[Editor's Note: This is the first post of a two part guest post from frequent blog commenter “Dr. Mom,” a female physician who wishes to maintain her anonymity for now. The title is hers, and since I like Tolkien at least as much as she does, I kept it. We have no financial relationship.]
This guest post is in response to requests from several regular blog readers. WCI was gracious enough to humor them and me. First, I am not a finance professional. I am not selling anything to you, or buying anything from you. I am simply a wife, mother, and female pediatrician who is self-educated in finance through my own family’s personal journey, which I share for your perusal. I share it with you in hopes of motivating you. Our story is not particularly special in any way. We simply decided to take control of our finances. I will remain anonymous as Dr. Mom because who I am is not pertinent. Also, we don’t want patients to Google our name and have my blog post pop up.
All that is gold does not glitter, Not all those who wander are lost… The crownless again shall be king
My husband and kids love the quote from J.R.R. Tolkien, “Not all who wander are lost.” I think it sums up our financial story pretty well. I present today a time line of our story. Some of the numbers in the initial years are vague, but we honestly weren’t paying attention financially. I will post tomorrow some of the take away lessons I have learned. I am curious to see if yours are similar, as well as if the male and female takeaways are different. I am also open to suggestions, as you will see we have made plenty of mistakes along the way.
1990 – Husband graduates medical school age 25. Starts transitional internship.
The Residency Years
1991 – I graduate medical school age 25. Our debt load is in low to mid 100’s with rates between 5 to 9%. He starts ophthalmology residency. I start OB/GYN, which I rapidly realize was a mistake for me. We are making about 60K together. Student loans grow.
1992-1999 – I finish internship in OB/GYN, pass boards, leave program, and work as a General Practitioner in a public health clinic while he finishes. We are still making about 60K. Enter Child One in 1993 and Child Two in 1994. We used an in-home sitter while I worked. Loans are still growing.
I start Pediatrics residency in new city making about 30K. He starts ophthalmology job in multi-specialty group with starting salary of 80K and hope for bonuses that never came to be. We took on a mortgage of 150K. We used live-in daycare at first through an agency, then au pairs. We used daycare centers between the girls. In fall of my internship, husband diagnosed with Type I Diabetes which was probably our clarion call to start paying attention to finances. We had over 20K in credit card debt. After a round of bouncing checks due to our inattention we had had enough. We put a chart on the refrigerator with all the credit card debt and decided the total would decrease every month no matter what. Student loans were still getting deferred if possible or minimum payments if not. By the end of my residency we were out of credit card debt and had even saved a little. We invested a little in individual stocks through DRIP accounts and lost money. He had a small retirement account through work.
Job Changes and House Changes
By the end of my residency, the multi-specialty group he was in was having financial trouble. We relocated. He joined an ophthalmology group and I joined a pediatric group. Our combined income was middle to upper 100’s. Thankfully the first house sold. The new house added a mortgage of 211K. The jobs didn’t work out. The kids were in daycare and/or starting school. During this period we made minimum payments on student loans and did start small retirement accounts through our jobs as well as traditional IRA’s. After about 18 months we relocated again. Luckily the house sold quickly.
1999-Present – This time my husband bought a small solo practice. I continued to work part time as an employee doctor. We downsized in house to about 140K and started attacking the rest of the student loans which still totaled in the low to mid 100’s. He started a SEP-IRA and funded it fully from the first year. Eventually he changed to a 401K which allowed him to save more. We were making in the low to mid 200’s together. Enter Child Three in 2001. The older two kids were in school. We used an in-home sitter for the baby.
When the student loans were paid off we upgraded our lifestyle a little. We sold our home and bought an older, larger home that we renovated. Our mortgage was 464K. I have refinanced it over the years. We always sent in at least one extra payment annually toward principal. We are now at a balance of 290K on a 15-year at 3.125%. We are a couple of years into it. We paid off the practice loan in 4-5 years.
Waking Up
At this point I woke up and realized we were wandering around financially. The first financial book I read was Smart Couples Finish Rich by David Bach. By 2004, which is when I started tracking net worth, we were at 488K. We were making in the low 300’s. We were 39 and 40.
My first financial act was opening and managing three 529’s. We poured much of what had been our student loan payments into 529’s for the kids. I opened an account for each child in three different states. Our state plan was miserable. One plan was with Vanguard, one with T. Rowe Price, and the third with Fidelity. Fidelity’s returns were pitiful compared to the other two. So now we are down to two at Vanguard and one at T. Rowe Price. By college entry each child had or will have 90K ready to go. We finished funding our third child’s by his 6th grade year. He is now in 8th. The other two are a junior and a senior in college.
Becoming a Stay At Home Mom
When my group wanted me to change to full time in a satellite clinic 45 minutes away, we decided to let me try staying at home. So, now that I had more time I started reading more and more about finance. Who knew I would actually enjoy it? My favorite teachers were Jack Bogle, Edward Chancellor, and Burton Malkiel. Of course, I can’t forget William Bernstein. I tried to bite off little bits of information at a time that I could apply directly to our life. My education was not for academic reasons. It had to have direct clinical relevance to our lives and help me, in my mind anyway, be at peace with the loss of my income. My husband’s practice had grown by this point so we never took a real hit in income. Our adjusted gross has never crossed 400K.
After setting up the 529’s, I moved on to cleaning up our mess of retirement accounts. I consolidated everything into as few accounts as possible. We have my Traditional IRA as well as his SEP-IRA and 401K. I can manage them easily with online tools as one large entity. I slowly went through our holdings and looked at their performance and fees. I was livid when I learned what a 12b-1 fee was! I was floored when of all funds PIMCO Total Return had one. So, I fired Bill Gross. Our core investments are index ETF’s and a few active funds whose fees are low and have long term histories of limiting losses in down markets.
We crossed the 1M net worth in 2007 only to watch it dissipate in the Great Recession. But, listening to Warren Buffett, I was greedy when others were fearful. I just kept investing and doubling down when I could throughout the entire market fall. I saw it like a 50% off sale. I stopped looking at net worth for a couple of years though to protect myself. By 2010 when I checked net worth again we were 1.3M. I continued to read, learn, and soak up as much financial information as I could. One of my favorite investment strategists to read or listen to is Liz Ann Sonders. Her advice helped me stay steady through the Global Financial Crisis.
Health Crisis
In early 2013 my husband had a subarachnoid hemorrhage. Watching him flown off in a helicopter was beyond anything I can describe. The two older kids drove me two hours to the tertiary care center not knowing if we would see him alive when we arrived. Thankfully his bleed was a perimesencephalic nonaneurysmal SAH, which is apparently the “good” kind of SAH. His prognosis was excellent. Spending a week and a half with him in the ICU waiting to see if he had a secondary stroke was life altering, as it should have been.
So, here we sit at present. He is fully healed and back in full swing in his practice. I am debating going back into practice. Our net worth crossed 2M this year. Our senior in college is graduating in Chemical Engineering. She had thought about medical school but has opted to enter the workforce. Our junior in college is set on medical school. Our baby is in 8th grade. Their financial education has begun already.
I found WCI while searching for information on William Bernstein a couple of years ago and continued to follow the blog to learn more about what issues my kids might be facing if they chose medicine. I have enjoyed reading the posts, especially the comments.
[Editor's Note: Tomorrow, Dr. Mom will continue her guest post with her lessons learned and tips for others. For now, comment on what you found most interesting about her family's pathway to wealth. For my part, I found three things interesting about the post. The first was the unique perspective that you get from women. For instance, at every stage of life and career, she comments on who was caring for the kids. Male financial bloggers tend to gloss over that kind of stuff. The second was just how many crises came along- multiple job changes, multiple house changes, and a serious health scare. It really illustrates the importance of health insurance, disability insurance, life insurance, an emergency fund, saving for retirement and college early just in case, and generally living below you means. The third thing I found interesting was just how low their two physician income was in the 90s. Doctors often talk about how the golden age of medicine is long past. Well, if the golden age was a two physician family earning just over $200K, I'll take what we have now and be just fine with it, even after adjusting for inflation.]
