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  • #31
    @PhysicianOnFire - I disagree with rolling into current er's 401k. @luckbeatsme can have a SOLO-k and control his own investment portfolio (or have advisor do it) and have far more selection and flexibility. Unfortunately, must wait 1 year to do so. SOLO-k does beat SEP IRA in every way but one (ability to contribute 9.5 mos after EOY).
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #32
      500K/year and assuming you end up paying 40% in taxes, that leaves about $25,000 month.  If your fixed expenses are about $11,000/month, that still leaves a hefty $14,000.  You say you're setting aside 25-30% for retirement (not sure if you're counting that as a percentage of gross or net income) which is quite good.  You also have a $30,000 emergency fund which is excellent.  Overall, I'd say that you are doing great for someone just a couple of years out of residency.  Yes, the car debt is significant, but you also have a considerable income.

      As your post indicates, your issue is not how to save for retirement but rather how to best direct your disposable income.  Clearly you have a dilemma of whether to save more, or pay down more debt.

      I've always considered it a bit of a fallacy to compare riskier stock returns to the guaranteed return on debt pay down.  I think comparing the interest on your 10-year student loan to the yield on a 10-year treasury note is a more fair comparison.  That yield is 2.15% currently so the return on paying down your 4.5% student loan is by far your best bank for your buck at today's rates.

      If I were in your shoes, I would set a goal of eliminating all non-mortgage debt in the next 6 years.  At that point you'll be 39.  Having your cars, credit cards, and student loans paid off will significantly improve your cash flow situation and will allow you to decide to either cut back on working hours or save for an early retirement, or pay cash for the next set of wheels.  You're already on track to have your cars paid off by then.  Even though your credit cards are at 0%, you'll want those gone ASAP so you don't get hit with unexpected fees.  I'd calculate how much extra to put on the student loans to have them eliminated by then and make the extra payment every month.  I'd also work on increasing the emergency fund to at least 6 months.  (Think how long it would take to get re-credentialed at a new institution should you lose your job).  Finally, with little ones in the picture, starting 529s is definitely a good idea, particularly if you live in a state that gives you a tax break on contributions.  Right now, your cash flow situation is probably a bit tight, but if you do this, you'll be in great shape in 6 years.  Make sure you don't take on any additional debt such as putting a vacation on a credit card.  Also, your housing costs seem reasonable.  I would avoid the temptation to upgrade your house.  I've seen this many times when children enter the picture.

      As far as your advisor, if s/he is directing you into individual stocks, that's bad advice.  Rolling your 401k into your IRA is also bad advice as it eliminates the backdoor Roth.  I recommend rolling the IRA into your 401k if possible, and then do the $11,000 backdoor Roth each year.  With current market valuations being down, now might be a good time to sell the individual stocks as you probably won't have much to pay in the way of capital appreciation taxes.  For a taxable account you want to look at something like Vanguards total US stock market and total international stock market mutual funds.  These are very tax efficient.

      Comment


      • #33
        My thoughts:

        1. You have WAY more debt than you should have.

        2. If you make $500K and your wife works, you are probably paying 45-50% in marginal taxes.

         

        Therefore, in order of importance, I personally would:

        I. Immediately start adhering to the fundamental WCI principle: LIVE LIKE A RESIDENT! Although it is obviously a bit too late at this point, I wouldn't start spending money on expensive houses and cars until all the other debt was paid off. The toys will come eventually. My approach to cars has always been that I would never take out a loan to buy a rapidly depreciating asset (unless there was an interest rate substantially lower than what I could get on my investments), so I always save up to buy my cars with cash. I mentally depreciate cars at $5K per year, and I am willing to sell and replace them when they are fully "depreciated" (i.e., I have driven my usual $30K cars for 6 years each, but my current car cost $60K so I will be in it for a looooong time), but if I still like the car I am happy to keep it and save the money until I find something I a) want, and b) can pay cash for.

        II. Having a 6-month emergency fund is probably a good idea, although with the payments you have on your various loans a 6-month emergency fund is going to be a lot bigger than you would like. If you start living like a resident, you may be able to add to this fund, and if you can pay off some of the debt using the money you save by that lifestyle, your 3-month emergency fund may grow into a 6-month fund on its own.

