Tuition vs Retirement Accounts

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linguini
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Tuition vs Retirement Accounts

Post by linguini »

First, some background. My wife and I are in our mid-twenties. Next year, my wife will be attending medical school. She's going to a private university, and combining tuition and living expenses and supplies, we're talking about probably having to pony up about $70k a year. I know it's a favorite topic among bogleheads, but the question of whether or not it's in her best financial interest to go to med school is not a consideration here. While you are free to debate that among yourselves in this thread if you so please, this is a question of serving her life-long passion rather than maximizing lifetime earnings, and I fully support her in choosing this path and want to help her through this. The actual topic of this thread is over the best way to finance her education.

While she is in medical school, I will still be working full time, and I earn something on the order of $115k before taxes, probably a bit more depending on bonuses and raises next year. Housing, food, transit, medical, my own tuition for part time studies, charity, and other smaller expenses over the last 12 months for me totaled somewhere around $40k (estimated, it's hard for me to figure out the exact number because my budgeting tool includes things like buying savings bonds and I buy things like gym membership and FSA through payroll withdrawals, so I'm doing a little back-of-the-envelope to get an estimate). I plan on spending less next year by eliminating vacations, not eating out very often, no new electronics, temporarily reducing charitable giving, walking to work instead of taking the subway, etc, but the reality is that a large majority of my expenses are housing and tuition, so I'm not sure how much I can realistically reduce without quitting grad school or unnecessarily reducing my quality of living. I also have cash savings and taxable investments built up, on the order of $60k. My wife also has some modest savings outside her retirement account, totalling about $20k. I've been in the process of gradually selling off the stocks in my taxable account, so soon we will have about $80k available in cash.

Now, this gives us enough to pay for about a year of medical school with our savings. Assuming I have roughly $90k after taxes, minus my $40k in expenses, I will have roughly $50k a year to serve other needs. Currently, a large portion of that goes into retirement accounts: $5.5k into a Roth IRA and $17.5k into my company 401k (no company match, but I do get a separate defined benefit pension). My thinking is this: our cash savings will pay for about $20k a year in expenses, and if I were to continue saving about $23k in tax-advantaged money, then combined with some assistance her parents have generously offered to put toward her education, we could probably comfortably put up about $50k total. At that point, we're only about $20k in the hole. After that, my question is, how should we bridge that gap? I see two main options (unless I choose to defer courses for my own education, which I don't think is necessary):

1. Take out about $20k in federal loans. Direct unsubsidized loans are currently 5.41%. She would graduate with us owing roughly $90k in debt (because of servicing fees and interest accumulated during her education) and I would have about $80k in retirement contributions spread out over those four years. I assume we could comfortable pay off the debt in just a a few years before we have children because I would still be working full time and she would be earning a residency salary.

2. Temporarily reduce or eliminate my contributions to my 401k and Roth IRA, and graduate with almost no debt but also no additional retirement savings over what I have today. It would set back my retirement savings and I would lose the tax advantaged space, but we wouldn't have any debt and we wouldn't have to pay interest and servicing fees.

Of course, this is really a whole spectrum, not binary options (eg, I could reduce my retirement savings to $10k and finance med school with only $10k of debt each year), and the numbers might not work out exactly right and there could be some small differences on the margins. But this should be the basics of it. To me, neither of these seem like horribly onerous futures, as long as I can keep my current job and we don't suffer any financial calamities in the meantime (knock on wood). But I wanted some feedback from bogleheads to know what seemed like the most financially responsible option. Thanks for letting me know your thoughts!
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BL
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Re: Tuition vs Retirement Accounts

Post by BL »

I like number 1. You will have gathered together all your "spare" money already, but you will still make use of your Roth and 4xxk space which can never be recovered if not used. You will be saving in taxes by using your 4xxk to save for retirement.

