my situation and your advice/thoughts

[luckbeatsme]

Texas...but i'm also ED director

[kiloaxe]

I agree with advice given.  Most importantly, in my opinion, is insure your future (disability, life), and pay off debt

I recently finished EM residency as well. I have focused primarily on paying off debt (combined my spouse and I had roughly 300k) and we now have less than 100k to go.  I expect my loans to be paid off this month!

Based on your income you should be able to pay off significant debt over next 1-2 years.

I would also fire you adviser.  at this point, I doubt you are getting a lot of benefit to justify the cost.

As an aside, where are you making 500k as an EM doc?

KA

[Zaphod]

I know you've got a lot of good advice, and some of it will be entirely dependent on temperament but I'll disagree with the majority here. First, youre young, make good money, and have a reasonable mortgage and a good savings rate.

 

Many many people on this forum will be super debt averse and for good reason. However, as you said you are where you currently are so lets start from there.

1. I would never liquidate your taxable account to pay off the student loans. This is terrible mathematically. I know, guaranteed return of x vs. risk...however, youre comparing simple and compound interest and present value levels of money, just think about this rationally and you wont do it. You will have more money in the future if you keep the taxable and pay down your student loans another way, besides, you make enough money to not cut something. Pay the loan and you get....nothing, just 190k wiped from the ledger, but do so with your taxable account and you will have wiped away future values of money over 1 million in 30 years for an even below average market and likely more, even if you never dropped another cent into it.

2. Agree you should have better tax vehicles like etfs in taxable. Even consider one of those tax loss harvesting groups like wealthfront/betterment, its an interesting idea.

3. Just because you finance a car doesnt mean you cant afford it, thats a non sequitur. I cant blame anyone for taking a less than inflation rate, it just makes sense. A more flexible rule would be to have enough money in the bank set aside strictly for that purpose, and then you can think about if you'd really like to buy it. Maybe you do, big deal. For the record I financed a car a couple years ago at 0.9% when I had planned on paying cash, too good and of course can just pay it off if need be but I am putting that money to work instead.

4. Look into saving more in tax deferred vehicles, even consider defined benefit/cash plan. Agree you should put as much away as is reasonable. Also agree that if you understand the concepts and are comfortable with the tradeoffs (stress, less flexibility, etc...) putting money into retirement will certainly be better off in the long run. Think of your net worth as your personal balance sheet. In the end its a positive or negative number only, it cannot tell the difference between a paid off loan or money in retirement accounts. Sometimes when viewed outside of the labels its easier to see the big picture.

 

In review, youre young, make a lot and now have your goals in order. Nothing rash is required at this time because in 2-3 years you'll have really crushed things and you'll be surprised how fast things turns around. It looks as if I am advocating for debt given the above, but thats not true at all. Mostly just that no knee jerk things have to occur for you to be totally fine in short order, its not an emergency so lets not make it one. I'd just run the numbers given your different options and see which makes the most sense given your situation.

[nachos31]

Lots of good advice so far. All I would add is in regards to your comment that your advisor is telling you to invest more rather than pay down debt. He is very heavily biased in making this recommendation as you investing more raises your AUM and generates more compensation for him, as compared to paying down debt. So definitely take that advice with a grain of salt. If you need an advisor, go with fee-only who charges by the hours or some other flat fee and who does not try to get you into individual stocks for reasons mentioned by others. Best of luck!

[EnjoyIt]

Luck,

As an ED doc as well, I am going to give you advice that may be a little hard to accept.  You will notice that over the next 5 years your job will get harder.  you will have to document more, and may even get paid less for the same work.  Plus you will start getting older and flipping morning to nights and back will become more and more tiring.  You will find one day that you have 2 options burn out, or accept making less money.  I highly recommend option #2.  The only way to accept making less is to prepare for that day today by not throwing your money away and saving a nice chunk of it for the next few years while you still can.  Believe me, when you have saved $1 million you will find yourself with so many more options and choices in life.

Before I tell you what you need to do, let me congratulate you on some good things you have done:

1) Bought a home well within your means.  this is probably the best decision you have ever made and you deserve a congrats on this.

