22 Year-Old Starting Med School - Target Retirement Fund or Nothing?

[Erbo94]

Hello!

I'm 22 years old, graduating from undergrad in May, and starting at my state medical school in August.

I have approximately $8500 in savings and I am thinking of investing $3-5k in a Roth IRA. Because I only have a small amount available to invest, I am currently looking at the Vanguard Target Retirement 2050 Fund ($1k minimum investment). I understand the pluses and minuses of these funds, but my options are limited. Would it be better for me to invest in this fund even though I am not 100% happy with the allocations and active management, or just to wait and keep the money in an ordinary savings account?

Any advice is appreciated!

[jpa]

Current MS-3 here.  Med school is expensive, and successfully completing medical school is #1 priority the next 4 years.  I would recommend purchasing a good laptop (most med students have Macs) with a good screen that will be easy on your eyes--you're going to be studying on a computer screen 8-12 hours/day for about 2 years straight.  So that's about $1,200.  Then I'd buy a good office chair, because you don't want to get lower back pain in your 20s. And then i'd just keep the rest in a savings account for emergency expenses.  If you don't have any--use it your 4th year, and decrease the amount of loans you take out.

 

Good luck starting your med school journey! 1st/2nd years are tough, but it's been the most exciting thing i've ever done!

[ENT Doc]

First, congratulations on the start of your journey.  Study hard.  I would make sure you have an emergency fund of 3-6 months basic spending in a high yield money market account online.  Wait and see if there are additional costs with starting med school.  Try to minimize loans for additional living expenses and don't rent some expensive place - get roommates.  You may not have a lot of that $8500 left over after taking care of those basics.  But if you earn money on the side, particularly over the summers, save and invest.  At your age I'd be investing everything in stocks.  ************************, I'm 15 years your senior and still only investing in stocks (plus 1 property).  But that's just me and what I'm comfortable with.

[StarTrekDoc]

Gotta LOVE it.  22yo MedStudent -- on a financial forum for docs.  

Develop 4 year reasonable budget and work off that to determine needs, then invest the rest -- plow into Roth IRA and growth index and forget about it until retirement.

Your priority is medschool and survival through that gauntlet.  Mental well being that's balanced on being as financially responsible as possible-- in that order.   The dollars and savings will come in time.  Educate, survive, mental stability and, lastly, reasonable cost containment.   Our group of students planned trips (Europe backpacking trips after step 1, NYC in 3rd year) over the years and we all remember those times --well paid for memories.

Enjoy!

[Dreamgiver]

If that is all you have, I would not invest it. In addition to what has been written above, remember that residency interviews are expensive. And you will need some form of entertainment over the next 4 years or you will go crazy.

[Erbo94]

Thanks everyone for the input! I'm happy I came upon WCI sooner rather than later.

I have a follow-up question, but first some more info - Yes, the $8500 is essentially all I have. I did already purchase a new laptop just last month so that I could get used to it for a while before school. Apartment lease with a roommate was also signed this week for a July 1 start, with 1st month and security paid for. I am going to be taking out loans of ~$40k for the first year to cover school and some living expenses. I will also have a small income of about $500/month throughout school.

So, would I be better off taking out $3-5k less in loans, or should I move forward with the investment?

 

[StarTrekDoc]

Recommend 6month emergency fund based on your spend if that $8500 is all there is.  Things crop up over the years and once into a Roth-- it's gone for 30 years.

Plan contingencies.  If you have excess, take out smaller loan, but don't schedule things down to the penny --- it's not worth the hassle at this stage and talking what sounds like $160,000 loans by end of medschool.

 

[Complete_newbie]

22? and hitting medical school?

I would enjoy life and date a lot.

[jhwkr542]

I'd just keep that money on hand and not use it for anything.  You don't want to be hurting if you have one big expense crop up (car goes out, medical bills, etc).  I would also take out the bare minimum in loans to pay for tuition/books/fees and living expenses (food, rent, ?health insurance, transportation, etc).  If you don't have a very good idea of what you spend every month, I'd highly recommend the Mint app to track your spending, so you have a much more exact idea of your monthly budget.