What did you find interesting about Dr. Mom's story? Any similarities or differences to your life? Comment below!
The timing of this post was perfect. Here I am, up after putting the kids to bed and trying to convince my husband how term life insurance of just 1X his salary does not cut it (mine is 4x salary and still does not cut at our young age). I perusing your life insurance posts, but we may go with Banner for the not laddering laddering.
I’m looking forward to part 2 of this post. Being a female physician myself and with 3 kids, I, like the OP, think about finances in terms of how it affects my children’s livelihoods.
A good general rule of thumb for life insurance is 7-10X gross income.
Additionally, be sure to check the website http://www.term4sale.com for term life insurance rates. While Banner can be very good if you are purchasing a policy and using a term rider to ladder, other carriers have also reduced their premium rates recently so you must compare the cost of Banner with a term rider to other carriers – even if it means purchasing separate policies.
This drives me nuts! Rule of thumb for who? Should someone with a gross income of $500k have a $4M life insurance policy? What about if you’re 50 years old?
Buy term only. You need more when you are younger but it is cheaper then. Think about it in terms of what your spouse would need in assistance to get your youngest through college. You can jettison some as you get older and more financially secure. Do err on buying more than you think you need as once my husband was diagnosed with diabetes it became cost prohibitive to increase it. We bought term policies through the AMA and AAP.
Thank you, Dr. Mom, for the personal financial history, and thank you, Jim, for the commentary that accompanies it.
Like WCI, I also kept waiting for the big gross salary number to kick in, and we never got there. On a time line, my own financial life has many similarities as we are all subject to the same financial market cycle and, of course, the life cycle. I am also 49, but I had a few distinct advantages:
1. No student loan debt.
2. I married later, so out professional life was more developed before the kids came along.
3. A wife with a career in law. Think income diversification.
4. Consistently good physical health.
I have often said that job moves and home moves, largely financial transactions, are like divorces, minus the messy emotional stuff. The financial implications can be similar, and the fewer of these you have (and best to have them early), the better one’s financial trajectory will be. I see cardiology and orthopedic groups around me regularly imploding and reforming and wonder how many extra years these guys (mostly men) will have to work to pay for the fact that they just could not tolerate that Dr. X wanted to take less call and more vacation!
I look forward to the next installment and will put in a plug for more Tolkein!
My perspective on your points:
1. Student loans allowed us to pursue the path in life we choose so I am grateful they were there. By dealing with paying them off we learned so much about budgeting and finance. I am glad we didn’t face the tough choices many of you face with low rates and long forgiveness programs. Although tempting, please consider the alternative of living like a resident to pay them off. The years we did were very happy and fulfilling years. Big advantage to you here, Robert K., by not having them!
2. I have had 30+ years with my husband so far and wouldn’t trade a second of it for earlier financial security.
3. I hope you are taking advantage of the perspective diversification she can bring to your finances. I see it as more valuable than her income diversification. I’d love to know her perspective on the post.
4. Having lived with diabetes (more than his recent SAH) has given us real focus in what we want in our lives and where are priorities lie. I don’t know if we would have the life we have today without them.
5. We broke even on job moves and homes. We built up what extra cash we could in those initial years at a new job just in case. For homes, we only bought what we needed and always considered what the market would allow for quick resale. (Keeping your initial home purchase low opens your resale market to a wider range of people.) With many animals and kids we were not really a landlord’s dream tenants, but would have rented if we could have.
Great honest post. I was particularly struck by how low their combined incomes were for most of the decade after they finished their residencies. However, their debt load also seemed never to balloon over the decade also so I guess they had lower interest rates on loans than today’s rates.
They had some lucky breaks..being able to sell their homes each time time they moved, although she didn’t say if they sold at a profit, broke even or lost money on the deal. I certainly would not want to buy a home each time I move to a new job until at least 1 -2 yrs when I am kinda sure the job will work out. Most docs never take that sort of stuff into consideration.
Our incomes were low because job offers then seemed to come as low base salary guarantees with potential to bonus higher. Be wary of these offers if still out there please! What you can’t see coming is how many ways you lose the ability to make bonuses. First my husband’s large multi-specialty group went under, thankfully several years after we left. The second time, an older partner got sick and started canceling his patients at their satellite clinic so he could drive an hour to the main office to cover his patients! Hard to build a practice that way.
Our debt didn’t balloon because we almost always paid minimum payments that at least kept interest of 5-9% at bay.
Luck is when preparation meets opportunity. (See housing comments above.) My mom was a real estate agent and we listened to her on what to look for in a home in case quick resale became necessary. Renting initially is probably a much safer option that what we did.
“Luck is when preparation meets opportunity.” – I love this…
Learned it from my mom!
Just out of curiosity, what’s your net worth excluding the house and other illiquid property?
1.5M, excluding 529’s.
Roughly
1.2M retirement
320K emergency and taxable investing
210K current 529 value
500K conservative home equity value
(??? Business equity in a solo practice, LLC that holds office equipment, small investment in a surgery center. Unclear what their worth is in today’s market so I just don’t count them.)
Just wanted to thank you for writing a guest post. I have a learned a lot from your comments. Your comment about working when your kids are young really sticks out for me. It is a subject the my wife and I have discussed quite a bit trying to find the best way for us to navigate kids and residency (almost there).
Your comments on debt from other posts really have me thinking. I think their are two camps on debt on this website (maybe more). The first are those who have experienced how much debt sucks through some kind of emergency, whether it is job loss, health, or other bad luck. The second camp are those who haven’t experienced those things and have only seen the leverage that debt can give you. You have had some of those experiences and I appreciate that you are sharing them. Looking forward to tomorrow’s post.
(First time I have heard the term DRIP, but have heard the concept elsewhere. Thanks for the new information.)
Thanks Arkydore. Your comment from “Deleveraging Your Life” a few days ago is so eloquent I hope you don’t mind if I repeat it here for all who missed it:
“I am deleveraging my life because I don’t know what tomorrow holds. What happens if I want to make less money and live a more peaceful life? What happens if I want to take a job that pays less, but has a greater equity stake? I cannot just sell stock whenever I want get that 6-8% return that the above have been arbitraging.
Other benefits include needing to hold less insurance, no origination fees on cash home purchases, and minimal cash flow requirements to pay the bills.
All that being said, I have a long way to go before we are debt free. I know it will be easier for me personally to strive to pay off debt than arbitraging arbitrary numbers.”
I have read it again and again. I especially love the last line. Thank you!
I am not opposed to using debt, just be thoughtful about it in the scope of your total financial picture. I just hope people consider where their personal point of “enough” leverage is. When we plot our net worth annually, we see how powerful debt repayment can be in amassing wealth. It really surprised us. The years we took hits to wealth by the market falling were balanced by subtracting less debt from the total.
Using in home daycare if available is so convenient and hardly more expensive. It was great in residency with crazy hours to be able to have daycare so flexible. The au pair program helped us keep our sanity in those years.
Don’t get lured by individual stock DRIP’s (Dividend reinvestment plans). Stick with index funds or ETF’s.
I don’t know if I would describe what I said as eloquent, but I’ll take it :D. I comment so much about debt because of the impact it has had on my parent’s lives and how it severely limits opportunity and personal growth.
An article on residency/au pairs would be great (considering you or WCI had to explain it via a link). Did you consider paying family to help out? I think it might be the best option for us.
The au pair link was WCI’s. Thanks! We did not have an option to pay family to help. It could be a great asset for you but beware the pitfalls. My parents moved in with us for 18 months recently while they were between houses. It was hard, and we have a good relationship or we would have never entertained the idea. Communication is so important, as will be you and your wife’s ability to accept that you may not be able to control everything they do. By paying a “stranger” we had better ability to set our rules and limits. And in one case that “stranger” is now someone I consider family. In the end, I think the kids benefitted greatly from a team of three adults in those early years. Again, the cost was well worth the convenience.