        III. Since you are in such a high tax bracket, any money you put into a tax-advantaged account automatically gives you close to a 50% return, so I would definitely contribute to those first.

        IV. Next, following the principles in I and II, I would pay off the debts which are probably costing you more than you are likely to make in the market over the next few years.

        V. After that, you have plenty of options. I started UGMAs for my kids when they were tots, so putting a few hundred a month into their accounts allowed me to easily accumulate an in-state university tuition by the time they were ready to start. My deal with the kids was that I would give them five years tuition and support for the top state school, so if they went there and were reasonably conservative they would leave school with a nest egg but if they went to a private or out-of-state school they would have to work or take out loans to make up the difference. Surprisingly (NOT), they all went to the state school and graduated with substantial nest eggs!

        Good luck!

        Comment


        • #34
          One more thought, which should be very high on your list. You mentioned life insurance but didn't say anything about disability insurance. Probably the biggest financial disaster you could have with all that debt is to become disabled. If you died the student loan debts would go away and the house and cars could be sold, but if you were disabled you would still have the debts, no income, and might be around for a long time watching the financial disaster unfold. Disability insurance is much more important than life insurance; make sure you have enough to support your family's lifestyle (or at least some non-indigent, non-homeless lifestyle) if you should become disabled. It will be expensive, but you can always drop it once your live-like-a-resident lifestyle and savings/debt reduction efforts have given you enough of a portfolio that you don't need it any more.

          Comment


          • #35
            I'm in a very similar situation in life, 33, ER, out for 3.5 years.  I think you already know that your car purchases were probably a significant step in the wrong direction.  However, with your level of income there should be plenty of room to start getting things paid off.  I think the first step is to see where your money is going.  I tend to think of my finances as below.

            Gross Income 500k, subtract the following

            53k to IRA = 447

            HSA 5K? = 442

            Taxes at worst $135k? = 307

            Home loan 3.5Kx12? 42k per year = 265

            Student loan 2kx12 24k per year = 241

            Car payments 2.3kx12 27k per year= 214

             

            After all of this you still have your term policy, disability?, and the regular expenses of life.  I'd say there should be considerable room.  Even if you are spending 10k a month on expenses, then you would have at least $100k a year to use to knock out debts.

            I personally like to keep things simple.  I rolled my prior retirement accounts into my SEP IRA at Vanguard.  Because of this I do not use a Backdoor Roth.  I think it just depends on how much work you want to put into stuffing extra money into retirement accounts.  I have a friend who is a WCI follower who semi regrets the headaches of the backdoor roth (but he still does them).

            Life insurance seems to be a personal comfort level thing.  I have a 2 million term plan as well.  My personal thought is that as long as you don't leave your family in a deep hole when you die then you have enough.  That 2 million only has to cover the house and cars and then cushion the income for your wife.  She should be able to earn some income if you are not around.

            My priority would be the student loans at 4.5%, even consider using the taxable account to mostly wipe them out.  You could also consider selling off your cars, buying cheaper and using the difference to pay off debts as well.

            I just sold all of my individual stocks (all long term holdings) in September because I didn't want the hassle/guesswork of them anymore.

             

            Kudos on keeping your mortgage much less than your income.

            Comment


            • #36
              see above, duplicate from glitch.

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              • #37
                removed-duplicate

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                • #38
                  (Post removed due to duplicates resulting from bug in forum files)
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                  Comment


                  • #39
                    (Post removed due to duplicates resulting from bug in forum files)

                     
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #40
                      Welcome to the forums! And congratulations in the impending addition to your family!  Very exciting.

                      First, by coming to the forums and this website, you're already making huge ahead of many. Dr. Dahle's blog is a great resource.  If you don't already read the Bogleheads website, I would highly recommend checking out their website (www.bogleheads.og).  They have forums and very good wiki on many investing topics.  I am a subscriber to their investment philosophy (https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy), and Dr. Dahle is seemingly a believer, too.