She should be able to repay the student loans rather quickly after finishing med school.
IFKC
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Re: Tuition vs Retirement Accounts

Post by IFKC »

To me, option 1. I think passive investing will give me more than a 5.41% return (even over a short time frame), and the tax advantaged space compounds this benefit. I also will take the 2.5k tax deduction for the student loan interest each year.
Tragedy at 17 --> $$$ - mistakes + education (including Bogleheads) = a poster who still knows the least on this forum. Happy father, tepid lawyer.
Dave76
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Re: Tuition vs Retirement Accounts

Post by Dave76 »

Sounds a bit reckless. Training spans more than a decade, and you end up married to someone who's married to a career. Have you tried talking her out of this idea? What about Physician Assistant?
Topic Author
linguini
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Re: Tuition vs Retirement Accounts

Post by linguini »

BL wrote:I like number 1. You will have gathered together all your "spare" money already, but you will still make use of your Roth and 4xxk space which can never be recovered if not used. You will be saving in taxes by using your 4xxk to save for retirement.

She should be able to repay the student loans rather quickly after finishing med school.
IFKC wrote:To me, option 1. I think passive investing will give me more than a 5.41% return (even over a short time frame), and the tax advantaged space compounds this benefit. I also will take the 2.5k tax deduction for the student loan interest each year.
Thanks, these both sound like reasonable points to me. I was pretty much 50-50 at the start of this thread, so if option 1 is a consensus boglehead position, I'll probably follow the knowledge of the masses and go that route.
Dave76 wrote:Sounds a bit reckless. Training spans more than a decade, and you end up married to someone who's married to a career. Have you tried talking her out of this idea? What about Physician Assistant?
This is a jape, right? I genuinely can't tell.
Calm Man
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Re: Tuition vs Retirement Accounts

Post by Calm Man »

OP, I was in the reverse gender situation. Let her borrow as much as possible. Not to be gruesome, but you have a 50% chance that your marriage will fail. If she gets through med school and enters residency, raise it to 75%. So you don't want to subsidize her schooling as your earnings are peanuts compared to what you will earn. I know, you love each other, but listen to me.
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yatesd
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Re: Tuition vs Retirement Accounts

Post by yatesd »

I would tend to fund the 401K only and throw the rest towards school expenses to minimize borrowing.
Dave76
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Re: Tuition vs Retirement Accounts

Post by Dave76 »

Calm Man wrote: ...but listen to me.
Linguini -- Calm Man is wise. He seems to be suggesting that you hedge your bets.
Professor Emeritus
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Re: Tuition vs Retirement Accounts

Post by Professor Emeritus »

Calm Man wrote:OP, I was in the reverse gender situation. Let her borrow as much as possible. Not to be gruesome, but you have a 50% chance that your marriage will fail. If she gets through med school and enters residency, raise it to 75%. So you don't want to subsidize her schooling as your earnings are peanuts compared to what you will earn. I know, you love each other, but listen to me.
I don't know where you got your numbers from, but at best they sound like male not female physicians.
I married a medical student and not only are we still married 38 years later, her female physician friends WHO DID NOT MARRY MALE PHYSICIANS are still married. But these are anecdotes.

All that being said, a proper legal agreement between the parties can address the financial implications.
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zebrafish
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Re: Tuition vs Retirement Accounts

Post by zebrafish »

I think option #1 is reasonable. You won't end up with an overwhelming amount of student loan at the end.

I think you have the right mental approach-- taking all reasonable action to reduce spending and debt at the end of the process.

Presumably, you were married knowing she wanted to pursue this career path and you support her emotionally. Thus, I wouldn't personally follow any of the advice proposing a "defensive" or "strategic" approach which financially protects you in case you divorce later. While I understand the viewpoints of people who have been divorced, I don't personally feel this approach is healthy for a marriage, either. I'll also just say, I know one female physician providing spousal support to her ex-husband. I also know many female physicians who are married to their physician and non-physician spouses 10+ years out of medical school. In fact, it is the vast/overwhelming majority of the people I trained with.
Last edited by zebrafish on Sun Dec 15, 2013 11:57 am, edited 2 times in total.
DVMResident
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Re: Tuition vs Retirement Accounts

Post by DVMResident »

+1 for what everyone said:

I like option 1 and not losing the tax-sheltered space. $90k @ 5.41% should be very manageable for you two.

