Advice for graduating medical school couple

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lovenox11
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Advice for graduating medical school couple

Post by lovenox11 »

I am glad to have found this forum. I have been starting my financial planning in the past 2 years by reading books and now this forum and would like some input from others on here.

My wife and I are 26 & 27, we have a son. Will be graduating medical school this summer and starting residency for next four (4) years.

Age: 26 & 27
children: 1
tax filing: married filling separately

Income:
(2012-2016): $48k + $48k = $96k
(2016+): $180k + $180k = $360k

Dept:
Student Loans: $380,000.00 all Stafford Loans 6.8% fixed (about average for a med school couple these days)
Car loan: $6k
No CC dept, no Mortgage

Savings:
$25k: in savings account 0.80%
$2.7k: Roth IRA (Vanguard Target Retirement 2050)
$800: 529 Ohio Plan (60/40 index stocks/index funds, both vanguard)

Will have either 403(b) or 401k in residency

While in Residency (2012-2016) plan to:
[1] Save for (a) retirement (b) house downpayment (c) car downpayment.
[2] Max out 403 (b)/401k contributions, then max out Roth IRA for both of us.
[3] Use IBR to manage loan payments while in residency (http://studentaid.ed.gov/PORTALSWebApp/ ... BRPlan.jsp).
[4] Upon graduation live on $120k/yr
pay off student loans in 10years, save the rest into retirement accounts (will have $240k/yr pre-tax to pay off loans and save into retirement.
[5] Basically we are trying to have a high savings rate to make up for the time lost. Will try to live bellow our means and not fall into the trap that many physicians do with expensive toys.

I would appreciate any advice from those that were in our shoes or had a similar situation. Only now am I beginning to realize the burden of such high college loans. I haven't met a med student or resident yet that has some sort of retirement goals/plan. Most of them buy new expensive cars as soon as they graduate med school.
Thanks in advance.
Chuck T
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Re: Advice for graduating medical school couple

Post by Chuck T »

Lovenox11

Welcome to the forum and congrats on your personal and professional accomplishments. I am not a doc but there are many on the forum and I am sure they will comment shortly. One of our very active members is EmergDoc. You may want to search the forum for some of his posts geared toward helping young docs get started investing. In addition he setup his own website (whitecoatinvestor.com). There is a wealth of information there you may find useful. Please read the forum Wiki. It is a great resource for young investors. Suggest you start with the recommended reading list. Educate yourself before investing. Good luck to you and your wife.
Chuck | Past Performance Is Just That - bob | For info on the SC LowCountry & Savannah GA Area Bogleheads contact me at chucktanner46@gmail.com
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market timer
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Re: Advice for graduating medical school couple

Post by market timer »

Where in the US will you be living? High COL area?

You're stuck with a pretty bad interest rate on those loans. Do you have any relatives who might want to offer you a 5-10 year loan at an interest rate that works for both of you? You're going to accumulate interest of over $20K/year for the next four years. Depending on how much you are expected to pay under IBR, you may get out of residency owing close to $450K.
CordMcNally
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Re: Advice for graduating medical school couple

Post by CordMcNally »

I'm in the same position as you, except I'm not in a relationship with another med student. My plan will also be to live cheaply. In addition, I plan on paying as much as I can towards my loans during residency. My interest will be accruing at ~$800/month while my IBR will be ~$420. I'm hoping to be able to moonlight a decent amount during my PGY2 & 3 years to hopefully be able to pay down some of my debt. By just having a goal, a plan, and a will to implement it, you're ahead of about 98% of people in our position. Put your goals down on paper and start the process of achieving them.
Anon1234
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Re: Advice for graduating medical school couple

Post by Anon1234 »

Why worry about a home downpayment fund now? When you leave residency you'll earn $400-700k. That's at least $250k after tax. So, rent an apt for 1 year, use that time to pick your neighborhood, and save the whole downpayment that 1st year. If you want a really nice house, rent for 18 months.

I would save $10k/every year in Roths. Call your $25k your EM fund (which could be used for a car if necessary). I would put everything else on those student loans. Pretty soon you'll earn too much to take the student loan interest deduction, so that 6.8% will be your after tax gauranteed no-loss return. Your alternative is to invest for home downpayment in a bond fund (at best) earning < 3%.
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6miths
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Re: Advice for graduating medical school couple

Post by 6miths »

Amazed and saddened by the level of debt the current generation of medical students wind up amassing. Good advice to live frugally and attack the loans aggressively. Given that you don't start earning the big salary until you are 30+ years old the key is not to start living large too early or maybe even at all with the number of curves that life can throw.
'It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so!' Mark Twain
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lovenox11
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Re: Advice for graduating medical school couple

Post by lovenox11 »

Anon1234 wrote:Why worry about a home downpayment fund now? When you leave residency you'll earn $400-700k. That's at least $250k after tax. So, rent an apt for 1 year, use that time to pick your neighborhood, and save the whole downpayment that 1st year. If you want a really nice house, rent for 18 months.

I would save $10k/every year in Roths. Call your $25k your EM fund (which could be used for a car if necessary). I would put everything else on those student loans. Pretty soon you'll earn too much to take the student loan interest deduction, so that 6.8% will be your after tax gauranteed no-loss return. Your alternative is to invest for home downpayment in a bond fund (at best) earning < 3%.
This sounds like a good option. I know that it is smarter to rent than buy. But you see so many resident buying straight out of med school. They always buy a "condo" and think its a good investment. I always thought that buying a home is worth if you plan to stay there for 7+ years and have a 20% downpayment. Most residents live in one place for 4 years and then move. Even new attendings move frequently.