[Good idea on the au pair post. The link was mine. I have a residency classmate who used one, so I knew what it was, but I was worried others wouldn’t so I put in the link.-ed]
We too have had an early focus on 529 plans for our children. I grapple with how much to set aside for their education. While it appears that the 90K in each of their plans is enough for an undergraduate education (I think a private school would have required a lot more for 4 years), any kind of professional education in the future will either require them to take a loan or for you to contribute in some fashion. I look at the debt load of new grads and it’s simply astounding, and would want my kids to avoid that. You don’t want their educational experience to be too cushy either. Perhaps you can share with us to what extent you’ll foot the costs for any further education?
I’m sure Dr. Mom will be along soon to give her answer, but I’m going to share mine. I just had this discussion with my wife again yesterday. I want to provide just enough support that they don’t take on any debt, but not enough that they don’t have to work at least during the summers.
I think this is a topic that needs further development. Perhaps a future post? I haven’t seen many opinions or strategies for how much to save and ways to encourage performance and still provide financing for children’s education.
We paid off our student loans first then took that amount and divided it between the three kids. The older two were about 8-9 years old when we started the 529’s. When they hit their last years of high school we put the monthly amount into a brokerage account in cash. So by college the older two had 90K in 529, 24K in cash, and 15K in grandparent 529. We planned to cash flow another 18K/year each. They were both considering med school so we sat down and talked about how to make the money last as long possible. I made them read Debt-Free U by Zac Bissonnette. They had scholarships to a great public university and opted to use them with our cash flow and part time jobs to try to make it as far as possible before taking out loans. If they do need loans, we will help pay them off as our cash flow ability allows. For now our daughter is entering the workforce as a Chem E (already accepted job offer starting next summer), but son still plans on med school. When she decided against med school, we did decrease cash flow amount and drew more from her 529. She will still finish with about 50K in 529. If she really decides no further schooling, we will roll it down to siblings.
Curious if you or anyone else use UTMA’s in addition to 529s, as you mention you put some aside in “brokerage account-cash…”
Thanks for sharing, nice to see specific details of how people are doing things…
We used UTMA’s initially with gift money the kids received when they were young with the intention of building the accounts later for college. By the time we were able to contribute more, 529’s were a much better option. We kept the cash I described in our brokerage account. It is where I moved the 529 money into when I needed to withdraw it. All done online, very easy. I mixed the kids money with some of our overflow cash but kept a running record of what was “theirs” vs. ours. It was easier for me than opening several different accounts. Their UTMA’s are about 12K each, funded mainly with their gifts over the years invested conservatively. We have used the accounts to teach them about finance and investing. The accounts become theirs at 21 in our state.
I have UTMA accounts for my two children (13 and 16). They are considered Plan C for education funding, to be used if/when cash flow and 529 funds are insufficient. Each child has about $85k in the account, which is invested aggressively. The plan is that hopefully the money will be there for a “starting in life” resource–for a downpayment on a house, to purchase a car as an adult, to jump start a fledgling business, seed a nest egg, etc.
I agree with Kal–some of our toughest choices are what to do with “extra” money once we make it. Funding 529s hasn’t been our biggest goal, as we are trying to pay down medical school debt and mortgage debt, while saving for retirement. I don’t wish this sort of debt on my kids, but also know that I can’t pay for everything. That said, while we haven’t even hit the one-year mark for cleaning up our finances, it is definitely a relief to be taking control of it all. Now I need to look into what these 12b-1 fees are and make sure I don’t have any (I have index funds for my major accounts, but more limited offerings in my 401K and HSA accounts).
So glad to see your post since you were the first one who asked for my perspective! For what it is worth the order that worked for us was the following:
1. Always max retirement up to 15%. Hit 20% when student loans gone. But, have an emergency fund so retirement investing can be treated like the long term investment it is, and not as some partial emergency fund.
2. Keep housing costs as low as you can for 4-5 years and attack student loans. If you can swing just one extra house payment per year in those years, leave it at that.
3. Once student loans gone. Liberalize spending a little. Start 529’s.
4. As extra cash comes in: invest, give, spend, and pay down house.
12b-1 fees are a nasty charge that some mutual funds tack on for their advertising! So you are paying them to advertise to get new customers. The more money they attract, the more they simply become an overpriced index fund. So, you are paying them to overgrow to underperform for you. Criminal, really.
I am looking forward to part 2! I really like seeing your timeline, too. Medicine is my second career, so student loans and college are a little closer together for me. Nonetheless, I like seeing where you were at 40 and how far you’ve come!
One question I had (knowing your husband suffered a stroke but thankfully recovered) was if we need any long term nursing insurance? When we grow old, does Medicare cover long term assistance / insurance and how to plan for it. I know my disablity rider will pay for long term care till 65, but what about after 65?
Dr. K,
Medicare does not cover long term care. Medicaid does cover, but you have to be broke to get it. It is probably best viewed by physicians as insurance to protect one’s assets being from spent down when they no longer can care for themselves.
Paying for long term care has three general tiers:
I. The impoverished can get Medicaid.
II. The middle class can buy long term care insurance, if they can afford it. If they cannot afford it, they risk spending down their assets in landing in Tier I.
III. The wealthy can generally afford to pay for whatever care they need.
Most physicians end up somewhere between II and III. It becomes a point of debate whether it is worthwhile to have LTC insurance. I personally have a small, no frills group policy from my practice, but we have no policy for my wife.
Google long term care insurance, and you will get quite an education and perspective on what a disaster this niche of the insurance market has become, for both the insurance companies and the insured.
Now my practice provides LTC but only till age 65, I am not even 40, should I buy now or wait till age 65?
Most docs should be able to self-insure this cost. I don’t see any reason for someone with a $2-3 Million retirement portfolio to be paying LTC premiums.
https://www.whitecoatinvestor.com/long-term-care-insurance/
What about an umbrella policy to cover any thing and everything? Is there an article on that too.
Thanks for help.
https://www.whitecoatinvestor.com/umbrella-insurance/
http://www.physicianfinancialservices.com/files/7760/OPM%20Umbrella%20Policy.pdf
In general an umbrella of 1-5 Million is a good idea on top of your auto and home insurance. We have 2 Million. We use a local insurance firm for these policies. They can shop for the best rates and make sure all the deductibles match up. Always double check them though, especially when you have teen drivers! Umbrellas are very inexpensive for what they offer.
I have given quite a bit of thought to Long Term Care Insurance. Our conclusion was it is overpriced for the piece of mind it tries to offer. I also question the solvency of the companies offering it. I wouldn’t even consider it until we are closer to 60 and then only if not self insured. If you are considering such scenarios, I would urge you to consider other options like paying down that low interest home mortgage you wrote about a few posts ago. With less monthly bills, you have less cost to replace!
LTC insurance is not easy to get when it comes to medical underwriting. In general, from hardest to easiest insurance to get is as follows; Critical illness insurance, LTC, disability, life. The older you are when you apply the less chance that you will have in getting a good contract. I highly doubt that Dr. Moms husband would qualify for a policy at this point. I would say that this is a cost you can self insure with over 3 or 4 million of today’s dollars. The care for people who use these policies is between 35k to 100k per year and lasts for long periods of time.
Self-insurance is definitely our plan.
Define long periods of time. The average stay in a nursing home is 2.5 years. $50K x 2.5 years seems easily self-insurable. Only 12% of those who actually use LTC stay longer than 5 years, again, easily self-insurable with a $2 Million kitty.
The ones who should give serious consideration to LTC are those with a nest egg of $250K-$1 Million. Above that, self-insuring becomes more and more reasonable in my view. Below that, you can spend down and get on to Medicaid.
thanks
Sure, you can self insure with less but that will surely have an impact on the entire retirement plan. People are living much longer now and probably will live longer in the future. Both of my wife’s grandma’s have spent more than 8 years in an LTC setting. These policies also cover home health care.. Nursing home care can cost $50k on the low side and as much as $100k per year, this is in todays dollars. Are you saying that $50k*2.5 is future dollars? The decision to want a policy comes down to how a couple wishes to live in retirement, if the care is needed or not.