[Erbo94]

Makes sense - 6 months of expenses would eat up a serious chunk of the $8500, so I think I'll hold on the investment. Looks like I was getting ahead of myself and letting the cushion of loan money tempt me to skip an important step before investing: establish an emergency fund. I'll reevaluate in a couple of years and see if I want to decrease my loan amount. Then once residency hits I'll jump into the investing. Thanks for the advice! First time posting, but I suspect it won't be my last.

[ENT Doc]

Godspeed, Padawan.

[WallStreetPhysician]

Erbo94 wrote:

Hello!

I’m 22 years old, graduating from undergrad in May, and starting at my state medical school in August.

I have approximately $8500 in savings and I am thinking of investing $3-5k in a Roth IRA. Because I only have a small amount available to invest, I am currently looking at the Vanguard Target Retirement 2050 Fund ($1k minimum investment). I understand the pluses and minuses of these funds, but my options are limited. Would it be better for me to invest in this fund even though I am not 100% happy with the allocations and active management, or just to wait and keep the money in an ordinary savings account?

Any advice is appreciated!

Click to expand...

Congratulations on being interested in personal finance so early in your medical career.

I would actually favor keeping it in a taxable account for now. Since you are a medical student, you won't be paying any taxes on long-term (or maybe even short-term?) capital gains while in medical school. In the fall of your 4th year, you could begin shifting money to the Roth. If any emergency came up that could not be covered by your loans, you could sell your shares with minimal to no tax consequences.

-WSP

[ENT Doc]

WallStreetPhysician wrote:

Erbo94 wrote:

Hello!

I’m 22 years old, graduating from undergrad in May, and starting at my state medical school in August.

I have approximately $8500 in savings and I am thinking of investing $3-5k in a Roth IRA. Because I only have a small amount available to invest, I am currently looking at the Vanguard Target Retirement 2050 Fund ($1k minimum investment). I understand the pluses and minuses of these funds, but my options are limited. Would it be better for me to invest in this fund even though I am not 100% happy with the allocations and active management, or just to wait and keep the money in an ordinary savings account?

Any advice is appreciated!

Click to expand…

Congratulations on being interested in personal finance so early in your medical career.

I would actually favor keeping it in a taxable account for now. Since you are a medical student, you won’t be paying any taxes on long-term (or maybe even short-term?) capital gains while in medical school. In the fall of your 4th year, you could begin shifting money to the Roth. If any emergency came up that could not be covered by your loans, you could sell your shares with minimal to no tax consequences.

-WSP

Click to expand...

May have no tax consequence, but if the market declines by 20%...

[DMFA]

StarTrekDoc wrote:

Recommend 6month emergency fund based on your spend if that $8500 is all there is.  Things crop up over the years and once into a Roth– it’s gone for 30 years.

Plan contingencies.  If you have excess, take out smaller loan, but don’t schedule things down to the penny — it’s not worth the hassle at this stage and talking what sounds like $160,000 loans by end of medschool.

 

Click to expand...

I mostly agree with what you're saying and why, but the "once into a Roth, gone for 30 years" is untrue. You can withdraw contributions any time without paying tax or penalties. You can even withdraw earnings after 5 years for a few qualified expenses like education or healthcare. Obv you ideally wouldn't withdraw anything from a retirement account except for retirement, but Roth IRAs (directly contributed; backdoor'd works slightly differently) can be very flexible and useful for things beyond just tax-free growth and withdrawal.

 

http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/roth_ira/withdrawal_rules

[RadMD]

This is awesome.  22 yo med student, already on a financial forum!  I didn't even think about this stuff until PGY6!  As stated above, your number 1 goal is to do well in med school, ACE your Step 1 (to open more doors) and do whatever it takes to get accepted to your residency of choice.  And just use the money you have to support whatever supplement stuff it takes to help get you there such as nice computer, comfortable chair to study in, comfortable bed to sleep in, vacation here and there, etc.  I honestly wouldn't worry too much about investing at this point--I'd keep that money liquid in an emergency fund which is easily accessible.

Congrats again, you are WAY ahead of your peers.  I'm sure you'll be schooling us on how you became a millionaire during residency.  Good luck!