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

[RogueDadMD]

Yep -- that is the post. From Dr. Liu.

[notadoc]

Is this the post?

https://www.whitecoatinvestor.com/hitting-a-net-worth-of-0-as-an-intern/

 

[RogueDadMD]

I played no-limit Texas Hold'em with my loan money. So you appear to be in much better shape already compared to where I was at that time.

Your future self will love your present self if you do as much as possible to minimize your loans.

Was it Amanda Liu (RIP) or someone else who suggested you don't take out a lump sum loan at the beginning of the year, but take it out piecemeal as needed and avoid paying interest on money you don't need?

Whomever said it -- brilliantly simple idea that all students should do when their loan structure allows it.

[pedsneuro]

I agree with most people recommending you keep the money in cash. I was actually in a similar situation to you having about $12K in savings before starting school and borrowing about $40K per year. I held on to the cash and my car broke down in the middle of residency interviews so I used some of it to buy a "new" 7 year old Honda that is still running perfectly (bought it in 2014). I used the rest to help pay for my honeymoon, then started investing once I was actually making some money in residency. Whatever you decide to do having awareness about personal finance and investing and working hard in med school will be the most important things! You are on the right track! Just an FYI as well, I had no idea how quickly $160K in loans could turn into $215K due to interest so do everything you can to keep your borrowing to a minimum!

[hightower]

God if I could be 22 yo again...Haha, you must be a much different 22 yo than I was.  The only thing I worried about then was partying and studying.  Somehow I made it through though.

If I were you, I would open a Roth and start putting a small amount in annually (maybe $1000?).  Just to get into the habit of doing it.  Hold on to the rest of your cash for emergencies.  Just put it in an online savings account.  Don't worry about what you do with it (a Vanguard Target Date fund is FINE).  You should spend all of about 2 minutes per year worrying about money and spend the rest of the time worrying about how to get excellent grades and board scores.  Your performance in medical school and residency will be a much more important factor in determining your financial well being in the future than any amount of money you can scrape together in savings now.  Try to minimize how much you borrow, but don't make yourself uncomfortable.  You need to be able to eat, take care of yourself, and sleep well.

Have fun above all else!

[q-school]

congrats on starting an awesome adventure!  good luck!

in my opinion, the absolute best thing you can do for setting up the best future is to ace step 1.  everything else falls secondary to getting an extremely high score on step 1.  i would say save the money as you will need to have some money to blow on vacations or just stress relief.  if you are a careful budgeter you can take less loans next year if you need them.  if you like to try to use the kaplan or princeton review or whatever exists these days, consider investing that money in the cheater courses to ace step 1.

 

[Erbo94]

Dr. Mom wrote:

Erbo94 wrote:

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?

 

Click to expand…

Congrats!  My son is an M-1.  Your $40,000 is hopefully all a Direct Unsubsidized loan? If so, take it all.  That is a tight budget to hold yourself to.  If you can hold it to that annually for 4 years, it would be awesome.  Use your money as a buffer to try not to have to take out any PLUS loans.  Impressive start!

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Thank you! Thanks to everyone for the different points of view. Yes, the $40k is all Direct Unsubsidized. That was my goal, to not have to take out PLUS loans - I think I should be able to pull it off. We'll see if I make it through the first year without having to touch my savings, then maybe I'd reconsider investing a small amount, especially because the Direct loan maximum increases for 3rd and 4th year. If nothing else it would also be just to get my feet wet in the investing world.

[Dr. Mom]

Erbo94 wrote:

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?

 

Click to expand...

Congrats!  My son is an M-1.  Your $40,000 is hopefully all a Direct Unsubsidized loan? If so, take it all.  That is a tight budget to hold yourself to.  If you can hold it to that annually for 4 years, it would be awesome.  Use your money as a buffer to try not to have to take out any PLUS loans.  Impressive start!

[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!

[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.

 

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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

[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

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

[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]

Godspeed, Padawan.

[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.

[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.