Divorce rates were high in my class (vet school, which is similar enough). School is tough and takes a toll on personal life. You two can make it through if both parties are resolved to make it work. Set aside time to the marriage (e.g. every Friday night). Good luck-medical school is an exciting time of learning and being around a lot of smart people.
Draak
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Re: Tuition vs Retirement Accounts

Post by Draak »

I would have her individually take the max available on Graduate Direct Loans ($20,500/yr & $138K aggregate).
I would also suggest her looking into private loans before you are liquidating assets to pay for the education.
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linguini
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Re: Tuition vs Retirement Accounts

Post by linguini »

Thank you everyone for your advice. I think based on the advice I am getting here, I will continue investing in my 401k, and probably my Roth IRA for the next couple of years unless we start feeling the pinch, then reevaluate. It seems there is a broad consensus that the federal direct loans' interest and servicing fees are small enough that I should not sacrifice tax advantaged investment space to eliminate them.

For those who might suggest I minimize my own financial risk by talking her out of going to medical school or having her maximize all her loans before I contribute anything to her education and have her pay the loans off from her own future income, this is not under consideration. First, I am planning our joint household budget, not creating a parachute for the possibility that we will get divorced at exactly the point in between when she graduates and starts residency. Call me a fool if you will, but I believe that treating my marriage as a game of student loan hot potato would be counterproductive to the strength of our relationship. I understand that some posters on this forum see this position as foolish, and I sympathize with that position and encourage them to act on their own advice, but it's not how I want to interact in my own relationship. Second, even if I were preparing to saddle her with loans, the assumption that a divorce would leave her solely responsible for debts she incurs during marriage and leave me solely entitled to the incomes and properties I acquire during marriage seems at best highly questionable to me. I'm not a divorce lawyer or anything, but my best guess is that both my income and her loans are marital property and jointly owned by the two of us, and I'm fine with that. So insofar as this particular question goes, I am primarily interested in comparing the tax and earnings advantages of investing in a 401k compared to the interest and servicing fees of taking out student loans, not in shifting the distribution of assets each party is entitled to in a hypothetical divorce timed at very specific moment in the future.

Thanks for everyone's recommendations and well wishes!
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Re: Tuition vs Retirement Accounts

Post by englishgirl »

I always find that with a binary situation (take $20k per year loans with full retirement contributions vs. no loans or retirement contributions), I nearly always want to split the difference. Perhaps it is just me, but I think this is one of those situations where neither of the two options you proposed are inherently right or wrong. Therefore, why not do the $10k loan plus $10-13k in retirement savings middle way?

Plus, it seems to me that you are just looking at tuition dollars. What about the cost of textbooks and all those add-on costs that come along. I hear licensing exams for doctors are very expensive - while she wouldn't have to pay such fees until the end of her education, it seems to me that having a cushion built in to your calculations may be wise. Personally, I find going from the "no loan" situation to a "small loan" to be psychologically demanding - will you be scrimping and saving just to avoid loans at all costs? Whereas going from a $10k loan to a $20k loan if you need to in any one year would not be as difficult.
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Watty
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Re: Tuition vs Retirement Accounts

Post by Watty »

Whichever approach you take you will be depending a lot on her future earnings so you should make sure that she has ample life insurance in just in case something happens to her. Once she starts working then you should also get ample disability insurance for her too.
leonard
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Re: Tuition vs Retirement Accounts

Post by leonard »

linguini wrote:Thank you everyone for your advice. I think based on the advice I am getting here, I will continue investing in my 401k, and probably my Roth IRA for the next couple of years unless we start feeling the pinch, then reevaluate. It seems there is a broad consensus that the federal direct loans' interest and servicing fees are small enough that I should not sacrifice tax advantaged investment space to eliminate them.

