2 Residents, a ton of debt, and a hope to retire one day

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Plan2RetireASAP
Posts: 6
Joined: Tue Dec 10, 2013 7:17 am

2 Residents, a ton of debt, and a hope to retire one day

Post by Plan2RetireASAP »

I have been following bogleheads for awhile and am realatively new to long term index fund investing as well as having a long term mindset to my financial future. However, before I get too much farther into my plan I wanted to run it by experienced investors for a different perspective and critical analysis along with answers to a few questions.

Profile
Wife age 28
Me age 29
Baby-gestational age 8 weeks :)

Debt
Her Med school debt  $290K (currently on forbearance @7%-will explain later)
My Med school debt $300K (currently on IBR repayment ~$325/mo)
My Undergrad debt $60K (currently on forbearance @ vari market 3.5%)
Mortgage $125K @3.75%/30yr FHA (payment $1200/mo)
CC ~$10K (actively paying down with plans to have paid off in 4 months).

Retirement Assets-All currently invested in Vanguard Retirement 2030-Ideal asset allocation for our risk tolerance ~80/20.
My 403b $3500, matched by employer at 50% of 4% deferral (currently deferring 5%).
My Roth $3500, currently investing on dollar cost averaging with plans to have max contribution $5500 by April 15th.
Her Roth $3500, currently investing on dollar cost averaging with plans to have max contribution $5500 by April 15th.

Salary
Both Resident physican salaries @ $55k/yr
Contract for $~225k/yr starting in 6 months for her (mindful that she will need maternity leave almost immediately)

Emergency Fund
2 months (plan to fund 6 months within 1 year)

Plan
We obviously have a TREMENDOUS amount of debt. However, after much prayer and research I think we have come up with a reasonable long term debt management plan and retirement planning (Plan for age 60). My residency is long, I have at least another 3 years and plan to do a 2-3 year fellowship following it. My loan payments after 8 years, made under income based repayment will all count towards the 10 year loan forgiveness program (if it still exists) which is what we are planning for management of my med school debt.

Her med school debt is currently on forbearance as her contract after she graduates is at a for-profit insitution and her payments will NOT count towards loan forgiveness in the future. The small IBR payments we were making made little difference in the big picture so we placed them on forbearance to allow us to place those funds in tax deferred retirement accounts while we could. Once we take her loan out of forbearance, we plan to make minimum payments and concentrate on paying off the mortgage first (goal 5-6 years). We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything).

Meanwhile, we will continue to contribute to ROTH accounts while our tax status allows us to do so using dollar cost averaging because large lump sums are not available yet.

Questions
1. My biggest question is going forward when to switch from investing in Vangaurd 2030 fund to moving to a 3 fund portfolio and placing the Bond fund in the tax deferred account. Our balances are quite low now, but when do I make that decision and when I do, should those bonds be in the 403b or the ROTH?

2. Our tax bracket is going to change in the near future. Is there any advice that you wish you would have been given or taken prior to be placed in that tax bracket that I can take advantage of now?

3. What perspectives and critique do experienced investors/advisors have with what I laid out above.

Thank you in advance for the thoughts and advice
User avatar
goodenyou
Posts: 3602
Joined: Sun Jan 31, 2010 10:57 pm
Location: Skating to Where the Puck is Going to Be..or on the golf course

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by goodenyou »

I would try to get out of debt as fast as possible by taking the highest paying job in a no income tax state and worry about investing in the future. I really feel for you both. It is criminal that we are expecting medical school students to amass this amount of staggering debt. I had about $100k in debt and my strategy was to pay it off as fast as possible. I didn't even think of investing until I did. Do you have any idea what this debt will be AFTER you finish training (after compounded forbearance interest)? Many doctors who become parents don't return to the workforce.
Stan Dup
Posts: 776
Joined: Fri May 10, 2013 10:25 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Stan Dup »

Have you heard of http://whitecoatinvestor.com ?
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Professor Emeritus »

There is absolutely nothing magical about "building equity" and you are paying a huge price by paying down deductible, dischargeable debt and keeping non deductible non dischargeable Student debt.

you say "We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything)." I submit this statement is simply not rational

Your net worth is your net worth wherever the debts are. Get rid of the bad debt, keep the good debt

Your first financial priority is getting rid of the student debt, except for any retirement savings needed to get an employer match.

