How are we doing?

[SWEng]

Hello everyone! I've been following WCI for a while. The book was one of the first books I read on investing. I learned a lot of things here and took some actions based on that. Here is my story.

My wife is a FMG (foreign medical graduate) and PGY1 internal medicine resident. I'm a software engineer specialized in software for medical devices. We are 38 and 42 year old immigrants with two kids - 1yo and 7yo. Last year we achieved a big thing - my wife got residency (it became super competitive for FMGs, so it's a big deal). Almost all our savings went to obtaining residency - USMLE exams, observerships (shadowing in a residency program on the other side of the country), application to 200+ programs (as a FMG you have to apply broad), interviews... Anyways, that went well, so it's time to think and plan for retirement.

DEBT:

• no credit card debt, no student loans


• car loan $14K @ 3.7% (just bought out our lease)


• mortgage $67K @ 3.25% (this was our primary residence for 5 years. We moved out of state because of my wife's residency, so we are renting it out now). Paid $125K for it in 2011 with 20% down. Now it's worthy $180K-$200K

INCOME

• W-2 $130K + $50K (my salary was about 40% lower until a couple of years ago, but moving from h1-b (work permit) to green card changes things


• my 1099-MISC income varies. Last year it was $250, two years ago it was $28K. This year so far $0. We don't count on it, but if I find something - great.


• rental pays for itself and generates some extra income that we keep in a repair fund.

INSURANCE:

• $1M term life insurance (20y) for me


• $1.5M term life insurance (20y) for my wife


• $5K/month disability insurance for my wife


• $20K emergency fund

INVESTMENTS:

• PORTFOLIO TARGET - 55% US stocks, 15% Int stocks, 25% bonds, 5% REIT


• $44K in 401k with ADP (50% State Street S&P 500 Index, 25% State Street S&P MidCap Index, 25% State Street Russell Small Cap Index). poor selection of funds with outrageous fees. they offer 401K Roth, too, but I'm not contributing to it.


• $117K in traditional IRA with Fidelity (37% FSTVX, 23% FTIPX, 40% FSITX). Plan to open Solo 401k and roll it over there, so I can do backdoor Roth IRA when time comes.


• $5.5K in IRA Roth with Vanguard (100% VNQ)


• $11K in traditional IRA with Fidelity (spouse) (100% FNCMX). Plan to convert it to IRA Roth before my wife moves to attending salary.


• $8.5K in 529


• $11K in HSA


• my wife will be eligible for 403b in July. plan to contribute 18K/year

Starting with this year we will contribute max to 401k, 403b, Roth IRA, HSA and flex DCA (pretax dependent care account ) which is $58.75K per year. We plan to contribute as much as we can to 529. My wife plans to do critical care fellowship, so she'll be in training for another 4-5 years. After that we plan to settle down and buy a house (<$400K). We travel abroad to visit our families or fly them here every year. We are doing one vacation a year (FL or Caribbean). We've never had credit card debt, but we used 0% APR for 18 months once. We drive 2 Subarus and don't plan an upgrade to a fancy car.

We used to live in HCOL, but we are in LCOL now. I brought my job with me when we moved and work from home, but if I lose my job finding a local position here would be tough and it would mean going out of medical devices industry and 30-40% salary cut. It seems like my job is secure for the next 2-3 years, so I don't worry about it too much, but you never know. I plan to start my own business and do consulting by the time my wife is done with the training.

I think we could have done some thing better (contribute to IRA Roth earlier and max 401k contributions) had we known better, but overall I am ok with where we are. We had a late start, so we have to be very smart from now on. Our goal is to have $80K-$100K/year in retirement.

Your comments and suggestions are more than welcome. Did we miss something? Should we invest more aggressively? Should we invest in different index funds? I appreciate your time and help. Thanks!

 

 

[WealthyDoc]

I want to make sure I understand how much you actually spend?  Have you tracked a budget?  Are you saying you will make 180K and save 59K each year?  If I read that right then you will spend about 10K/month going forward?

[SWEng]

Our take home pay after taxes and these savings is about $6K a month. $2.5K a month goes for rent and child care (DCA allows $5K a year, but we spend $18K a year on childcare for two kids). Next big hitters are travel and food. I've been tracking our spending for the last 5 years. We had a lot of expenses in the past that we will not have from now on, so I expect to save up to $10K a year from our take home pay. That money will go to 529, car loan pay off...

Once my wife is out of training (4-5 years) her salary will go from $50K to  ~$180K or more depending on where we will live. We don't plan to change our lifestyle when that happens. Thanks for your time!

 

[FIREshrink]

I think you're doing quite well with a good plan. Saving six figures annually will guarantee your future success if you don't do anything stupid.

I wonder about that rental. Is it really a good investment? What is your rental income and what are your expenses on it each year? interest, taxes, insurance, management, repairs, maintenance.

[FIREshrink]

WealthyDoc wrote:

I want to make sure I understand how much you actually spend?  Have you tracked a budget?  Are you saying you will make 180K and save 59K each year?  If I read that right then you will spend about 10K/month going forward?

Click to expand...

taxes?

[SWEng]

Thanks for your feedback FIREshrink!

Rent is $1540 a month.

Expenses on monthly level: mortgage $650, HOA $250, mgmt fee $120, insurance $20, property taxes $275. Total: $1315. Interest is about $2500 a year.