We will live in midwest or south east, definitely avoiding east coast and west coasts.
Also, child care & child related expenses are a big chunk ~$15k/yr.
Anon1234
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Re: Advice for graduating medical school couple

Post by Anon1234 »

For some reason I thought you are already in residency and had housing.... sorry about that.

We did buy a townhome. We got a loan with 5% down, and the home value was about equal our annual income at the time - below our means. It could have been an OK financial decision, but we had a lot of repairs - a water line burst and every kitchen appliance broke while we lived there. If you buy during residency don't over do it.
CordMcNally
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Re: Advice for graduating medical school couple

Post by CordMcNally »

I'd second the notion to rent during residency. You can find all kinds of rent vs. buy calculators and like you said, it seems like most times you won't come out ahead unless you plan on staying for 7+ years. Look at an amortization schedule and you'll see that your first many years are front loaded with most of the money going to interest. If you rent, you won't build up any equity in a house but you also know that you won't have any major home repair bills which could financially cripple somebody who is living close to the financial edge.
stan1
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Re: Advice for graduating medical school couple

Post by stan1 »

Since you have a child, I think renting a small house in a family friendly neighborhood close to where you work is the way to go for the next few years.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
travellight
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Re: Advice for graduating medical school couple

Post by travellight »

I would also rent and focus on paying off your student loans asap. You are right in that it is best to buy when you have at least 20% down. I don't think real estate prices are likely to rise for a few years so you have time. It is a good frugal plan overall and I think you are likely to succeed; you are ahead of most people.
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Topic Author
lovenox11
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Re: Advice for graduating medical school couple

Post by lovenox11 »

CordMcNally wrote:I'd second the notion to rent during residency. You can find all kinds of rent vs. buy calculators and like you said, it seems like most times you won't come out ahead unless you plan on staying for 7+ years. Look at an amortization schedule and you'll see that your first many years are front loaded with most of the money going to interest. If you rent, you won't build up any equity in a house but you also know that you won't have any major home repair bills which could financially cripple somebody who is living close to the financial edge.
Thanks for the advice. In my mind owning a house is similar to my used car, there are always unexpected expenses.
We are also going to explore post-residency positions with loan repayment built in.

I know we are making the right decision by renting, but it seems there are more people out there my age/situation that do the opposite. They buy and then tell everyone that "our mortgage payment is less than our rent payment would have been." I feel that if they looked at the entire cost of home ownership (utilities, repairs, taxes, etc) they will think otherwise.
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Toons
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Re: Advice for graduating medical school couple

Post by Toons »

Chuck T wrote:Lovenox11

Welcome to the forum and congrats on your personal and professional accomplishments. I am not a doc but there are many on the forum and I am sure they will comment shortly. One of our very active members is EmergDoc. You may want to search the forum for some of his posts geared toward helping young docs get started investing. In addition he setup his own website (whitecoatinvestor.com). There is a wealth of information there you may find useful. Please read the forum Wiki. It is a great resource for young investors. Suggest you start with the recommended reading list. Educate yourself before investing. Good luck to you and your wife.


Emergdoc has a website geared to for Doctors. I am not a Doctor, but I have gone to the site many times to read many interesting articles about finances in general.

http://whitecoatinvestor.com/about/ :D
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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interplanetjanet
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Re: Advice for graduating medical school couple

Post by interplanetjanet »

lovenox11 wrote:Age: 26 & 27
children: 1
tax filing: married filling separately
It's almost certainly going to be worth it to file MFJ rather than MFS, from a taxes owed point of view. You may want to consider this. MFS filers are excluded from a number of deductions and credits either entirely or with a relatively low income cutoff.

-janet
beareconomy
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Re: Advice for graduating medical school couple

Post by beareconomy »

First off, I am a physician who finished residency a few years ago. First off, have you guys looked at income base repayments? This doesn't affect me as my interest rate is below 2%.

If I were you guys, I would first pay the debt off on the student loan when you are residents as you will get a tax deduction on that. If you have more money, then I would put the money into a roth ira, i.e. I would use vanguard because the fees are lowest. Most people suggest a mix of your age in bonds[usually 50% TIPS, 50% nominal] and the rest in the stock market. Some suggest 10% in emerging markets. You should the selection on what you are most comfortable. If you have more money left over, place it in 401k plans at your respective hosptials. After that if you have more money, then the ohio college advantage 529.

The other thing you guys NEED TO BUY in internship is a DISABILITY policy. It is expensive, it is about $1500/year. Make sure it is an own occ policy. Guardian has the best own occ but is the most expensie. Met life is secodn best, and it is a cheaper policy. Whatever company you use, make sure it is own occ to your occupation. Also, with teh kid, you need life insurance. ONLY BUY TERM LIFE INSURANCE! 500k at your guys age should be about 20 bucks a month or so.

If you guys can moonlight in residency, then do it.

As attendings, in the beginning, I would work as hard as possible to pay off the student loans because you will be accuring intersest at 6.8%. I would rent a place first before buying. Don't buy a place in residency unless you are in a low cost place in the midwest. Then as attendings I would do backdoor roth ira's if that still exists. Max the 401k, then max the 529. Buy I bonds. Then buy TIPS...

