Young docs

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hma53
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Young docs

Post by hma53 »

Hi,
i'm currently an intern now, soon to be a radiology resident come July 08. Noticed on another thread that there's a lot of other people in a similar situation as myself and was hoping to discuss some issues pertinent to us.

So far this year, I have 1) bought DI (own occ, specialty specific) from Berkshire, 2) started a roth with a Vanguard target retirement fund, which will be maxed out come April (my institution does not match, nor will my residency next year), 3) started a MMMF with vanguard prime with about 5000 in it now, and 4) payed down approx 2500 in my 4th year student loans, 6.62 interest, variable with some parental help.

My issues are:
1) moving to a new city in July (chicago), and considering buying a place
2) what to do about loans. I have 3 loans now, 80,000 consolidated at 2.8; 45,000 consolidated at 3.6; and my previously mentioned 45,000 at a variable 6.6%. All three are in deferment. I know not to touch the 3.6 and 2.8 loans for now; but the question is whether to pay down at least 2500 of the 6.6% for the tax deduction, or to invest this money. Assuming I can max out the roth again next year, do i go with the nonmatching 403b for a potential higher return?

anyone else with similar issues or with other problems specific to being a resident?
thanks

-Howard
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White Coat Investor
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Post by White Coat Investor »

Welcome to the forum. There are lots of docs on here. Be sure to check out this:


http://www.diehards.org/forum/viewtopic.php?t=8300


Here is what I would do NOW as a resident:

1) Make sure you have adequate life insurance. Good job on the DI.

2) Max out the Roth for you and any spouse you may have ($5K each this year, $4K each for 2007.)

3) If you still have money left I'm impressed. Put it in that MMF of yours, you'll need it during your move to Chicago.

4) Stop paying the loans off. Pay the minimum on the $80K 2.8% and the $45K 3.6% forever. Pay off the $45K 6.6% once you're an attending but only with money above and beyond that which goes into maxing-out tax-protected accounts. Consider that your "bond" allocation and put the money in your retirement accounts into stocks.

Do you really have money left to put in a 403b? What in the world are they paying residents these days? Good for you. Since it is non-matched you'll have to decide whether to put it in there or to save it up for moving/downpayment expenses.

Enjoy your residency.
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
nyblitz
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Post by nyblitz »

Agree with EmergDoc's advice completely regarding loans and retirement accounts.
As long as you have the money, the 403b vs save for house is a tough one. One advantage of placing money with your unmatched 403b this year is that even if the plan is not good, you will be able to roll it over into an IRA (with Vanguard, or any company you chose) when you "leave" your intern position and start your residency.
Finally, keep reading about finances (reading lists from this site) and occasionally review the board when you have time.
Good luck with rads!
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woof755
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Post by woof755 »

EmergDoc said it wonderfully. Not sure if you're married, but when it comes to being a resident, owning a house, having kids...by the end of my 6th year of training, I became what I used to rail against and contributed nothing to my 403(b). No employer match at stake.

But, as EmergDoc alluded to, the salary simply stinks, and we were paycheck to paycheck, in a very, very modest house.

That being said, the salary you will make as a radiologist will allow you to catch up in a big way in a hurry, if you're disciplined.

Fund your Roth if you can. Save for that house if it's important to you. Don't sweat the 403(b) or the student loans. That being said, don't go spending your 2012 signing bonus before you have it, either!

Good luck powering through residency. There is a light at the end of the tunnel...really, there is.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
bedhead
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Post by bedhead »

You may be able to save money on the DI for 4-5 years of your residency, as most residencies and fellowships provide DI's for free. At the end of your training, you can shop for specialty-specific DI. Once the income increases, you can max out your DI limit in about a year or two.

Your educational loan interest payments may be deductible from tax if your household income meets the eligibility. Enjoy it during residency. When you're out, you'll make too much to have any tax deduction.

Renting in Chicago's expensive. Northwestern, at least, used to offer affordable housing for residents (about 10 yrs ago). Ask your residency program about similar options for room and board. Some apartments would let residents get "student" rent prices. Parking a car was just as expensive as an apartment rent, so many residents did not drive.

Live frugal and prosper
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Post by Rich_in_Tampa »

I remember my intern salary in 1975: $11,700. Thought I was in heaven and actually bought a house with a 95% FHA mortgage, 1 kid and another on the way. Memory lane.

Only caution would add is that the piranhas will be after you shortly. You are in a high income specialty and will be vulnerable to all kinds of scams. Watch your step, and don't fall into the trap of immediately assuming the lifestyle of your more senior peers. Rather, set aside as much as you comfortable can once you get into practice. Deferring big time gratification for even 2-3 years (and investing the difference) will make you delirious with joy 30 years from now.

I am in a lower income specialty and only started saving in my 40s when all my loans were paid off. Be grateful, but don't assume indefinite income growth. The regulators are right behind you ;).

Oh -- and read Bogle's Common Sense Guide to Investing (or similar).
Rich
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Interest on unsubsidized loans while in school

Post by jhujrt3 »

While not trying to hijack the thread, I would like to pose a question to those who read this: did any of you pay down the interest on your unsubsidized loans while you were in medical school? I am currently a second year medical student who is debt averse. I'm an atypical medical student, as I served four years as an infantry officer in the Army prior to starting medical school at 28 y/o. I've managed to take out only $38K for my first two years (using money left over from Iraq deployment and wedding gift money --> wife wasn't too keen on that) and am hoping to stay under $80K for all four years. My wife currently works, making around $45K / YR, and we are trying to pay offer her loans (18K and going down, Thanks Dave Ramsey) before I graduate. I know paying off my interest while I am in school would slow the process of paying off her loans, so I am looking for a little advice. Continue to run the debt snow ball, her loans are our smallest debt as we have no credit card debt, or pay my interest as it comes thus decreasing the rate at which we pay back her loans. Thanks for the time, now back to neuropathology.
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woof755
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Post by woof755 »

Ugh...neuropath.

