New Physician Looking for Advice

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Topic Author
analogsavior
Posts: 35
Joined: Thu May 19, 2016 3:22 pm

New Physician Looking for Advice

Post by analogsavior » Thu May 19, 2016 3:45 pm

EDIT: Update July 15, please see new post here
viewtopic.php?f=1&t=191646&p=2982614#p2982614

EDIT: Question section updated 5/20

Hello everyone! I am a recent medical school graduate going into my first year of residency and hoping to get a good, early start in investing for retirement. I’ve had the opportunity to do some reading and actually arrived here via The White Coat Investor blog, but as I am new to all this, I figured I would post some of my question on here. Anyways here we go.

Emergency funds: 3 months
Debt: $300K in student loans, on track for forgiveness in 10 years
Tax Filing Status: Single
Tax Rate: 12% Federal, 5% State
State of Residence: VA
Age: 26
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 13% of stocks (10% of overall allocation)

Detailed breakdown:

45% Total Stock Market
10% Small-Cap Value
10% REIT
10% International Developed Markets
10% Total Bond Market
15% Intermediate Term Bonds

Current retirement assets

My Roth 403b
35% Fidelity Spartan Total Market Index Fund FSTVX 0.05%
10% Fidelity Spartan U.S. Bond Index Fund FSITX 0.07%

My Roth IRA at TD Ameritrade
10% Vanguard Total Stock Market ETF VTI 0.05%
10% Vanguard Small-Cap Value ETF VBR 0.08%
10% Vanguard REIT ETF VNQ 0.12%
10% Vanguard FTSE Developed Markets ETF VEA 0.09%
15% Vanguard Intermediate-Term Bond ETF BIV 0.09%

Total: 100%

Contributions

New annual Contributions
$4500 my Roth 403b + $1000 employer match
$5500 my Roth IRA

Available funds

Funds available in my Roth 403b
Many, many Fidelity funds, with several Vanguard funds

Funds available in my Roth IRA
100+ commission free ETFs including many from Vanguard

Questions:

1. First things first, I would definitely appreciate opinions on my overall asset allocation and fund selection. I’d be happy to explain my thoughts behind each allocation.

2. I definitely fall into the “someone once said small value was the way to go” category, and have not done enough reading on the subject to understand the reasoning behind it. Knowing that I will be continuing to read further on the subject, I would like to know some opinions on including 10% small-cap value in my asset allocation. My impression from what I have read is that as I have a long term investing horizon, there is potential for some nice returns by including it.

3. When it comes to my international allocation, I was initially hesitant to include any international assets, mainly due to family having bad experiences investing in international stocks. However, I’ve done enough reading to know I’d be missing out on a major part of the world economy by not including them. As such, I’ve decided to take (at least in my head) a more conservative approach to international stocks by focusing on the markets included in VEA (after reviewing the prospectus). Is this a reasonable approach?

4. I was initially going to go 100% intermediate term bonds, but after considering some of the risk, and my general approach for the rest of my portfolio, I decided to include the total bond market, with an emphasis on intermediate term bonds. Am I being ridiculous or is this a reasonable approach?

5. Through my 403b, I have access to several actively managed funds with histories of strong performance in the past (PRIMECAP, Wellington, Wellesley, Contrafund). Knowing that past performance does not guarantee future performance, would it make sense at the stage I’m at in my investing career to give some of these funds a shot?

6. My final question has to do with how I split my allocation between my two accounts. I tried including a reasonable amount of stock and bond funds in both accounts to allow for rebalancing. Does this split seem reasonable?

Further questions (updated 5/20)

7. Am I complicated things too early? Should I just go simple with a total stock market and total bond market fund and concentration on accumulation of funds rather than allocation?

8. Is it worth splitting my saving between my Roth IRA and my Roth 403b? Or as they are both Roth investments, could I funnel everything into the Roth 403b while I have access to it through my employer?

Currently my plan is as follows:

-Roth 403b to match (will verify match)
-Roth IRA to max
-Roth 403b up to savings goal

My question is, as these are both Roth accounts, would it make any difference to just put everything in the Roth 403b which could eventually be rolled into a Roth IRA?