A little information to add about what’s presently available with long term care policies – in the past few months I’ve shopped for them, and the main drawback for the LTC policies is that there is a limit of 5 years of benefit (which an average physician should be able to self-insure). My concern for a worst case scenario of needing 20-30 years of care is not addressed. Also, all the policies quoted to me can increase their yearly premiums without increasing daily benefit (this is unlike term life insurance, or a disability policy – where your premiums are guaranteed to stay level). Depending on what your needs or concerns are about LTC, not all of them may be addressed by what coverage is available.
Yes, it definitely doesn’t seem like it’s ready for prime-time yet.
In determining your need for long-term nursing care, look at the statistics: only 5% of the 65 and older population are, at any given time, living in care centers. Taken from this perspective, do you invest in a policy that you have a 95% chance of NOT using at age 65? Or do you instead invest the premiums (that you would be spending to purchase a LTC policy) in other more profitable ways, i.e. self-insuring?
With increasing age, of course, the rate of accessing nursing home services increases. For example, almost 50% of people 95 and over use nursing homes. What does this mean for us here? Well, if you have the genes to live long, you are relatively healthy now and you practice good health habits, saving in any manner (whether self-insuring or LTC policy) for nursing needs in your senior years would be prudent.
I’m a psychiatric social worker (and psychotherapist) and one of my areas of expertise is aging.
Love the WCI site and book, and I am enjoying Dr. Mom’s guest posts!
Absolutely I think most physicians should self-insure against this risk. A more middle-income American, however, may find some real benefit from purchasing this insurance as it would be more difficult to self-insure against it with a sub million dollar portfolio.
Loved this post. I’ve read a lot of Dr. Mom’s comments over the last year or so I’ve found the blog and it’s great to hear some of the history behind her reasoning. I’m still on the early side of things, but this blog has done wonders for our finances. We were always careful with money because of our upbringing, but now we are deliberate with it also.
It’s also good to see the history as a checklist. I was able to follow it and make sure that I was doing everything she did if it’s available to me.
Thanks Dr. Mom, keep it up!
Best of luck Ricky. You are all so very fortunate to have found WCI. Spread the word.
What a treat to have you write a guest post!! You are my favorite commenter here and it was truly a pleasure to read how your life unfolded. Thank you for opening up.
Some comments:
1. I am going to assume you live in the Midwest or South. Those housing prices and income levels are just eye-poppingly low. WCI has mentioned a couple of times in recent blog entries how both specialty and location greatly impact overall income. Not that you suffer at all from it because of your financial savvy now, but moving far far away seemed the only way for us to quadruple our income.
2. What are your opinions of the child care situation? We did similarly with our children as my wife had four through residency and start of practice. Would you have used an au pair again?
3. Did you open any Roth IRAs for your children?
4. Have the 529s fully funded your oldest kids’ education? Did they have to choose a less private/spendy school?
Thank you so much, Dr. Mom. And health to your family.
Thanks Joseph! Your request, in addition to a couple of others, is what made me decide to write the post in the first place. As to your points:
1. Yes, we are in the Southeast. We were amused by the comments about our low salaries which did and do not seem that way to us. If you take into account our lower cost of living, as high a salary is not needed. We are also lower than many of our friends because of personal choice. I have always only worked part time (although to non-physicians that was still over 40 hrs/week in the beginning). My husband works generally a 3 1/2 – 4 day week. He is home by 6pm or earlier weekdays. You need to take into account our hours worked to achieve the salary numbers we have. A great deal of money will pass through your hands during your working years. To me “financial savy” is choosing
to keep some of it for ourselves.
2. Au pairs and in home sitters where great. (See comment above.) They were well worth the slightly higher cost. One of the girls from Sweden recently visited and has remained very close to us. We saw daycare as a gift to the kids. Despite being a pediatrician I am not such a “baby” person. Truthfully, I would have not sat and rocked all day or played all day the way the girls did in those early years. But, that is not saying it was easy to leave them!
3. We opened their Roth’s when they had their first jobs at 16. To get a very generous Mommy Match, they had to put in 15%. We use the accounts like their UTMA’s to talk to them about finance.
4. See comments above about 529’s and school choice. You don’t have to fund college 100% ahead of their first day as a freshman. Fund what you can given your situation and your ability to cash flow some of the cost. We were also very aggressive in investing the 529’s as in our worst case scenario they can use loans like we did. We didn’t view college as just four years. In today’s market, some post graduate work is often needed. So, we viewed education as 5-8 years.
Hope one day your wife will start posting!!
Dr MOM,
I have also been amused by the number of posters who thought your salary numbers were too low. I am 57 and recently Stopped doing OB but I am continuing to do just GYN 3 days per week. The young docs forgot about inflation! I remember being excited as a resident when my salary got above 20k.(If you factor in inflation that is about 50k in todays dollars.) I think it is better to think in terms of net worth rather than salary.
Thanks for posting. Would love to hear more of your story!
Dr Mom,
Ok my story. I finished an OB/GYN residency in 1987. I had 30k in student loans. I got an academic scholarship to med school and my parents paid for college. So my loans were primarily living expenses. I really did not save or invest as a resident. I did not know about it. Roth IRAs did not exist. My first job paid 90k with theoretical bonuses which did not happen. Buy in started after 2 years and was 500K taken out of what should have been a much higher salary. I never took home more than 250k. The group had a brutal call schedule and I ended up leaving after 4 years. I had started investing and had 250k when this happened. My house sold in 2 weeks for what had paid for it. This was 1992. I lost about 90k of practice equity. This move is the best thing that ever happened to me. I moved to my home town which is a medium sized town in the SE. The group I joined offered me 110k. The group imploded after one year. I went solo after this. I have never had a true salary since that time. I never borrowed any money to start my practice. I was very active in the dot.com bubble. I had begun reading investment books around 1990. I had a broker/advisor who really taught me and mentored me. My returns improved as I took more interest. I maxed out my SEP-IRA and non-deductible IRAs. I also dollar cost averaged into mutual funds monthly. So I had 3.3mill when the bubble burst. I lost about half. By 2007 I was about 3.7Mill. I never flipped property. I never bought gold. I married late at age 52 so I never had to think about college costs. I now have a net worth of 6.2 mill. I also have bought individual stocks and bonds along the way. We all make mistakes when investing and there is a lot I would do differently now. My advice is just stay the course. Not every investment will work out but dollars put to work and not spent is the only way to go. By the way, I am at Vanguard now mainly indexed. I do not plan to buy LTC insurance. My house is long ago paid for.
Thanks so much for sharing! I hope stories like yours and ours can inspire med students and residents to start thinking about finance and life choices much earlier in their careers. They are very lucky to have WCI helping and looking out for them. If you don’t mind could you answer a couple of questions that might be helpful to readers:
1. How did you structure your solo practice and would you have structured it differently in retrospect? I explained ours below. Not as many physicians are in solo practice but many dentists on the site could benefit from the advice. Would love to see a whole post on this from someone knowledgeable in the options.
2. How did you handle when your portfolio dropped by half in 2007? We saw it as a sale and kept investing but our total lost was well less than yours.
Thanks again! Please keep posting Hatton!
Dr Mom,
1. I am not incorporated. My main business risk was OB. When I opened up my practice more money could be sheltered with a SEP-IRA than a 401-K. I think after you have been in practice it is easy to overlook this issue. This structure is only possible with a solo practice and an umbrella.
2. My portfolio dropped by half in 2000 largely because of tech stocks. I think I lost about 30% in 2007. My reaction was some tax loss selling and avoiding checking my portfolio during the worst of times. I sold a fund that was at a loss and swapped for a similar fund in the same family in 2007. I still have carry forward losses from this move.I also had some individual muni bonds that I was concerned about since they were located in Jefferson County Al which I did sell during this time at a loss. I now invest in muni bond funds. I opportunistically bought Apple, Citigroup, and Exxon during this sale. The only individual stock that I still own is Apple.I think 2007-2009 made me money over the long haul but it was scary at times.
Lessons learned 1. Buy municipal bond funds. 2. In times of turmoil quit checking your investments. 3. Be scared but do not panic. 4. Always remember Bear markets end and you do not want to miss the huge rally that comes afterward.