And continue paying the premium on the disabilty insurance whichat this point will be about 6000 or so per year, buy you will be able to afford it as attendings.

Lastly, when looking for a job, make sure the insrance either pays for your tail when you leave or is an occurance policy, not a claims based policy.

Have fun in residency and take step 3 as early as possible in internship!
beareconomy
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Re: Advice for graduating medical school couple

Post by beareconomy »

[quote="Anon1234"]Why worry about a home downpayment fund now? When you leave residency you'll earn $400-700k. That's at least $250k after tax. So, rent an apt for 1 year, use that time to pick your neighborhood, and save the whole downpayment that 1st year. If you want a really nice house, rent for 18 months.

I would save $10k/every year in Roths. Call your $25k your EM fund (which could be used for a car if necessary). I would put everything else on those student loans. Pretty soon you'll earn too much to take the student loan interest deduction, so that 6.8% will be your [u]after tax gauranteed no-loss [/u] return. Your alternative is to invest for home downpayment in a bond fund (at best) earning < 3%.[/quote]


It is not automatic to make 400-700k after residency unless you are in one of the few select specialities. Pediatrics may only make 80k/ year in certain areas. I lucked out being in one of the road specialities, and my first year I worked every weekend and made over 600k, but this past year stopped taking call and now make in the 300s. Also, with the changes in medicare payments, that could also hinder your abiity to amke 400-700k / year.
ilmartello
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Re: Advice for graduating medical school couple

Post by ilmartello »

As two doctors in residency you are probably a landlord's dream. Most stable and least risky tenants, You can probably get a nice rate on a unit or small family home and take advantage it.
CordMcNally
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Re: Advice for graduating medical school couple

Post by CordMcNally »

beareconomy wrote: It is not automatic to make 400-700k after residency unless you are in one of the few select specialities. Pediatrics may only make 80k/ year in certain areas. I lucked out being in one of the road specialities, and my first year I worked every weekend and made over 600k, but this past year stopped taking call and now make in the 300s. Also, with the changes in medicare payments, that could also hinder your abiity to amke 400-700k / year.
I think he/she was talking about combined income between the both of them.
travellight
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Re: Advice for graduating medical school couple

Post by travellight »

that is a high projection even for combined income for both of them. They had stated their anticipated total income would be $360,000 (180k each); I assumed this was based on their fields and that they know their field.
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relentless
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Re: Advice for graduating medical school couple

Post by relentless »

First advice: I would read Dr. North vs. Dr South chapter in Millionaire Next Door at a minimum.

I would second checking out Emergdoc's site and above advice on disability insurance. If you qualify, Principal has a plan that you can purchase 1K/month of coverage with option of increasing up to 15K/month if desired. Guardian has a graded policy. There are lots of threads on this topic and life insurance as well.

Why are you not using your 529 and some of your savings for your med school expenses?

120K/year is much, much higher than my family has ever spent during my training. Are you really making 60K each a year starting residency? At my current institution that is a PGY8 salary not PGY1. Are you counting your 403b/IRAs as part of the 120K? I would (and did) rent a small apartment for all of residency. I think buying a house or condo is potentially a very bad decision. My co-residents were stuck with houses they can't sell.

I love the Roth during medical training personally but have also been in a very low tax bracket up to this point (15%). However, it is borderline decision with your high interest rates and large loans. With two incomes, you will probably be in a higher bracket and Roth may not make much sense as opposed to traditional. If you want to do Roth and will have a Roth 401k available, you can also maximize that your last year or two and contribute less to Roth IRA earlier in residency. OTOH, you could put 5K each into a Roth IRA in short term bonds or MM and use your Roth as emergency fund. Lots of possibilities.
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lovenox11
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Re: Advice for graduating medical school couple

Post by lovenox11 »

relentless wrote:First advice: I would read Dr. North vs. Dr South chapter in Millionaire Next Door at a minimum.

I would second checking out Emergdoc's site and above advice on disability insurance. If you qualify, Principal has a plan that you can purchase 1K/month of coverage with option of increasing up to 15K/month if desired. Guardian has a graded policy. There are lots of threads on this topic and life insurance as well.

Why are you not using your 529 and some of your savings for your med school expenses?

120K/year is much, much higher than my family has ever spent during my training. Are you really making 60K each a year starting residency? At my current institution that is a PGY8 salary not PGY1. Are you counting your 403b/IRAs as part of the 120K? I would (and did) rent a small apartment for all of residency. I think buying a house or condo is potentially a very bad decision. My co-residents were stuck with houses they can't sell.

I love the Roth during medical training personally but have also been in a very low tax bracket up to this point (15%). However, it is borderline decision with your high interest rates and large loans. With two incomes, you will probably be in a higher bracket and Roth may not make much sense as opposed to traditional. If you want to do Roth and will have a Roth 401k available, you can also maximize that your last year or two and contribute less to Roth IRA earlier in residency. OTOH, you could put 5K each into a Roth IRA in short term bonds or MM and use your Roth as emergency fund. Lots of possibilities.
In residency we will have $96k (48+48). The $120k is what we may plan to live on as attending physicians four years from now.
The 529k was started for my newborn this year.

We plan to contribute to Roth plans in residency for 4 years because with attending salary we will no longer be eligible to contribute.