Well, there you have it. At the end of it all, as a new investor I am really just looking for a few sets of eyes to make sure I’m not making any major mistakes. Thank you for your time, and I would greatly appreciate any advice.

analogsavior
Last edited by analogsavior on Sun Jul 17, 2016 7:01 pm, edited 5 times in total.

neuro84
Posts: 66
Joined: Thu Jul 24, 2014 11:25 am

Re: New Physician Looking for Advice

Post by neuro84 » Thu May 19, 2016 8:36 pm

Good job recognizing the importance of savings. I think the majority of medical residents don't have any retirement savings. Congrats on developing this habit early - your later self will thank you for maxing that Roth space now, while you're still at the 12% bracket! Congrats also on finding a residency program with an employer match. Mine does not offer such a benefit to PGY-1s.

As someone only very slightly ahead of you, at this point accumulation matters more than asset allocation. If I were you, I would keep things simple for now. For the 403(b), I would just pick the two Fidelity spartan funds, and for the Roth I would just do VTSMX and VBMFX. Better yet, pick target date funds. You can worry more about slice-and-dice once you have a bigger pie. Just my opinion; wiser heads may disagree.

Since your entire savings (to begin with) will be in tax-advantaged accounts, I don't think stock/bond ratio in the 403(b) vs IRA matters much. I could be wrong here and would love to be educated if I am.

Which specialty are you matching into? Are you planning on a fellowship? What are the rates on your student loans? I assume you're planning on income-based repayment (IBR) during residency, since you say "on track for forgiveness in 10 years." Are you absolutely certain you'll be working for a nonprofit after you graduate?

You may wish to plot out a couple of scenarios - one where you make IBR payments at a job which complies with the loan forgiveness plan, and one where you go into private practice and kill the debt within 2-3 years of finishing residency/fellowship. You may find that your overall revenue is higher in the second scenario.

Topic Author
analogsavior
Posts: 35
Joined: Thu May 19, 2016 3:22 pm

Re: New Physician Looking for Advice

Post by analogsavior » Thu May 19, 2016 10:34 pm

Thanks for the reply. I’ll start with loans part. I’m in psychiatry, so while very high salaries are possible, for the most part, I am planning as if I’d fall at the mean for the specialty. With that in mind after running my initial numbers, participating in both PAYE and PSLF made sense to me, but I should (and will) run the number to figure out what salary range I’d have to fall in to come out on top via knocking out my debt in those first few years. You never know what may happen, and depending on the fellowship I pursue, it may be more likely than not. Interest rates on my loans are around 7%.

As for investments, I will update my OP as you bring up a good point, and I did have in the back of my mind that perhaps I was complicating things a little too early. I’ve read varying opinions on starting with your desired allocation early. I appreciate the opinion, as it simplicity definitely make things easier for me at this point. However, I think my personality is a little too hands on to go with a target date fund.

I will go ahead and post another question here (and update the OP): Is it worth splitting my saving between my Roth IRA and my Roth 403b? Or as they are both Roth investments, could I funnel everything into the Roth 403b while I have access to it through my employer?

rai
Posts: 1250
Joined: Tue Apr 06, 2010 7:11 am

Re: New Physician Looking for Advice

Post by rai » Fri May 20, 2016 8:19 am

I was curious what is the student loan forgiveness?
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

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StormShadow
Posts: 753
Joined: Thu Feb 09, 2012 6:20 pm

Re: New Physician Looking for Advice

Post by StormShadow » Fri May 20, 2016 8:39 am

As a practicing physician, I think you are ignoring the elephant in the room... which is your student loans. I'd focus on this and make sure it doesn't spiral out of control. Obama has proposed capping PSLF benefits to $57.5k. Republicans have countered by trying to eliminate PSLF altogether. Read the tea leaves, PSLF (at least not how it is structured now) is not going to last.

1, 2, 3, 4. Peronally, I think simple is better. Thats just me. Read up on the three fund portfolio. I've not read any convincing evidence that slicing/dicing is definitively better. Now, slice/dice is fun, so its entirely up to you. I had a slight lean towards REITS because I haven't owned a home... but mostly, this was because I enjoyed slicing/dicing.