Excellent answer and lesson learned! Thanks.
You can put the exact same amount of money in a SEP-IRA or a Solo 401(k). However, if your income is less than $260K or so, you can actually put more into a Solo 401(k). You’re right that being self-employed allows you to have larger retirement accounts.
Thank you so much for sharing. Hearing stories like this give us newbies hope that there is a way…even when we have made early mistakes.
So, what’s your number? (i.e., How much net worth before you feel you both can retire. Not when you actually will, as many people enjoy work long after they reach this point, but just when you could if you wanted to)
Honestly the main number I focus on is my cholesterol level which I am trying to get lower! As far as finances, in the beginning I was very math driven. The numbers gave me comfort in my plan. And, I can play math games with the best of you. But, I always felt like something was missing for me. I have a hard time caring about a Monte Carlo analysis that gives me a 90% probability of making it to 95 when I can’t be sure my husband will come home from working out at the YMCA and not end up in the Neuro-ICU. So, to generally answer your question, I think we are there right now. If we wanted to retire, it would not look like we thought it might, but we would be okay. We’d have to sell the house. One or both of us might keep up a part time job. The kids might take out student loans. But, we would manage.
I do have loose goals though which is what I think you probably are after:
1. Retirement of 2.5-3 million to achieve a 4% withdrawal rate of 100-120K/year before taxes in our case. I don’t count on Social Security. If it is there, it will be extra. I anticipate one or both of us will work until into our 60’s. (I have already had a mini-mommy-retirement.)
2. Non-retirement goal of 600-800K to get us to hold off tapping 401K until at least 55 where there is no 10% penalty.
I think it’s hard to define a number because it can be a moving target. My wife want’s to retire with a set amount each year. For me to achieve that today would be impossible as I’m in my 30’s. I would have to use a 1% rule instead of the 4% rule! But as time marches on and I won’t need the retirement as long so I don’t need as big a nest egg.
Personally, I don’t think I’ll ever totally retire, but I want to be able to walk away if I wanted by the time I am 50. So I took my wife’s annual income number, because it was higher than mine, and extrapolated out to when I am 50. From there I was able to get my “number.” Granted, that number is only good for when I turn 50. If I need it to last longer, I need a bigger number.
Rule of thumb 25x spending/year = 30 years of retirement. (This is really the 4% rule.) If you plan on an early retirement use 30X.
Thanks for this post. It is uplifting for me to know that there are other professionals who made the most of their time at home. In my case, due to the high-costs of childcare in our former area, the time was spent with three kids, finishing a dissertation, while my wife completed residency and fellowship. Nuthouse. It wasn’t until stumbling on the WCI’s post “The Hidden Costs of a Dual Income Household” that I actually stopped griping and started to help sharpen our financial weapons before we earned the “big bucks”, i.e., paying off student loans. A couple years out of the nuthouse, we’re still wandering but with a heck of an arsenal thanks to folks like you and the WCI.
So glad you found the time and energy in the midst of the nuthouse to learn some personal finance! It will serve you well. I wish I had helped my husband with our finances much sooner since I enjoy it and he does not. Would love to hear your wife’s comment on the post.
Love your comments on the board and thank you for sharing your story. It is helpful to hear different people’s starts, journeys, and their game plan to the end. It is sometimes hard to relate to people who have different financial situations than your own.
What is inspiring to me is your dramatic course from six figure debt with suboptimal lifestyle planning to an excellent net worth on an average income for a 2-physician family (particularly when one is surgical subspecialty on the supposed ROAD to happiness). What strikes me from the financial accomplishment standpoint is my understanding that:
In 1999, you had a combined income of low 200’s and debt around $100k student lans
In 2004, you had a combined income of between 200-300k, no student debt, and a 500k in assets.
In 2007, you had a combined income in the 300’s and a 1M in assets.
What strikes me about this is your ability to accumulate wealth with 3 kids and save for 529 times three while paying down a practice loan, all on a reasonable but certainly not a high physician income. That’s quite commendable! Would love to hear more about your experience, the choices you made, the trade-offs you chose, and things you think were particularly smart or dumb choices.
Thanks Griva! You are the first to comment on what my point of doing this post was in the first place — HOPE–. The numbers you synopsized are correct. My favorite to date is 2014 with pushing income of 400K with 2.2M in assets. You all can do this, too. It is very empowering to take control of your finances. In the beginning it may not feel like you are moving the needle financially. Plotting net worth one a year, every year, can help you see the forest for the trees.
My dumbest choice was waiting so long to help my husband with our finances. My smartest move was deciding I could.
How much does one need to plan for at retirement if starting their career today
It depends on how much you want to spend in retirement. That range is so wide, your question cannot be answered. I’d be okay with $2-3 Million in today’s dollars, but that’s too much for some, and too little for others.
Great question although as WCI said unanswerable. Start thinking about what you want, follow the post, and read The Coffeehouse Investor to start.
The other thing to factor is inflation. 2-3 million today won’t be 2-3 million when someone starting today retires in 20-30 years.
I really appreciate this post; it confirms a lot that I’ve learned in recent months about investing and finance and motivates me to “stay on track.” My wife and I knew nothing about finance or investing so we “wandered” but I always wanted to kill our student loan debt. It bothered me to earn “too much” to deduct the interest; my real hourly wage (counting paperwork, call, phone calls) as a PCP was about $30/hr!
Your home prices don’t seem low to me, considering the dates. We live in the NW and bought a small home on a standard lot and a 1 acre view lot, both in 2003, for about 150k each. Lucky for us my wife hated primary care and we moved back to the city 3 years later for fellowship. Each property then sold for about 270k. By the way our house in the city was 170k in 2000, but good luck buying the same house at that price in 2007.
Do you think it’s possible to overfund the 529? We each kick in 5k yearly for our daughter, but she hasn’t even started school yet so we can’t predict if she even wants to go to college. WCI seems to worry about his kids getting lazy, but I thought the parents kept control of the money? Isn’t a 529 just another taxable investment account if the child doesn’t go to college?
It’s worse than a taxable account- gains taxed at ordinary rates plus a 10% penalty and no TLHing, step-up in basis at death etc. Better to change the beneficiary to a sibling or the grandkids. $5K a year is unlikely to result in a massively overfunded account though.
Yes, it is possible to overfund. Our goal was to only partially fund education with the 529 and cash flow the rest. If she is young be aggressive in your asset selection in the 529. 5K a year for 10 years is 50K in. If it doubles with your asset selection you are at 100K. We started later with our older two so put in more. We started earlier with our youngest and were done with where we wanted to be when he was in 6th grade.
I cannot imagine a world where WCI’s kids are lazy! Just worrying about it helps you make choices that prevent it.
Parents do keep control which is why I like it better than UTMA’s. If the child doesn’t go to college and you take the money out, you pay your full tax rate and a 10% penalty on the gains. Often it makes more sense to roll it to a sibling or hold for a grandchild. You could also pay for a niece or nephew and let their parents reimburse you. Or hold for yourself. Many options but give thought to not overfunding.
Thank you for sharing your post and experiences. I always appreciate your comments. I agree with living below your means and investing for the future. It also seems that you have strived to maintain a balance with the things that are most important such as family. By living below your means, it is easier to absorb the bumps along the road which inevitably will happen. You can attest to that. The future is never guaranteed and by not being fully extended financially, one can focus on the most important things in life.
During residency, shortly after I was married, my wife was diagnosed with cancer. To make a long story short, we battled cancer six more times and she eventually passed away 15 years later. We were able to adopt two beautiful children but because of good financial choices (living below our means and smart investing) we were able to focus on what mattered most. I had the ability to take a year off of residency to spend time with her because we were prepared financially and anytime we faced another battle I was able to be there for her and later my children. I also had great partners who were very supportive of our family. I believe that money is a tool and if used correctly allows us to enjoy the things that matter most.
I eventually remarried and we have had additional children and enjoy a busy family life with children ages 9, 7, 21 months, and 2 months. Good financial choices allowed our family the luxury of being able to endow a scholarship at the university we attended honoring cancer survivors in her name which has been a blessing for our family as we meet the recipients every year.