What are the respective interest rates on your loans?
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Re: Interest on unsubsidized loans while in school

Post by White Coat Investor »

jhujrt3 wrote:While not trying to hijack the thread, I would like to pose a question to those who read this: did any of you pay down the interest on your unsubsidized loans while you were in medical school? I am currently a second year medical student who is debt averse. I'm an atypical medical student, as I served four years as an infantry officer in the Army prior to starting medical school at 28 y/o. I've managed to take out only $38K for my first two years (using money left over from Iraq deployment and wedding gift money --> wife wasn't too keen on that) and am hoping to stay under $80K for all four years. My wife currently works, making around $45K / YR, and we are trying to pay offer her loans (18K and going down, Thanks Dave Ramsey) before I graduate. I know paying off my interest while I am in school would slow the process of paying off her loans, so I am looking for a little advice. Continue to run the debt snow ball, her loans are our smallest debt as we have no credit card debt, or pay my interest as it comes thus decreasing the rate at which we pay back her loans. Thanks for the time, now back to neuropathology.
Yes, I do recall neuropath being particularly painful. I've never been a big fan of the "debt snowball" which is really just a trick to take advantage of behavioral psychology, at the expense of logic. The debt snowball says pay the minimum on everything but the smallest loan and then when that is paid off, apply the savings to the next smallest loan. I think it is much smarter to first make sure you don't need to take any more loans out, and then when you have truly shifted into a "paying back loans" period of life to begin paying off the most expensive loan (highest unsubsidized rate) and working your way to the least expensive loan (which you may want to stretch out as long as possible) irrespective of loan size.

So for me to give you advice, you would have to list your various loans by interest rate and terms as well as what subsidized loans you would be taking out during the rest of med school. It would be stupid to pay off her loans at 4% while taking out your own at 8% for example. Likewise, it would be stupid to pay off a $1000 3% loan instead of a $10000 13% loan, assuming no additional fees.

$80K would be great, you could comfortably pay that off within 5 years after residency, if the terms were onerous. Many of the people I graduated with refinanced at 1.9%...they're trying to stretch out those student loans as long as they can.
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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woof755
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Post by woof755 »

My wife's nursing school loans are at 2.77%. As much as debt annoys me, that one we'll have for a while.

Keep in mind that you'll one day be making enough to be rid of these things. If your current rates are low-ish, maybe pay the minimums. If they're high, consider consolidating or refinancing at a lower rate--rates might be dropping later this year.

Now, let's see those numbers!
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
Ella
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Post by Ella »

Hi hma53,

I finished residency about 2 years ago. One thing I wish I had done was pay the interest on my deferred student loans, instead of allowing it to be capitalized. As an intern/resident, you will get an "off-the-top" tax deduction on the interest you pay. Once you are an attending, your income is too high for this deduction. Since you are going to pay this debt off no matter what, might as well pay some of it off when you can still get a deduction.

The other time-sensitive thing you're facing is funding a Roth, which you won't be able to do after residency (unless your future employer/practice offers Roth 403bs). Your returns on a Roth vs your employer's 403b shouldn't differ, unless you have crappy investment choices in the 403b. But at your income level, the tax savings on the 403b is outweighed by the flexibility of the Roth (can choose your vendor/investment choices, no need for RMD, can pull out principal after 5yrs if needed, etc).

Regarding home-buying - seems dicey, esp since you might leave Chicago in 4 years - plus your ownership costs will be higher than your rental costs I am guessing, and since cash flow is tight in residency, money in hand is probably better than building future equity ( which might not even happen, if the market is tight when you need to sell in 4 yrs). But, if you know the market in Chicago well, and have kids, a home might be important.

I don't know squat about DI, but - does your DI pay you a percentage of your CURRENT income or your FUTURE POTENTIAL income? Cuz if it's just covering your current income it probably isn't worth much. On 60% of 50-60K per year, you will be hard pressed to pay your loans and still live. My feeling in residency was if I became disabled I was going to be financially ruined anyway, so why bother with insurance that wouldn't ever be able to compensate me for my lost future earnings anyway. Caveat: if you have kids you should probably ignore my entire rant on this subject .

Last but not least: try your best to minimize or avoid credit card debt during residency. It will grow on you like you wouldn't believe. Unless you are able to get extra income from moonlighting, you will probably HAVE to go temporarily into debt near the end of your training, as you go through board certification/licensing/job interviews - it is all very expensive. So try if you can not to dig a hole early on in residency.

So, my suggestions in order of priority:
1) Fully fund your Roth
2) Pay the interest on your most expensive student loan before it is capitalized, and take that tax deduction. (don't bother paying the interest on the super low-rate loans.)
3) Think twice about homebuying - the greater cash flow of renting might be better for you.
4) Avoid or minimize credit card debt.
5) Accumulate a modest emergency fund.
6) 403b should be your last priority, IMO. Money will be tight for the next 4 yrs!

