What Would You Do? - Post Residency Planning

[djjones]

What would you do in my situation?

Background

• I'm a Physical Therapist (~$80k/year employee) that's married to a 3rd year EM resident.


• My wife starts her 1st job in Oct 2016 as an independent contractor with estimated gross income of ~350k/yr.  Residency has been very difficult and she doesn't foresee herself doing EM for long. (FT for 2 years, PT after that)

Current Financial Situation

• Have a 3 month emergency fund


• $40k in savings for house down payment/potential car purchase


• $50k in employee retirement accounts (Roth IRA, 401k)


• $10k in HSA


• -$40k in student loan debt at 6.8%


• No life insurance, disability insurance, etc.

Goals:

• Protect our assets somehow


• Pay off student loan once we get her sign on bonus ($100k)


• Get a house ($150-$250k)


• Have kids in a couple years


• Minimize taxes & increase our 65% savings rate (currently 65% on $140k/yr combined gross income)


• My wife to cut back to part time or less when kids come around

Questions

• Recommendations for life insurance and disability policies given that I will work more than my wife...yet will make less money. Do I get the policies in her name, mine, or both?


• Solo 401k the way to go?


• Any other recommendations appreciated.

I apologize for the lack of brevity & appreciate your advice.

[LBKCLU]

As far as disability insurance, you would each purchase your own policies to protect each of your incomes. If you happen to be a Doctor of Physical Therapy, the policy for you to purchase would be Standard Insurance Company. For your wife, if she has access to a unisex rate and discount via her training program, she should look to take advantage of it. This would most likely be through Principal or a Guaranteed Standard Issue (GSI) program.

Your wife could purchase $6,500 month-$7,500 monthly benefit regardless of her earned income if she is in the last 6 months of her training. She can potentially purchase more if she provides the insurance company with a copy of her independent contractor contract including the amount she will be paid hourly, the minimum number of hours she is expected to work and any shift differential that she might receive.

Once she has the policy inforce, even if she subsequently decides to work Part-Time, she can keep the benefit amount. If she decides to purchase coverage when she is working Part-Time, she will be very limited in terms of what she can purchase and the coverage amount.

You should also each have level premium term life insurance. Since you don't have children yet, most likely 30-Year Level Premium Term policies.

Although you will probably pay it off quickly, you might consider refinancing the $40,000 of student loan debt and keep the cash from the sign on bonus to accomplish other things.

Yes, I would think a solo 401(k) or SEP-IRA would make sense for her in terms of retirement savings.

 

[jfoxcpacfp]

Actually, that was a very well laid-out set of facts. I'll defer to Larry's recommendations on insurance - he's the expert.

Definitely the SOLO-K for your wife. The SEP is limited to a % of her income and she'll be able to get more into the 401k. The best time to use a SEP is when you need to set up and fund a plan for the prior year because you have until 10/15/20xx of the following year to do so.

I agree with paying off the student loan. You're doing a great job of saving. Given your short-term goals of starting a family and your wife moving to part-time, it would be a good idea to get an outside opinion on your plan, along with some projections, from a fee-only financial planner.

[Hatton]

Your wife may feel differently about things when she finishes her residency!  Hopefully she will like her job.  Of course it makes much more financial sense for you to go part-time when the kids come. I would be very careful about buying a house until your wife starts her new job and determines if she likes it.  If she is adamant about going to part-time or even quitting when children come then you two need to really live like residents and save as much money as possible while she works.  I say this as an OB/GYN.  I do not have children because I married late in life. Most of the other female OB/GYN docs that I know have husbands who stay home with the kids when they are young.  EM seems to be a great specialty because of the flexibility of "shift work". I really hope that your wife is just having a tough time in residency but will be happy out of school.  Everyone has to find their own path.

[Zaphod]

Luckily, she will most likely feel totally different once out in the real world. The difference between residency and practice could not be more stark, its really something. Usually what makes a bad residency is the people administering it, and that will for the most part be gone. She will be treated entirely different and the night/day from worthless grunt to respected team member will be shocking. Plus, it helps to make an amount of money commensurate with the difficulty of the job, it really does.

Most importantly, if she really disliked it, the goal should be to absolutely work full time for a longer period to be completely FI and then just cut back to the extreme. I think itll be a lot better once shes there and making some money.

Itll be hard to increase your savings given your tax rate, but the only real way to do that is a defined benefit plan of some sort.

Dont buy too much house.

[docnews]

Great post / financial plan Jones.

I've heard for EM Ameritas is the best for disability. I'm not sure if this is gender specific (I'm a male). Thoughts LBKCLU?

solo401k seems the best option (probably the best benefit of being an independent contractor)

FYI most mortgage loan providers (including most doctor specific programs) will not consider independent contractor income until having it for 2 years. In my area only Suntrust is willing to work with me. But in my situation my wife has limited income, so you could probably get a loan based on your income.