5. I'd pick the most diversified mutual funds with the lowest expense ratio. If Wellington is among them, thats not a bad choice. But it doesn't beat a straight up index fund.

6. It doesn't really matter how you divide them, since all of these funds are tax-deferred instruments. If you start sprinkling in taxable investments, then you may want to consider splitting up which goes into tax deferred versus taxable.

7. Yes, you are complicating things. But if you like to do that, thats fine.

8. I'd contribute to your 403b to the match (are you sure you're getting a match in the first year? Most programs offer a match after at least a year of employment), then max out your Roth IRA or pay down your loans, then finish off maxing out your 403b. As a resident, a roth rather than traditional makes perfect sense for now.

blueman457
Posts: 457
Joined: Sun Jul 26, 2015 12:19 pm

Re: New Physician Looking for Advice

Post by blueman457 » Fri May 20, 2016 9:02 am

Keep it simple. Allocation really doesn't matter, just go 100% equities especially because you're young and have higher income coming.


-Maximize Roth
-Roth 403b to get match (confirm that you get this as an intern)
-after that, you should tackle your 7% loans. That's a lot of interest on a lot of money.

Perkunas
Posts: 138
Joined: Tue May 10, 2016 7:24 pm

Re: New Physician Looking for Advice

Post by Perkunas » Fri May 20, 2016 9:06 am

This is not related to your retirement and savings but rather your PAYE loans:

Do you know how the loan forgiveness works in year 10? Forgiveness of any remaining principal balance is "cancellation of debt" which is ordinary income to the IRS. What I still wonder about -- although I don't have any experience with PAYE myself -- is whether the forgiveness of the interest is also income? I also don't really understand how the interest is accrued or how payments are applied. It seems to me that any payments you make go straight to principal as long as you have the loan. So if you paid 30k per year to your loans * 10 years, that'd be the full 300k balance... but are you still on the hook for the forgiveness of all that interest?

Just something to beware of as you move forward. If you don't pay off that loan you'll want to have a plan to pay the taxes in year 10 when it is forgiven.

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Taylor Larimore
Advisory Board
Posts: 28827
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Keep investing simple

Post by Taylor Larimore » Fri May 20, 2016 9:08 am

StormShadow:

Welcome to the Bogleheads Forum!

Jim Dahle, The White Coat Investor, has put you on the right path for investment success. If you have not done so, be sure to purchase his book, "The White Coat Investor." It's a must read for beginning practitioners.

Doctors use many methods and prescriptions for patients. Physicians often believe the financial world must also be complicated. Not true.

No one can predict the future in the stock and bond markets. Trying to "beat the market" usually results in under-performance. Read my "Simplicity" link below.

You may have heard about The Three-Fund Portfolio. Use this link to understand its many advantages: viewtopic.php?f=10&t=88005

Best wishes in your chosen career.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Topic Author
analogsavior
Posts: 35
Joined: Thu May 19, 2016 3:22 pm

Re: New Physician Looking for Advice

Post by analogsavior » Fri May 20, 2016 2:01 pm

Thanks everyone for the replies.

@rai

The loan forgiveness I am planning to do is PAYE (pay as you earn) combined with PSLF (public service loan forgiveness). Here are two links for information. Be aware that, as mentioned by posters below your, there are some concerns regarding the future of PSLF.

https://studentaid.ed.gov/sa/repay-loan ... ic-service
https://studentaid.ed.gov/sa/repay-loan ... ome-driven

@StormShadow

Regarding PSLF, I agree that there will inevitably be a great reduction in forgiveness or elimination of the program in the future. However, there is also the possibility of those already participating in it getting grandfathered into full forgiveness once these changes take place (at least according to my school’s loan repayment advisors). After running my initial numbers, this came out as the best option, but I intend on running multiple scenarios again after reading the concerns you and others have posted. No one can predict the future, but my initial assessment is that during the next 4 years, unless I divert money from savings into loan repayment, I am better off sticking with PAYE and PSLF for the time being, and pivoting as necessary once I finish residency.

Regarding investments, that all makes sense to me. I’ll probably end up putting at least some in REITs, but simplicity does make sense. I’ll double check on the employer match.