For those who might suggest I minimize my own financial risk by talking her out of going to medical school or having her maximize all her loans before I contribute anything to her education and have her pay the loans off from her own future income, this is not under consideration. First, I am planning our joint household budget, not creating a parachute for the possibility that we will get divorced at exactly the point in between when she graduates and starts residency. Call me a fool if you will, but I believe that treating my marriage as a game of student loan hot potato would be counterproductive to the strength of our relationship. I understand that some posters on this forum see this position as foolish, and I sympathize with that position and encourage them to act on their own advice, but it's not how I want to interact in my own relationship. Second, even if I were preparing to saddle her with loans, the assumption that a divorce would leave her solely responsible for debts she incurs during marriage and leave me solely entitled to the incomes and properties I acquire during marriage seems at best highly questionable to me. I'm not a divorce lawyer or anything, but my best guess is that both my income and her loans are marital property and jointly owned by the two of us, and I'm fine with that. So insofar as this particular question goes, I am primarily interested in comparing the tax and earnings advantages of investing in a 401k compared to the interest and servicing fees of taking out student loans, not in shifting the distribution of assets each party is entitled to in a hypothetical divorce timed at very specific moment in the future.

Thanks for everyone's recommendations and well wishes!
Sometimes hard to hear advice is - well - hard to hear. It's easier to learn from others mistakes. 100% of us want to believe we are the exception when it comes to divorce - but consider that only 50% (or so - the fact that the real number may be 51.2323% doesn't change the point) are right about that.

As I recall from prior posts StopToThink is a boglehead that may have something to contribute to this thread. Hopefully he will chime in.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Re: Tuition vs Retirement Accounts

Post by DVMResident »

linguini wrote:For those who might suggest I minimize my own financial risk by talking her out of going to medical school or having her maximize all her loans before I contribute anything to her education and have her pay the loans off from her own future income, this is not under consideration. First, I am planning our joint household budget, not creating a parachute for the possibility that we will get divorced at exactly the point in between when she graduates and starts residency. Call me a fool if you will, but I believe that treating my marriage as a game of student loan hot potato would be counterproductive to the strength of our relationship. I understand that some posters on this forum see this position as foolish, and I sympathize with that position and encourage them to act on their own advice, but it's not how I want to interact in my own relationship. Second, even if I were preparing to saddle her with loans, the assumption that a divorce would leave her solely responsible for debts she incurs during marriage and leave me solely entitled to the incomes and properties I acquire during marriage seems at best highly questionable to me.
For what it's worth, I agree with you. There is risk of divorce. Anything worth doing in life has risks associated with it. If you've decided failure is not an option, you're chances of success will be higher.

I'm young (31) and in a similar boat and I've put a lot on the line for our relationship. I'm pretty confident we'll make it because we are both dedicated to the relationship. When the tough times come up, we, as a couple, sail through the worst parts just fine.

I like your attitude. Good luck.
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linguini
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Re: Tuition vs Retirement Accounts

Post by linguini »

englishgirl wrote:I always find that with a binary situation (take $20k per year loans with full retirement contributions vs. no loans or retirement contributions), I nearly always want to split the difference. Perhaps it is just me, but I think this is one of those situations where neither of the two options you proposed are inherently right or wrong. Therefore, why not do the $10k loan plus $10-13k in retirement savings middle way?

Plus, it seems to me that you are just looking at tuition dollars. What about the cost of textbooks and all those add-on costs that come along. I hear licensing exams for doctors are very expensive - while she wouldn't have to pay such fees until the end of her education, it seems to me that having a cushion built in to your calculations may be wise. Personally, I find going from the "no loan" situation to a "small loan" to be psychologically demanding - will you be scrimping and saving just to avoid loans at all costs? Whereas going from a $10k loan to a $20k loan if you need to in any one year would not be as difficult.
We included costs of books, exams, medical supplies, expected tuition increases, student fees, insurance, transit, padding for unexpected and unknown costs, etc. in our estimates. "Expected full cost of attendance" would perhaps have been a better description, but it sounds awkward, so I went with the less accurate "tuition". :D