The 6.8% fixed interest rate is the real killer here. On our total loan amount (380k) the interest alone is ~$2000/month. In residency we will only be able to keep the principal from ballooning by paying some of the interest. We will do an IBR plan, which will continue to subsidize our interest on Subsidized Stafford loans ($68k @ 6.8%).
I don't understand why the government keeps interest rates at 6.8% (an all time high) and they are fixed. Why not lower them to 2% or 3% like they were five years ago. Young people can't make ends meet as it is.
letsgobobby
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Re: Advice for graduating medical school couple

Post by letsgobobby »

no rush to pay off loans - look for loan repayment programs at your job offers in 4 years. It will vary with specialty and location, but is offered more and more as a reality of recruiting.

RIGHT NOW convert any existing IRA money to Roth IRAs. Your income will never be lower than it is today and was last year. Then you will have access to back door Roth IRAs for as long as the IRS allows it.

Despite the incomes you will eventually have, you still need a solid emergency fund now, because you have large debt and a child.

I agree you should pick up disability insurance. A good one will cost you a lot more than $1500 per year, I'm thinking, but at least get something.
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Re: Advice for graduating medical school couple

Post by goodenyou »

In light of the future of medicine from an economic standpoint, this kind of debt load is astounding. I hope you are very dedicated to this profession, because we have asked you to mortgage your future for the privilege of practicing medicine. You will have to live very frugally for many years while you work extraordinarily hard to pay this off. Raising a family depending on 2 full-time physician incomes is not easy. Get rid of your debt as fast as possible give the future outlook of medicine. You will have to live well below your "spending" power. Don't over think the investment side.
beareconomy
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Re: Advice for graduating medical school couple

Post by beareconomy »

Does anyone here know exactly how income based repayment[ibr] works. I have medical students come through my operating room all the time and they are just dumbfounded at how they are going to pay back a fixed 6.8% loan. Seems kind of nutty. Can they just pay interest in internship and residency to knock 4 years off the 10 year IBR? Does it matter what hospital or specialty you go into. Just curious more than anything else.
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market timer
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Re: Advice for graduating medical school couple

Post by market timer »

lovenox11 wrote:The 6.8% fixed interest rate is the real killer here. On our total loan amount (380k) the interest alone is ~$2000/month. In residency we will only be able to keep the principal from ballooning by paying some of the interest. We will do an IBR plan, which will continue to subsidize our interest on Subsidized Stafford loans ($68k @ 6.8%).
I don't understand why the government keeps interest rates at 6.8% (an all time high) and they are fixed. Why not lower them to 2% or 3% like they were five years ago. Young people can't make ends meet as it is.
I'd be glad to see MDs pay a lower interest rate if the government will increase the rate on fields with currently high unemployment rates. There is no risk based pricing in student loans.
Radman
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Re: Advice for graduating medical school couple

Post by Radman »

In response to beareconomy here is how student loans are working now. Around 2006 or so the Bush administration changed interest rates on student loans. Gone are the days of consolidated student loans at 2-3%. There are still subsidized and unsubsidized Stafford currently at 6.8% and I think they are slowly decreasing the interest rate on those to the 5% range over the next couple years. Subsidized goes up to 8500 per year and Unsubsidized to like 30000 ish. If you need more they created the Fed Grad PLUS loan which is like 8.5% and can fill the rest of the estimated cost of attendance for your medical school (For many medical schools if you are taking out all loans the Stafford is not enough).

In the old days you could then go into Deferment for the first three years while in residency and your interest would not accrue from what I understand. Then many would go into forbearance for their last 1-3 years. The Feds decided that the intent of deferment on student loans was not to subsidize doctors so they changed it. Now there is the IBR payment (Income based repayment). This sets your payment at 15% of your gross income that is greater than 150% of the poverty line. For a single resident that is around 300ish dollars per month depending on location/salary. If your IBR payment does not cover all your interest the feds will pay for the subsidized portion of your interest. In addition your interest does not capitalize.

You can still go into forbearance if you are under IBR, in this situation they feds do NOT pay for your subsidized Stafford interest. However, since to qualify for IBR payments it is considered a type of financial hardship, the interest that accrued does not capitalize until repayments are started.

If you work and make payments (including residency) for certain non-profit groups your loan balance is forgiven after 10 years. If you just work then your loan balance is forgiven after 25 years.

Overall the new system while makes getting loans very easy is certainly much more costly in the end for students. I graduated medical school with 280,000 of debt as my parents (while capable) did not pay for any of my medical school and of course since they were capable I did not qualify for much in scholarships. My wife and I made the decision to put our loans in forbearance given that the low IBR payments would barely touch the interest and that given our current low income we could find other uses for the money. That being said it also means that I will have to make $4580 monthly payments x 10 years once I get out to pay my debt. If we paid IBR those payments would be $4400 per month x 10 years. I am going into radiology and will be able to handle the payments though it will certainly lower our standard of living for the first 10 years out. However many physicians in lower paying fields would probably end up using their 10 or 25 year forgiveness with my debt load. I think medical education finance needs to carefully be looked at in this country if we still want to have adequate numbers of primary care physicians.
Last edited by Radman on Mon Jan 16, 2012 10:47 am, edited 1 time in total.
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White Coat Investor
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Re: Advice for graduating medical school couple

Post by White Coat Investor »

What specialties?
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
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kingsnake
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Re: Advice for graduating medical school couple

Post by kingsnake »

Seems criminal in the current interest rate environment to pay 6+ percent for medical school loans?? What bulls-it.

Less and less incentive to go into medicine every year.... :?
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Re: Advice for graduating medical school couple

Post by goodenyou »

DAK wrote:Seems criminal in the current interest rate environment to pay 6+ percent for medical school loans?? What bulls-it.

