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  • Intro and Financial Plan of Attack... Advice

    Hello Everyone,

    I am a recent Cardiac Anesthesia Fellowship grad starting my faculty job at an academic institution. My wife and I are admittedly not the most educated or savvy in regards to financial planning and retirement planning. I would like to give a little financial background story in order to help with our future direction. I apologize if this is a lot of information; however, we feel a bit lost right now especially with the change in income.

    • While attending medical school, my wife paid for room and board since she worked as a neonatal ICU RN. During that time, she opened Roth IRAs for both of us and contributed during the 4 years as much as we could.  I graduated with student loans totaling $165K at 6.8%.

    • We moved back home for residency at a large academic institution (minutes away from both sets of grandparents). We ended up building a home with a physician loan due to poor inventory shortly before starting residency in June 2011. Purchase price was $230K with a mortgage for $220K. Recently refinanced in January with same bank (Huntington, would not recommend due to many issues with the customer service/closing for both loans) to a 5/1 ARM at 2.65% with the plan not to stay in the home for more than 3 more years.

    • I recently starting using the spouse of an attending in my department as our financial advisor. She is a representative for Northwestern Mutual and mostly attempts to sell insurance. We opted for term life coverage and disability for myself. Unfortunately, we also naively moved our investments to her as well (we did not know of any other options given the other person at Edward Jones essentially ignored us). Transferring our Roth IRAs, my wife's traditional IRA and our daughter's 529 from Edward Jones to Northwestern Mutual Financial Services cost us at 4.5% fee (about $2700).  Even worse, the financial management/assistance fees are quite high and I did not realize this until asking directly. Here is her response:


    "What is your fee structure for the financial planning? Right now we have everything as separate…There is a minimum of 50K to open a fee based plan.  At 50K the breakpoint fees decrease as the assets increase.  We would enter into a Signature Portfolio Agreement. These fees start at 1.65% at 50K and then decrease to 1.21% at 1M and   down to .75% when you reach 5M.  Again, I make 35% of these annual fee based plans."


    • I started my faculty position at my training institution on July 1. Base salary is $229K with approximately $50-65K in average yearly bonus pay. I opted for the 403b and 457 through fidelity, but I have yet to decide on the funds. I have heard mixed reviews on the fidelity freedom index 2045/2050 for target date funds.  The retirement is 5% employee contribution with 10% employer contribution after 1 year of employment.


    Financial Plan of Attack/Questions

    1. Pay down student loans ASAP. I have been making IBR payments since Med School Graduation and my wife has received several cash gifts from her grandmother to help pay down the loans. Current balance is approximately $106 K and I am not counting on PSLF to be around in 5 more years.

    2. What funds should I chose for retirement from fidelity for 403b/401a/457?

    3. Should I transfer-in-kind our retirement accounts from NMIS to Vanguard for lower fee investments?

     

    I am very thankful for this website and the WCI book (I read the entire book on my flight home from my oral board exam). It has been an immensely useful resource for the difficult transition from resident to faculty. Thank you for you advice!

  • #2
    Welcome to the forum! Your questions:

    1. Talk to a student loan advisor. I currently recommend Joy Sorensen Navarre at Navigate because I like her fee structure, cost is reasonable and she knows her stuff. You should easily be able to pay her fee and have some left over if she helps you. (I get no remuneration of any kind for the recommendation.)

    2. You need a well-diversified equity index fund portfolio, allocated as follows: LC Growth, LC Value, SC Growth, SC Value, International and (optional) REIT, and rebalanced annually. I'm not a fan of TDF's, but you could do worse.

    3. Maybe. For sure, get away from NMIS. Sorry about the fees you have already paid, so sorry, but those costs are sunk, no matter what you do, unless it was within the last 5 days. On the positive side, you are 4 years into Roth IRAs, a very good start.


    You can download our Financial Guides for Doctors here. Yes, you will have to share your email address, but you can unsubscribe if you don't want our newsletter. I'll be happy to send you a copy of our schedule of financial planning services for doctors if you'd like to get an idea of what a "real" financial planner and CPA does, just let me know. We are Fee-Only, NOT fee "based" (which is a new age way of saying "we're still salesmen but it sounds better").

    You're in the right place. Do not be in a hurry to do something fast - never a good idea with investing. Don't get into the market until you are comfortable or have a relationship with an advisor who is trustworthy.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #3
      Agree with moving your Roth IRAs to Vanguard and out of the fees.

      Your 403b investment choices would be better assessed if you had a planned asset allocation with a list of the funds available and corresponding expense ratios. Simplistically select the cheapest index fund in a class that you want and balance out the rest of the asset allocation with your IRA.

       

      Additionally to your list, I would reassess your disability insurance if you obtained it as a Northwestern Mutual Product. WCI had a good post on their insurance product a few years ago:

      https://www.whitecoatinvestor.com/why-not-northwestern-mutual-physician-disability-insurance-friday-qa-series/

      In particular, pay attention to the details regarding the definition of total disability and "own occupation" that is highlighted in the article.

      I had met with a Northwestern Mutual Insurance agent out of recommendation from an attending at my institution. Though the guy did sell other products, he definitely pushed the Northwestern Mutual product. I ended up going to another agent for a different disability insurance product that had better terms at the same cost.