Tell her nice job on the sign-on bonus! That amount is incredible. Any major strings attached like a longer commitment which could hinder her desire to go part time?

[Bott1637]

In no particular order:

1. Presuming you aren't going for loan forgiveness I'd refinance the student loans first, rates are only going to go up from there.

2. This is your last year before jumping up in tax bracket significantly.  You'll only have a few months of attending salary on this calendar year so I'd role over the 401(K) into the ROTH and take the tax hit.  I'm always wishing I had more ROTH than conventional space.

3. Yes Solo 401k the SEP would mess up your ability to backdoor ROTH each year.

4. Call someone like Larry to get a full insurance plan in place regarding both the disability and term life stuff.

5. Rent initially while she settles into practice and you decide when kids are coming.  All the while saving for a down payment.

6. Sit back and smile when she's coming home telling you how she can't believe the difference between residency and being an attending.  There are still plenty of days that suck but the difference is immense in a positive way.

7. Take a nice vacation with some of the signing bonus.  Money spent on an experience is way better than something material like that car.  You are in excellent shape financially. Its OK to reward yourselves for surviving residency.

[RetiredERdoc]

The thing about ER is that all hospitals/ers are different. She can practice in a high stress level 1 trauma center, or a laid back community er, do locums work or even go the urgent care route. Course she won't make as much in uc, but some of the small ers might have trouble hiring docs so she could make lots of $$ there. (Unless you are talking her going to pt to raise the family). It might take a couple of job switches to find the right niche, but she should be able to find a job that will be financially and emotionally fulfilling.

[LBKCLU]

Ameritas can work well for female ER Physicians if a Guaranteed Standard Issue (GSI) plan is available with unisex rates and a discount. Unfortunately, these are very rare and short of a few grandfathered plans at specific hospitals, Ameritas no longer offers unisex rates.

Otherwise, female resident physicians should look at Principal if a unisex rate and discount is available (which is common in the majority of teaching hospitals) or at Standard's Guaranteed Standard Issue (GSI) Graduate Medical Education (GME) plan, if available. The options will vary not only by state but also from institution to institution.

Standard's Protector Plus policy can work very well for male ER Physicians as it includes both a true "Own-Occupation" definition of total disability in addition to full coverage for mental/nervous and/or substance abuse disorders (this policy is very expensive for females as unisex rates are not available). Otherwise, Berkshire (Guardian), MetLife or Principal would be my top choices depending upon the individual's needs, goals and budget.

MassMutal can also work well if a unisex rate is available or if the insured might want to reside overseas in the event of a disability (and is a Green Card holder or United States Citizen).

[G]

I'm sorry your wife hasn't liked her EM residency.  Just to warn her: I actually found that things were fairly un-enjoyable and VERY stressful during my year of locums gigs right out of residency...and I also found that the so-called "slow" community gigs were still ulcer-generating (didn't know the system, didn't know the nurses, didn't have backup, didn't know the privates, and "real world" patient care is sometimes a LOT different than the ivory tower).  However, after 2-3 years of seeing different systems and seeing more patients, I got good at the game and now things are easy!  I've read that it takes around 10,000 hours or 10 years to become an expert at something.  There's obviously plenty of financial advice around here, but just let your wife know that things get better!

[wbenutley]

It’s sad to hear that your wife had a bad experience in her ER residency. This is consistent with what I have heard from a female ER doc who I have served for the past couple of years. She’s now looking for a position in telemedicine after trying her hand at the ER thing in a couple of different settings.

You want asset protection. One easy way to protect yourself from personal liability is to get a personal liability “umbre” policy or PLUP. Think of your PLUP as insurance against many of the other perils that cause lawsuits beyond your work as a physician. Since the PLUP wraps around your other coverage (auto, renters, etc.), begin shopping with your auto insurer.

You have a Health Savings Account (HSA). Don’t spend it! Instead, move it somewhere that it can be invested to grow for all the years to come. You might try HSABank.com, which allows for a brokerage window into TD Ameritrade where you can buy Vanguard funds or ETFs, or try HSA Authority which offers decent funds and less administrivia.

Remember that your sign on bonus is taxable, so set some aside to pay the taxes due. Most of the ypung physicians I have served are blown away by their first major tax bill, so you might want to begin doing your tax planning now by either finding a CPA who can help, or by using online software liek TaxAct to run a rough calculation for a fraction of the cost.

If you choose Vanguard for your Solo(k), you can save some time by calling their Small Plan Retirement Solutions division directly at (800) 992-7188.

Physician Family Financial Advisors Inc.