I agree that it would be reasonable to take a middle ground. I think this is similar to what yatesd suggested (invest in 401k and use the $5.5k that normally goes toward Roth to pay toward schooling), and I definitely see the wisdom in breaking the arbitrary psychological barrier of taking out a loan so that we don't take unnecessary and risky steps to avoid it later. It's definitely something I will consider. I am settling on taking out at least some loans because of the points raised in this thread and the seemingly unanimous consensus on not cutting back all my retirement savings to avoid loans. At the end of the day, I think I would feel pretty comfortable with either option, or anywhere in between.
leonard wrote:Sometimes hard to hear advice is - well - hard to hear. It's easier to learn from others mistakes. 100% of us want to believe we are the exception when it comes to divorce - but consider that only 50% (or so - the fact that the real number may be 51.2323% doesn't change the point) are right about that.

As I recall from prior posts StopToThink is a boglehead that may have something to contribute to this thread. Hopefully he will chime in.
That's all well and good, and it's an argument that you could have made if I were asking about a prenup, but this conversation is about jointly owned marital property. I've already explained my feelings on the matter as a matter of my personal approach to the relationship, but at the end of the day, those feelings don't even matter. As far as I can tell, according to state law, money added to my retirement accounts and debts she acquires during the course of the marriage will become jointly owned marital property and would be subject to equitable distribution in the case of a divorce. I appreciate all the concern on this matter, but even if I wanted to structure our finances to financially advantage myself in the case of a divorce, it would not have any legal grounding. So it is thankfully not relevant to my financial planning on this matter.
Watty wrote:Whichever approach you take you will be depending a lot on her future earnings so you should make sure that she has ample life insurance in just in case something happens to her. Once she starts working then you should also get ample disability insurance for her too.
This is a fair point. She will definitely have life and disability insurance after graduating, but I hadn't considered the possibility she should get life insurance during medical school. I will discuss life insurance with her, though it will be a tough conversation and I pray we never have to use it.
DVMResident wrote:For what it's worth, I agree with you. There is risk of divorce. Anything worth doing in life has risks associated with it. If you've decided failure is not an option, you're chances of success will be higher.

I'm young (31) and in a similar boat and I've put a lot on the line for our relationship. I'm pretty confident we'll make it because we are both dedicated to the relationship. When the tough times come up, we, as a couple, sail through the worst parts just fine.

I like your attitude. Good luck.
Thanks for your support! And I agree. I don't really even see this as putting my money at risk; I see it as spending on the long term health of my relationship. If the relationship doesn't work out and I end up out some money because of it, then so be it, I lose some money. Who knows what the future holds, but in this moment, I am emotionally intertwined with my wife in ways that can't be captured in a ledger.
MathWizard
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Re: Tuition vs Retirement Accounts

Post by MathWizard »

I would take out as much in subsidized loans as you can.
Private loans are another matter.

Once she gets out, your combined earnings will be high and preclude much in the
way of tax advantaged savings. The ROTH is probably the way to go now.
You also want to make sure you have a good cushion for emergencies which the
ROTH can provide.

I think that the "defensive" comments may color the decision on this. I would reject those also., but that
does not mean she should not take out the loans.


If she feels like she cannot go to med school if she takes out the loans then she is making a
financial decision on its own merits. I took out loans for my graduate school, and at nearly double the
5.4% rate that you quote. I believed that going into debt would be worth it financially due to increased
earnings potential.

You should be better off financially taking on the debt but keeping retirement on track and taking
advantage of tax-advantaged accounts while you can.
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Re: Tuition vs Retirement Accounts

Post by TomatoTomahto »

linguini wrote:
DVMResident wrote:For what it's worth, I agree with you. There is risk of divorce. Anything worth doing in life has risks associated with it. If you've decided failure is not an option, you're chances of success will be higher.

I'm young (31) and in a similar boat and I've put a lot on the line for our relationship. I'm pretty confident we'll make it because we are both dedicated to the relationship. When the tough times come up, we, as a couple, sail through the worst parts just fine.