Good luck with the Baby.
technovelist
Posts: 3611
Joined: Wed Dec 30, 2009 8:02 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by technovelist »

I agree on getting rid of the student loan debt as soon as possible. That is the most toxic debt imaginable. Whatever you have to do to get rid of it, do it; investing can wait.
In theory, theory and practice are identical. In practice, they often differ.
DualIncomeNoDebt
Posts: 436
Joined: Wed Jul 18, 2012 3:38 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by DualIncomeNoDebt »

$650k school debt, that's a mountain. Please listen to the posters above and to me: eliminating that debt must be a priority. It will be a millstone around your neck until it is totally eliminated. And based on experience, I would forestall any meaningful consumption until the school debt is zeroed out, down to the last penny. This means no luxury cars, no expensive trips, no showcase home. Throw everything you have to satisfy that monstrous balance.

Five or ten years from now, I promise you a million times, you will thank us for the advice. When you are freed from the yoke of lenders who don't give a flying F about you, you will thank us. When you are debt free and can make decisions free and clear, it will be such a massive load off your shoulders. It will be freedom.
Topic Author
Plan2RetireASAP
Posts: 6
Joined: Tue Dec 10, 2013 7:17 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Plan2RetireASAP »

Professor Emeritus wrote:There is absolutely nothing magical about "building equity" and you are paying a huge price by paying down deductible, dischargeable debt and keeping non deductible non dischargeable Student debt.

you say "We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything)." I submit this statement is simply not rational

Your net worth is your net worth wherever the debts are. Get rid of the bad debt, keep the good debt

Your first financial priority is getting rid of the student debt, except for any retirement savings needed to get an employer match.

Good luck with the Baby.
While I see your point, consider the rational for building equity in house. Given my current financial picture, should I have a real emergency, something that requires cash-I can't go to the bank and ask to borrow against my original principal on student loan debt. I can however, go and ask to borrow against tangible property that I do own, or own part of. The cost of owning that equity yes, may be more than it would be if I had no other or cheaper debt, but not nearly as expensive at not being able to finance myself out of a bad situation-if that would be the case, it would be a worse situation. I am NOT planning on borrowing anything else-just to clarify. This is merely a "safety net" if there could be one in this dark financial situation.

I get that school debt is toxic and as soon as I can get rid of it reasonably (considering my rational above) I will do so; but not owning anything places me and my family in a very vulnerable position.
Topic Author
Plan2RetireASAP
Posts: 6
Joined: Tue Dec 10, 2013 7:17 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Plan2RetireASAP »

DualIncomeNoDebt wrote:$650k school debt, that's a mountain. Please listen to the posters above and to me: eliminating that debt must be a priority. It will be a millstone around your neck until it is totally eliminated. And based on experience, I would forestall any meaningful consumption until the school debt is zeroed out, down to the last penny. This means no luxury cars, no expensive trips, no showcase home. Throw everything you have to satisfy that monstrous balance.

Five or ten years from now, I promise you a million times, you will thank us for the advice. When you are freed from the yoke of lenders who don't give a flying F about you, you will thank us. When you are debt free and can make decisions free and clear, it will be such a massive load off your shoulders. It will be freedom.

Should I not entertain the loan forgiveness program? I stand to be rewarded with a forgiveness of a very large part of our school debt if I keep my head down and work for a nonprofit/government entity?