Less and less incentive to go into medicine every year.... :?
You are correct. Less financial incentive is one thing, but this is financial peril. There are a lot of bright minds that have looked at this, and unless you are blinded by the "cause", it makes no financial sense to amass hundreds of thousands of dollars in loans to make as much as a well-paid school teacher or plumber (pediatrician/FP/IM/psychiatry/peds. ophtho). We have school teachers making $125k/yr in good districts, retiring at 55 with a great pension. Not bad for a 180 day work year, no call, minimal liability and job security. It is a sad day to have to realize this, but our young people are not aware of the financial reality (yet).
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lovenox11
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Re: Advice for graduating medical school couple

Post by lovenox11 »

goodenyou wrote:
DAK wrote:Seems criminal in the current interest rate environment to pay 6+ percent for medical school loans?? What bulls-it.

Less and less incentive to go into medicine every year.... :?
You are correct. Less financial incentive is one thing, but this is financial peril. There are a lot of bright minds that have looked at this, and unless you are blinded by the "cause", it makes no financial sense to amass hundreds of thousands of dollars in loans to make as much as a well-paid school teacher or plumber (pediatrician/FP/IM/psychiatry/peds. ophtho). We have school teachers making $125k/yr in good districts, retiring at 55 with a great pension. Not bad for a 180 day work year, no call, minimal liability and job security. It is a sad day to have to realize this, but our young people are not aware of the financial reality (yet).
I think there are more things here than just the ratios. Because if you look at the salary to dept ratio of a physician (e.g. 160k salary to 200k dept) is 0.8.
Versus a young person finishing a history or literature degree with 100k loans with a starting salary of 35k (35k/100k) is 0.35.

Yes, there is a ton of money going into the student loans, but there is also a lot of money left over to live on. So many students come out with huge loans these days with job prospects nowhere near enough to pay off the loans. Relatively speaking the medical students with large dept are coming out on top, in my opinion.
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Re: Advice for graduating medical school couple

Post by White Coat Investor »

Not much specific advice for you two. Sounds like you're doing okay. Just remember to grow into your income as slowly as possible. It's harder than you think. Your loans are significant, but not undoable given your specialties (which you apparently don't want revealed to the world at large, which I guess I understand as the match hasn't happened yet.) I had someone email me the other day worried about his $375K in loans that he had all on his own. I told him he should be worried. You guys, not so much. You'll come out okay. It's an "extra mortgage" but you've got an extra income to pay it.

P.S. Why is there money in your 529? Shouldn't you be using that? You're IN SCHOOL. That's what a 529 is for. Doesn't matter much, it's only $800, but I found it kind of humorous for some reason.

P.P.S My med school classmates consolidated loans at 0.8%. You're right. It is unjust. That was too low and 6.8% is too high. A fair rate is probably about where mortgages are.
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kenyan
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Re: Advice for graduating medical school couple

Post by kenyan »

lovenox11 wrote: I always thought that buying a home is worth if you plan to stay there for 7+ years and have a 20% downpayment.

We will live in midwest or south east, definitely avoiding east coast and west coasts.
Much wisdom in this one.
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Ted Kan
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Re: Advice for graduating medical school couple

Post by Ted Kan »

I am new to the forum but wanted to post a short reply. I'm a retired physician, went to a state med school at age 28 with two small children, graduated in 1971 and went into family practice. Not a high paying speciality by any means plus I spent my career in academic medicine. My advise to you would be to not buy a home until you finish your residency. With both you and your spouse in residency at the same time and with a small child you don't want to spend your time off with routine home maintance, upkeep, lawn care, etc, etc. I think you will find that time will become more important to you than money. I would also think carefully about any significant moonlighting, for the same reasons. Spend time with your family. Save but don't oversave. I probably saved too much since we have more than necessary for our retirement and we live very well.

Your student debt interest is quite high. I'd try to pay it down. I'm amazed by the amount of debt med students take on now. I left med sch with about ten thousand in debt at 2 and 3%. I could not go to med school today given the tuition and other costs at even most state schools.

Good luck, work hard but enjoy your family and your future career. Medicine is a wonderful profession. May add more later but want to look around here first.
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Re: Advice for graduating medical school couple

Post by White Coat Investor »

Welcome to the forum Ted. I ought to recruit you for a guest post on my blog.
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Re: Advice for graduating medical school couple

Post by goodenyou »

lovenox11 wrote:
goodenyou wrote:
DAK wrote:Seems criminal in the current interest rate environment to pay 6+ percent for medical school loans?? What bulls-it.

Less and less incentive to go into medicine every year.... :?
You are correct. Less financial incentive is one thing, but this is financial peril. There are a lot of bright minds that have looked at this, and unless you are blinded by the "cause", it makes no financial sense to amass hundreds of thousands of dollars in loans to make as much as a well-paid school teacher or plumber (pediatrician/FP/IM/psychiatry/peds. ophtho). We have school teachers making $125k/yr in good districts, retiring at 55 with a great pension. Not bad for a 180 day work year, no call, minimal liability and job security. It is a sad day to have to realize this, but our young people are not aware of the financial reality (yet).
I think there are more things here than just the ratios. Because if you look at the salary to dept ratio of a physician (e.g. 160k salary to 200k dept) is 0.8.
Versus a young person finishing a history or literature degree with 100k loans with a starting salary of 35k (35k/100k) is 0.35.