Good luck!
Ella
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dphmd
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Post by dphmd »

All of the above is great advice. but a word of caution:

One thing thing that keeps coming up on these threads is the talk about future income "when you're an attending." That is very specialty-dependent. Reimbursement rates for all physicians are probably not going up anytime soon, and keep being cut for some docs. Be very careful when making financial plans based on the expectation of future income.

All that said, the other big caution is in choosing your specialty based on reimbursement rates. It's really easy to hate your life spending 80 hours a week doing something you hate to make a lot of extra money for a life you can't enjoy. Do something you enjoy -- we all make enough money to do well.

David
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Post by sandman »

dphmd wrote:All of the above is great advice. but a word of caution:

One thing thing that keeps coming up on these threads is the talk about future income "when you're an attending." That is very specialty-dependent. Reimbursement rates for all physicians are probably not going up anytime soon, and keep being cut for some docs. Be very careful when making financial plans based on the expectation of future income.

All that said, the other big caution is in choosing your specialty based on reimbursement rates. It's really easy to hate your life spending 80 hours a week doing something you hate to make a lot of extra money for a life you can't enjoy. Do something you enjoy -- we all make enough money to do well.

David
Well put.

I have a general question. I'm currently funding my Roth IRA with Vanguard TRD 2045 (yes, I'm comfortable with the 90/10 AA) and have ~20K in it. At what point would you recommend reformulating my AA and investing in idividual index funds (rather than a TRD)?
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Post by White Coat Investor »

sandman wrote:
I have a general question. I'm currently funding my Roth IRA with Vanguard TRD 2045 (yes, I'm comfortable with the 90/10 AA) and have ~20K in it. At what point would you recommend reformulating my AA and investing in idividual index funds (rather than a TRD)?
When you A) Have a 401K or similar or B) Have a taxable account or C) Have an unbelievable urge to tinker.

There's absolutely nothing wrong with using TR 2045 for the next 40 years if that is your only investment account or if that fund is available in all your investment accounts (and none of them are taxable.)
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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Post by biasion »

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Post by fte »

you guys are lucky - i'm about to start medical school in august, and am more worried about the $60k/year tuition than the 60pp/min that i'll have to be memorizing soon...
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Post by LH »

In terms of paying the minimum on the low cost debt forever.

I can see that, if you pay 2.8 percent on a loan, yet can make 5 percent in a bank, why pay it off.

The corrollary to this is why not max out debt at 2.8 percent. Or if not max out, why not take out a bit more than you need to? If carrying some at 2.8 and not paying it off "forever" is good, then why not carry at least a bit more and not pay it off forever and that would be better?

The point I am trying to make is that by not paying it off, you are engaging in de facto leverage.

If am am sitting here debt free, in my current situation, with no 2.8 percent debt, but have the opportunity to take on 2.8 percent debt, perhaps by one of market timers mechanisms, or perhaps I am a med student now, and can get some extra 2.8 loan, then invest the difference forever, should I do it? Say I did choose to do that, call this state A.

Now contrast that with me, in the exact same situation I am in now, but that I already have the 20K 2.8 percent debt....... Well this is state A too.....

So being rational people, and stipulating that I can get 2.8 percent debt, and pay the minimum forever, then I should do it right? I suspect most people would say, well, no, you should not.

The past is sunk. It doesnt matter how you got to where you are, you have what you have going forward. I dunno if I am making myself clear, I am not a great writer per se, so I will rephrase it.

Say if "person 1" and "person 2" are identical twins and identicle finanacially except person one owes 20K of 2.8 percent debt and has 20K in a MMF and person 2 does not owe 2.8 percent debt, but has 0 in MMF, but has the ability to acquire 20K debt at 2.8 percent can then put that 20K in a MMF..... Well, person 2 should do it then right? Bogleheads may likely say no, thats leverage.

Because we are telling person 1, to pay off the minimum debt forever, and invest the difference. Ie the state of person 1 is superior, to the alternate state person 1 could achieve by merely paying off the debt, ie becoming person 2.

I posit we would simulataneoulsy tell person 1 to stay person 1, and we would also tell person 2 to stay person 2. I believe in combination, this is a behavorial fallacy of some sort, it sounds frame dependant. Person 1 could become person 2 and vice versa, but each one is the "proper" way to be financially? I think not. It seems it must be behavorial that we feel this way.l

I may well be wrong in some aspect of this, but its not in the aspect of what happened in the past, how you got to where you are financially, nor why you obtained the debt in the past. I dont care if you acquired the 2.8 percent debt financing your mothers life saving kidney transplant, or if you got it financing a crack habit. You have a 2.8 percent debt and thats that. Likewise, I dont care if you acquired the 2.8 percent debt 1 second ago, or have had it for ten years.

I would say if you like leverage, dont pay off the debt, if you dont like leverage pay it off. I would say if you like her situation, think its good to not pay off a 2.8 percent loan, then you should consider trying to acquire 2.8 percent debt and put it in the stock market or bank account instead, all things being equal.

Maybe a complex issue, and I feel I have trouble putting it out clearly, but its one that has always bothered me, and also I certainly could be making a logical error somewhere. But this appears to be framing 101, which unfortunately, I am still in the 2 digit level classes myself : )

LH
Last edited by LH on Sat Jan 26, 2008 5:05 pm, edited 8 times in total.
sandman
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Post by sandman »

EmergDoc wrote:
sandman wrote:
I have a general question. I'm currently funding my Roth IRA with Vanguard TRD 2045 (yes, I'm comfortable with the 90/10 AA) and have ~20K in it. At what point would you recommend reformulating my AA and investing in idividual index funds (rather than a TRD)?
When you A) Have a 401K or similar or B) Have a taxable account or C) Have an unbelievable urge to tinker.

