

Home Personal Finance and Budgeting Oblivious and awakened – How can I mitigate the damages?

  • Avatar mero1984
    Participant
    Status: Physician
    Posts: 26
    Joined: 06/03/2019

    I am 35, and finishing my last year of fellowship. I am a foreigner, and have not been familiar at all with the concept of retirement planning in the US until very recently (was too oblivious studying medicine, writing papers, and publishing).

    I secured an academic job in a very good institution. I opted to stay in academia although I will suffer a huge salary cut (will be paid 265, while other friends in private earn at least 500k, conservatively!).

    By pure chance, I stumbled upon the white coat investor and was very upset to realize that I never put a dime into retirement (except savings) or benefited from the Roth allowance etc. I have not even benefited from the 453b plan i had in residency and fellowship.

    I was like a horse, with blinkers on the side, only focusing on studying and science. I do not regret it, but had i been more careful, i would have done both.

    The only good thing is that I saved money along my 7 years in the US. I have paid my car off (which I own and maintain aggressively), and saved a total of 50k in cash ( a bank savings account). I have no debt remaining or credit card debt and no mortgage. I am single with no kids.

    I have been bleeding 3% inflation every year, without any investments.

    Today, I opened a traditional IRA account and Roth IRA account to contribute a backdoor Roth (haven’t done it yet) with vanguard (although half this year is a fellow salary, the next half will be an attending’s so I won’t qualify for a Roth deposit).

    My question is: Aside from using my new employer’s plan (453b), how should I allocate my current savings? I understand that I cannot put any money in any traditional IRA since I need to have it 0 to accommodate the backdoor Roth, so what are my other options? a regular brokerage account?

    I feel very stupid, but i have not been thinking about retirement at all until I read the WCI. Stupid of me I know. I was able to secure a disability plan which costs me 235 dollars per month (a very good plan by one of the brokers recommended by WCI). So at least I have this going for me.

    Appreciate your candor advice and criticism.

    #218843 Reply
    CordMcNally CordMcNally
    Participant
    Status: Physician
    Posts: 3074
    Joined: 01/03/2017
    I feel very stupid, but i have not been thinking about retirement at all until I read the WCI. Stupid of me I know.

    Click to expand…

    No need to feel stupid. You’ve got plenty of time and you’ve got no debt. You’re ahead of a lot of people already.

    Today, I opened a traditional IRA account and Roth IRA account to contribute a backdoor Roth (haven’t done it yet) with vanguard (although half this year is a fellow salary, the next half will be an attending’s so I won’t qualify for a Roth deposit). My question is: Aside from using my new employer’s plan (453b), how should I allocate my current savings? I understand that I cannot put any money in any traditional IRA since I need to have it 0 to accommodate the backdoor Roth, so what are my other options? a regular brokerage account?

    Click to expand…

    If you didn’t have a tIRA before and opened one today, wouldn’t it be zero? I would go ahead and do a prophylactic backdoor Roth (contribute to a tIRA and then convert to a Roth) so that way you don’t have to mess with partially being able to contribute directly to Roth or anything like that.

     

    As far as future contributions, what accounts do you have available through your employer?

    I secured an academic job in a very good institution. I opted to stay in academia although I will suffer a huge salary cut (will be paid 265, while other friends in private earn at least 500k, conservatively!).

    Click to expand…

    Make sure this is what you want to do. That salary difference would make things much easier (from a financial standpoint) for any and all future decisions.

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

    #218851 Reply
    Avatar G
    Participant
    Status: Physician, Small Business Owner
    Posts: 1905
    Joined: 01/08/2016

    Couple things:
    1. Cash was best performing asset class of 2018, I believe, so dont beat yourself up.
    2. If you have no debt, you are literally orders of magnitude ahead of most new attendings.
    3. Cant change past, so no sense in dwelling on it.

    Figure out what retirement account/options you have available with your attending job and post back here. Also plan on reading some intro stuff, like WCI’s books. This will answer your question. But briefly, probably want to have that Roth funded, an emergency fund, and a taxable account at vanguard with a majority of that being in vti or vtsax.

    Good luck and welcome

    #218853 Reply
    Avatar Brains428
    Participant
    Status: Physician
    Posts: 482
    Joined: 11/09/2017

    Since you’re academic, you may want to clarify what retirement options you have at the new position. You probably have a 403b, but you may have access to a 457b, as well. A lot of academic institutions also have 401a contributions (which the employer would put money towards).

    Don’t worry about figuring this out late. You don’t have any debt, so even though you just started, you’re still way ahead of me.

    Welcome1

    #218857 Reply
    Avatar SValleyMD
    Participant
    Status: Physician
    Posts: 475
    Joined: 05/12/2016

    Assumeing no student loans and with no cc or mortgage debt I bet you’re sitting better than 90% of your colleagues. Couple that with no kids and you’re probably in the top 5%.. Glass half full. Congrats!