Yes, there is a ton of money going into the student loans, but there is also a lot of money left over to live on. So many students come out with huge loans these days with job prospects nowhere near enough to pay off the loans. Relatively speaking the medical students with large dept are coming out on top, in my opinion.
Let's do the math. If you make $360,000/yr you may net $17k per month after taxes. That seems like a lot of money, right. Now, the first $5k goes to student loans FOR THE NEXT 10 YEARS. Now we have $12k per month. Mortgage...decent house for 2 doctors and a kid or 2 in a decent area....$4000/month. Expenses..cars, food, property taxes, gas, clothes, vacation, etc...$5000 per month...now $3000 per month left...we haven't saved a dime yet.....That $360,000 salary....late nights and doctor lifestyle...hmmmmm
Anon1234
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Re: Advice for graduating medical school couple

Post by Anon1234 »

beareconomy wrote:
Anon1234 wrote:Why worry about a home downpayment fund now? When you leave residency you'll earn $400-700k. That's at least $250k after tax. So, rent an apt for 1 year, use that time to pick your neighborhood, and save the whole downpayment that 1st year. If you want a really nice house, rent for 18 months.

I would save $10k/every year in Roths. Call your $25k your EM fund (which could be used for a car if necessary). I would put everything else on those student loans. Pretty soon you'll earn too much to take the student loan interest deduction, so that 6.8% will be your after tax gauranteed no-loss return. Your alternative is to invest for home downpayment in a bond fund (at best) earning < 3%.

It is not automatic to make 400-700k after residency unless you are in one of the few select specialities. Pediatrics may only make 80k/ year in certain areas. I lucked out being in one of the road specialities, and my first year I worked every weekend and made over 600k, but this past year stopped taking call and now make in the 300s. Also, with the changes in medicare payments, that could also hinder your abiity to amke 400-700k / year.
There are two (2) physicians in the OPs household.
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Re: Advice for graduating medical school couple

Post by goodenyou »

lovenox11 wrote:
goodenyou wrote:
DAK wrote:Seems criminal in the current interest rate environment to pay 6+ percent for medical school loans?? What bulls-it.

Less and less incentive to go into medicine every year.... :?
You are correct. Less financial incentive is one thing, but this is financial peril. There are a lot of bright minds that have looked at this, and unless you are blinded by the "cause", it makes no financial sense to amass hundreds of thousands of dollars in loans to make as much as a well-paid school teacher or plumber (pediatrician/FP/IM/psychiatry/peds. ophtho). We have school teachers making $125k/yr in good districts, retiring at 55 with a great pension. Not bad for a 180 day work year, no call, minimal liability and job security. It is a sad day to have to realize this, but our young people are not aware of the financial reality (yet).
I think there are more things here than just the ratios. Because if you look at the salary to dept ratio of a physician (e.g. 160k salary to 200k dept) is 0.8.
Versus a young person finishing a history or literature degree with 100k loans with a starting salary of 35k (35k/100k) is 0.35.


Yes, there is a ton of money going into the student loans, but there is also a lot of money left over to live on. So many students come out with huge loans these days with job prospects nowhere near enough to pay off the loans. Relatively speaking the medical students with large dept are coming out on top, in my opinion.
The person with a 100k in loans with a 35k job is not too bright either. Many employees in my office with barely a high school education makes more than 35k a year and never went to college. College education has become a big business and young impressionable people fall right into the trap. They enslave themselves for years because they unwittingly sign up for astronomical debt loads without the understanding of what it is going to mean to pay it off. I sign the (several) checks for garnished wages for the student loan defaults every payroll.
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Re: Advice for graduating medical school couple

Post by goodenyou »

Anon1234 wrote:
beareconomy wrote:
Anon1234 wrote:Why worry about a home downpayment fund now? When you leave residency you'll earn $400-700k. That's at least $250k after tax. So, rent an apt for 1 year, use that time to pick your neighborhood, and save the whole downpayment that 1st year. If you want a really nice house, rent for 18 months.

I would save $10k/every year in Roths. Call your $25k your EM fund (which could be used for a car if necessary). I would put everything else on those student loans. Pretty soon you'll earn too much to take the student loan interest deduction, so that 6.8% will be your after tax gauranteed no-loss return. Your alternative is to invest for home downpayment in a bond fund (at best) earning < 3%.

It is not automatic to make 400-700k after residency unless you are in one of the few select specialities. Pediatrics may only make 80k/ year in certain areas. I lucked out being in one of the road specialities, and my first year I worked every weekend and made over 600k, but this past year stopped taking call and now make in the 300s. Also, with the changes in medicare payments, that could also hinder your abiity to amke 400-700k / year.
There are two (2) physicians in the OPs household.



They estimate their salary as $180k each in 4 years. So, $360,000 with a $450,000 student debt load. If anyone thinks that physician incomes are going up or staying the same in the future, they are sadly mistaken.
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Re: Advice for graduating medical school couple

Post by Anon1234 »

goodenyou wrote:
Anon1234 wrote:
beareconomy wrote:
Anon1234 wrote:Why worry about a home downpayment fund now? When you leave residency you'll earn $400-700k. That's at least $250k after tax. So, rent an apt for 1 year, use that time to pick your neighborhood, and save the whole downpayment that 1st year. If you want a really nice house, rent for 18 months.