We weren’t always right with every financial choices but we learned not to repeat bad choices. Thanks for sharing and your example. I am sure your experiences will help many who read your advice.
Thanks so much for sharing your story! Life is going to rain all over each of us eventually. Use your money to waterproof yourself as best you can and learn to enjoy getting wet. And when you think you can’t take any more, re-read RL’s post. Thank you again!
Dr. Mom, this is a great post and I was struck by how similar our stories are. Although I’m not a physician (public relations/journalism major), my husband is and he also graduated in 1990 and our children were born in 1994 and 1997. We attacked the loans and paid them off in 10 years. Neither of us were educated in personal finance or investing and learned the hard way to take control of our own investing after being ripped off by two different financial “advisors”. I’m also a stay-at-home mom and educated myself and my husband on the “Boglehead” philosophy 18 months ago,fired our Morgan Stanley advisor and completely revamped all of our investments. My husband had a financial meeting yesterday and realized that we have made $130,000 in the past year on our own without paying advisor fees. We also have a junior in college and a senior in high school that are each considering medical school and I worry about their debit load a lot! We have a similar net worth to you and we feel empowered by handling our own investments in index funds through Schwab and Vanguard. Can’t wait to read part 2 of your story!
Kudos!! Taking control of your finances is definitely empowering. And setting the plan aside while you enjoy your life and looking at just a few times a year can actually improve returns.
I posted this before proofreading and see some typos above with there seems to be no capability to edit the post. Meant to say my husband and I had a financial meeting. Also, meant to say that I worry about my two kids’ debt load (not debit). Their college educations are fully funded through 529s but with medical school tuition alone at $40,000 – $50,000 per year plus living expenses, I tell my husband all the time that I don’t know how a med school graduate can ever get ahead of that type of debt load. We would love to help the kids out with med school or grad school but my husband is 50 and wants to slow down in 5 years so it depends on how the market does. We’ve discussed providing them with interest free loans so that they still have “skin in the game” but without the crippling compounding interest. Very interested in the opinion of Dr. Mom and other medical families on helping your children with grad school/professional school?
As mentioned elsewhere, my goal with school is to have my kids have skin in the game, but also to graduate debt-free. I think it will be easy to pull that off for undergrad, but I’ll do as much as I can for professional/grad school too. Might not be successful, but I can live with that.
WCI, what are your thoughts on paying for grandkids too? 🙂
I think it’s wonderful. My wife’s grandparents helped her and have a trust that will help 4 or 5 generations beyond us.
Perfection. Thanks for sharing. I knew it could work out that way if desired.
(btw, when I click “post comment” I get an Error message about 80% of the time…that last comment took me about eight attempts)
What browser?
Read some of the other posts on WCI’s site on this topic as well as my comments above. Consider ways to stretch those 529’s to more than 4 years of college. In medicine, no one ever really cared where we went to college. So, if you pay for a name school at all, consider letting it be med school. And, actually depending on where you end up practicing, your patients may only care if you went to the local high school (which we did not). Hope you keep posting comments!!
Thanks for your post! Just curious how much “managing” of your investments did you do after your financial “awakening”? Perhaps it was mentioned earlier but I missed it…did you invest in anything other than equities?
Just realized after I asked that it was pretty vague. What I mean is, do you watch the market like a hawk and make certain market-timed moves? Or did you set it and forget it? How often do you re-balance?
Thanks for comment as you were also one who inspired me to write this! Your question is hard to answer as it varied over time. Before I “woke up” I never paid attention to the markets. I didn’t even know about the dot com bust till I read about it years later even though we lived through it. After gaining some confidence with the 529’s for the kids and reading many different sources, I started paying more attention to the markets but was frustrated by how time consuming it all was. As I became more comfortable with our plan and indexing I have backed off to a more tolerable amount. Studies show less attention improves returns.
We dollar cost average on auto pilot monthly with monthly deferrals into our 401k and savings. When bolus amounts come in from matching funds, profit sharing, or profits, I use them to rebalance when our percentages in asset allocation vary by more than 5% from baseline. If I decide to change the baseline I do it when I rebalance. I loosely follow markets watching for 10% or more corrections. When I can, I use them to put in at least twice our monthly dollar cost averaging amount. On rough average you get a 10% correction once a year, 15% every 2 years, and 20% every three years. They are your “opportune moments.” Learn to use them to your advantage. Consider rebalancing then.
We only invest in stocks/bonds/cash. (Yes guys, “CASH” is a position.) We are considering real estate but not until our house is paid off as I view it as an investment as well, although many others will argue this point.
My husband thought I should qualify the comment I made about his being lucky or good at individual stocks since some of you focused on that as some endorsement of individual stock picking. Focus on where I said we invest(not trade) individual stocks. One of his positions is a utility company that he first started a position in with money from his first paycheck as a Red Lobster busboy at age 15. He has had that position for over 35 years! It fills a hole in our portfolio as we were low in utilities due to our active funds not having any positions in them. He has not started a new position in any stock in over 5 years. I don’t think he has ever held one for less than 8-10 years. I sell out of the position as it makes money to get back our initial investment and then let profits run. (I see it as a big waste of time but not worth arguing over.)
I’ve been following the WCI for the past year or so and this is my first comment on the website. This is a wonderful and extremely informative website, especially the comments section. I was motivated by Dr. Mom’s recent posts outlining her path. I can’t agree more with the WCI and Dr. Mom on the concept of living like a resident in the first few years after becoming an attending. My hubby and I are both pediatric subspecialists in academia. I have not seen many comments or posts regarding these group of docs. We make far less than those in private practice in our subspecialties, perhaps even as little as half their salaries. Despite that we were able to save for retirement during residency and fellowship, and continued to do so after training by living in an affordable home (200K) and paying little in property taxes for 5 years until our children were school aged (and moved to higher property tax area in a great school district). Interestingly, I learned a lot about personal finance initially from the Suze Orman show years ago! We converted all of our 401K from residency (rollover IRA first) to a Roth IRA (since we were still under the income limits at the time) and from 2007-2010 we each contributed the max to a nondeductible traditional IRA and converted it all in 2010 to a Roth along with our 401K from fellowship. I don’t know if that was the right move, but we had the extra money to pay the taxes that year and wanted the tax diversification in retirement. We both have student loans from medical school which are consolidated and to be paid off over a 30 year timeline at 1.75%. I was fortunate enough to have almost all of my loans paid off by the NIH via loan repayment program doing research. Even though our combined salaries are likely less than many subspecialties, we have been able to accumulate a significant amount in retirement. I feel that I still have a significant amount to learn, however, in the investing portion. I’m starting to read some of the books that Dr. Mom and WCI have mentioned. My goal is to have the option of retiring at 50 (currently 37). My husband plans to work longer, but his salary alone will not cover all of our expenses. Right now, essentially all of our savings are in retirement accounts which we would not be able to access until 59.5. We save 21% (not including 529s) of gross income (~30% with employer contributions) – but all in retirement accounts – 403b/457/backdoor roth IRA. My question is should we continue to save in these retirement accounts or not contribute to the max and save in a taxable account to use from 50-59.5? We have ~1.2 M in retirement accounts so far and only 75K in emergency and 15K in taxable investments. I would love any thoughts on this.
Great question! Thanks for much for posting. I look forward to WCI’s take on your question too. Look at the post he wrote on “The Concept of ‘Being Done’ Saving.” A lot depends on what your income needs will be in retirement for the years until you can tap retirement funds without penalty. My thoughts are as follows:
1. Great move on the Roths! The younger you are and the lower your tax rate it is a great move.
2. The 403b appears to have the same exception of our 401k in which if you end employment after age 55 you can tap it without the penalty. Check if this is true in your case and what it might mean for your situation. You need to consider if in your situation you would consider hanging on till 55 instead of 50 for that ability. There are other ways that you can tap it early that may or may not apply at the time for you.