Last year was first year of renting so most of repairs were code work. No repairs so far this year. All appliances are newer, except for furnace.

 

 

 

 

[FIREshrink]

Your rental and mine have almost identical rates of return net of expenses. They're not great investments. I only keep mine because our area has seen rapidly increasing home prices and rents, but I'm still not sure it's a great long term investment compared to the alternatives. For me it's a very small part of our portfolio so it doesn't matter much whether we keep it or not. In your case, especially since you live out of state, I'd consider whether you really want to continue to landlord or whether you'd be better off selling and investing the money in a more diversified way.

[SWEng]

Thank you for your feedback FIREshrink.

Our rental is in a big university town, that is in top 10 places to live in US according to all lists Demand is huge. Last year when we decided to rent it out, houses were being sold without being seen. People would make offers based on photos from real estate agents. No time to go and see property. Everything was going above asking price. When our neighbors and friends heard that we were moving almost everyone told us that they have someone that wants to buy in that area. Property management agency found a tenant in a couple of days. Current tenant plans to stay there for at least 5 years.

We bought it when the market was at the bottom. Property management agency has been doing a great job so far, so being out of state is not a problem, except that it costs 8% of rent. We love that place and we may go back to live there in retirement. It doesn't cost us to rent it out and rents are going up. Now there is that thing called opportunity cost...

We are coming from a culture where you live within your means and don't go in debt, and stock market is seen as a gamble. So, from that perspective a rental property is less risk than putting money is stocks. Even if the market crashes, the university will still be there and our place will be rented. That's the thinking behind the decision to rent it out. I would still like to hear what others think and see what can we change.

Thank you for your time.

[StarTrekDoc]

Rental is fine and in your mind the risk is fine too with good cash flow and appreciation. If it's a really good area and low risk of calls, you may want to tighten the management contract. If you know the handyman use them as your go to occasional call out and pay an additional fee for retainer and coordination. If you don't have one, ask a good realtor to assist and finders fee...In low risk University town, it will do fine and save the dollars there.

You're already in re, so the reit is doubling down on the portfolio.

You're renting for 2800 in lcol area? That's a little wonky. Can you clarify that part of the expense?

The yearly travel spend appears to be your biggest expense. Cruise and Disney maybe on those agendas given ages. Off peak is key. Vrbo is great way to go in high resort timeshare areas. Go to those timeshare presentations and bring the kid. Listen for one hour and keep shaking your head or just bury your head in the phone. Look disengaged. They will let you go fast. ?

You're on a good track. You mentioned 403b for wife. See if they offer 457b governmental. Or if it's a stable nongovernmental. Maybe an option. Or a deferred Comp plan to do a Roth IRA distribution if an older large public institution.

[SWEng]

Thanks for the feedback StarTrekDoc!
Property management agency handles all repairs (a couple owns the property management agency - wife manages properties, husband is a handyman) and they've been doing a great job so far with reasonable pricing. They talked me out from painting the entire place when we moved out.

You are right for REIT. I'll move it to international stocks. I guess as our portfolio grows we may invest in REIT at some point later.

Rent and childcare are $2,500 per month combined. Our rent is $1,200 per month. Childcare is about $1,500-1,600 per month (infant $1,200, after school care for the older one $300-$400), but we have $5K in pretax money for that.

We have a strict budget for vacation. If 7 days can not fit the budget then we go 6 or 5. We use VRBO often. I setup alerts for lodging and airfare, so most of the time we are scoring good deals. School calendar is a little bit odd here (there is no spring break), so last year we spent 7 days in Sanibel Island, FL the week after Thanksgiving. Traveling abroad or flying our families here is actually a larger portion of our travel budget, but we're as reasonable as possible. We haven't done a cruise yet and don't plan do to it any time soon. I guess we are not cruise people. We did Disney two years ago along with my wife's Step 2 CS exam

Great tips for timeshare presentations

As far as I know it's just 403b with TIAA, but I'll double check. I think that 457b comes with attending salary.

Thank you for your time!

[WealthyDoc]

You are doing great and will be fine no matter what.

Consider:

Beefing up the emergency fund.  You have about 3 months currently.  I have seen doctors lose their job.  They then panic and jump to the first offer.  Having 6 months or a year of expenses set aside can help reduce the panic.

Pay off car loan.  That is "bad debt."  I hoped you learned from the leasing experience and won't do that again.

Consider paying off your mortgage.  Debt of all kinds is overrated.  I don't have debt.  People told me I'm crazy.  I don't care.  I have more cash flow and peace of mind than they do.

Consider front loading the 529.  The best benefit comes over time rather than from small monthly contributions.  Just stay below the gift tax level.

There is a lot more.... get a will.  review your investment fees and minimize them .... get an umbrella policy etc.

You can do these things methodically over time on your own, or pay a fee-only financial advisor for a one time evaluation for a few hundred bucks.

[SWEng]

Thanks for the feedback WealthyDoc!

I'm aware of most of the things from your post. However, we were a single paycheck household until recently and everything that we had went into the obtaining residency. Even though I knew car lease is not the best idea it was the only thing feasible short term. Definitely plan to get rid of the car loan as soon as possible. Some of the things from your post will most likely have to wait for my wife to complete her training, since we have an engineer paycheck and a resident paycheck now

Thank you for your time!