                      My recommendations:

                      • Pay down credit card debt immediately once there is interest due.

                      • Max out your tax-deferred investments (IRA, 401(k), HSA) [more below].  This is probably the biggest improvement you can make right now.

                      • Consider managing your finances yourself vs. using a financial advisor.  If you need a financial advisor, make sure that they are a fiduciary.  Most are not.  Many of the best financial advisors charge an hourly rate and not a % of AUM.  Don't be scared by someone charging a high hourly rate. Dr. Dahle recommends many on this site.

                      • Ensure your equity investments are well diversified and have low fees. For example, Vanguard Total Stock Market Index fund (Admiral Shares) has an expense ratio of 0.05%.  This is the gold standard of diversification and low cost for personal investors. If you are paying more than 0.5% for any stock market investment, ask why.

                      • Look into whether you should keep the variable life insurance policy.  These are notorious for being horrible investments (horrible for the investors, great for the people that sell them to you, because they have high fees for you and high commissions for sales people).  Chances are it is best to get out now.  You will likely have lost thousands of dollars.  Read more White Coat Investor blog articles to determine if you should dump it. I recommend "How To Dump Your Whole Life Policy" (https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/).

                        • If you need more help, a highly recommended resource is James Hunt (www.evaluatelifeinsurance.org). As a personal note - I found White Coat Investor when I was researching how to unwind my wife's indexed universal life insurance policy.  She was sold not one, but two crappy policies by her crappy, and now fired, financial advisor. I then used James Hunt's service to determine if it was best to dump the policies (one was, one wasn't).



                      • Pay down down student loan debt.  This is a guaranteed 4.5% return.  Not a bad  this low rate environment. However, for being a doctor, only having 190K in student loans is great.  And you are paying them off in 10 years.  Even better.


                       

                      As for maxing out your tax deferred investments, it sounds like you have more options at your disposal than you are taking advantage of.

                      • First, max out your 401(K). You are likely doing this.

                      • You have 1099 income.  It is likely better to setup a solo 401(k) rather than a SEP-IRA.  You should be able to contribute more than you can to a SEP.  Max out these contributions as well. I'd recommend using a low cost provider for this, such as Vanguard or Fidelity.

                      • If you can setup a solo 401(k), rollover your SEP-IRA to this account. This will allow you to make backdoor Roth contributions without any prorata tax.

                      • If you do have access to good investments in your 401(k), you may be able to rollover your SEP (not the other way around!). Why? This would allow you to do a backdoor Roth IRA, and some plans can have access to better investments than in your own plan.  For example, my wife's medical group uses Fidelity for their 401(k). They have access to funds with a 0.01% expense ratio (Blackrock target date funds) that would not be available to personal investors.

                      • Max out your HSA.  Don't use it for medical expenses now, rather use a fund to invest for retirement.  Make sure your HSA provider offers access to low investments.


                       

                      Another good resource that I recently came across (recommended on the Bogleheads website), is a short, free booklet called "If You Can." It is available here:etf.com/docs/IfYouCan.pdf

                      You are well on your way to being in great financial shape.

                      Comment


                      • #41
                        Welcome to the forums! And congratulations in the impending addition to your family!  Very exciting.

                        First, by coming to the forums and this website, you're already making huge ahead of many. Dr. Dahle's blog is a great resource.  If you don't already read the Bogleheads website, I would highly recommend checking out their website (www.bogleheads.og).  They have forums and very good wiki on many investing topics.  I am a subscriber to their investment philosophy (https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy), and Dr. Dahle is seemingly a believer, too.

                        My recommendations:

                        • Pay down credit card debt immediately once there is interest due.

                        • Max out your tax-deferred investments (IRA, 401(k), HSA) [more below].  This is probably the biggest improvement you can make right now.

                        • Consider managing your finances yourself vs. using a financial advisor.  If you need a financial advisor, make sure that they are a fiduciary.  Most are not.  Many of the best financial advisors charge an hourly rate and not a % of AUM.  Don't be scared by someone charging a high hourly rate. Dr. Dahle recommends many on this site.