There's absolutely nothing wrong with using TR 2045 for the next 40 years if that is your only investment account or if that fund is available in all your investment accounts (and none of them are taxable.)
Thanks for the response EmergDoc. My 401K kicks in this July with a 5% match, so you know I'm all over that! They have Vanguard funds so I can continue to invest in TRD 2045 vs. splitting; haven't decided what I'm going to do.

I won't have a taxeable account until 1) my emergency fund is fully 6 mos worth, 2) I'm maxing out my 401K in addition to my Roth. Would there be a reason to have a taxable account before that?
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Re: Young docs

Post by Alex Frakt »

hma53 wrote:1) moving to a new city in July (chicago), and considering buying a place
How well do you know Chicago? Unless you've lived here before, I'd strongly consider renting at first. Neighborhood character, type of residence and traffic patterns can make a huge quality of life difference here.
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Post by woof755 »

LH:

You're right, what's past is past. Taking out loans to put ones self through med school, first of all, is not just like what market timer does--it's a sure thing. An MD will command a salary which is guaranteed to be several times what the usual college graduate would expect to command.

Secondly, while you are making no money in med school, and next to nothing in residency, why pay off low-interest debt when so many other expenses are bound to present themselves? (marriage, kids, transportation)

So, what's past is past, but it matters. Would I take $20k at 2% and play blackjack? Hell no. Put it into VG prime MMfund? Actually, I probably would. Sure, rates could get that low--they've been there within the past 5 or so years. But they're not going to stay that way for 30 years, or the life of a student loan.

No one here would recommend that a young person making no salary would bother with a 2-3% loan, especially with the prospects of making 6 figures before the loan payments came due.
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Post by plex »

Correct me here if I am wrong, fairly new to investing.

I don't think taking on additional 2.8% debt, then putting it into something like a 5% CD at an FDIC insured bank is all that hard of a choice at all. It is simple arbitrage, it carries no risk, or such a low amount of risk it is negligible. On the other hand, if the loaned 2.8% money is used for something that carries risk, that risk will be multiplied because you are using someone else's money.

It may be a matter of philosophy, but one should not shy away from easily obtainable money with almost no risk, if handled properly. Regardless of how your situation turns out, in something like a CD, the money will be there if you need it to immediately pay off the entire extra loan balance if something unexpected occurs.
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Post by woof755 »

In fact, something unexpected occurring is one good reason to keep your capital in a money market fund, CD, or bond fund rather than paying off debt, assuming your interest rate trumps that which you owe on the loan.

Investing for my retirement on margin? Totally different story, risk-wise, at least for me.
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Post by sandman »

Ella wrote: I don't know squat about DI, but - does your DI pay you a percentage of your CURRENT income or your FUTURE POTENTIAL income? Cuz if it's just covering your current income it probably isn't worth much. On 60% of 50-60K per year, you will be hard pressed to pay your loans and still live. My feeling in residency was if I became disabled I was going to be financially ruined anyway, so why bother with insurance that wouldn't ever be able to compensate me for my lost future earnings anyway. Caveat: if you have kids you should probably ignore my entire rant on this subject .
I am also in the process of purchasing DI from MetLife. My reasoning: my program provides it during residency but it is not transferrable once I'm out on my own thus may as well get a private policy while I know I'm young and healthy.

Most policies like those of MetLife will automatically increase as your yearly pay increases (provided proof with W-2s, 1099 or whatever). More importantly, we (physicians) must get OWN OCC (occupation) clauses which allow us to receive DI benefits if we cannot perform the typical duties of our profession. Meaning that, if I as an anesthesiologist, cannot perform central lines/intubations/etc but can lecture at the medical school on respiratory physiology, I will be able to collect DI based on my OWN OCC clause.

There are other important riders to consider for DI like cost of living adjustment (COLA) etc. One of the best sources for simple, nitty gritty info is Suze Orman's The Road to Wealth.

I'm just an intern and a rookie investor just starting out, but I cannot stress enough how important DI is to protect your income, family and way of life!
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Post by ilan1h »

I have no advice about the specifics that you asked. However, as an M.D with 18 years experience in my field and over 20 years experience as an investor I have some general advice. I, and many other docs, have tried it all: limited partnerships, hedge funds, wrap accounts, individual stocks and many, many other schemes. It's taken me many years to realize that that's a loser's game. Read this forum carefully, purchase a few of the suggested books and then come up with an asset allocation for your particular age and risk tolerance. Do it all with index funds or ETF's and keep costs low. After arriving at your allocation percentages keep funding over the years and rebalancing. Don't jump in and out, don't time, don't look for quicker schemes. Had I realized all this many years ago I would have been a lot better off and not had so many sleepless nights. If this can help prevent your re-inventing the wheel I will have done my job with this post.
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Post by Ella »