I like your attitude. Good luck.
Thanks for your support! And I agree. I don't really even see this as putting my money at risk; I see it as spending on the long term health of my relationship. If the relationship doesn't work out and I end up out some money because of it, then so be it, I lose some money. Who knows what the future holds, but in this moment, I am emotionally intertwined with my wife in ways that can't be captured in a ledger.
I don't have anything constructive to add other than that I like both of your attitudes and wish you both luck in your marriages and careers.
I get the FI part but not the RE part of FIRE.
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Re: Tuition vs Retirement Accounts

Post by inbox788 »

yatesd wrote:I would tend to fund the 401K only and throw the rest towards school expenses to minimize borrowing.
No! Between 401k and Roth, I'd prioritize Roth. I didn't see your tax rate, but I'm assuming its low to moderate. It's very likely that in retirement, you could be in a moderate to high rate. You can't predict this, but in your best guess, do you think you'll be in a higher tax bracket today or in retirement? If higher in retirement, tax deferred could mean you pay more in taxes! Roth is tax free gains, so benefit more in higher tax brackets, but also also some in lower brackets.

Be sure you understand what cash, other assets, liquid or not, determine the amount you need to spend before qualifying for aid and subsidized loans. Also, subsidized and private loans may be needed and your decision needs to take into account costs, fees, and interest rates.
simpsonlang
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Re: Tuition vs Retirement Accounts

Post by simpsonlang »

I figure you need a vote for Option 2. I think one part of the math that isn't factored in is the risk. What if you lose your job while trying to repay all that debt, what if your wife get's pregnant and changes her mind about schooling, what if that happens at the same time? Their is far less risk in reducing your retirement and cash flowing the education. You may find you will sleep better especially when you have to start paying back the debt. Now if everything works out option 1 would be the best in terms of the math but bad things happen and it can be stressful so if you are going to do option 1 I would only do so after you have 6 month of expenses saved up including enough to cover any debt payments in the event you had to start repaying the loan immediately due to her not attending any more. Otherwise wouldn't anything in the 401k be viewed as a leveraged investment?
MathWizard
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Re: Tuition vs Retirement Accounts

Post by MathWizard »

simpsonlang wrote:I figure you need a vote for Option 2. I think one part of the math that isn't factored in is the risk. What if you lose your job while trying to repay all that debt, what if your wife get's pregnant and changes her mind about schooling, what if that happens at the same time? Their is far less risk in reducing your retirement and cash flowing the education. You may find you will sleep better especially when you have to start paying back the debt. Now if everything works out option 1 would be the best in terms of the math but bad things happen and it can be stressful so if you are going to do option 1 I would only do so after you have 6 month of expenses saved up including enough to cover any debt payments in the event you had to start repaying the loan immediately due to her not attending any more. Otherwise wouldn't anything in the 401k be viewed as a leveraged investment?
I agree with the argument that you put forward, but I believe that it favors #1 not #2.
Go into debt that has to be repaid over 10 years (or more) but have money in retirement accounts to
make the payments for a while if things go sour.
#2 reduces the amount of cash on hand (yes you may face a penalty/taxes on withdrawal from 401K, but
not from ROTH contributions)
leonard
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Re: Tuition vs Retirement Accounts

Post by leonard »

linguini wrote:
leonard wrote:Sometimes hard to hear advice is - well - hard to hear. It's easier to learn from others mistakes. 100% of us want to believe we are the exception when it comes to divorce - but consider that only 50% (or so - the fact that the real number may be 51.2323% doesn't change the point) are right about that.