That freedom you speak of is exactly what I'm after. I am also weary of chasing that freedom at the lost cost of also being able to enjoy life-in a frugal and responsible way. Doing nothing but putting every penny I make at $55k/year into that debt would mean that I wouldn't get to enjoy vacations with family or any other non essential travel for decade(s). At some point, self development has to be considered-again in a FRUGAL and responsible way. I get no lavish stuff. We both live well within our means.
icefr
Posts: 613
Joined: Sun Apr 17, 2011 10:50 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by icefr »

Plan2RetireASAP wrote:
Professor Emeritus wrote:There is absolutely nothing magical about "building equity" and you are paying a huge price by paying down deductible, dischargeable debt and keeping non deductible non dischargeable Student debt.

you say "We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything)." I submit this statement is simply not rational

Your net worth is your net worth wherever the debts are. Get rid of the bad debt, keep the good debt

Your first financial priority is getting rid of the student debt, except for any retirement savings needed to get an employer match.

Good luck with the Baby.
While I see your point, consider the rational for building equity in house. Given my current financial picture, should I have a real emergency, something that requires cash-I can't go to the bank and ask to borrow against my original principal on student loan debt. I can however, go and ask to borrow against tangible property that I do own, or own part of. The cost of owning that equity yes, may be more than it would be if I had no other or cheaper debt, but not nearly as expensive at not being able to finance myself out of a bad situation-if that would be the case, it would be a worse situation. I am NOT planning on borrowing anything else-just to clarify. This is merely a "safety net" if there could be one in this dark financial situation.

I get that school debt is toxic and as soon as I can get rid of it reasonably (considering my rational above) I will do so; but not owning anything places me and my family in a very vulnerable position.
If that's your reason for building equity in the house, why not build equity in a savings account? That's far more flexible. Save up 6-12 months of expenses in a savings account and then attack your student loans like crazy.
Novine
Posts: 1240
Joined: Mon Nov 17, 2008 8:07 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Novine »

"Should I not entertain the loan forgiveness program? I stand to be rewarded with a forgiveness of a very large part of our school debt if I keep my head down and work for a nonprofit/government entity? '

Yes, you should. Many people here aren't familiar with these programs and the potential to get school debt forgiven.
Topic Author
Plan2RetireASAP
Posts: 6
Joined: Tue Dec 10, 2013 7:17 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Plan2RetireASAP »

Stan Dup wrote:Have you heard of http://whitecoatinvestor.com ?
Thank you, yes I regularly visit his blog. There are some great topics, and some that are frankly a bit out of my league-just not there yet. Overall, the approach to student debt seems to be a controversial one. While the book answer is PAY It OFF, the reality is that it isn't that simple. Not after working your butt off in undergrad, med school, then 100 hour work weeks in residency. You wake up one day, I'm still in the middle of residency...and realize that life is happening.

The school debt I borrowed naively as a med student can't be taken back, my plot is my plot, and thankfully, I love what I do. The reality is that mountain of debt is far from attainable at my meager residency earnings and frustrating myself by trying to pay it off now is nothing more than frustrating.
Topic Author
Plan2RetireASAP
Posts: 6
Joined: Tue Dec 10, 2013 7:17 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Plan2RetireASAP »

icefr wrote:
Plan2RetireASAP wrote:
Professor Emeritus wrote:There is absolutely nothing magical about "building equity" and you are paying a huge price by paying down deductible, dischargeable debt and keeping non deductible non dischargeable Student debt.

you say "We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything)." I submit this statement is simply not rational

Your net worth is your net worth wherever the debts are. Get rid of the bad debt, keep the good debt

Your first financial priority is getting rid of the student debt, except for any retirement savings needed to get an employer match.

Good luck with the Baby.
While I see your point, consider the rational for building equity in house. Given my current financial picture, should I have a real emergency, something that requires cash-I can't go to the bank and ask to borrow against my original principal on student loan debt. I can however, go and ask to borrow against tangible property that I do own, or own part of. The cost of owning that equity yes, may be more than it would be if I had no other or cheaper debt, but not nearly as expensive at not being able to finance myself out of a bad situation-if that would be the case, it would be a worse situation. I am NOT planning on borrowing anything else-just to clarify. This is merely a "safety net" if there could be one in this dark financial situation.

