WCI has published several articles in the past that talk about investment priorities -- but also makes a big point to "live like a resident" until student loans are paid off. Our situation is that we have some student loans but at a pretty favorable rate. I wonder what you would make of the following investment priorities in this case:
From WCI:
Maybe for us:
I notice WCI combines mortgage and low student loans in a similar category -- although her argues for early pay off of loans over mtg in another article.
For us points 1-4 seem solid. I just wonder about prioritizing 529 over loans? or is it better to try and get our down payment for a house higher before tackling the loans? I'd love to get rid of the 3.6% debt but at 3.6% maybe it's more psychological than meaningful to tackle that. What do you all think?
From WCI:
1) Pay off high interest debt. Any credit cards or consumer debt at 8% or higher should be paid off ASAP. Honestly you should have never accumulated this. Live like a resident until it is gone.
2) Invest in tax-protected accounts. If you are a resident max out your personal and spousal Roth IRAs. If an attending, max out your 401K, SEP-IRA, HSA and any other retirement account that allows you full marginal tax rate deductions.
3) Pay off non-deductible loans between 5% and 8%. These include most current student loans.
4) Consider investing in other accounts that offer a tax break, such as 529s (kid’s college accounts), UGMAs, and backdoor Roth IRAs if your circumstances merit.
5) Invest in risky assets in a taxable account (stock mutual funds or investment properties).
6) Pay off loans with after-tax rates of 3%-5%. These include most mortgages.
7) Pay off loans with after-tax rates below 3%.
8) Invest in safe assets in a taxable account such as CDs, bonds, and savings accounts. If these types of assets return to historic norms (4-5% returns) instead of their current 1-2% returns, then it is okay to invest in these prior to paying off very low interest debt.
9) Don’t carry any debt into retirement. Losing the safety net of on-going employment income makes this a risky affair. It’s one thing to get foreclosed on when you’re 30. It’s entirely different when you’re 70.
Maybe for us:
Credit card debt (none)- Tax Protected Accounts (401K him, 401k her)
- HSA (him)
- Backdoor Roth (him 5500, her 5500)
- Non Tax Protected Retirement based savings (up to our goal of 13-15% per year of our combined salary)
- 529 for Jr. (him, her contributions 14k)
- Student Loan at 3.6%
- 3.5% adjustable rate mortgage (on rental property) (we are unintentional landlords of our apt from residency)
- Student Loan at 3.0%
- More downpayment savings for future home downpayment (currently at 20-25% of downpayment) on our projected future home
- Start a 529 for possible Jr#2??
I notice WCI combines mortgage and low student loans in a similar category -- although her argues for early pay off of loans over mtg in another article.
For us points 1-4 seem solid. I just wonder about prioritizing 529 over loans? or is it better to try and get our down payment for a house higher before tackling the loans? I'd love to get rid of the 3.6% debt but at 3.6% maybe it's more psychological than meaningful to tackle that. What do you all think?
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