      Comment


      • #4
        Certainly look at the options that are out there and in my space of expertise you can probably find better definition disability contracts at lower prices and if history repeats its self if you bought term from Northwestern it is probably an annually increasing premium contract to age 70 instead of a level premium contract.  If it does happen to be a level premium then typically they are priced about 20% higher than the competitive market for the term life insurance so you know.
        Scott Nelson-Archer, CLU, ChFC
        303-953-0263 Direct / [email protected]

        Comment


        • #5
          Thank you for the responses. I will read the fine print on the DI but I do know that it is their version of Medical Occupation. Looking more and more, I realize we made the move a little too quickly to NM and that a one-stop shop is not necessarily the best for investments, insurance and financial planning. Does anyone have any experience with the financial management services at places like Vanguard? The rate for planning is somewhere around 0.30% of total AUM after the breakpoint (not 100% sure though).

           

          Unfortunately, our NM rep is very well-connected within my department and uses her husband's (an attending anesthesiologist in my department) colleagues/residents as an easy feeding ground for high-priced insurance and poor investment strategy. I will definitely look at other options as well as continue more financial/investment education on my own.

           

          Comment


          • #6
            Before you switch to Vanguard look at the expense ratios of Fidelity index funds.  They are slightly lower than Vanguard (see Fidelity homepage today).

            I keep it simple with a 3 fund Fidelity portfolio - Total Market Index, Global Ex-US Index, and US Bond Index funds.

            Yes, fire your NM mutual financial advisor.

            Comment


            • #7


              You need a well-diversified equity index fund portfolio, allocated as follows: LC Growth, LC Value, SC Growth, SC Value,
              Click to expand...


              Doesn't:

              Large cap growth + large cap Value + small cap growth + small cap value

              = Total market index fund  ??

               

              If it's not exactly the same, it's close enough, and the ER will be lower.  If you want a tilt, add on what you want.

               

              Comment


              • #8
                You need to be cordial to the insurance agent from NWM but DO NOT buy any more of those products.  I have gotten a financial plan from Vanguard when I transferred my nest egg to them. It was very useful and easy .  They do not offer advice on taxes, estates etc.  The AUM advisory service is new and I believe they do offer tax planning to some extent.  The 0.3 AUM is very reasonable if you are too scared to do it yourself.  You can easily learn what you need to know by reading this blog however.

                Comment


                • #9





                  You need a well-diversified equity index fund portfolio, allocated as follows: LC Growth, LC Value, SC Growth, SC Value, 
                  Click to expand…


                  Doesn’t:

                  Large cap growth + large cap Value + small cap growth + small cap value

                  = Total market index fund  ??

                   

                  If it’s not exactly the same, it’s close enough, and the ER will be lower.  If you want a tilt, add on what you want.

                   
                  Click to expand...


                  Similar, but we get to control the allocations, which is important to our investment model.
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                  Comment


                  • #10





                    You need a well-diversified equity index fund portfolio, allocated as follows: LC Growth, LC Value, SC Growth, SC Value, 
                    Click to expand…


                    Doesn’t:

                    Large cap growth + large cap Value + small cap growth + small cap value

                    = Total market index fund  ??

                     

                    If it’s not exactly the same, it’s close enough, and the ER will be lower.  If you want a tilt, add on what you want.

                     
                    Click to expand...


                    Similar, but we get to control the allocations, which is important to our investment model.
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11
                      Agree with most above but also think about refinancing your student loans.  Check this site for info.

                      Comment


                      • #12
                        "I recently starting using the spouse of an attending in my department as our financial advisor. She is a representative for Northwestern Mutual..."

                        I visibly winced when I read that. Do what you want with the rest, but get the ************************ out of the NWM products ASAP!

                        Comment


                        • #13




                          “I recently starting using the spouse of an attending in my department as our financial advisor. She is a representative for Northwestern Mutual…”

                          I visibly winced when I read that. Do what you want with the rest, but get the ************************ out of the NWM products ASAP!
                          Click to expand...


                          Agree with this comment 100%...wow, all kinds of conflicts of interest inherent in that statement...run away!!

                          Comment


                          • #14
                            Thank you to everyone for your thoughts and advice.

                            My wife and I are not happy with our NM agent's fees and we will be moving my accounts on to a low-fee provider (Vangaurd) in the near future. I found the blog article about firing your financial adviser especially helpful and will start the process of transferring accounts once we develop our own financial plan (I have some reading to do).

                            As far as the insurance products, I have started to shop around again for both term life and DI and I will jettison the NM policies once I find better options.

                            After replenishing our rainy day fund (used for recent family medical expenses) and maximizing my retirement, we are going to aggressively pay down the 6.8% student loans. With a balance of $107K at 6.8%, I could conservatively pay it off in 36 months (2 years short of PSLF). Consolidating the loans would not be an option given the PSLF clock restarts (I missed the window after graduating med school) and the rate drops to 6.3%.

                            I am extremely grateful for the guidance of this blog, the forum and the WCI book.

                             

                            Comment


                            • #15
                              If you are not going for PSLF and plan to pay aggressively you should refinance your loans.  6.8% is terrible.

                              https://www.whitecoatinvestor.com/student-loan-refinancing/

                              We went with sofi but you have several options.

                              Comment

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