2) After 2.5 years being out of residency you have a pretty decent amount in your 403b/401k and taxable account $287K is a terrific start

Here is my advice on how you should proceed.

1)  This year you should maximize your SEPP IRA and HSA, and at the end of the year convert it to a 401K like others have mentioned

2) You should save another $100K in a taxable account or any other tax deferred location you may have.  At your income level you should definitely be saving and investing a minimum of $150K a year.

3) You should be dropping another 40-50K a year into your school loans and credit card debt. Never carry any credit card debt again for the rest of your life.   Pay it off at the end of the month.

4)  Once these cars are paid off, you should never buy a depreciating asset like a car on credit ever again, even if the rate is 1.9%.  It is much harder to write a check for $77K instead of stretching a loan out to 6 years and paying $1130 a month.  This way you will buy what you can afford to buy.  As others have said and you agree that you two have overbought your cars.  The biggest mistake people make is thinking about what payment they can afford as opposed to to actual cost of purchasing the item.  Eventually they stretch their income to afford payments and find themselves riddled in debt.  if you keep your basic necessity footprint low, you will always be financially secure.  The only debt you should even consider owning is a mortgage.  Some may recommend dropping the cars and getting something less extravagant and used.  You can definitely do that or you can accept the mistake you made, live with it, and keep both cars for the next 10 years not to exceed 100K miles if they are German.

5) While your wealth is kinda low, your financial advisor is not that expensive only $2,800 this year.  Over the years 1% is going to be a bigger and bigger chunk of cash and you best start learning to invest on your own and drop your advisor.  As of now I don't see him/her giving you any value for your 1%.  Actually since he is putting you into individual stocks he is doing you a massive disservice.  If you need some hand holding go with Vanguards financial advice.  They only charge you 0.30% and will keep you away from individual stocks.

 

All in all I think you are way ahead of many of your colleagues.

 

[luckbeatsme]

Thanks for all the input everyone.  Yes, I have read the White Coat Investor book, and have passed it on.  Have actually bought multiple copies to give to residents/siblings.  I have also read the Millionaire Next Door....after already having the cars.  But yes, I understand what everyone is saying.  So thank you.  With regards to disability, yes, I do have a policy.  I had taken out a 15k/month benefit through Northwestern Mutual, and then the new group starting 1/1/16 also provides a group policy, for which I have 15k/month benefit as well.  That benefit is of no cost to me personally.  I have however, since reading on this site, met with an independent regarding changing my disability policy from NW to Guardian.  So, there is a chance that change given the differences in definitions, etc.

When I did mention that I save 25-30%, it is off the gross income.  Over the last few months, I had been working more, and thus pre-tax take home has been near 55k/month.  Based on all's advice, seems like the smartest thing is to get rid of variable life policy, pay way more on student loans and likely take some after tax investment funds to pay that down.  Roll over current 401k into the SEP, and then next year, set up solo 401k to allow back door Roths.  Sounds like I need to lose the advisor and do it myself.  No more cars unless paying cash.

I have done estate planning already and actually use a different person through Beard Harris for tax planning/prep.

[jfoxcpacfp]

@luckbeatsme - with all due respect, your colleagues have pointed out that your car loans appear to be out of proportion, given your other debts, so I won't go there. Sounds like you are a major car enthusiast, anyway, so it might be worth it to you if all your other ducks are in a row. I disagree with not paying down your student loans - the psychological burden of having so much in debt would be overwhelming for some, you're not getting any tax break, and that is your highest rate loan. Your biggest asset at this point as your future earning power, so my first concern would be disability. Do you have a good policy? Critical in your situation - the chance of becoming disabled is greater than the chance of dying for every age up to 65.

My next question is, what are you getting for your 1% fee? Sounds like NOT a personal financial plan, active or on canned. You can do this on your own, I guess, but that makes the fee you are paying your advisor a glorified commission on simply buying you a bunch of stocks. Do you get tax planning and preparation? Estate planning? Before buying more life insurance, you need a better financial plan to use as a roadmap for making these kinds of decisions.