                        • Ensure your equity investments are well diversified and have low fees. For example, Vanguard Total Stock Market Index fund (Admiral Shares) has an expense ratio of 0.05%.  This is the gold standard of diversification and low cost for personal investors. If you are paying more than 0.5% for any stock market investment, ask why.

                        • Look into whether you should keep the variable life insurance policy.  These are notorious for being horrible investments (horrible for the investors, great for the people that sell them to you, because they have high fees for you and high commissions for sales people).  Chances are it is best to get out now.  You will likely have lost thousands of dollars.  Read more White Coat Investor blog articles to determine if you should dump it. I recommend "How To Dump Your Whole Life Policy" (https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/).

                          • If you need more help, a highly recommended resource is James Hunt (www.evaluatelifeinsurance.org). As a personal note - I found White Coat Investor when I was researching how to unwind my wife's indexed universal life insurance policy.  She was sold not one, but two crappy policies by her crappy, and now fired, financial advisor. I then used James Hunt's service to determine if it was best to dump the policies (one was, one wasn't).



                        • Pay down down student loan debt.  This is a guaranteed 4.5% return.  Not a bad  this low rate environment. However, for being a doctor, only having 190K in student loans is great.  And you are paying them off in 10 years.  Even better.


                         

                        As for maxing out your tax deferred investments, it sounds like you have more options at your disposal than you are taking advantage of.

                        • First, max out your 401(K). You are likely doing this.

                        • You have 1099 income.  It is likely better to setup a solo 401(k) rather than a SEP-IRA.  You should be able to contribute more than you can to a SEP.  Max out these contributions as well. I'd recommend using a low cost provider for this, such as Vanguard or Fidelity.

                        • If you can setup a solo 401(k), rollover your SEP-IRA to this account. This will allow you to make backdoor Roth contributions without any prorata tax.

                        • If you do have access to good investments in your 401(k), you may be able to rollover your SEP (not the other way around!). Why? This would allow you to do a backdoor Roth IRA, and some plans can have access to better investments than in your own plan.  For example, my wife's medical group uses Fidelity for their 401(k). They have access to funds with a 0.01% expense ratio (Blackrock target date funds) that would not be available to personal investors.

                        • Max out your HSA.  Don't use it for medical expenses now, rather use a fund to invest for retirement.  Make sure your HSA provider offers access to low investments.


                        Another good resource that I recently came across (recommended on the Bogleheads website), is a short, free booklet called "If You Can." It is available here:etf.com/docs/IfYouCan.pdf

                        You are well on your way to being in great financial shape.

                        Comment


                        • #42
                          Please tell us you've ordered The White Coat Investor book that's linked throughout this website. The answers to your questions are there. Then pass the book on. I cringed when I saw your car loans. G-pathy above is right on.  Get some cheap cars, fund the 529 and pay off those student loans. You'll retire sooner and be driving a fancy car then free and clear of debt.

                          Comment


                          • #43
                            One suggestion above was to rollover your old 401K and SEP-IRA into your new 401K.  This would allow you to make backdoor Roth IRA contributions.  Another way to do this would be to open a solo 401k.  This option, while more paperwork, may be better if it gives you more room for investing tax deferred dollars.

                            You seem to be doing well, especially coming to this forum.  I would recommend reading the Bogleheads website, too (www.bogleheads.org).  They have forums too, and a great wiki on many investing topics.  Dr. Dahle contributes to those forums, too.

                            My advice:

                            1. Max out your tax-deferred investments.  This means maxing out your 401k.  If you have 1099 income, look into a solo 401K instead of a SEP IRA.  You will likely be able to contribute more.  Max out your HSA but don't use it for medical expenses - let it grow.

                            2. Look into dumping your variable life insurance policy.  Most of these policies are awful investments. I recommend reading https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/.  If you still have questions, I recommend James Hunt at EvaluateLifeInsurance.com.  He is highly recommended on the Bogleheads site and in the comments of the comments of the WCI blog article.