@blueman457

Simplicity seems to be the trend. The plan I had initially had was:

-Roth 403b to match
-Roth IRA to max
-Roth 403b to max

I probably wont get to step 3 as a resident.

@Perkunas

You bring up a good point. Based on my initial research, I may (probably will) have to pay taxes on forgiven debt under PAYE, but under PSLF I would not. So in theory, if my plan were to come to fruition, I would not be responsible for the taxes on the forgiven debt.

@Taylor Larimore

Thank you for the welcome. I’ve learned a lot perusing these forums. I actually have The White Coat Investor to thank for my interest on the subject. My parents gifted me the book a few months ago. My reading list of non-medical books has increased since then. I’ll make sure I take a look at the links you posted, but the Vanguard Asset Allocation questionnaire put me at 80/20, which I think I’d be comfortable with.

I’ll use this space to pose my Roth question again (and update OP), as it is still not clear to me if there is an advantage to splitting between my two accounts. Currently my plan is as follows:

-Roth 403b to match (will verify match)
-Roth IRA to max
-Roth 403b up to savings goal

My question is, as these are both Roth accounts, would it make any difference to just put everything in the Roth 403b which could eventually be rolled into a Roth IRA?

Thanks again everyone for the replies.

letsgobobby
Posts: 12078
Joined: Fri Sep 18, 2009 1:10 am

Re: New Physician Looking for Advice

Post by letsgobobby » Fri May 20, 2016 2:17 pm

I think your setup is fine for your situation. Good early start.

User avatar
LAlearning
Posts: 1365
Joined: Wed May 09, 2012 12:26 pm
Location: Los Angeles

Re: New Physician Looking for Advice

Post by LAlearning » Fri May 20, 2016 2:23 pm

analogsavior wrote: Emergency funds: 3 months
Debt: $300K in student loans, on track for forgiveness in 10 years
- everyone will be watching the class of 2017 closely. Also this assumes 501c post residency.
Tax Filing Status: Single
Tax Rate: 12% Federal, 5% State
- your federal is not correct. This is marginal (ie the last dollar you earn). Your choices are 10, 15, 25, etc. you are likely 15, but could be 25. Check your state tax as well.
State of Residence: VA
Age: 26
Desired Asset allocation: 75% stocks / 25% bonds
- fine
Desired International allocation: 13% of stocks (10% of overall allocation)
- fine. Vanguard recommends between 20-40% of stocks. Bogle and Buffett say zero.

Detailed breakdown:

45% Total Stock Market
10% Small-Cap Value
10% REIT
10% International Developed Markets
10% Total Bond Market
15% Intermediate Term Bonds
- this is needlessly complex.
Current retirement assets

My Roth 403b
35% Fidelity Spartan Total Market Index Fund FSTVX 0.05%
10% Fidelity Spartan U.S. Bond Index Fund FSITX 0.07%

My Roth IRA at TD Ameritrade
10% Vanguard Total Stock Market ETF VTI 0.05%
10% Vanguard Small-Cap Value ETF VBR 0.08%
10% Vanguard REIT ETF VNQ 0.12%
10% Vanguard FTSE Developed Markets ETF VEA 0.09%
15% Vanguard Intermediate-Term Bond ETF BIV 0.09%

Total: 100%

Contributions

New annual Contributions
$4500 my Roth 403b + $1000 employer match
$5500 my Roth IRA
- depending on your marginal rate + state rate a traditional 403b might be better, leave more money in your pocket, and will lower your debt repayment under IBR. Just a thought.
Available funds

Funds available in my Roth 403b
Many, many Fidelity funds, with several Vanguard funds

Funds available in my Roth IRA
100+ commission free ETFs including many from Vanguard

Questions:

1. First things first, I would definitely appreciate opinions on my overall asset allocation and fund selection. I’d be happy to explain my thoughts behind each allocation.
- again, complex. Your portfolio is small. It does not care if you are missing emerging markets or overweight them. Go for total US, total intl, and total bond. REITs are fancy, and everything else is a sector bet.
2. I definitely fall into the “someone once said small value was the way to go” category, and have not done enough reading on the subject to understand the reasoning behind it. Knowing that I will be continuing to read further on the subject, I would like to know some opinions on including 10% small-cap value in my asset allocation. My impression from what I have read is that as I have a long term investing horizon, there is potential for some nice returns by including it.
- depends on how small and how value-y you can get.
3. When it comes to my international allocation, I was initially hesitant to include any international assets, mainly due to family having bad experiences investing in international stocks. However, I’ve done enough reading to know I’d be missing out on a major part of the world economy by not including them. As such, I’ve decided to take (at least in my head) a more conservative approach to international stocks by focusing on the markets included in VEA (after reviewing the prospectus). Is this a reasonable approach?
- google vanguards white paper for international investing. Total international holds an additional umpteen thousand companies, is cheap. VEA is just missing emerging.
4. I was initially going to go 100% intermediate term bonds, but after considering some of the risk, and my general approach for the rest of my portfolio, I decided to include the total bond market, with an emphasis on intermediate term bonds. Am I being ridiculous or is this a reasonable approach?
- either or is fine.
5. Through my 403b, I have access to several actively managed funds with histories of strong performance in the past (PRIMECAP, Wellington, Wellesley, Contrafund). Knowing that past performance does not guarantee future performance, would it make sense at the stage I’m at in my investing career to give some of these funds a shot?
- nope.
6. My final question has to do with how I split my allocation between my two accounts. I tried including a reasonable amount of stock and bond funds in both accounts to allow for rebalancing. Does this split seem reasonable?
- sure. They are small. It doesn’t matter. In the future you will fill up one with bonds, the other with stocks, then add a taxable account.
Further questions (updated 5/20)

7. Am I complicated things too early? Should I just go simple with a total stock market and total bond market fund and concentration on accumulation of funds rather than allocation?
- yes. Yes.
8. Is it worth splitting my saving between my Roth IRA and my Roth 403b? Or as they are both Roth investments, could I funnel everything into the Roth 403b while I have access to it through my employer?
- again, depending on tax rate a traditional 403b might be better, drop a bracket, then add to roth IRA.
Currently my plan is as follows:

-Roth 403b to match (will verify match)
-Roth IRA to max
-Roth 403b up to savings goal

My question is, as these are both Roth accounts, would it make any difference to just put everything in the Roth 403b which could eventually be rolled into a Roth IRA?

Well, there you have it. At the end of it all, as a new investor I am really just looking for a few sets of eyes to make sure I’m not making any major mistakes. Thank you for your time, and I would greatly appreciate any advice.
- congrats. And good luck.
analogsavior
I know nothing!

pierremonfrere
Posts: 157
Joined: Tue Jun 23, 2015 7:34 pm

Re: New Physician Looking for Advice

Post by pierremonfrere » Fri May 20, 2016 5:04 pm

Just a thought:

If your income for 2015 was around $0 and with only getting income for 50% of 2016 your loan payment should be $0 or close to it for now.

Once 2017 and beyond come around and you have to re-certify your income, it may be beneficial to contribute to traditional 403b to lower your AGI and hence lower your loan payment at that time.

You can keep the money that would be going towards your loans in a separate account in case PSLF blows up. You'll have to run the numbers and see if it's worth it.

pierremonfrere
Posts: 157
Joined: Tue Jun 23, 2015 7:34 pm

Re: New Physician Looking for Advice

Post by pierremonfrere » Fri May 20, 2016 5:16 pm

analogsavior wrote: 8. Is it worth splitting my saving between my Roth IRA and my Roth 403b? Or as they are both Roth investments, could I funnel everything into the Roth 403b while I have access to it through my employer?

Currently my plan is as follows:

-Roth 403b to match (will verify match)
-Roth IRA to max
-Roth 403b up to savings goal

My question is, as these are both Roth accounts, would it make any difference to just put everything in the Roth 403b which could eventually be rolled into a Roth IRA?

analogsavior
If they are all Roth contributions, I don't see a reason to split them up. Just put it all in the 403b assuming the funds available are equivalent.