As I recall from prior posts StopToThink is a boglehead that may have something to contribute to this thread. Hopefully he will chime in.
That's all well and good, and it's an argument that you could have made if I were asking about a prenup, but this conversation is about jointly owned marital property. I've already explained my feelings on the matter as a matter of my personal approach to the relationship, but at the end of the day, those feelings don't even matter. As far as I can tell, according to state law, money added to my retirement accounts and debts she acquires during the course of the marriage will become jointly owned marital property and would be subject to equitable distribution in the case of a divorce. I appreciate all the concern on this matter, but even if I wanted to structure our finances to financially advantage myself in the case of a divorce, it would not have any legal grounding. So it is thankfully not relevant to my financial planning on this matter.
You are assuming that because you are married that the state of marriage nullifies any planning you might do. I think this assumption is just that - an assumption. I also think it's an assumption that you are using to not have to deal with the issue head on.

However, it's obvious you are not interested - so good luck.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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zebrafish
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Re: Tuition vs Retirement Accounts

Post by zebrafish »

leonard wrote:You are assuming that because you are married that the state of marriage nullifies any planning you might do. I think this assumption is just that - an assumption. I also think it's an assumption that you are using to not have to deal with the issue head on.
But it is also an assumption that the advice that many of the divorcees provide in this vain would actually be helpful to those in a healthy relationship-- I think the OP, myself, and many others feel that this approach would actually be damaging to their relationships. If my spouse felt I were constantly planning for a future divorce, then I think it would cause an element of mistrust that would not be healthy.
leonard
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Re: Tuition vs Retirement Accounts

Post by leonard »

zebrafish wrote:
leonard wrote:You are assuming that because you are married that the state of marriage nullifies any planning you might do. I think this assumption is just that - an assumption. I also think it's an assumption that you are using to not have to deal with the issue head on.
But it is also an assumption that the advice that many of the divorcees provide in this vain would actually be helpful to those in a healthy relationship-- I think the OP, myself, and many others feel that this approach would actually be damaging to their relationships. If my spouse felt I were constantly planning for a future divorce, then I think it would cause an element of mistrust that would not be healthy.
You are assuming it is divorcees providing this input. It isn't. Why not simply evaluate the advice on it's merits - rather than on the marital status of the person providing.

And, a "healthy" relationship can be judged in retrospect - if people are still married at 85. Everyone thinks their relationship is healthy - until they find out it isn't.

Enough from me - not going to change any minds here.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Topic Author
linguini
Posts: 262
Joined: Tue Oct 16, 2012 2:49 pm

Re: Tuition vs Retirement Accounts

Post by linguini »

leonard wrote:You are assuming that because you are married that the state of marriage nullifies any planning you might do. I think this assumption is just that - an assumption. I also think it's an assumption that you are using to not have to deal with the issue head on.

However, it's obvious you are not interested - so good luck.
I don't make the laws, I just follow them. But hey, agree to disagree. :sharebeer
armeliusc
Posts: 402
Joined: Wed Dec 21, 2011 9:40 am

Re: Tuition vs Retirement Accounts

Post by armeliusc »

linguini wrote:
Watty wrote:Whichever approach you take you will be depending a lot on her future earnings so you should make sure that she has ample life insurance in just in case something happens to her. Once she starts working then you should also get ample disability insurance for her too.
This is a fair point. She will definitely have life and disability insurance after graduating, but I hadn't considered the possibility she should get life insurance during medical school. I will discuss life insurance with her, though it will be a tough conversation and I pray we never have to use it.
Getting a Term Life Insurance need not be a tough conversation, and it should be easy enough and relatively inexpensive if you're both young and healthy. I second the suggestion of getting term life at least to offset the debt and potential loss of future earning. Check out term4sale.com.
MathWizard
Posts: 4652
Joined: Tue Jul 26, 2011 1:35 pm

Re: Tuition vs Retirement Accounts

Post by MathWizard »

armeliusc wrote:
linguini wrote:
Watty wrote:Whichever approach you take you will be depending a lot on her future earnings so you should make sure that she has ample life insurance in just in case something happens to her. Once she starts working then you should also get ample disability insurance for her too.
This is a fair point. She will definitely have life and disability insurance after graduating, but I hadn't considered the possibility she should get life insurance during medical school. I will discuss life insurance with her, though it will be a tough conversation and I pray we never have to use it.
Getting a Term Life Insurance need not be a tough conversation, and it should be easy enough and relatively inexpensive if you're both young and healthy. I second the suggestion of getting term life at least to offset the debt and potential loss of future earning. Check out term4sale.com.
Here is another argment for subsidized federal loans. The life and permanent disability insurance is built in.
If the borrower dies, the loan is discharged. Similarly for total and permananet disability.
See Dept of Educ. URL:

http://studentaid.ed.gov/repay-loans/fo ... ncellation
TDAlmighty
Posts: 171
Joined: Fri Dec 06, 2013 1:01 pm