I get that school debt is toxic and as soon as I can get rid of it reasonably (considering my rational above) I will do so; but not owning anything places me and my family in a very vulnerable position.
If that's your reason for building equity in the house, why not build equity in a savings account? That's far more flexible. Save up 6-12 months of expenses in a savings account and then attack your student loans like crazy.
True. Why not do both though? It would cost a little bit more to save ~$27k (what I figure is my 6 mo expenses) and pay off a mortgage than place all that income into school debt at this point in my life.

I struggle huge with this obviously, because I feel that its risky (in terms of opportunity cost) paying off that debt now when my paychecks are really not anything close to what I need to reasonably make a dent in that mountain of debt.
goblue100
Posts: 1729
Joined: Sun Dec 01, 2013 9:31 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by goblue100 »

Professor Emeritus wrote:There is absolutely nothing magical about "building equity" and you are paying a huge price by paying down deductible, dischargeable debt and keeping non deductible non dischargeable Student debt.

you say "We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything)." I submit this statement is simply not rational

Your net worth is your net worth wherever the debts are. Get rid of the bad debt, keep the good debt

Your first financial priority is getting rid of the student debt, except for any retirement savings needed to get an employer match.

Good luck with the Baby.
+1 to all of the above
Plan2RetireASAP wrote: While I see your point, consider the rational for building equity in house. Given my current financial picture, should I have a real emergency, something that requires cash-I can't go to the bank and ask to borrow against my original principal on student loan debt. I can however, go and ask to borrow against tangible property that I do own, or own part of. The cost of owning that equity yes, may be more than it would be if I had no other or cheaper debt, but not nearly as expensive at not being able to finance myself out of a bad situation-if that would be the case, it would be a worse situation. I am NOT planning on borrowing anything else-just to clarify. This is merely a "safety net" if there could be one in this dark financial situation.

I get that school debt is toxic and as soon as I can get rid of it reasonably (considering my rational above) I will do so; but not owning anything places me and my family in a very vulnerable position.
Paying off tax deductible 3.5% interest while leaving non deductible 7% around makes no sense to me. The ability to borrow against an asset is highly overrated. If you lose your jobs, for instance, you will not be able to get a home equity loan. Build up some cash so you don't have to borrow and then get rid of that high interest debt as fast as you can.
"Confusion has its cost" - Crosby, Stills and Nash
ieee488
Posts: 1989
Joined: Thu Dec 10, 2009 7:57 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by ieee488 »

goblue100 wrote:Paying off tax deductible 3.5% interest while leaving non deductible 7% around makes no sense to me.
To be blunt, it is very wrongheaded.

his current crusade with "building equity" = building building debt, his student loan debt
Dell Optiplex 3020 (Win7 Pro), Dell Precision M6300 (Ubuntu Linux 12.04), Dell Precision M6300 (Win7 Pro), Dell Latitude D531 (Vista)
Saving$
Posts: 2518
Joined: Sat Nov 05, 2011 8:33 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Saving$ »

Ok, so you want to pay down the mortgage to "build equity." If the market tumbles again like it did in 2008, all that equity will disappear.

I can see you are cautious. Perhaps too cautious, but we will go with it.
1. Max out your employer match to both 401k/403b (you are doing this).
2. Max out both Roth IRA's (you are doing this). Remember you can with draw from the Roth principal without penalty if you need the funds.
3. Put money toward an emergency fund. Once your emergency fund is healthy enough to stop yourself from feeling like you are teetering on the edge (which I sense), then:
4. Put extra money in both 401k/403b. You will never again get that tax advantaged space back, and if disaster strikes, you can borrow against it. True, you cannot borrow against it if you no longer work there, and you have to pay it back if you lose your job, but if you both max them out, presumably you won't both be unemployed at the same time.