Pharmacist
Posts: 242
Joined: Thu Apr 14, 2016 5:28 pm

Re: New Physician Looking for Advice

Post by Pharmacist » Fri May 20, 2016 7:00 pm

Another option is to refinance your loans at a lower rate. I'd re-run the numbers as:

Pay it off ASAP with 3% interest

vs

Minimum payments you can do for 10 years, 7% interest, plus taxation on the forgiven amount

I think for me personally I'd do better paying them off ASAP. Plus the jobs that qualify for forgiveness (in my scenario) pay 20% less and I'd have to worry about the loans for 2x-3x longer. It sounds like you wouldn't have a problem landing a qualifying job though by the way you talk.

anil686
Posts: 938
Joined: Thu May 08, 2014 12:33 pm

Re: New Physician Looking for Advice

Post by anil686 » Sat May 21, 2016 7:07 am

Since you were looking for opinions - I will give mine - although it is more behavioral. I tend to think less about the portfolio when it is simpler - in fact, the less moving pieces, the easier it is for me to forget about it. That has been ideal since it leads to less tinkering and overthinking about it for me. The predominant factor in your investing when starting out is your savings rate. Save the most, put it in a low cost investment option that does not need to be watched and let it grow.

Due to this, I agree with some of the others - I would just put as much as you can in the Roth 403b in a simple VG TR date fund (like with a date 25 to 30 years from now) and let it work. You may find yourself focusing less on your investments and more on your training which will directly affect the growth of your "human capital" much more than any fine tuning of an asset allocation. JMO though - full disclosure practicing physician for the past 20 years and use to have a five to 7 fund AA and now switched to a 3 fund/TR fund in tax advantaged accounts. Hope it helps...

strafe
Posts: 964
Joined: Sat Mar 03, 2007 12:49 pm

Re: New Physician Looking for Advice

Post by strafe » Sat May 21, 2016 8:33 am

PSLF forgiveness includes principal and interest and is non taxable. Other posters are incorrect in suggesting that PSLF benefits are taxable or that interest is not forgiven. Proposals to cap the benefit to the undergrad borrowing limit (currently $57.5k) affect REPAYE but not necessarily the original IBR PSLF program.

I would use a traditional 403b rather than Roth. Your goal is to make your adjusted gross income as low as possible to reduce the required loan payment. Every dollar repaid is a dollar not forgiven.

Topic Author
analogsavior
Posts: 35
Joined: Thu May 19, 2016 3:22 pm

Re: New Physician Looking for Advice

Post by analogsavior » Sat May 21, 2016 9:37 am

Thanks everyone for the replies. I appreciate the opinions, and you all have definitely brought up several scenarios I’ll have to reevaluate.

@LAlearning

Thank you for taking the time to go through my questions. In particular I will be taking another look at my taxes and how a Roth v traditional 403b may affect things.

@pierremonfrere

Thank for the reply. I’ll be taking a look to see if traditional 403b makes sense for me. I also appreciate you tackling my Roth question.

@Pharmacist

I haven’t put much thought into refinancing, but as I run all my numbers again, I’ll make sure to include this as a possible scenario. Regarding working at a 501c post residency, if the numbers make sense for me, I have not problem taking that initial pay cut to get my loans forgiven.

As a side note, there was a recent post on The White Coat Investor blog on student loan refinancing.

http://whitecoatinvestor.com/student-lo ... periences/

@anil686

I appreciate the opinion. I think I’ve been convinced enough to simplify my portfolio, but as I mentioned to neuro84, my personality is a little too hands on to stick with a target date retirement fund. I enjoy running the numbers, but I think you bring up a great point in that tinkering may result in the undoing of an already solid plan.

@strafe

Thanks for the reply. My understanding of how PSLF forgiveness works is as you described. I will however be doing some reading to make sure I completely understand the details, and how changes may affect PAYE and PSLF. I will also be reevaluating Roth v. Traditional 403b when I rerun possible scenarios.

Once again, thanks everyone for all the comments. I will be keeping an eye on this topic, but I need to do a bit more reading and rerun the proposed scenarios before I can contribute additional information. I will post a new comment and update the OP once I have done so.