    #218859 Reply
    Liked by hatton1
    ENT Doc ENT Doc
    Participant
    Status: Physician
    Posts: 3571
    Joined: 01/14/2017
    I secured an academic job in a very good institution. I opted to stay in academia although I will suffer a huge salary cut (will be paid 265, while other friends in private earn at least 500k, conservatively!).

    Click to expand…

    Wow, are you suuuuure you want to do this?  Of all things mentioned this appears to be the greatest financial “blunder”.

    I have been bleeding 3% inflation every year, without any investments.

    Click to expand…

    Inflation has been under 2% annually for nearly a decade.  So don’t get too upset.

    Aside from using my new employer’s plan (453b)

    Click to expand…

    What is a 453b plan?

    I was able to secure a disability plan which costs me 235 dollars per month (a very good plan by one of the brokers recommended by WCI). So at least I have this going for me.

    Click to expand…

    Good.

    Just keep reading, start putting money into your employer plan, backdoor Roth, live frugally, and save as much as you can.  Next step for you is to determine your asset allocation.  You’re not as bad off as you think.  Maybe you missed out on some things.  But at least you didn’t buy a condo in residency and whole life insurance like I did.

     

    #218861 Reply
    Avatar GoBlueMD
    Participant
    Status: Physician
    Posts: 82
    Joined: 05/27/2017

    Quit academic job. Take private job. Catastrophic financial mistake alleviated 😉.

    #218862 Reply
    Avatar mero1984
    Participant
    Status: Physician
    Posts: 26
    Joined: 06/03/2019

    Colleagues, i am beyond grateful for not tearing me apart. Thanks so much for all your cordial comments and genuine interest in help.

    I do realize i may be making a huge financial blunder. I turned away a 650k job to be in that specific institution, which happens to be located in one of the most expensive cities in the US.

    I need to get a few papers out and hone my clinical skills for 2-3 years. Then after that, I would have sastisfied my academic goal. I have a stopping point. It all depends on how things go.

    The plan has a 403b which the employer matches 100% of the first 2%. After one year, they said that there is something called cash balance program for retiring; not sure what that means, but only eligible for it after 1 year. Appreciate if you have any info regarding this plan.

    my plan is:

    1- backdoor roth with Vanguard

    2- 403b with fidelity (thats their company i think- still not sure will wait till i start to know more).

    3- Open taxable brokerage account with schwab (a friend was telling me schwab is way better than vanguard since their customer service is better and they have banking options, and the fact I can get vanguard index funds through them as well) – do you think this point is wise? or should i keep everything with vanguard.

     

     

     

     

     

     

    #218863 Reply
    Avatar hightower
    Participant
    Status: Physician
    Posts: 1501
    Joined: 12/07/2016

    I see no major financial mistake on your part. You managed to stay debt free and set a significant amount of cash aside while training for your current job.  265 a year is a solid salary and if you like what you do, you’re better off than you think.  And you’re already well versed in personal finance (you already understand the concept of a backdoor Roth and avoiding the pro rata rule!  That’s impressive!)

    Most docs these days are starting their careers with 200k+ of student loans, car loans, credit card debt, and mortgages.  So, you’re doing much better than most of your peers already.

    Now that you’re here, you can start saving for retirement easily with no debt to worry about.  I agree with the Roth plan and any employer sponsored tax advantaged accounts you have access to (a 401k?).  Max these out yearly.  If you can go on a high deductible health care plan, open an HSA and max that each year too.  Otherwise, take the extra money you have each year and contribute to a taxable brokerage account through Vanguard or similar.  Pick a simple portfolio (look up the 3 Fund portfolio on bogleheads website) with an appropriate mix of stocks and bonds for your age (80/20 is probably good for you) and just let things ride for the next 30 years.  You’ll be golden!  It’s actually kind of boring once you get it set up.

    Best of luck to you!

    #218865 Reply
    Avatar hightower
    Participant
    Status: Physician
    Posts: 1501
    Joined: 12/07/2016

    Colleagues, i am beyond grateful for not tearing me apart. Thanks so much for all your cordial comments and genuine interest in help.

    I do realize i may be making a huge financial blunder. I turned away a 650k job to be in that specific institution, which happens to be located in one of the most expensive cities in the US.

    I need to get a few papers out and hone my clinical skills for 2-3 years. Then after that, I would have sastisfied my academic goal. I have a stopping point. It all depends on how things go.