I would save $10k/every year in Roths. Call your $25k your EM fund (which could be used for a car if necessary). I would put everything else on those student loans. Pretty soon you'll earn too much to take the student loan interest deduction, so that 6.8% will be your after tax gauranteed no-loss return. Your alternative is to invest for home downpayment in a bond fund (at best) earning < 3%.

It is not automatic to make 400-700k after residency unless you are in one of the few select specialities. Pediatrics may only make 80k/ year in certain areas. I lucked out being in one of the road specialities, and my first year I worked every weekend and made over 600k, but this past year stopped taking call and now make in the 300s. Also, with the changes in medicare payments, that could also hinder your abiity to amke 400-700k / year.
There are two (2) physicians in the OPs household.



They estimate their salary as $180k each in 4 years. So, $360,000 with a $450,000 student debt load. If anyone thinks that physician incomes are going up or staying the same in the future, they are sadly mistaken.
Please PM me with the data to support that statement.
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Re: Advice for graduating medical school couple

Post by goodenyou »

Anon1234 wrote:
goodenyou wrote:
Anon1234 wrote:
beareconomy wrote:
Anon1234 wrote:Why worry about a home downpayment fund now? When you leave residency you'll earn $400-700k. That's at least $250k after tax. So, rent an apt for 1 year, use that time to pick your neighborhood, and save the whole downpayment that 1st year. If you want a really nice house, rent for 18 months.

I would save $10k/every year in Roths. Call your $25k your EM fund (which could be used for a car if necessary). I would put everything else on those student loans. Pretty soon you'll earn too much to take the student loan interest deduction, so that 6.8% will be your after tax gauranteed no-loss return. Your alternative is to invest for home downpayment in a bond fund (at best) earning < 3%.

It is not automatic to make 400-700k after residency unless you are in one of the few select specialities. Pediatrics may only make 80k/ year in certain areas. I lucked out being in one of the road specialities, and my first year I worked every weekend and made over 600k, but this past year stopped taking call and now make in the 300s. Also, with the changes in medicare payments, that could also hinder your abiity to amke 400-700k / year.
There are two (2) physicians in the OPs household.



They estimate their salary as $180k each in 4 years. So, $360,000 with a $450,000 student debt load. If anyone thinks that physician incomes are going up or staying the same in the future, they are sadly mistaken.
Please PM me with the data to support that statement.
Age: 26 & 27
children: 1
tax filing: married filling separately

Income:
(2012-2016): $48k + $48k = $96k
(2016+): $180k + $180k = $360k

If you need any data to support the statement that physicians are earning less per patient or procedure, I will refer you the CPT codes and reimbursements schedules for physicians. You can also spend a day at your local hospital physician lounge and ask any physician how they are doing financially and if they are making less than they have in the past for the same amount of work. You can read this as well. http://money.cnn.com/2012/01/05/smallbu ... /index.htm.
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Re: Advice for graduating medical school couple

Post by Anon1234 »

goodenyou wrote:
Age: 26 & 27
children: 1
tax filing: married filling separately

Income:
(2012-2016): $48k + $48k = $96k
(2016+): $180k + $180k = $360k

If you need any data to support the statement that physicians are earning less per patient or procedure, I will refer you the CPT codes and reimbursements schedules for physicians. You can also spend a day at your local hospital physician lounge and ask any physician how they are doing financially and if they are making less than they have in the past for the same amount of work. You can read this as well. http://money.cnn.com/2012/01/05/smallbu ... /index.htm.
I think we are digressing. Please check your PM inbox.
Default User BR
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Re: Advice for graduating medical school couple

Post by Default User BR »

goodenyou wrote:We have school teachers making $125k/yr in good districts, retiring at 55 with a great pension. Not bad for a 180 day work year, no call, minimal liability and job security. It is a sad day to have to realize this, but our young people are not aware of the financial reality (yet).
WHAT? There might be a few teachers making that much, but the average teacher salary nationwide is about $50,000. And the days nice pensions are well on the way out. New teachers in many states will have little or nothing there.



Brian
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CMartel2
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Re: Advice for graduating medical school couple

Post by CMartel2 »

Definitely go onto an income-based repayment plan. I'm beginning to think the chief advantage of it is that it keeps your interest from capitalizing. That will be particularly important for the two of you. It will also pay off that part of your subsidized interest you don't pay off through your first three years.

There is tentatively built into the system a 10-year payoff amount for those who work for non-profits (almost all hospitals), but I simply don't expect the government to keep it word on that. Another topic...

I'm in my residency, as well. My wife had two children when we met, and they're hitting teenage years now. We opted to have a child and will have another soon. That's just the reality--if you want to have a family in medicine, you've got the clock working against you. The moonlighting helps. My field doesn't have the astronomical hours in third year that many specialties do, so I've been able to add an extra 30k to take home annually. Just be aware that the expense of picking up insurance, licensing, DEA numbers, etc... is going to run a couple thousand dollars.

Invest in your 403B up to match. I wouldn't invest much beyond that.
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Re: Advice for graduating medical school couple

Post by goodenyou »

Default User BR wrote:
goodenyou wrote:We have school teachers making $125k/yr in good districts, retiring at 55 with a great pension. Not bad for a 180 day work year, no call, minimal liability and job security. It is a sad day to have to realize this, but our young people are not aware of the financial reality (yet).
WHAT? There might be a few teachers making that much, but the average teacher salary nationwide is about $50,000. And the days nice pensions are well on the way out. New teachers in many states will have little or nothing there.