As to the pay off student loan debt vs mortgage, I'm not familiar with the forgiveness programs. But short of those, you logic to pay off the house does not make sense. Pay off the debts that have no chance of being forgiven first, before you make extra payments on the house. Can you refi to a lower rate?
User avatar
goodenyou
Posts: 3602
Joined: Sun Jan 31, 2010 10:57 pm
Location: Skating to Where the Puck is Going to Be..or on the golf course

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by goodenyou »

my plot is my plot, and thankfully, I love what I do.
Most every young doctor I know said this when they were starting. 20-25 years later it may be a different story. Most have different feelings about medicine after they have practiced for many years. You don't know how the capricious changes in medicine will effect your love to practice it. It is imperative to get rid of your education debt. It is non-securitized, or maybe only securitized to your love of what you do. You will want freedom in your life; freedom with choices. Freedom of debt and a positive balance sheet will give you those choices. If you can find faster, alternate ways to get rid of your education debt, do it.
Childay
Posts: 76
Joined: Wed Jan 25, 2012 10:07 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Childay »

Agree with above comments. You should be paying down the student loans rather than a mortgage.

Also your SO should not be in forbearance. It doesn't matter if her payments aren't making a difference "in the big picture." At the least pay them with IBR while in residency as well to prevent interest from compounding.

As I am sure you are aware, the student loan forgiveness program sounds like a great deal but may be cancelled in the future (prior to you using it). This is a risk that is difficult to estimate.

Lastly, obviously pay off the CC debt, and build an EF.
Last edited by Childay on Tue Dec 10, 2013 8:14 pm, edited 1 time in total.
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Professor Emeritus »

Plan2RetireASAP wrote:
Professor Emeritus wrote:There is absolutely nothing magical about "building equity" and you are paying a huge price by paying down deductible, dischargeable debt and keeping non deductible non dischargeable Student debt.

you say "We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything)." I submit this statement is simply not rational

Your net worth is your net worth wherever the debts are. Get rid of the bad debt, keep the good debt

Your first financial priority is getting rid of the student debt, except for any retirement savings needed to get an employer match.

Good luck with the Baby.
While I see your point, consider the rational for building equity in house. Given my current financial picture, should I have a real emergency, something that requires cash-I can't go to the bank and ask to borrow against my original principal on student loan debt. I can however, go and ask to borrow against tangible property that I do own, or own part of. The cost of owning that equity yes, may be more than it would be if I had no other or cheaper debt, but not nearly as expensive at not being able to finance myself out of a bad situation-if that would be the case, it would be a worse situation. I am NOT planning on borrowing anything else-just to clarify. This is merely a "safety net" if there could be one in this dark financial situation.

I get that school debt is toxic and as soon as I can get rid of it reasonably (considering my rational above) I will do so; but not owning anything places me and my family in a very vulnerable position.

Now you are changing "treatment rationale" when challenged. (yes I married a doctor) , which always indicates a very poor initial analysis. Tapping equity in a home requires available INCOME. You can't tap equity in financial emergency unless you have sufficient income. Your financial risk is losing your income. Your plan has an emergency fund. Make it bigger Houses are not liquid assets. lenders know that. You will lose the house first.
DTSC
Posts: 1194
Joined: Mon Oct 20, 2008 9:47 am
Location: Illinois

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by DTSC »

I agree with posters who recommend you pay down the highest interest student loans first. Put another way, you can default on your mortgage. You can declare bankruptcy and walk away from credit card debt. But as far as I remember, barring death or disability, you cannot walk away from student loans - ever.

While my student loan balance wasn't nearly as high as yours, you will soon have 2 attending salaries too. As long as you're both not in primary care, you'll do fine as long as you live like residents for the first 5 years after you become attendings.

Good luck
michaelsieg
Posts: 625
Joined: Mon Jan 07, 2013 10:02 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by michaelsieg »

Something that has not been mentioned - you can greatly increase your income during residency. Get a state medical license and start moonlighting. You can easily make $1000 a night covering in a local ER - you only have to work 80 hours a week with the current RRC rules and have plenty of time to do a few night-shifts every month. This might not be possible on all rotations during your residency, but is definitely possible on many of them. It will make a huge difference on your financial bottom line - use all that money to pay off debt, the 7% interest debt of your wife has to go away fast. If your residency has mandatory lab time, and you moonlight a lot during that time, you will be able to pay of a significant chunk of your wife's debt off.
I probably wouldn't have taken out a mortgage in residency with that amount of debt...as mentioned before, you need a emergency fund, but that is all the equity you need. Use the rest to pay off debt.
User avatar
StormShadow
Posts: 1005
Joined: Thu Feb 09, 2012 5:20 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by StormShadow »

Couple thoughts...