sandman wrote:
Ella wrote: I don't know squat about DI, but - does your DI pay you a percentage of your CURRENT income or your FUTURE POTENTIAL income? Cuz if it's just covering your current income it probably isn't worth much. On 60% of 50-60K per year, you will be hard pressed to pay your loans and still live. My feeling in residency was if I became disabled I was going to be financially ruined anyway, so why bother with insurance that wouldn't ever be able to compensate me for my lost future earnings anyway. Caveat: if you have kids you should probably ignore my entire rant on this subject .
Most policies like those of MetLife will automatically increase as your yearly pay increases...
Right, I know this - but if one becomes disabled in residency, one's DI payout will be pegged to the income one was making at that time. To me, protecting my measly resident's salary didn't seem worth it. I got DI as soon as I started my attending job - with the COLA, etc.
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Post by White Coat Investor »

sandman wrote:
I'm just an intern and a rookie investor just starting out, but I cannot stress enough how important DI is to protect your income, family and way of life!
Make sure any DI you get is specialty specific and own occupation. I wasn't aware that MetLife offered that. For example, if you are a surgeon and get your hand caught in a band saw you don't want your DI to not pay just because you can still lecture at a med school.
Last edited by White Coat Investor on Sat Jan 26, 2008 9:57 pm, edited 1 time in total.
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Post by White Coat Investor »

Ella wrote:

Right, I know this - but if one becomes disabled in residency, one's DI payout will be pegged to the income one was making at that time. To me, protecting my measly resident's salary didn't seem worth it. I got DI as soon as I started my attending job - with the COLA, etc.
Sure, it's pegged to your salary, but $3500 a month is a whole lot better than $0 per month. I would have bought more if they had sold it to me. You're protecting not only your current earnings but part of your future earnings too, which at this stage of life is your greatest asset.
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Post by White Coat Investor »

sandman wrote:

Thanks for the response EmergDoc. My 401K kicks in this July with a 5% match, so you know I'm all over that! They have Vanguard funds so I can continue to invest in TRD 2045 vs. splitting; haven't decided what I'm going to do.

I won't have a taxeable account until 1) my emergency fund is fully 6 mos worth, 2) I'm maxing out my 401K in addition to my Roth. Would there be a reason to have a taxable account before that?
You could easily still do TR 2045 with that 401K, good news for you.

You don't need a taxable account until you A) want to save more money than you can each year in your tax-protected accounts or B) want to save for something shorter term (i.e. you want the money before you're 59 1/2 or want to retire early) or C) you have a ridiculously expensive 401K at a job you expect to be at for a long time.
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Post by White Coat Investor »

plex wrote:
I don't think taking on additional 2.8% debt, then putting it into something like a 5% CD at an FDIC insured bank is all that hard of a choice at all. It is simple arbitrage, it carries no risk, or such a low amount of risk it is negligible. On the other hand, if the loaned 2.8% money is used for something that carries risk, that risk will be multiplied because you are using someone else's money.
I agree and I would take out a $500,000 loan tomorrow if it were offered to me at 2%. I'd stick it in Prime MMF and have the payments withdrawn from there automatically. I'm already doing it with one loan.
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LH
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Post by LH »

well, thats consistant.

I dont really remember the specifics of what market timer was saying his low rate loans were, I suspect there was more risk tied up in it somehow than these student loans, but perhaps not.

One thing that people do is take out credit card loans at zero percent interest, put the money in a MMF, and make money that way. Again, more risky than a student loan, if you dont juggle the credit cards properly, you may end up losing, but certainly doable. These blog posters have 20K I think using this method.

http://www.mymoneyblog.com/best-pre-scr ... fer-offers

Not for me I do not think. But it seems appealing if I was less busy perhaps.

I am kinda more orientated toward becoming entirely debt free, which maybe just behavoiral, but the certainty of having zero debt is appealing, of course, if you have 20K of debt, and 21K in a MMF earning interest after tax at a rate higher then the 20K of debt, you would effectively have "no debt" of course. I worry, if I have that 20K in a MMF fund, I may "borrow" from it at times, say to put on a new roof, or whathave you. Putting it in a CD would ameliorate this risk.

So should we start to reccomend to medical student/residents/students in general to load up on the debt as long as you keep the money in a CD or MMF and do arbitrage? If its negligible risk, I do not see why they should not rhetorically.
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Post by ataloss »

However, as an M.D with 18 years experience in my field and over 20 years experience as an investor I have some general advice. I, and many other docs, have tried it all: limited partnerships, hedge funds, wrap accounts, individual stocks and many, many other schemes.
I have heard about some of these relatively exotic things but haven't tried them. Good to hear from someone who has been there.
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Post by livesoft »

ataloss wrote:
However, as an M.D with 18 years experience in my field and over 20 years experience as an investor I have some general advice. I, and many other docs, have tried it all: limited partnerships, hedge funds, wrap accounts, individual stocks and many, many other schemes.
I have heard about some of these relatively exotic things but haven't tried them. Good to hear from someone who has been there.
Here's a little writeup by David Jackson of some of these things that you might enjoy reading as much as I did:
http://seekingalpha.com/article/15274-e ... honest-fox
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Post by White Coat Investor »

LH wrote:
So should we start to reccomend to medical student/residents/students in general to load up on the debt as long as you keep the money in a CD or MMF and do arbitrage? If its negligible risk, I do not see why they should not rhetorically.
If they can get the debt at 2%, then yes. Unfortunately, the only people I know with student loan debt at 2% graduated 2001-2003. Rates are quite bit higher now. We had a thread a while back that discussed this subject, specifically at what rate would someone invest rather than pay back the loan. I think the consensus was 5-6%. Here's the thread:

http://www.diehards.org/forum/viewtopic ... =poll+rate
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Re: Young docs

Post by WWV »

hma53 wrote:
So far this year, I have 1) bought DI (own occ, specialty specific) from Berkshire, 2)

My issues are:
1) moving to a new city in July (chicago), and considering buying a place
2) what to do about loans. I have 3 loans now, 80,000 consolidated at 2.8; 45,000 consolidated at 3.6; and my previously mentioned 45,000 at a variable 6.6%. All three are in deferment.
thanks
-Howard
A few thoughts on your original post-

Does your DI insurance give you the own occ, specialty spcific option for a period of time? I was under the impression that policies written now are pretty limited in terms of duration. (When I bought mine a long time ago there was no limit). Let us know if there is no time limit-a lot of docs will be lining up to get their policies replaced!