Thanks again,

analogsavior

malabargold
Posts: 582
Joined: Fri Aug 08, 2014 8:16 am

Re: New Physician Looking for Advice

Post by malabargold » Sat May 21, 2016 1:32 pm

Congratulations.

Avoids traps of expensive houses and spouses.

Focus doggedly on your patients and CME,
your spouse and children.

Pay off your debts, although it's o.k. to borrow
when rates are low.

Put your savings in low-cost stock ETFs, - can't see the
need for bonds with your age and (bond-like) profession.

Don't waste much time ,on this site or others, trying to "fine tune" to beat the market returns - none of us knows the future, after all.

traveltoomuch
Posts: 516
Joined: Fri Mar 15, 2013 5:48 am

Re: New Physician Looking for Advice

Post by traveltoomuch » Sun May 22, 2016 6:47 am

analogsavior wrote: I’ll use this space to pose my Roth question again (and update OP), as it is still not clear to me if there is an advantage to splitting between my two accounts. Currently my plan is as follows:

-Roth 403b to match (will verify match)
-Roth IRA to max
-Roth 403b up to savings goal

My question is, as these are both Roth accounts, would it make any difference to just put everything in the Roth 403b which could eventually be rolled into a Roth IRA?
Roth403b is presumably inaccessible while you remain with this employer. RothIRA is accessible immediately: no penalties or taxes on w/d up to the amount of your contributions. Given that, I would prioritize RothIRA over Roth403b, as you have done. (Taking the 403b match first, of course!)

One thing I would consider is trying to raise your total Roth IRA/403b contributions, even at the expense of eating into your emergency fund - you can use the RothIRA as an emergency fund and, if you don't need it, you've grown the amount of Roth money you have going forward. If you can only spare 10k for investing, put it in the Roth403b, and then max the RothIRA - you might want to hold some/all of that RothIRA money in a cash equivalent, given the "emergency fund" purpose.

Topic Author
analogsavior
Posts: 35
Joined: Thu May 19, 2016 3:22 pm

Re: New Physician Looking for Advice

Post by analogsavior » Sun Jul 17, 2016 6:59 pm

Hello everyone!

I want to say thanks for all the great information and helpful advice I received when I initially started this thread. I promised an update once I’ve had time to educate myself a bit more and reevaluate my situation, so here it is! I’ve now had some time so get into my saving routine, clear up some questions I had with my 403b, educate myself a little bit more on my tax situation, evaluate my priorities, and learn a little bit more about investing in general. Below please find my updated information.

Emergency funds: 3 months
Debt: $300K in student loans, currently on track for forgiveness in 10 years
Tax Filing Status: Single
Tax Rate: 15% Federal, 5.75% State
State of Residence: VA
Age: 26
Desired Asset allocation:
80% stocks / 20% bonds
Desired International allocation: 30% of stocks (24% of overall allocation)

Detailed breakdown:

56% Total Stock Market
24% Total International Market
20% Total Bond Market

Current retirement assets


My Roth 403b at Fidelity: (45%)
25.2% Vanguard Total Stock Market Institutional Fund VITSX 0.04%
10.8% Vanguard Total International Market Admiral Fund VTIAX 0.12%
9% Vanguard Total Bond Market Admiral Fund VBTLX 0.06%

My Roth IRA at TD Ameritrade: (55%)
30.8% Vanguard Total Stock Market ETF VTI 0.05%
13.2% Vanguard FTSE All-World ex-US ETF VEU 0.13%
11% Vanguard Total Bond Market ETF BND 0.06%

Total: 100%

Contributions

New annual Contributions
$4500 into my Roth 403b, no employer match
$5500 into my Roth IRA

Available funds

Funds available in my Roth 403b
Many, many Fidelity funds, with several Vanguard funds

Funds available in my Roth IRA
100+ commission free ETFs including many from Vanguard

Summary of things that have changed

1. I’ve decided to simplify my initial plan and go with a 3 fund portfolio that I know I can stick with
2. Spending more than say an hour a month worrying or checking in on my portfolio is not in my best interest. I’d be too tempted to tinker with it
3. I’ve convinced myself of the merits of have a sizeable portion of my equities in the international market
4. I require more information before I am comfortable tilting to SCV or REITS
5. The total bond market fund fine as my only bond fund for now
6. I’ve correct my marginal tax rate
7. I don’t get an employer match in my 403b :(

So what else is in the works?
1. I am working on a detailed IPS that I will stick with
2. I will continue to educate myself and determine if tilting or any other variations from the 3 fund portfolio are right for me.