Also agree that your first priority should be on working down that toxic school debt. I like to view things from a worst-case scenario. Credit card debt and mortgage debt is dischargable with bankruptcy. School debt is not. Something to keep in mind.

FYI, when your wife becomes an attending you'll probably only be able to contribute to a direct Roth IRA during that first 1/2 year she works (starting ~July 2014, I assume). Starting 2015 when she's earning the full $225k and you're earning $55k, you'll have to go the backdoor Roth or stick with a traditional IRA. (Salary limit is $191k for married filing jointly in 2014.)

Before contributing to the IRA, at a higher combined tax bracket it makes more sense to max out her tax deferred traditional 401(k) and possibly 457 (if offered). Check to see if her employer also offers some sort of profit-sharing plan to her 401(k) to increase her tax deferred amounts up to $52k. As a physician, avoiding as many taxes as possible is almost as important as minimizing the debt. Not to mention, 401(k) is protected from creditors in case you lose a major lawsuit (think malpractice) or have to file for bankruptcy (again, malpractice). Roth IRA's may or may not be protected depending on which state you live in.
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Calm Man »

icefr wrote:
Plan2RetireASAP wrote:
Professor Emeritus wrote:There is absolutely nothing magical about "building equity" and you are paying a huge price by paying down deductible, dischargeable debt and keeping non deductible non dischargeable Student debt.

you say "We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything)." I submit this statement is simply not rational

Your net worth is your net worth wherever the debts are. Get rid of the bad debt, keep the good debt

Your first financial priority is getting rid of the student debt, except for any retirement savings needed to get an employer match.

Good luck with the Baby.
While I see your point, consider the rational for building equity in house. Given my current financial picture, should I have a real emergency, something that requires cash-I can't go to the bank and ask to borrow against my original principal on student loan debt. I can however, go and ask to borrow against tangible property that I do own, or own part of. The cost of owning that equity yes, may be more than it would be if I had no other or cheaper debt, but not nearly as expensive at not being able to finance myself out of a bad situation-if that would be the case, it would be a worse situation. I am NOT planning on borrowing anything else-just to clarify. This is merely a "safety net" if there could be one in this dark financial situation.

I get that school debt is toxic and as soon as I can get rid of it reasonably (considering my rational above) I will do so; but not owning anything places me and my family in a very vulnerable position.
If that's your reason for building equity in the house, why not build equity in a savings account? That's far more flexible. Save up 6-12 months of expenses in a savings account and then attack your student loans like crazy.
I agree with this, good doctor. (I'm one too.) This is circuitous and frankly "ridiculous" (I know you can take it). Home equity is NOT easier to tap than an investment in a financial asset which can be tapped with one click of a mouse. And I hope you are aware that home equity can disappear in a real estate recession. One of you will have childbirth and hopefully all is well but you can never know what the future brings. Goodness knows what the future of your pay will be (I have a daughter who is a resident) as this whole new health care scenario is full of uncertainties. Your debt is far more massive than either I had in inflation adjusted terms and I worked on eliminating it ASAP. I also wasn't planning a retirement date so early in my training. But once you realize that you don't know the financial end of things (why should you) and start taking some advice from the good folks here, maybe you can right the ship. Good luck.
User avatar
White Coat Investor
Posts: 17413
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by White Coat Investor »

Plan2RetireASAP wrote: Questions
1. My biggest question is going forward when to switch from investing in Vangaurd 2030 fund to moving to a 3 fund portfolio and placing the Bond fund in the tax deferred account. Our balances are quite low now, but when do I make that decision and when I do, should those bonds be in the 403b or the ROTH?