I agree with Alex and other posters- not sure that buying in Chicago for 4 yrs will give you a good ROI. However, Chicago is a great town-and as a rad resident you should actually be able to enjoy it!!

When you say deferment-I assume that means you don't have to pay on your loans-are you still having them acrue interest?

Good luck!

Bob
"The average investor has only 11,000 more genes than a worm"-New York Times
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Post by jhujrt3 »

Thanks for the discussion on this topic and the comments by first post. I have some numbers that will drive the decision I am making. The decisions I have to make include:

(1) Should we payoff the interest that my unsubsidized loans are accruing and continue to do so, say at a quarterly pace?
(2) Should we endeavor to pay off her loans as fast as possible, even with them at a lower rate and an amount of principle that continues to go down with regular monthly payments? Or save that money in our emmigrantdirect account and then use that whenever I have to pay tuition again at the beginning of the semester?

Loan Overview
Wife: $17590.41 @ 3.125%; Monthly payment of $202
Me: $17000 @ 6.8% SUBSIDIZED
$21519 @ 6.8% UNSUBSIDIZED; currently have $359.92 in interest

I anticipate doubling this amount of money, for a total of $80K, by the end of four years. Thanks for your thoughts and for having this specialized portion of the forum.
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Post by White Coat Investor »

jhujrt3 wrote:Thanks for the discussion on this topic and the comments by first post. I have some numbers that will drive the decision I am making. The decisions I have to make include:

(1) Should we payoff the interest that my unsubsidized loans are accruing and continue to do so, say at a quarterly pace?
(2) Should we endeavor to pay off her loans as fast as possible, even with them at a lower rate and an amount of principle that continues to go down with regular monthly payments? Or save that money in our emmigrantdirect account and then use that whenever I have to pay tuition again at the beginning of the semester?

Loan Overview
Wife: $17590.41 @ 3.125%; Monthly payment of $202
Me: $17000 @ 6.8% SUBSIDIZED
$21519 @ 6.8% UNSUBSIDIZED; currently have $359.92 in interest

I anticipate doubling this amount of money, for a total of $80K, by the end of four years. Thanks for your thoughts and for having this specialized portion of the forum.
I think you can choose to do three things and be right on:

1) Use your extra money to pay off the unsubsidized portion of your loans or
2) Leave the money in a high-interest bank account, taking out enough each semester that you only have to take out the subsidized loans, stretching your funds as long as possible.

3) You could fund Roth IRAs for each of you prior to paying off a lot of these loans. You won't be eligible for them soon. Only you can decide how much extra interest having a Roth account is worth to you, but to me I'd probably do that even before paying off the unsubsidized 6.8% loans. This is bad in that you are investing on margin, but good in that you are maximizing a tax-protected account you will definitely be grateful for in a few years.

Be sure to keep enough cash to have an emergency fund for buying books or residency interviews or car repairs etc. 3 months of living expenses is probably an adequate amount.

Her loans should be paid off last, perhaps even after you finish residency.

Even though Dave Ramsey says all debt is bad, some debts are definitely worse than others. Pay off the worst first.
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Post by lazyrad »

Welcome,
You've gotten excellent advice from the many posters before me. I can only second the need to generate as much tax advantaged "room" as possible. i'm only a few years out and I am quickly running out of tax advantaged room, and my practice has mostly expensive, actively managed funds in the 401K.
One thing that i did which may help you is that if you do any moonlighting that is paid on a 1099 (with no withholdings taken out) as opposed to a W2, then set up a self employed 401K or better yet Roth401K. Then, you could funnel as much as possible into that account. You may need to not spend that $$$, but you will be glad down the road.
Learn from the wise people here - there's no need to overly complicate investing. Keep it simple and stay the course!
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Post by family_doc »

I agree wholeheartedly w/ ilan1h's reply & comments.

Having recently retired after 30 yrs as an FP, I have observed with ex-partners, colleagues in the doc's lounge lots of examples of poor financial choices. The doc I know personally that declared bankruptcy. The specialist that loved individual tech stocks in the early 2000's, and lost easily a 1/2 million position. The endless chatter over CNBC in the lounge over the latest acquisition of a drug/med equipment/med software/EMR/ stock purchase(Do you think those doc's had a special insiders position;doubtful;unlikely to have given them a windfall)!! The blather about the next "IPO" that you "must" get in on the ground floor. The real estate, office purchasing opportunities you "must" get in on as a passive investor. The latest CT/MRI/PET/US/etc imaging "can't lose" proposition. Brokers, investment "advisors", financial planners eager to wine and dine you to eventually make your money theirs. Insurance people out the wazoo, especially for whole life. Relatives who need startup capital for their budding new business. And so on, and so on, and so on, .......