If you want to continue to DIY your own financial plan, try following the advice in The One Page Financial Plan by Carl Richards. For an alternative view on plan-based investing for the long-term, suggest you read the most current version (2013) of Simple Wealth, Inevitable Wealth by Nick Murray. At worst, it will help you decide what to do about your current advisor and you'll understand the concept of owning a balanced equity mutual fund/ETF portfolio and how rebalancing helps.

Roll your 401k to your SEP then set up a SOLO-k for 2017, roll your SEP into it, and go forward with the 401k rather than the SEP. You'll then be able to do back-door Roth IRAs, which would be illogical with a SEP-IRA in place.

You are in the right place to get great advice, hope you and your wife can spend a lot of time soaking up the info here. Hope this helps.

[noraz123]

Congrats on the soon increasing family!

A few thoughts:

• Max out your tax deferred accounts as much as possible. This means max out your 401k. You have 1099 income, and are using a SEP IRA.  That is great. But consider moving current SEP IRA and future contribution to a solo 401k.  You will likely have more room for investing, and the solo 401K will allow you to do a backdoor Roth.  I would recommend a low cost provider for the solo 401k, such as Vanguard or Fidelity.


• Consider dumping the Variable Life Insurance Policy.  These are notoriously bad investments, with high (yet hidden) fees. Read this site's blog article, "How to Dump Your Life Insurance Policy".  If you need more assistance, Google "Evaluate Life Insurance James Hunt", to find a website highly regarded by Bogleheads, and recommended in the comments in the above mentioned blog article.


• Consider dumping your financial advisor. If your financial advisor sold you a variable life insurance policy, s/he wasn't a good advisor. The majority of the really good advisors don't charge a % of assets, but rather charge by the hour.  Don't be scared by a high hourly rate.


• Consider going it alone (no financial advisor).  Chances are you don't need an advisor.  Read the Bogleheads website wiki, this site, and check out If You Can (google "ETF If You Can").


• 
  
  And last, this is just me being judgmental, get tens of thousands of dollars of enjoyment from your cars, or buy more affordable ones.

You are doing well, and way ahead of many others.  Keep reading this site, and you'll be in great shape in no time.

 

[noraz123]

Congrats on the soon increasing family!

A few thoughts:

• Max out your tax deferred accounts as much as possible. This means max out your 401k. You have 1099 income, and are using a SEP IRA.  That is great. But consider moving current SEP IRA and future contribution to a solo 401k.  You will likely have more room for investing, and the solo 401K will allow you to do a backdoor Roth.  I would recommend a low cost provider for the solo 401k, such as Vanguard or Fidelity.


• Consider dumping the Variable Life Insurance Policy.  These are notoriously bad investments, with high (yet hidden) fees. Read this site's blog article, "How to Dump Your Life Insurance Policy".  If you need more assistance, checkout EvaluateLifeInsurance.Org, a website highly regarded by Bogleheads, and recommended in the comments in the above mentioned blog article.


• Consider dumping your financial advisor. If your financial advisor sold you a variable life insurance policy, s/he wasn't a good advisor. The majority of the really good advisors don't charge a % of assets, but rather charge by the hour.  Don't be scared by a high hourly rate.


• Consider going it alone (no financial advisor).  Chances are you don't need an advisor.  Read the Bogleheads website wiki, this site, and check out If You Can - https://www.etf.com/docs/IfYouCan.pdf.


• 
  
  And last, this is just me being judgmental, get tens of thousands of dollars of enjoyment from your cars, or buy more affordable ones.

You are doing well, and way ahead of many others.  Keep reading this site, and you'll be in great shape in no time.

[scbunker]

Joseph wrote:

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

Click to expand...

G-pathy wrote:

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

Click to expand...

Not helpful, guys.

You'll discourage others from sharing their stories/situations out of fear of ridicule.

[scbunker]

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.

[scbunker]

G-pathy wrote:

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

Click to expand...

Joseph wrote:

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.

[noraz123]

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.

[BWIflyerman]

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.

[noraz123]

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.