Brian
Ok...Some teachers make as much as pediatricians, and the average is $50,000. Still not bad for a 4 years of college with most paying relatively little for their education (compared to 12-15 yrs of education and average of $200,000 of debt), working 180 days a year, summers off, weekends off, no call, no deaths, no lawyers and some still retiring at 55 with a pension.
vandering
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Re: Advice for graduating medical school couple

Post by vandering »

To:lovenox11
Guys and Gals, what are your specialities? My spouse and I are 2 hyper specialists . We graduated med school in 1990. One of us had 140K loans. We both moon-lighted to cover the interest payments. One of us went into privates first and knocked off our loan in 18 months. It's doable. Yes, we had two kids at the time. Good Luck!
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Re: Advice for graduating medical school couple

Post by milestogo »

Been in your shoes but without quite as much debt!
RENT during residency and even for a couple years longer! Maintenance/yard/appliance expenses are the landlord's problem, not yours and do not affect your budget.
We paid off our debt by just pretending we were still residents for 2 more years and putting almost every dollar towards the school debt. It was really worth it to clear the loans off the books. I think it is easier to just delay increasing spending and not get new cars/large house/expensive vactions while you are used to the resident life style.
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Re: Advice for graduating medical school couple

Post by Childay »

First post but found yours when searching for advice for myself. Currently a third year resident couple. I think your plan sounds mostly good. I would agree IBR is a great deal (fed pays some interest). However, I would stress to apply for it ASAP and make sure you take advantage of whatever (if any) rate reduction deals your loans feature. Do not wait until the end of your automatic deferral (6 months I believe). My wife's loan providers are better, but SallieMae is obnoxious and incompetent. Long story short, they capitalized my med school interest. Don't let that happen if at all possible. They also make the annual re-application process as annoying as possible (I believe this is intentional but I may be paranoid). Also consider paying additional to your IBR rate (have you calculated it?). I am currently planning to max out our Roths and otherwise try to pay down our loans while in residency. Other retirement accounts or house downpayment are likely not worth the 6.8% loans (luckily ours are a bit lower, but still high).

Agree with others re: renting, etc.

Look into exactly what loan repayment is offered where you plan to practice. If it is through the NHSC for underserved areas, there are $ limits. It may make sense to pay off your loans up to those limits. I am not sure what hospitals are offering these days, but imagine you could negotiate for a bonus rather than paying active debts that have been accruing interest. Feel free to PM if needed or for any specialty specific questions.

And agree with step 3 ASAP. Do not procrastinate.
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Re: Advice for graduating medical school couple

Post by Jerilynn »

Disability Insurance is a great idea. Check with the AMA and see if they have some kind of deal with an insurance company to provide group rates. Typically, a professional organization will be able to pick a sound company and negotiate a good deal.
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Re: Advice for graduating medical school couple

Post by czeckers »

Oy. I do not envy you your burden. That interest rate is killer. With interest rates at record lows, I'm not sure why education loans are so steep.

Loans: I'd consider holding off on consolidating in hopes the rates go down.

Definitely rent. Buying a house for only four years usually doesn't make sense as odds are you will be moving after you finish. Remember that you can easily lose 10% in closing costs, appraisal fees, realtors fees, etc in the transaction

In your situation, I would strive to live on one income, and use the other for savings and debt repayment.

With respect to saving, I would definitely max out both Roth IRAs. After you finish your training, you will be ineligible to contribute any more. Furthermore, a Roth probably won't make sense as your tax bracket will likely be higher when you are working than during retirement.

Seriously consider a state with no state tax after you finish. Otherwise your tax rate may approach 50%! You will be in the highest federal bracket. Add the state tax. Then, because the deduction will be too large, you will have to pay AMT. Add in property/school and sales taxes and you won't be left with much.

Finally, you will have child care costs which are made worse by your irregular schedules.

At a minimum pay interest on your loans to keep it from compounding.

Look into whether sign on bonuses are common in your specialties. If so, that usually helps with down payment on a house. That's the best case scenario. Worst case scenario is that you have to get a loan from your practice to cover expenses until you start receiving payments which is easily 6'months or more. For example I started work at a new hospital in July and have not received a cent from the insurers so far. It takes a long time for the payments to start flowing. If the latter situation may apply to you, then definitely start saving for a house downpayment.

The advice you got earlier re disability insurance and "own occupation"' coverage is very good advice. Your ability to earn income is by far your greatest asset. If you become disabled, your loans unfortunately won't go away.

Finally, not as much for residency, but as an attending, I would strongly suggest provision for 1 years worth of expenses in the emergency fund. If one of you loses a job, there's a good chance you'll need to move to get a new one. Licensing and credentialing in a new state/practice usually takes 6 months and possibly more.

Having said all that, it's still a great profession. Good luck!
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Re: Advice for graduating medical school couple

Post by relentless »

Jerilynn wrote:Disability Insurance is a great idea. Check with the AMA and see if they have some kind of deal with an insurance company to provide group rates. Typically, a professional organization will be able to pick a sound company and negotiate a good deal.
The consensus of insurance agents on this board seems to be against using a medical society for your disability insurance. See threads below. Also do you really want to have to continue to belong to the AMA to keep your insurance even if you may disagree with their stances? I do not belong to the AMA and don't plan to ever join.

http://www.bogleheads.org/forum/viewtop ... =2&t=85362
http://www.bogleheads.org/forum/viewtop ... 1310359500
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