Just remember, you know lots of medicine, but in the business world you are perceived as a "whale". (in Las Vegas parlance), or as a big, fat tuna, waiting to be devoured by all the sharks ever circling around. Most doc's are perceived as foolish with money, a bit greedy, eager to please with a good line, and disposable capital. There is an endless supply of financial baloney out there. Caveat Emptor!

Keep it simple. Live below your means, stick to a low cost index fund portfolio, read a few of the books on the recommended reading list,(remember that you had to read voraciously in med school;a few of the books on the Bogleheads reading list are just as valuable as NEJM, JAMA, or your reference texts in your specialty). Automatically DCA into funds. If and when you decide on a house, whenever you come to this decision, a "Doctor Palace" as a statement of your status can be a huge drain on your finances. Pay off CC's in full each month.

Not meant to be a sermon, just attempting to inject an opinion of one who has been there, and feel a need to argue for simplicity and conservatism. I don't think you will go wrong with this.

Regards,

family_doc
Last edited by family_doc on Wed Apr 09, 2008 11:00 am, edited 1 time in total.
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Post by johnoutk »

As always, there is a ton of good information in this thread. I'm an anesthesiologist living in the midwest. I would particularly echo what family doc said above. I have partners' building houses that are in excess of $1M, which in our neck of the woods will cost >$20,000 in property taxes. These partners are building mansions for a family of four with no more kids planned. Ask why you NEED the things you are buying. In reality, we don't really NEED a whole heck of a lot.

Control your spending and diversify into low-cost index funds. Save, save, save, and be careful when others want to do something with YOUR money. Get rid of high-interest debt and educate yourself in this area. I'm so glad I did at an early age and didn't lose out on the accumulation phase.

Enjoy yourself, but don't let others enjoy themselves at your expense.
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Post by jhujrt3 »

I truly appreciate all of your insightful comments. Now that I am in between tests I have some time to think about this. My wife and I thru our budgeting are going to pay the interest on my subsidized loans and increase the payment on her loan to $250 / month. The following are our investments as they sit now:

My ROTH:
Vanguard Target 2045 = $17237
Vanguard Emerging Markets Index = $3394.96
Vanguard Small Cap Index = $3096.46

Her ROTH:
Vanguard Star = $1550.09

My TSP: Total = $20563.57
G Fund = $7345.99
I Fund = $6595.69
S Fund = $6621.89

Her 401K: Her job puts 5% of her salary up front into this account monthly, she doesn't put any of her salary in there as of now

Foreign Stock Index = $1011.18
US Large Value Stock = $1963.15
US Large Growth Stock = $2011.70

Our total investments add up to $50828.11. Should we just proceed and put as much into the Roth accounts as possible, given that in less than 10 years we will not qualify? I was considering putting enough money into her Roth account to allow for a conversion to Target 2045. We are currently renting and are diligent about following our budget. She works now as a tumor acquisition coordinator in the Neurosurgery department here at UF; we are, however, going to start a family within the next two years and she wants to stay at home. With this in mind, should we work that much more to get our emergency fund up? Currently we have $3700 in emmigrant direct. Thanks for all your help and guidance.
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Post by hma53 »

thought the replies had stopped on this post.

Anyway, thanks for all the advice, i appreciate it.

To answer some previous questions...

Bob K asked about the DI. This policy is own occ, specialty specific for the life of the plan. It's good for 3,500 per month for now, with a future increase option of up to 10,000, which I can use up to the age of 45 (was offered a rider for up to 15,000 but it didn't fit in the budget). Again, it's with guardian.

Regarding deferent, this means the interest on my subsidized loans are paid for by the feds. It only encompasses 8,500 per year. On the unsubsidized loans, the interest accrues and capitalizes. I can of course, choose to pay this interest if I like.

Ella, I bought the DI now because 1) like emergdoc said, 3500 is better than 0 should something happen and 2) maybe more importantly, it's easier to get insured now while i'm still relatively young. No need to get another physical and labs when i exercise the future increase option for 10K q month. Regarding paying off the 6.6% loan, I'm still on the fence about this. When looking at some online calculators, if I pay off 2500 q year and deduct this from my gross income, the return becomes 6.6 * (1-marginal tax bracket) or 6.6 * (1-.25) = 4.95. I figure I can get a better return if I invest this. The question becomes if I hypothetically have money left over when I fully fund a roth (doubtful), should I then funnel it into a nonmatching 403b or pay it off. If my above logic is correct, isn't the way to go is to invest it??

LH, man, after just taking step 3, i think you post may be the harder to decipher....kidding. Are you talking about buying on margin? I'm not too familiar on this subject. Suffice it to say, I think having a 2.87% loan on 60K is pretty good leverage, and I won't be touching it anytime soon.

one more question...thinking about the end of my residency, I was thinking that a possible investment strategy would be do at least try to fund a 403b (maybe not right away, but perhaps with moonlighting income gained as an R3 and R4) and plan to convert that to a roth prior to becoming an attending. Anyone have experience with this?

Thanks again
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Post by dphmd »

hma53 wrote:Regarding deferent, this means the interest on my subsidized loans are paid for by the feds. It only encompasses 8,500 per year. On the unsubsidized loans, the interest accrues and capitalizes. I can of course, choose to pay this interest if I like.
Regardless of the interest rate or what return you think you can get, I personally have a very strong feeling about not letting student loan interest capitalize. For one thing, the interest will be tax-deductible if you pay it now (or should be at your income level). Also, it just means your debt is getting bigger and bigger, and your debt burden is pretty hefty to start with.