2. Our tax bracket is going to change in the near future. Is there any advice that you wish you would have been given or taken prior to be placed in that tax bracket that I can take advantage of now?

3. What perspectives and critique do experienced investors/advisors have with what I laid out above.

Thank you in advance for the thoughts and advice
Unfortunately, $300K in debt per doctor is now the norm. It should be easy for you two to continue to live as a residents for the next 5-6 years since one of you will be a resident. She's going to have to work, at least part-time, until her debts are gone and you're out of training. If she can work full-time at least until you leave residency, you two should have most of your loans gone. Will either of you qualify for PSLF? I'd definitely look into it, especially given your long training period. You have a tremendous amount of debt, but at least you realize it and appear to "feel" it. Read the other active thread right now for an example of a doc who doesn't seem to "feel" the weight of his debt. You can learn something from his errors. He's 2.5 years out of residency, owes $52K on his car and another $70K on a lot he hasn't even built a house on, in addition to all the same student loans you have. To make matters worse, his portfolio isn't much larger than yours. He has made little progress in 2.5 years on a salary larger than your combined salaries.

http://www.bogleheads.org/forum/viewtop ... st=1881438

1. Doesn't matter. You don't need a taxable account any time soon. Stick with Roth IRAs and the TR fund. When she becomes an attending, you can readdress the retirement asset allocation issue once you see what's available in her 401K.
2. Roth roth roth. Learn about the backdoor Roth too. http://whitecoatinvestor.com/retirement ... -roth-ira/ No reason to stop Rothing when you hit attendinghood.
3. Live like a resident. http://whitecoatinvestor.com/live-like-a-resident/ If you live like you're $600K in debt, you'll do just fine.

Congrats on the new baby, er, embryo.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
gulliver
Posts: 94
Joined: Wed Aug 05, 2009 12:54 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by gulliver »

Plan2RetireASAP wrote: Once we take her loan out of forbearance, we plan to make minimum payments and concentrate on paying off the mortgage first (goal 5-6 years). We understand that this debt is at less interest than the school debt, but the benefit of actually building equity in something vs. nothing is worth that cost to us (paying down school debt builds no equity in anything).
I think you're crazy to worry about the mortgage at this point. Debt is negative equity; your biggest enemy is high, compounding interest rates. Put everything on a spreadsheet, make a schedule that's reasonable and start by knocking off the highest interest loans first.

Sounds like you're off to a great start. Congrats on the little one!
User avatar
zebrafish
Posts: 531
Joined: Sat Nov 24, 2012 9:28 pm
Location: Inside the tank

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by zebrafish »

What perspectives and critique do experienced investors/advisors have with what I laid out above.

Let's just say that with your wife's attending salary + your resident salary, you can pay off this debt in about 5-6 years, but only if you really sacrifice to do so and it is a top priority. If you have the attitude of apathy, "everyone else has this, so..."-- you will have the debt for the next 30 years. You CAN do this.

My wife and I currently have a similar income to what you will make when your wife becomes an attending and you are still a resident, and we've managed to put 1/3 of our income towards debt reduction and now retirement/529 investing (about 100K per year). As I posted in the other thread referenced above by emergdoc, we live well within our means (translation= we've kept living largely like residents). Until a couple years ago, I drove a 10 year old Honda, then I upgraded to a 3 year old used Subaru-- and, I'm an attending. The janitor in my building drives a nicer car than me. Now that I've dug out of my hole, we're relaxing (a little). This last summer-- about 10 years out of training-- we finally took a relatively nice vacation. But honestly, quality time spent with my kids/family is way more important than driving a sweet car or buying a fancy house. Some of the best fun I've had is coaching my daughter's soccer team-- a volunteer activity that costs nothing. I'd rather have the option of retiring early than drive a mercedes the next 20 years. And, the weight off my psyche from having loans paid off is huge.