Re: Tuition vs Retirement Accounts

Post by TDAlmighty »

Max the federal student loans. They have "mandatory" forbearance during residency (EDIT: and the IBR program is even better if you can afford it). You can optionally choose to pay down the principal during residency, but most people do not due to factors below.

Assume that you will be quitting your job and moving across the state/country when her Medical School is over in 4 years. 70%-80% of medical school graduates relocate (outside of metro area) immediately following Medical School with another 5-10% of the remaining relocating after intern year. For this reason, maintaining maximum liquid assets will be key. (EDIT: So you do not run up credit cards or take out high-interest loans, which is what a lot of residents do). Especially since residency salary is only 45k-60k and you need to assume that will be your only income until you find a new job in a different location/industry. Please do not buy a home during Medical School or residency, any potential upside will not be worth the headache. Try to minimize the amount of things you accumulate and later have to move. Think about how kids play into all of this.

These moving realities and dual-career impacts are not apparent to most people starting Medical School. When the reality hits and your realize how much of it is out of your control, it often causes a lot of stress in these dual-career relationships. This stress often affects Medical School performance and subsequent residency competitiveness. Vicious negative feedback loop. Prepare yourself and your wife.
Topic Author
linguini
Posts: 262
Joined: Tue Oct 16, 2012 2:49 pm

Re: Tuition vs Retirement Accounts

Post by linguini »

All right, thanks for the advice everyone. We are going to max out the lower interest loans the next couple years then reevaluate based on our financial situation. I appreciate all the thoughtful posts people have made in response.
Topic Author
linguini
Posts: 262
Joined: Tue Oct 16, 2012 2:49 pm

Re: Tuition vs Retirement Accounts

Post by linguini »

Just wanted to follow up on this after six years and provide some observations on what we did and how things have gone, in case anyone else finds themselves facing similar choices.

My wife has graduated medical school and is now working hard on her pediatrics residency as a PGY-1. We initially maxed out the lower interest loans and avoided the higher interest PLUS loans. Just before she graduated, I had the enormous fortune of finding a higher paying job that allowed us to stop taking out loans entirely, and so she graduated with under $100k in loans which we managed to pay off in less than a year. So, one lesson learned, sometimes you can think really hard about an issue and fine tune your plan, and then your life changes in a way that makes the planning moot (thankfully this time in a good way!). She managed to get accepted into a residency in the same city (New York), so we fortunately didn't have to move, although we do know people from her med school who didn't get to live in their city of choice!

Our relationship did not fall apart and lead to divorce; on the contrary, we are still happily married and now have our first child. I will say that raising a kid is tough, and the hard work and rough hours of residency make it harder. The flexibility my own job provides and support from our families have been critical to raising a child with a physician spouse - I have no clue how two physician households manage to raise kids!

While things can get stressful sometimes, overall everything is going really well, and I'm happy my wife went to medical school and gets to experience her life's calling, and that I supported her instead of trying to talk her out of it. Working with kids was her passion even before med school, and she gets to do what she loves and make a big difference in the world saving babies' lives, so she's happy and I'm happy for her. She would have had easier working hours and maybe we would have been able to start saving for a down payment on a house a little earlier had she gone to a PA program instead, but she also wouldn't have gotten the experience of practicing medicine working exclusively with kids, and especially babies in the NICU.

Appreciate everyone's advice, even the advice we didn't end up taking. The choices we made definitely aren't right for everyone, but they did end up being right for us, at least for now.
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