3. Great job on retirement saving! You have time on your side for assets to grow. We have accomplished what we did with only 15% into 401K because that was all the retirement space we had available so the rest was put in taxable accounts. I would give serious consideration to backing down retirement savings, as long as you don’t miss any matching funds, to get your emergency fund up to at least the 9 month mark and to build a buffer of taxable investing to cover the amount you need till you can pull from retirement whether it be 55 or 59 1/2.
5. As you get closer to your retirement date you need to decide if paying the tax on the Backdoor Roth IRA is the best use of your money as it will be at your highest marginal rate. For us the math doesn’t make sense and we will likely wait until the early years of retirement to convert when income will be lower. It is time to pull out the calculator and start running your numbers.
6. Give serious thought to not going into retirement with any debt even low interest loans whether student loans or home mortgage. You will end up using the Roth to pay them or end up paying taxes on whatever amount you need to withdraw from tax deferred accounts or sell from taxable accounts to cover them.
7. Meeting with a fee only advisor if you are uncomfortable building a plan or for a second opinion on the plan you develop is definitely warranted. You have many moving parts in this analysis and having someone who knows all your specifics assist you is never a bad idea. Have some litmus questions for them to be sure they are on the same page as you and your husband. And, don’t do anything you don’t completely understand. Trust your instincts as you are doing terrifically so far!
You have plenty of time to learn and decide what works best for you. And, your decisions may change as you get closer to retirement so stay flexible. Please keep posting!
Dr MOM,
I think having money in taxable accounts will offer MRS MD maximal flexibility if she retires at 50. I have about 3.9Mill in a taxable account at Vanguard that is primarily indexed. I decided to stop OB when I realized I could live off the dividends and interest without tapping my actual retirement account. I post this not to brag but there really is something to be said about diversification of the types of accounts you hold. I hope to Roth convert after complete retirement in my 60s.
Please consider posting more of your story. It is educational to see how people think about finance differently and how they have achieved their success. Much happiness to you and yours, Hatton! Enjoy your partial retirement.
Ummm…I think it has less to do with diversification of accounts and more to do with the fact that you have $4M sitting around. 🙂 If I had $4M in taxable I’d be doing lots and lots of Roth conversions, essentially turning taxable money into Roth money.
I’d sooner walk through the forest in October wearing deer antlers than practice OB with $4 M in assets!
For 6.2M? Read his story which he posted above. Very interesting and informative!
I did, and you’re right!
At least retirement accounts are judgment-proof.
Hey Dr MOM I am female. Did I forget that?
My wrong assumption. It makes your comments even more amazing to me! Great lessons learned above. One of my hopes in this post was to inspire more women to get involved and to have the confidence to speak up in the very male dominated world of finance. And perhaps to give guys a chance to see how a woman views finance and can be successful at it so maybe they can pull in a female viewpoint in their own lives. Even more now, please keep posting!
Dr MOM, thanks. I think there are other female MDs who have a pretty good story. I felt like you encouraged me to open up about mine. As you probably know women make good investors because they tend not to trade as much. We all male and female have to guard against being talked down to by financial professionals.
So true. Let’s hope more keep opening up. It blows my mind how you and many of the posters here seem to do all the financial planning in your families alone. Pull in your partner if you have one and can. It frees up time for other endeavors. My husband can focus more on the practice with his time allotted to finance if I take care of the personal stuff. Then we have more time together for enjoying things that matter to us which is the whole point to me of why we are managing our money in the first place…to gain time.
I quit OB. I had lots of insurance.
Thanks I hope to do Roth conversions in my 60s after I retire completely but before the double whammy of social security and RMDs begin.
Smart thinking.
Thanks Dr. Mom for your input! I looked into withdrawing from our 403b before age 59.5 and couldn’t find anything that tells me I could do so. I completely agree with point #6. We have been paying extra money into our mortgage this past year rather than investing in taxable accounts (which I know has been a topic of discussion on this site). We have not paid any extra principle on the student loans given the lower interest rate at least until our mortgage is paid off. We also have a rental property with 13 years left on the mortgage that would also give us some additional income.
We’ve met with number of financial advisors, but none have fit the bill. We have not yet met with a fee-only advisor, but have considered it. It’s been difficult for me to find someone who I feel I can trust.
Ask your 403b Administrator to be sure about the early withdrawal at 55.
Consider beefing up an emergency fund. You are carrying quite a bit of debt to manage if anything happens to either of you. Remember the emergency itself can be expensive. The helicopter ride to the tertiary care facility balance billed us for about 25k (after insurance paid 10k), but accepted significantly less for up front cash.
I got comfortable over time with our plan and gave up on finding an advisor for now anyway. The ones we tried all talked down to me as the female. My husband found it very funny.
You did the right thing converting your non-deductible IRA money to a Roth.
Regarding your main question, read this post:
https://www.whitecoatinvestor.com/how-to-get-to-your-money-before-age-59-12/
Then figure out a plan to get from retirement to age 59 1/2. It might be raiding retirement accounts. It might be a taxable account. It might be your husband’s job etc.
Personally, I hate passing up the tax break available with retirement accounts (either tax-deferred or Roth) and haven’t actually NOT maxed out a retirement account available to me since about 2004. That said, you’re doing awesome on the retirement front. 37 and $1.2 Million? Even if you didn’t put another dollar in, and it grew at 5% real, there would be $2.3 Million in today’s dollars when you hit 50, or $3.7 Million in today’s dollars at 59 1/2. Basically, you’ve already paid for retirement.
https://www.whitecoatinvestor.com/the-concept-of-being-done-saving/
So I think it’s fine if you want to do Roth conversions or taxable investing or just spend more or whatever. Remember also that you have less asset protection if you decide to go taxable.
At any rate, I don’t know that I should be giving you advice. You’re both younger, and richer, than I am. What I ought to be doing is soliciting a guest post from you. Let me know if you’re interested.
I’m very honored that you would even make a suggestion of a guest post! I’m not sure what I would contribute except simply an example of how being diligent with saving (and obviously having a good income) could accumulate wealth. Both my husband and I were fortunate enough to have our undergrad education paid for, but we both have student loans from medical school. All of what we’ve accumulated was on our own with little help from our parents. We made good choices and saved. That’s not to say that we do not spend our money either. We do go on a couple of vacations a year and my husband has his toys (mainly electronics – home theatre, etc). We don’t really limit how much we spend per se, but I do keep track of where our money is going. We’re not really into cars and plan to drive them for 10+ years at minimum. Our biggest splurge has been our house, but this would be the one reason why I wouldn’t be able to retire at 50.
Based on your “concept of being done” post and as you illustrated above, perhaps we are close to being done with saving for retirement, but like you I have a hard time not contributing to the max. As I mentioned in the reply to Dr. Mom, we have paid off some of our mortgage this year by paying into the principle (~58K) this year to try and reduce our debt load. In the next few years, we’ll be getting a “raise” as our kids will be out of child care and we will be able to put the child care tuition into our taxable investments at that time.
Don’t count on that raise! In my limited experience, the kids get more expensive as they age!
Another thought…Add “Value Averaging” by Michael Edleson to your reading list although it should not be a first personal finance read. It may give you some ideas on varying your annual percentage to save in retirement based on the market and how you are performing towards your retirement goal. It helped me learn to see market downturns as opportunities.
Dr. Mom,
Thanks for sharing your financial journey. Question for you: what was your
savings rate before and after 2004? Also, how did you manage to increase your
net worth from 488k to 1M from 2004 to 2007?? That is remarkable given your
income level at the time.
Sent from my iPhone
See answer below. Your answer didn’t post directly under your question. Sorry.
It’s not particularly remarkable. There is a snowball effect which explains why the rich get richer. Debt gets paid off, retirement money starts growing faster and faster, you’re continuing to make contributions, income may go up etc. It was amazing to me how fast our net worth went from $500K to $1M (less than 2 years from 2011-2013.) Just like 2004-2007, 2011-2013 was a stock bull market, which provides a real tail wind.
