Trying to increase Financial Literacy before residency - Help with Plan!

[Matteo]

First off, I sincerely apologize if I come across as a novice. I've been voraciously reading the WCI blog, WCI book, Bogleheads wiki in attempts to actually understand some modicum of financial literacy before being engulfed in the storm that is intern year.

Incoming IM intern with plans of doing fellowship

ASSETS (currently):

Checking: 15K

BOA MMA: 5K (this was dumb of me to do back in early medical school), earning pennies a month

 

LOANS

Federal Unsubsidized: $50K at 5.84% (fortunate to have parent help and merit scholarships)

 

Budget in HCOL City for Residency:

Take Home: ~$3500/mo
Rent: $1425

Utilities: $100

Parking: $170

Gas: $60

Groceries: $200

Entertainment/Eating Out: $400

Disability: ~$150

Max-out Roth IRA: $458

Gym: $50

REPAYE (1st yr): 0

Roth 403b: $300

Discretionary: $187

 

Questions/Planned Actions:

1. Is it smart to do REPAYE instead of standard repayment ($550/month)? My reasoning was that if I use that money for max-ing out Roth IRA + adding to 403b roth, the potential growth over 30+yr would exceed the amount of money I may say by paying off loans in Standard Plan vs REPAYE ($4k difference per AAMC calculator.)

2. I plan on keeping $15K in checking for E-fund, getting rid of BOA MMA and instead placing that $5K into roth 403b since I will be nowhere near maxing that out during residency

3. For my roth IRA, I'm probably looking at Vanguard (don't want to have to use a DFA-advisor), interested in passively-managed life-cycle (75%US stocks/25%bonds) or potentially a target date with relatively similar percentages.

4. My school has referred us to a NWM CFP. I'm a bit hesitant to go through him for Disability (first off, NWM may not have the best definitions of "own-specialy/occ", and I believe he is a semi-captive agent). His agency also semi-endorses cash-value life insurance, which sent up red flags immediately. I plan on attempting to get $5k/month DI (non-cancelable/guarenteed renewable, residual disability, own-specialty, FPO for at least up to $10k/mo). Would you guys agree?

5. Since I have no dependents and am single - I don't think that it is necessary I get life insurance at this point. I will be 27 when I start residency, and would plan on getting life insurance at the end of residency (using term4sale.com, 30yr, level premium, >1million)

 

 

Thanks for all your help!!!

[Dr. Mom]

Awesome plan!  Now implement it.  My only comments:

1.  Consider higher stock percentage in your asset allocation at this point.

2. Don't overthink disability. Get a policy and move on.  If it is easier to do NWM, do it. I can't imagine he will talk you into anything.

3. Consider a 1M term life policy now. It's cheap. My husband was diagnosed with IDDM in residency which has made life insurance ridiculously expensive.

Best wishes and good luck in residency. Take as good care of yourself as you are with your finances!

[Hatton]

Great to see a young person really thinking ahead.  Higher stock allocation is fine for now.  I would disagree with Dr. Mom on the life insurance.  As long as you are single with no dependents I would not get it at all.  It would be cheap but you do not have anyone depending on you at this point.  If you get into a serious relationship then that is different.  I never bought any at all because I was already financially independent when my husband came along. Disability is even more important to you now because of your single status.

[Zaphod]

Also disagree on the insurance, NWM is the number one offender for people on here having terrible insurance deals. Otherwise you're starting off pretty good and will probably end up great, I wish I could have found this site before residency (didnt exist!).

[wideopenspaces]

I did nwm for disability in residency. It was only$30/month, own occupation and I kept it after residency since it's so cheap. I'd at least talk to the rep, it may not be as bad as you are thinking. But planning to spend$150/month on disability in residency seems really high. That's how much I pay now as an attending.
Also, does your program not give you access to a free gym? You'll have less time for working out ( and I say this as someone that highly prioritizes exercise and works out nearly daily) than you realize intern year and a gym membership could be a big waste of money. Something to think about ?
Overall you're in great shape!

[Dreamgiver]

For the DI go through Larry Keller, he advertises on this site and he is really good at what he does. Get insurance from one of the main companies for the maximum you can get based on your salary, then exercise FPO later.

[WallStreetPhysician]

Welcome to the forum! It's great that you are starting so early. I would avoid the NWM agent - use one of the agents recommended by WCI.

I'd use a Roth IRA rather than a Roth 403(b) or traditional retirement account, more flexibility to pick the investments you want.

Agreed on holding off on life insurance for now.

-WSP

[Matteo]

Thank you everyone for your help! I wish I had discovered this site earlier!

 

@WallStreetPhysician - I plan on maxing out Roth IRA, and then using the Roth 403b as another source of any other retirement savings since I would be unable to contribute anymore to my roth IRA.

[artemis]

Matteo wrote:

@wallstreetphysician – I plan on maxing out Roth IRA, and then using the Roth 403b as another source of any other retirement savings since I would be unable to contribute anymore to my roth IRA.

Click to expand...

Is there some reason why you will be unable to do a backdoor Roth IRA contribution?

[DMFA]

Why would he do a backdoor Roth when he can do a direct one?

[Matteo]

I guess I could do a backdoor Roth IRA -but I would imagine my roth 403b will have some decent options (with ideally some low ER index funds). And once I leave the program I can roll the Roth 403b over into a Roth IRA?

[DMFA]

You misunderstand me. Artemis above asked why you couldn't do a backdoor Roth. My point is that would be irrelevant since you can make direct contributions because your income is low enough. The only purpose of "backdoor" Roth is for people who can't make direct Roth contributions, either because their income is too high or they're married filing taxes separately.

Unless your Roth 403b is matched, I would put it into the Roth IRA instead. You have more control over it and can even withdraw principal without tax or penalty, should you absolutely *need* it (though you shouldn't touch it). After that you could use the Roth 403b. Even if they do have some institutional funds in the 403b, you're likely only to save maybe $3 for each $10,000 invested (I.E. from 0.05% to 0.02%).

Either way, you should roll any Roth 403b money into a Roth IRA when you finish employment there.

Seriously, though, at those low amounts, it doesn't make *that* much of a difference, as long as you put it away somewhere into fairly decent positions. The most important things about residency are your medical education, your sanity, trying to have a personal life, and not digging yourself into a worse financial hole.

[Matteo]

^ Thank you for your response! I still have a lot of personal finance to learn. Although, I am a bit confused - I would already be maxing out my Roth IRA at 458/mo, and the remaining savings would be going into my Roth 403b at 300/mo.

 

Is it possible that the potential of opening up another Traditional IRA to place the remaining $300/mo - and than converting into a Roth "Backdoor" IRA would simply be a tool for me to increase my contributions over the conventional $5500/yr?

I realize this is probably a discussion of semantics and may be less practically useful - but it's helping me learn!

[VagabondMD]

+1 for avoiding the NWM insurance dude. In the long run, you are better off steering clear of them. I would use a WCI-approved agent and have personally used Michael Relvas in the past and would whole-heartedly recommend him.

Sounds like you have a great financial head start, and I expect that you will do very well.

[DMFA]

At $458.33/month into Roth, you max out your IRA contributions for the year. You only get $5,500 to contribute to *all* Roth and Traditional IRAs for a tax year. Hence you have $0 leftover for Traditional.

If you already had money elsewhere that you were rolling over to an IRA or converting pre-existing Traditional IRA to Roth, then you could still do those so that you ended up moving more than the $5,500 contribution limit into Roth IRA, but those are not *contributions*.

Rollovers and conversions to Roth IRA do not have a limit, but the money has to come from a retirement account somewhere (e.g. 403b, Traditional IRA).