Something to consider :beer
mnvalue
Posts: 1107
Joined: Sun May 05, 2013 2:22 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by mnvalue »

Childay wrote:As I am sure you are aware, the student loan forgiveness program sounds like a great deal but may be cancelled in the future (prior to you using it). This is a risk that is difficult to estimate.
Unless "his" loans are higher interest than "her" loans, there's no possible reason to worry about this right now. They simply pay IBR on his and throw all extra cash flow at hers. They only need to worry about whether it's worth paying off his once hers are done. (You probably realize this, but I'm saying it just to make it clear to the OP.)
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Professor Emeritus »

zebrafish wrote:What perspectives and critique do experienced investors/advisors have with what I laid out above.
Let's just say that with your wife's attending salary + your resident salary, you can pay off this debt in about 5-6 years, but only if you really sacrifice to do so and it is a top priority. If you have the attitude of apathy, "everyone else has this, so..."-- you will have the debt for the next 30 years. You CAN do this.
My wife and I currently have a similar income to what you will make when your wife becomes an attending and you are still a resident, and we've managed to put 1/3 of our income towards debt reduction and now retirement/529 investing (about 100K per year). As I posted in the other thread referenced above by emergdoc, we live well within our means (translation= we've kept living largely like residents). Until a couple years ago, I drove a 10 year old Honda, then I upgraded to a 3 year old used Subaru-- and, I'm an attending. The janitor in my building drives a nicer car than me. Now that I've dug out of my hole, we're relaxing (a little). This last summer-- about 10 years out of training-- we finally took a relatively nice vacation. But honestly, quality time spent with my kids/family is way more important than driving a sweet car or buying a fancy house. Some of the best fun I've had is coaching my daughter's soccer team-- a volunteer activity that costs nothing. I'd rather have the option of retiring early than drive a mercedes the next 20 years. And, the weight off my psyche from having loans paid off is huge.

Something to consider :beer
I agree and let me add my own. We were on the "scholarships/ public service" track in law and medicine. I was 37 before I owned a new car. It was a van to haul the kids in. Your salary may look huge but until you pay off what it cost to get that salary your are not yet making ANY money.
User avatar
market timer
Posts: 6535
Joined: Tue Aug 21, 2007 1:42 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by market timer »

Your wife's income is included in your IBR calculation, if you file as MFJ. If you file as MFS, your tax rate would likely increase while you are a resident.
Childay
Posts: 76
Joined: Wed Jan 25, 2012 10:07 pm

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Childay »

market timer wrote:Your wife's income is included in your IBR calculation, if you file as MFJ. If you file as MFS, your tax rate would likely increase while you are a resident.
OT: Assuming they calculate it correctly.. Sallie Mae did not even after multiple calls/letters. Eventually (after extreme frustration) I decided to just pay the increased amount as it was a good financial decision anyway..
Geoff
Posts: 10
Joined: Mon Oct 11, 2010 8:11 am

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by Geoff »

EmergDoc wrote: Read the other active thread right now for an example of a doc who doesn't seem to "feel" the weight of his debt. You can learn something from his errors. He's 2.5 years out of residency, owes $52K on his car and another $70K on a lot he hasn't even built a house on, in addition to all the same student loans you have. To make matters worse, his portfolio isn't much larger than yours. He has made little progress in 2.5 years on a salary larger than your combined salaries.

http://www.bogleheads.org/forum/viewtop ... st=1881438
You may have missed his followup post stating his net worth grew $240,000 over that time.
User avatar
White Coat Investor
Posts: 17413
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: 2 Residents, a ton of debt, and a hope to retire one day

Post by White Coat Investor »

Geoff wrote:
EmergDoc wrote: Read the other active thread right now for an example of a doc who doesn't seem to "feel" the weight of his debt. You can learn something from his errors. He's 2.5 years out of residency, owes $52K on his car and another $70K on a lot he hasn't even built a house on, in addition to all the same student loans you have. To make matters worse, his portfolio isn't much larger than yours. He has made little progress in 2.5 years on a salary larger than your combined salaries.

http://www.bogleheads.org/forum/viewtop ... st=1881438
You may have missed his followup post stating his net worth grew $240,000 over that time.
I'm glad to hear it.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Post Reply