As my kids will lament with you, there is never an easy answer with me, but I will try. I don’t think in terms of savings rates. I tried to look at the numbers that way for you but it was confusing to me. Savings has a passive and to us negative connotation, so we look at how our money can work as hard for us as we do for it. Given that my husband owns his own practice both the numerator and denominator of the savings rate can vary. The short answer to how we did it is my husband is as purposeful in business finance as I am in personal finance also through self-education. He has a “team” that helps him: a local accounting firm with payroll and taxes, an attorney with business structuring, and another accounting firm that addresses the 401K. Here is how the numbers changed from 2004 to 2007 to make up that roughly 500K improvement:
1. House: Small but significant. We paid off 35K and it appreciated 15K. So 50K there. (We use property tax valuation for the home as in our area it is a good low ball estimate of home value.)
2. Retirement Plan: He went from a SEP-IRA with a deferral of 17,500 to a 401K with match and profit sharing of pushing 50K. I was also putting away into a Simple IRA at work and a nondeductible IRA. With our investing choices factored in also, our retirement grew from 200K to 500K. So 300K there.
3. Business Restructuring: By 2006, the practice loan was paid off so there was a lot of extra money that if we brought directly home would be highly taxed. He restructured into a C corp from an S corp. We formed an LLC to hold all office equipment that the practice would rent from us to create passive income of about $7700/mo. The kids are part owners with us. Their 529’s were funded from this pool of money. At the end of 2007, it had 90K in the bank.
4. 529’s: The kids UTMA’s and 529’s grew from 38.5K to 120K. I don’t remember where we started with monthly amounts invested in 2004, but the max we invested for the 3 kids was 4K/mo. So 80K there.
4. Vehicles- I follow this mostly for fun but it helps keep them in perspective given how many we have. They were a NEGATIVE 10K in those years.
My husband sets his pay by the amount needed to max his 401K which for 2014 is 260K. (I don’t remember what it was then but this example will give you the idea of what he does.) For 2014, he takes a pretax base salary of 216K that we live on. Then he takes bonuses up to 260K. Above that he takes dividends if money is left after maxing out the 401K and paying the LLC. The money that comes home above the base we spend, give, invest, and pay down house with. The money in the LLC is for new equipment, office emergencies, family spending, and kids’ college.
Sometimes we wonder if all this complication is worth the trouble and set up costs, but it seems to work. I don’t know if I answered what you were after, but maybe it is helpful to see a different way of thinking about the numbers?
Thanks so much for the detailed response and, yes, it was what I was looking for. Though are you counting 529 contributions twice (items 3 and 4)? I may be reading that wrong. A couple of follow-ups if you don’t mind:
Did you have a mortgage balance at the end of 2007 and if so, is that reflected in your 2007 net worth? Is your home paid off presently? Thanks again.
Counted 529’s once in #4, just told you where they came from in #3.
Yes, we still had mortgage in 2007. I subtracted out the mortgage from these net numbers already. Currently it is 285K now on a 15yr at 3.125% which we are paying down more rapidly than 15 years. Our goal is to pay it off before age 60. We will likely speed up the timeframe more once we see what college and post grad funding needs are for the kids.
Currently a PGY-3 resident and enjoying this read about fellow physicians making good choices.
But then I see around me (and many of you do too) past residents 1 year out of residency buying $500-$550k homes 4k+ square feet with kids who are far from school-age or no kids at all. It boggles my mind, how can they be affording this right out of residency, and why would they be buying this? Sometimes I think why not just buy a home like that and enjoy it.
Your last sentence brought back so many memories for me, so I will answer the way I wish someone had told me:
First, you are tired. Residency is exhausting. A wise professor told me when given the choice–sleep. All this financial stuff will be here tomorrow when you are less tired. Do not make major decisions post-call. During residency focus on little financial goals like getting out of credit card debt or car loans. Contribute to a Roth if you can. Make a plan for student loans. Those habits will serve you well in bigger financial decisions later. Apply the phrase, “do no harm,” to your financial self. Learn to be the best doc you can be.
Second, I dream so much more for you than keeping up with the Joneses. They are often overextended, broke, and unhappy. Think about yourself and what you want. Use your intellect and ability to delay gratification to your financial advantage not to your detriment. Just because you want something does not mean you can afford it right now.
Third, replace the word “home” with the word “house” when you think about buying one. Words are powerful, and the real estate profession has used them to great advantage. The “home” is you and your family. It is portable. The “house” is just where it lives for a little while. The odds are very small that the first house out of residency will be the one you spend your entire life in. So buy what you need. Save up the wants till you can afford them. We have bought four houses over the years. We walked away from each of them and ended up in a second choice that was better for us three times. The fourth house is the one we are in now. We got an amazing deal on it by walking away in the beginning. Try to view your initial house purchase as an investment. Buy what your market is looking for if a quick resale becomes necessary, or in case you want to keep it as a rental.
FInally, read “The Millionaire Next Door” by Thomas Stanley. It is an easy, enjoyable read and well worth the effort especially during residency.
Best wishes and much happiness!
I agree that I felt pressure to buy a house when finishing residency. I bought a townhouse but I was able to sell it for what I paid for it. I am 57 now and have owned 3 houses. I still see newly minted docs buying the large houses on golf courses. I think this is a mistake. It is sold to them as a quasi-investment. If you do not have money to furnish the house then it is too big. Live like a resident and only buy the square footage that you need. Large houses need lots of furniture and have larger utility bills.If you a big house in an expensive neighborhood are you going to clean it yourself and cut your own grass? The overhead mounts up.
I always enjoy your comments! It gave me a good laugh thinking back to our first two houses which were bigger than we needed. We left the unneeded rooms empty and resisted the urge to furnish them. The kids had a blast using them as indoor play spaces, especially the empty formal dining room! We sold them before the idea of staging a house for resale became popular. Sometimes I wonder how the buyers looked past all the plastic toy stuff everywhere. By the third house when we downsized to focus on paying off student loans we actually had a fully furnished house for the first time!
Our current house had several empty rooms for a couple of years. No biggie. Still have one room that’s basically just toys.
Is the house you are in now the first one you bought right out of residency?
I was 30 before I had a dryer and 40 before I bought dining room furniture. I never use the dining room so I guess that was a waste but it looks nice. I plan to sell my 3200 square foot house and move to my husband’s 1500 square foot house which is on a lake. Anybody want to buy some furniture?
Pass on the furniture. We never bothered with the dining room set. By the time we could afford it, we had gone so long without one we figured why bother. When we renovated we incorporated the dining room into a big eat in kitchen which is where everyone congregated anyway.
It cracks me up when people talk about a house/home being an investment. Is it expensive? Yes. Do you have to budget for it? Yes. Do people show you fancy plots of increasing home value? Yes.
This is how my house was pitched to me as well. I think a home is the complete opposite of an investment. Where else would you spend good money to knock down perfectly good walls and then re-build them 3 feet over because you didn’t like where they were? Where else would you re-paint a perfectly good paint job because it wasn’t your favorite color. Where else would you put in ceramic tile that is 8 times as expensive as laminate flooring at Home Depot when they will both be stepped on by the exact same feet?
To me, a home can be an investment but most of us don’t treat them as such. They are more like cars — very expensive toys through which we “express” our individuality.
My real estate agent told me that she sold a property the prior year at which the sellers had spent $75k putting in a fancy in-ground pool the year before they sold. The first thing the buyers did when they took possession was fill it with dirt and lay grass on top.
Agree completely that upgrades for personal taste can’t be considered to be recouped, especially pools. Where the house can be seen as an investment is when you can wait for the great deal that your market is mispricing for any one of a number of reasons. For us, it was an empty, older, dated home that was a for sale by owner that many people didn’t even know was on the market. My husband found it on a bike ride.
Sometimes just being brave enough to put in a low ball offer is all it takes. My parents got a lake lot down the street from us for half what the asking price was. The owners were ready to sell and didn’t even counter, just accepted. My parents immediately got multiple higher offers to sell it but since the point was to be near us, they built. A house doesn’t always work out as an investment but considering it as one at the buy can be helpful.
Oh I meant to comment earlier. I have read all the Stanley Millionaire books. Fascinating.