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Last year of residency, looking for some sound financial advice

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  • Last year of residency, looking for some sound financial advice

    Hey folks! The end of residency is on the horizon and I figured I should start getting some things organized before the real world is upon me.

    I managed to save a little money before medical school and therefore after my training, I will have ~$150k in outstanding loans (interest rate of 4.25%).  I'm married and looking at an annual household income around $350-400k, once everything is done.

    I have managed to pay off some of my loan during residency and my wife and I have been putting away ~10-15% per year into our respective retirement accounts.

    My big question is what else should I be doing?  Any thoughts on how to make the most of our retirement accounts while our contributions are still relatively small?

    I am still relatively new to this arena, so any thoughts or recommendations are incredibly appreciated.


  • #2
    It's your last year in a low tax bracket for awhile, so I would suggest you make Roth contributions wherever possible, and switch to traditional, tax-deferred contributions to retirement accounts in 2018 or 2019.
    Make sure you've got disability and term life insurance in place.
    Perhaps most important is to avoid following the herd and buying a huge house, expensive cars, and take only luxury vacations once you're making the big bucks. With that salary, you can easily live on half and reach financial independence and more within two decades.


    • #3
      Hey you can knock out that loan burden in 1-2 years.  Be careful of the hedonic treadmill (see POF blog).


      • #4
        Well, you've come to the right place for good financial advice.  Do as POF says and try to live on half of what you make (meaning, force yourself to SAVE half).  If you do that right from the start and avoid major upgrades to lifestyle, you'll be in better shape than most in no time.  You're lucky to have such low interest rates on your loans.  I would aim to pay those off in less than 5 years and save aggressively at the same time.  Max your 401k's, backdoor Roth's, HSA's, and start a taxable account if you have money left over.  Good luck and congrats on being done!


        • #5
          It goes beyond the scope of your original question, but here is some last-year-of-training financial low-hanging fruit:

          - Ask to expedite the signing bonus/commencement bonus/stipend.  Your tax rate will be higher next year than it is this year, most likely.  If you have a bonus coming from your new employer, do whatever you can to have as much as possible paid in this tax year, since you’ll get to keep more of it than you would if you received it in the calendar year in which you achieve attendinghood.

          - Turn off the Roth.  If you have been making Roth contributions to IRA, consider that you might be making much more money to contribute to this directly in the coming year with a half-year of attending pay.  Also, though you can still legally make Roth contributions to your 401k/403b, you may not want to at your new tax rate.  If either pertains to you, transition your Roth to Traditional contributions in December to make sure you aren’t going to be making illicit or unwanted contributions come January of your final training year.

          - Increase/Decrease your 401k contribution.  You can contribute a total of $18,000/year as an employee no matter the number of 401k/403bs to which you have access.  If you are contributing close to the maximum right now, consider reducing contributions for the final 6 months to make sure you have enough space left to make use of your new employer’s match at your new (higher) pay.   On the other hand, if your new employer doesn’t allow access to the 401k for the first 6 or 12 months of employment, consider using your signing bonus/stipend money to max out your training program 401k while you have access to it, since you won’t be able to fill this space in the latter half of the year.

          - Consider maximizing benefits in your final open enrollment. In many benefits packages, you get to alter your benefits once a year in the open enrollment period, with changes made in October “going live” in January.  Here’s the thing: In your final year of training you can get 12 months of benefits for only 6 months of premiums.  For instance, if there is a vision plan that will give you and your spouse/dependents one eye exam, one set of lenses/frames, and $100 towards contacts every 12 months, the poor actuaries at the insurance company have calculated those benefits based on 12 months of premiums.  They don’t know that you are peacing out in June, so you can sign up for the mac-daddy plan and use full benefits for half price.

          - Look for a free or almost-free will.  Wills aren’t free... unless you rent Quicken Willmaker from the local library and use the enclosed software disc to draft your own document (I speak from experience).  Some employers offer will preparation services as a free perk.  A lesser known fact is that some supplemental insurance policies include a legal plan at a contracted attorney’s office.  In my case, I could sign up for a $50,000 MetLife supplemental life insurance policy, pay $2.50/month for the last 6 months of training, and get a “free” will preparation package from a local estate lawyer thrown in.  Not a bad deal in any year of training, but all the better if you are paying premiums for only 6 months.

          - Buy software.  I believe the days of Microsoft Office for $10 for students are over, but other software companies still allow their products to be sold through campus bookstores for a fraction of full price.  In my program, trainees have access to these discounts.  If you are going to need software, the golden goose is about to stop laying.  You might want to buy ahead.

          - Remember you have (kind of) free transitional health insurance. This may change soon, but as of 2017, if you are taking 1-2 months off between finishing training and starting your next job, you DON’T need to buy COBRA or other insurance now.  You can activate it if you need it within 60 days, then back-pay the premiums.  This only works for the first 60 days, however, so if you are making as especially leisurely transition, you’ll need a different plan in the ACA era.



          • #6
            Max out Roth IRA between now and december, if you have a teaditional ira convert it to Roth this year. Good luck and have fun!


            • #7
              Have an 6 month emergency fund too.

              Determine if you have a house, and/or are saving for a downpayment for one in the next few years.

              Take your SO/family out to dinner. They deserve it!


              • #8
                Interesting post on regarding negotiating higher salary to enable faster loan payoff.