     

    Click to expand…

    I want to reiterate….I see no “financial blunder” here.  You sound like you have an excellent job and you are actively involved in research and I’m assuming you love what you do.  You can’t put a price tag on that.  Don’t be in a rush to leave academic medicine simply because you’re making less than your peers in similar fields.  A lot of your colleagues will be burnt out in 5-10 years after being ground down to a pulp in the community hospital world.

    In my experience, it’s far, far better to choose a position that makes you happy than it is to chase a big paycheck.  To each his/her own, but I would stick with what makes you happy.  Just out of curiosity, is the position you have now lower stress and/or better hours?  If so, that’s another big plus.

    #218866 Reply
    Liked by hatton1, mero1984
    Lordosis Lordosis
    Participant
    Status: Physician
    Posts: 2225
    Joined: 02/11/2019

    If you want to live on 300K a year then yes you blundered.  If you want to live on 100K a year you are more then fine.  If you like the job and it can support your lifestyle and get you to FI in a reasonable length career then stick with it.  Money is a tool and use it to make you happy.  Other jobs might pay more but if you burn out in 4-5 years then you are no better off.

    Best of luck and welcome to the forum!

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

    #218882 Reply
    Liked by SPlum, mero1984
    Avatar jhwkr542
    Participant
    Status: Physician
    Posts: 1339
    Joined: 02/15/2016

    my plan is:

    1- backdoor roth with Vanguard

    2- 403b with fidelity (thats their company i think- still not sure will wait till i start to know more).

    3- Open taxable brokerage account with schwab (a friend was telling me schwab is way better than vanguard since their customer service is better and they have banking options, and the fact I can get vanguard index funds through them as well) – do you think this point is wise? or should i keep everything with vanguard.

    Click to expand…

    Schwab is fine with low fees. No issues there. I think your friend is overselling Schwab (not way better). If you want to simplify your life, you could even open IRAs there (you can open multiple).

    The one last option before a taxable would be a HSA. Do you have access? If not, then go for taxable for retirement savings. Do you have plans for a house? Then, if you’re saving up for a down payment within the next year or two, then this probably shouldn’t be invested, not in stocks at least.

    #218886 Reply
    Liked by mero1984
    Avatar Kamban
    Participant
    Status: Physician
    Posts: 2584
    Joined: 08/01/2016
    I secured an academic job in a very good institution. I opted to stay in academia although I will suffer a huge salary cut (will be paid 265, while other friends in private earn at least 500k, conservatively!).

    Click to expand…

    Make sure you love this job, truly. Otherwise in 7 years you might come back here and make a similar post about the blunder you made.

    Always have a plan B. What if the academics does not work out in 2-3 years time. Can you transition into PP or semi-academic job. Can you use the academics as a launch pad for pharma job that is better paid.

    $265K is good salary in MCOL but not great in HCOL or VHCOL areas if the academic institution is located in those areas.

    #218887 Reply
    Liked by Hank, mero1984
    Avatar Dusn
    Participant
    Status: Physician
    Posts: 199
    Joined: 01/02/2018

    It’s easy to switch from academics (especially if it’s at a highly ranked institution) to private practice. The reverse is not as true. Your friends starting in private practice are likely to make more. But they’re also more likely to get screwed over by the practice owners, never get offered partnership, have the practice get sold to private equity, etc.

    So I wouldn’t stress about it; I’d probably try out academics for awhile and just figure out what job you’d enjoy more.

    #218892 Reply
    Liked by mero1984
    Avatar mero1984
    Participant
    Status: Physician
    Posts: 26
    Joined: 06/03/2019
    In my experience, it’s far, far better to choose a position that makes you happy than it is to chase a big paycheck.  To each his/her own, but I would stick with what makes you happy.  Just out of curiosity, is the position you have now lower stress and/or better hours?  If so, that’s another big plus.

    Click to expand…

    Thanks so much for the morale boost!!

    The new job is actually in a notoriously academically malignant environment, and by no means is it a relaxing, lower stress, or better hours job.
    However, the connections ill be able to make and the opportunity to hone clinical and procedural skills is very substantial.

    I have always considered my job to be a hobby. I love reading in medicine and thoroughly enjoy making a rare diagnosis or helping a patient with their problem. If i am delivering good news after a procedure, I feel some sort of a high when the whole family in the room (as the patient is waking up) light up with the good news!!!

    On the other hand, I am not a very confident person in real life and always have doubts about my skills and a very ugly impostor complex!! this is why I wanted to do more research to know the field well, and to work in a top academic institution so I can learn and grow in my early attending years. I am not sure if my strategy is sound, but this is what I came up with.

    However, I do realize that it would be a huge mistake not to prepare for FIRE (after reading about it) since FIRE will allow me to practice the way i want without any monetary pressures from bosses or from the environment. I want to achieve FIRE to practice the way I want.

     

    #219024 Reply
    Liked by hightower, wa2106

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