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Not exactly the same Invest vs Debt Pay-down question....

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  • Not exactly the same Invest vs Debt Pay-down question....

    ~1.6X Debt-Income Ratio with a 10 year loan at 3.3%. I am a relatively higher earning doc so the absolute value of the debt seems much more intimidating than the ratio. As a practice employee in what seems to be never ending times of uncertainty the absolute debt value bothers me more than the more manageable appearing DTI ratio. That being said, I am currently paying 1.62X min payment on my loan(~pay off early in 5-7 years) and maintain a 25-30% investment savings rate( Savings rate including loan paydown = ~ 45-50%). This leaves me with just enough to pay the rent, car bills and utilities and maybe a couple thousand a month for variable expenses. I'm spreading myself thin but the goal is to be aggressive out of training for the next 5 years and F.I. in 10-15.

    My question is should I maybe funnel more funds to the loan with the goal of paying off debt in under 5 years? Or maintain the status quo of a 5-7 year goal? However any change would be at the expense my investment savings rate which leads back to a more redundant question. 401K, Roth and HSA are fully funded. Does the 3.3% guaranteed loss warrant redirecting even more monthly contributions from my taxable account to my loan?

    Thanks!

  • #2
    Like you, I cannot stand seeing a huge loan sitting out there. My retirement funds have been doing well but I hated my huge home loan. My home loan is not even 1x my current salary but I feel like it is the chain that holds me down if the you know what hits the fan one day, and I simply decide to hang it up before my planned retirement date. So, I have been aggressively paying it off (15 year loan to be paid off in 8 years). I know I could be investing the money for better gains in the market but the thought of paying off this loan sure has given me a lot of piece of mind. That was how I made my decision what to do with my money is by what would give me the best piece of mind.

    But, I am 52 and close to my desired retirement age (FIRE). I've got a nice nest egg, have been in the same practice for 20 years, and a very consistent high salary. If I was fresh out of training, I'd probably be more focused on contributing all I can toward retirement goals. I would have felt nervous about starting a retirement account at a later stage in life. Time and capitalization are your friends in that situation.

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    • #3
      Need to know the future to answer your question correctly. It is great that you are doing both and will likely be fine either way.

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      • #4
        At that interest rate, I think splitting extra money to mortgage and taxable is a reasonable strategy. I would not change what you're doing.

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        • #5
          You mention contributing 25% - 30% of income towards retirement. Question; does this % of income towards retirement allow you to maximize your contributions to tax-deferred plans offered? If so, then don't change anything. If your 25% - 30% includes retirement contributions to a taxable account also, then you can choose to balance that delta amount against your loan paydown approach/amount, depending upon your emotional preference, though both doing either is a good choice imo.

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          • #6
            “maintain a 25-30% investment savings rate”
            Suggest compartmentalizing, retirement savings at 20% minimum and the rest is discretionary. It is (WAR) wealth accumulation rate. NW is the same, invest or pay down debt. Emotions, liquidity, taxes, rates of return who knows. Once debt is gone, some even get another! Purely personal choice.

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            • #7
              Originally posted by Lordosis View Post
              Need to know the future to answer your question correctly. It is great that you are doing both and will likely be fine either way.
              True! I favor debt elimination, but that is me.

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              • #8
                Originally posted by Tangler View Post

                True! I favor debt elimination, but that is me.
                I agree. At least with a mortgage if the poop hits the fan you can sell the house and move on with life. As long as you are not underwater.
                But with Student loans you are trapped!

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                • #9
                  Originally posted by TravisRADMD View Post
                  ~1.6X Debt-Income Ratio with a 10 year loan at 3.3%. I am a relatively higher earning doc so the absolute value of the debt seems much more intimidating than the ratio. As a practice employee in what seems to be never ending times of uncertainty the absolute debt value bothers me more than the more manageable appearing DTI ratio. That being said, I am currently paying 1.62X min payment on my loan(~pay off early in 5-7 years) and maintain a 25-30% investment savings rate( Savings rate including loan paydown = ~ 45-50%). This leaves me with just enough to pay the rent, car bills and utilities and maybe a couple thousand a month for variable expenses. I'm spreading myself thin but the goal is to be aggressive out of training for the next 5 years and F.I. in 10-15.

                  My question is should I maybe funnel more funds to the loan with the goal of paying off debt in under 5 years? Or maintain the status quo of a 5-7 year goal? However any change would be at the expense my investment savings rate which leads back to a more redundant question. 401K, Roth and HSA are fully funded. Does the 3.3% guaranteed loss warrant redirecting even more monthly contributions from my taxable account to my loan?

                  Thanks!
                  I guess I don't get how this is not exactly the same invest vs debt pay down question. If everything stays status quo, you will do better mathematically to invest into equities. But you make enough and are saving aggressively so that you have the luxury of paying off early. Personally, after all the usual retirement moves, I'd put half to taxable and half to the debt.

                  It sounds like you are disciplined and have a big shovel--you will be fine with whatever you do. Good luck.

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