One of the biggest issues that came up in this discussion was how to manage student loan debt. I have been able to do some research and run a few calculations. Here is what I’ve found out.

Per my calculations, my current plan of PAYE (pay as you earn) with public service loan forgiveness (PSLF) remains the best-case scenario as it forgives my loans in a tax free manner, while contributing minimum payments in short amount of time. I may in fact come out ahead if this works out.

However, if PSLF bites the dust, PAYE over 20 years may still come out on top in most cases for the following reasons.

1. I cannot afford the payments if I refinance my loans today.
2. If I refinance my loans in 4 or 5 years (assuming today's interest rates) when I start getting an attending salary and pay over 10 years, I would end up paying more than if I do PAYE, even if forgiven debt remains taxable
3. 20 years is a long time, and there are currently 2 bills in the works hoping to make debt forgiven by income-based repayment, like PAYE, tax-free. If a bill of this sort were to pass could potentially come out paying roughly the amount I owe today.

One situation where I can imagine refinancing may come up ahead would be to, during those 3-5 years immediately after residency/fellowship, literally dump everything not going into expenses, taxes, or savings into my loans. Much of this is salary and interest rate dependent, but given the fact that I cannot afford to refinance today, I don’t need to take action at this time.

Another potential situation where refinancing could come up ahead would be if were able to generate a steady income to dedicate to loan repayment through moonlighting. That however is at least a year (likely 2 years) off though.

Either way, I can reevaluate my situation when the time comes and I have a better idea of my career trajectory. For the time being, staying the course with PAYE and logging PSLF payments seems like the way to go, hoping PSLF stays, I get grandfathered into PSLF if it changes, or PAYE forgiven debt becomes tax free. Given the severity and prominence of the student loan crisis, I would hope one of these (or something equally as beneficial) would come to fruition.

So one last question, for those of you who have taken the time to humor me: Does this all seem reasonable? As always, I'd appreciate any thoughts or comments.

Thanks again,

analogsavior

User avatar
LAlearning
Posts: 1365
Joined: Wed May 09, 2012 12:26 pm
Location: Los Angeles

Re: New Physician Looking for Advice

Post by LAlearning » Sun Jul 17, 2016 7:08 pm

Looks good.
I know nothing!

User avatar
Taylor Larimore
Advisory Board
Posts: 28827
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: New Physician Looking for Advice

Post by Taylor Larimore » Sun Jul 17, 2016 8:05 pm

So one last question, for those of you who have taken the time to humor me: Does this all seem reasonable?
analogsavior

Thank you for returning.

Yes, this all seems very reasonable.

Congratulations and best wishes.

Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
emp2b3
Posts: 46
Joined: Sun Jan 30, 2011 2:55 pm

Re: New Physician Looking for Advice

Post by emp2b3 » Mon Jul 18, 2016 12:47 pm

I agree that things look pretty good.
I recently went through similar calculations regarding PSLF as I was on the IBR plan. After residency and fellowship and a half year of being an attending I had "only" 4 years left of payments before forgiveness. Due to the high interest rate (6.8%), "maxed out" payments based on current salary to loan rate, difficulty getting some paperwork accepted, and skepticism regarding the long term health of the PSLF program once tax free forgiveness started for high earners I decided to get rid of the loans.
Per my calculations it was only going to be a difference of a few thousand dollars between paying it off in a lump sum vs making 4 more years of payments with accrued interest, and that was assuming forgiveness wasn't changed to be taxed or capped at 50k etc.
If you can't afford to do so at this time then it makes sense to stay in PSLF and see how things play out. We should have a better idea once the program hits the 10 year mark. But I encourage you to revisit the calculations once you become an attending..."living like a resident" as the White Coat Investor (EmergDoc) recommends may give you more flexibility with such things (and peace of mind) than you would think.

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