                            3. Evaluate your current financial advisor. If your last one sold you a permanent life insurance policy, he was likely an awful advisor.  The best advisors usually charge an hourly rate, not a % of assets.  Don't be scared off by a high hourly rate.  Dr. Dahle has a list of vetted, recommend advsiors on this site.  If you do get one, ask if they are a fiduciary, meaning they put your interests first.  Most are not.

                            4. Evaluate if you even need a financial advisor.  Read the wiki on Bogleheads, continue to read the blogs on this site, and a pretty good booklet that I just became aware of  - "If You Can".  etf.com/docs/IfYouCan.pdf.  Targeted towards millenials, but good reading.  You should be able do a better job than most advisors without the cost.

                            5. Pay off any credit card debt immediately once interest becomes due.

                            6. Paying off student loans is not a bad idea.  It is a 4.5% guaranteed rate of return. Not bad in current, low interest environment.

                            7. Last, and this just my own opinion, I hope you get much enjoyment from such expensive cars.  Read the book, "The Millionaire Next Door" and you will likely think twice about such purchases.

                            Comment


                            • #44


                              Holy luxury cars Batman! Are those beasts giving you enough pleasure to pay another mortgage?
                              Click to expand...




                              Wow. More than $130,000 in automobile debt?! Seriously?
                              Click to expand...


                              Not helpful, guys.

                              You'll discourage others from sharing their stories/situations on the forum for fear of ridicule.

                              Comment


                              • #45
                                I'm not sure what you should do, as I don't know you. But I can tell you what I would do if I were suddenly dropped into what you're describing.

                                Regarding rolling over the 401(k) I would lean toward rolling it over to something in most cases, as leaving it behind just multiplies the number of accounts you have to deal with. It's always easier to manage everything from one place, or as few places as possible.

                                If you're going to have someone manage your money, fee-only is the way to go, but when they charge an AUM fee, remember that moving money into and out of their management is a conflict of interest. If your 401(k) is not currently managed by your adviser but your SEP is, recognize the conflict of interest. That doesn't mean he's giving bad advice - just that you should well-understand his reasons. Turning self-managed money into managed money automatically reduces your return by 1%.

                                I wouldn't pay someone to manage my money. It's too expensive. You're automatically 1% behind the ball. IMHO, there are two benefits to having a financial adviser that you may not be able to provide for yourself. 1.) Keeping you from doing stupid things, such as reacting with emotion when the market is dropping (or sailing), and 2.) Providing a third-party set of eyes on your overall financial situation, including spending, insurances, college fund planning, estate planning, etc. I have found and use an hourly adviser to provide both of these benefits for me. He only charges me for the time he spends, like a lawyer does. Managing investment accounts isn't really any more difficult than managing checking, savings, and credit card accounts, especially I you have an hourly financial adviser giving you some direction.

                                I think you'll find most people on this forum lean toward debt-averse. I'm with them. I would use taxable account to pay off debts and not take out consumer debt again. (A car is consumer debt. Credit cards are excellent tools but terrible debt vehicles.) When you buy things on credit, you'll always spend more money than you would if you buy them with cash. You acknowledge the cars are too expensive, but don't fool yourself into thinking that you're stuck with them. You could sell them and buy less expensive vehicles and use the difference to pay off the furniture. Even if you decide not to do that (which is fine), realize it's an option and try to reason through all your options. (Saying "all your options" makes it sound like you're in bad shape. You're really not in bad shape. Some of the negative comments have been because the philosophy of this blog/forum is generally debt-averse and money-savvy and most people here wouldn't do everything quite as you have done - some to the extent of turning their nose up.)

                                $2M term life seems a bit low to me. You probably want enough to pay off your mortgage and other debts (but not student loans - they go away if you die), fund kids's college, and still replace your income for your family. I don't think $2M will do that.

                                The house doesn't seem too much, and a 15-year mortgage is the way to go. I'd pay that as agreed. You'll soon accumulate enough to pay it off if you want. It's a good feeling to know you can pay off your house whenever you want.

                                Definitely do 529 (and all other possible tax-advantaged accounts) before taxable. If you plan for your kids to go to private school I think a Coverdell account can be used to pay for that.

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