I totally agree with letting the government pay your interest on the subsidized loans (that's free money, after all), but give some serious consideration to paying at least the interest on the unsubsidized.

David
Discipline is freedom.
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semperlux
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Post by semperlux »

An EM junior attending's thoughts:

Re: Student Loans

I have 138k in Stafford consolidated loans @ 2.8% When I finished medical school I didn't meet the requirements to defer so instead of forbearing and accrueing interest, I opted to do the 4 yr intrest only plan and then graduated payments after that. That way interest wouldn't accrue and compound while I was in residency, but the payments were small enough for my tiny salary to handle.

Re: DI and Life insurance

When I was an intern I got a quote from Met Life, Mass Mutual, and Northwestern Mutual for DI own occ insurance and compared it to the premiums first year out attendings had. They were not significantly different as long as those first year attendings got their policies before starting their job. So I opted to wait until the last month of my residency to sign for my DI as well as my term life and still got a terrific rate comparable to the quote i received when I was an intern.

Re: Retirement/Investments

Given that our salaries were nowhere near attending level income, it was tough to start saving for retirement, esp when one I was almost living paycheck to paycheck each month (married, no kids). My only advice here is to put away as much as you can, as soon as you can (ie auto deduction from paycheck so you don't even see the money) to start early. The other thing is to not forget to set up 6 mo's of emergency funds as well. Following this goal, I miraculously put away about $20,000 in my hospital's 403b plan and saved about $10,000 for emergency cash (only about 3 mo emergency savings unfortunately) by the time I finished.

Re: Roth IRAs

Please correct me if my logic is wrong but for physicians, I really don't see the point in investing in a Roth IRA,even if our incomes met the ceiling requirements. We make >$200,000 yearly and are pretty much at the top tax bracket. Why would we want to be taxed right now when our taxes brackets are max, versus maxing out a 401k/403b first and putting all excess in taxable investments and withdrawing them at much lower tax rates when we retire and don't have that large income? Even the taxable investments will only be taxed at 15% long term capital gains, which is a lot less than our current tax bracket. This concerns me because of the 2010 abolishment of the income ceiling for investing in a Roth.

Re: Individual stocks/"fun money investments"

I definitely recommend against this. I have a collegue who allocates about 10% of his income to buying individual medical/health care related stocks because he figures he has an inside track. One year, I recall him loosing >$10,000 in just 3 days when the biotech company's "star drug" failed clinical trials. The best is always the simplest....passive index funds !!!
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Post by House Blend »

semperlux wrote:Please correct me if my logic is wrong but for physicians, I really don't see the point in investing in a Roth IRA,even if our incomes met the ceiling requirements. We make >$200,000 yearly and are pretty much at the top tax bracket. Why would we want to be taxed right now when our taxes brackets are max, versus maxing out a 401k/403b first and putting all excess in taxable investments and withdrawing them at much lower tax rates when we retire and don't have that large income? Even the taxable investments will only be taxed at 15% long term capital gains, which is a lot less than our current tax bracket. This concerns me because of the 2010 abolishment of the income ceiling for investing in a Roth.
I don't have a problem with your logic, but some of your facts are wrong.

In 2010, there will be no income limits on *converting* a traditional IRA to a Roth IRA. This doesn't affect the income limitations on making new contributions. These limits are set every year and seem to increase gradually. For 2008 Married Filing Jointly, the phaseout range is $159K-$169K.
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Post by semperlux »

Thank-you for setting my facts straight House Blend. Then I guess I don't even have to worry about it at all, even in 2010.
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hma53
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loans

Post by hma53 »

another point regarding loans.

If you're loan is not consolidated and was originated prior to 7/06, like mine, then it's a variable rate at 6.62%. finaid. org-->this site has a good explanation of how the interest rate is calculated and in the fine print under the charts, it shows what the projected rate would be based upon the most recent 91 day t-bill auction. Fortunately, it's projected to go down to 4.09%, which would be a fantastic rate to consolidate. Hopefully, this projection is accurate. Thus, I would have 3 separate consolidations:2.87%, 3.6%, and around 4%....we'll see what happens in May.
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Post by semperlux »

I believe the stafford loan rates are adjusted every year on July 1st, but the financial advisors @ your school should have the rate by the end of May. I would wait until late May/early June to find out what the new rate is since I have a feeling it will be even lower than the current rate if the 91-day Treasury Bill rate continues to drop due to the faltering economy. If so, consolidate your loans in July and get the lower rate. If the economy has an upturn and the rate goes up, you'd know by the end of May, and can consolidate then at the current year's rate before it goes up. I did this about 5 yrs ago so I don't know if it still works like that. Maybe someone who did this recently can confirm my info.

Edit: Just checked on my info (sorry I can't post links yet)

So the annual Stafford loan consolidation rate is based on the last Fed auction rate for the 91 day Treasury Bill rate in May + 2.3%.

The latest Tbill rate of May 29,2007 was 4.92%. So 4.92+2.3=7.22% if you consolidate now. Yikes! I'd probably hold off and see what the new rates will be at the end of May this year.

Note: The maximum cap rate is 8.25% for consolidated repayment Stafford loan rates.

Second Edit: So I just found out that the rate above applies only to loans disbursed before July 1 2006; Consolidation rates on disbursements made after that have sinced been fixed at 6.8%. So I guess for all the new interns out there, you have a slightly better rate for 2 of your 4 yrs in med school.
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