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  • Debt free, now what?

    Good morning all! Thank you in advance for any and all help. Myself (39yo dentist) and my husband (40yo physician) and about 3 months away from paying off our student loans (started at $600k between the two of us). While I know that focusing on student loans may not have been the most financially savvy approach, it was what we needed to sleep at night. So here’s where we are now:

    -Income: Husband ~$300k W2. Me ~$200k owning my own practice (I used to be an associate and made $300-400k W2 but in 2019 I opened my own practice and am slowing growing to hopefully replace that income)

    -Debt: $838k mortgage at 3.75% We live in a HCOL area. Bought our house in 2020 for $970, current (crazy) market value ~$1.3mil

    2 cars, no car payments

    2 kiddos ages 5 and 7

    So far what we have been doing is max out our 401k and contribute to 529s and throw the rest at the student loans.

    We each have ~$250k in our 401ks and our kiddos have ~$28k (7yo) and ~$16k (5yo) in their 529s

    What do we do now?
    -Should we continue to contribute to 529s or just focus on catching up in our retirements?
    -Any reason to pay any extra on our mortgage?
    -We both have small IRAs from back in residency ($16k and $8k). Should we convert them to Roths, pay the taxes now in hopes that the back door Roth option continues to exist for us to use in the future (am I even understanding how that works correctly)?
    -I know the number is different for everyone but what is a super general ballpark goal for our retirement savings? I’ve seen numbers in the $2-5 million range. What is a good target if we want to retire comfortably but don’t live crazy lifestyles and don’t care a whole lot about leaving a lot behind?
    -Anything else I’m not thinking about?

    Thank you so much for any help!!!

  • #2
    $2-5m is a start but also broad. I’d make a smaller range. We live in a MCOL area and target $4m and paid off house by age 55.

    don’t convert that IRA due to high income. I take it you haven’t been doing backdoor Roth IRA due to paying off student loans (strong work, congrats!). You’d be taxed at a high rate so I’d roll those IRA balances over to your respective 401k. Then start doing the backdoor Roth.

    you need to save at least 20% of gross income for retirement. If you are self employed you need to make both employee and employer contributions. Your husband should make his employer contribution and count any employer match towards the 20%. Figure out if his 401k allows for the mega backdoor Roth IRA. Is a 457 available to him? If he has neither then you are maxed out for tax advantaged space and need to contribute to a taxable account to get to 20%.

    after that you can to chose whether to save more than 20% towards retirement to get you to financial independence sooner or pay off that mortgage faster. Or with your high income anything beyond 20% should go 50% to mortgage and 50% to to taxable


    • #3
      1. Do you have sufficient term life insurance and own occupation disability insurance in place for both of you?
      2. You make roughly $600K per year combined. Are you putting at least 20% of gross income towards retirement? That’s $10K per month into 501(k)s, 403(b), back door Roth IRA, and taxable brokerage account for retirement. Money into 529s, HSA, debt payoff all are on to of that 20% towards retirement.
      3. Bite the bullet and conversion the small traditional IRAs to Roth. Proceed with $6K per spouse back door Roth IRA contributions going forward. Your income temporarily is lower than when you were an associate. It should be higher soon.
      4. What retirement accounts are available at your husband’s practice? Are you maximizing all retirement accounts at his job and using the health insurance from his business? Is he an employee, an owner, etc.? Is he paid a straight salary or a percentage of production or collections?
      5. Your biggest opportunity to increase household income probably is your dental practice. Do you have a practice acquisition loan? If so, how much do you owe, interest rate and term? Do you own your building or suite or are you renting? How many operatories? Any associates? How many hygienists? How many days per week are you open, how many of them are you working clinically, how much CEO time are you productively work on the business instead of just working in the business? There’s a limit to how much dentistry you can produce with your own two hands. (It’s a lot higher than you think. There are some rockstar surgeons and clinicians out there producing over a million a year with their own two hands.). But you can produce a lite more by working through others if you have sufficient operatories, associates, hours, marketing, locations, etc. You may want to see your husband and kids more rather than working utterly crazy hours or personally working three or more columns of production. But if you’re driven to grow the business, you can go much farther as an owner than as an associate.
      6. On the personal finance side, most things look good. You may have missed a chance to refinance the house a bit lower, but 3.75% is historically low. I’d keep paying the minimum as long as you’re willing to invest the difference. Florida has excellent asset protection for a primary residence, so not the end of the world if you want to pay more on the house. Consider a sinking fund to replace one or both of the cars eventually. Maybe start paying more into the 529s once your own student loans are paid off.
      7. As far as how much to save for retirement, the amount you aren’t saving effectively is the amount that you’re spending each year. You’ll need to grow to 25 to 30 times the amount you plan spend each year in order to retire. Florida still has hurricanes. Homeowners insurance, property taxes, and HOA fees will be significant housing costs in retirement. You’ll need to replace the roof and the HVAC a few times during your lifetime. You may want to travel. There will be healthcare costs. Don’t plane for retirement spending to be much less than today’s spending (inflation adjusted of course). A safe withdrawal rate is 3 to 4%. 3% of $2 million is only $60,000 per annum, or $5K per month plus Social Security. 4% of $5M is $200K per year. There’s a range of reasonable estimated returns and safe withdrawal rates. You don’t want to be a miser, but you don’t want to get this wrong and save too little for retirement (or live too little between now and retirement).


      • #4
        To figure out a rough nest egg number you need to project your expenses for when you retire. If you retire at roughly 60+ the number is 25X expenses. If you retire earlier then 30X. I would track expenses now. You have some stuff that will drop off as you approach retirement like disability and life insurance. You will pay off your house etc.


        • #5
          I second needing to know your expenses now and projected expenses in retirement. Once you know that then you can just work backwards to see how much you need to save.


          • #6
            JBME is right about rolling the IRA into a 401(k) instead of con erring it. The balance is small enough to bite the bullet now if you need to, but better to roll his IRA into his 401(k) at work.

            As for setting up a 401(k) and potentially a cash balance plan at your work, there are great opportunities with practice ownership.

            Your highest ROI probably is a CE course to add procedures that interest you that you aren’t doing yet in your practice. Invisalign, molar endo, sleep and airway, third molars. Find something you’re passionate about, learn it well, market it and do it. Hire an associate with complementary skills and experience. Someone who does high quality work in an area you don’t have as much experience (or would prefer to have someone else do).

            Carefully consider the specialists to whom you refer. What are you comfortable doing under your roof? What always goes to the oral surgeon? Do you want to have a specialist come into your office a few days per month vs. always referring advanced procedure out? Lots of different ways to make things work, but as the practice owner you’re responsible for what happens under your roof and for making sure there’s correct diagnosis and treatment by someone with appropriate training and experience. Know what you’re comfortable doing, what you aren’t comfortable doing, and accurately and consistently know what category a given patient’s situation falls into. You can do 30% of endo and refer 70% out. You can do 70% of endo and refer the hardest 30% out. You can refer every root canal out. Your call, as long as you diagnose it and recommended the patient have the appropriate doctor treat it.


            • #7
              Thank you all for taking the time to answer so quickly!

              Here are some more details.

              We each have $3,000,000 term life insurance policies.
              Disability insurance: I have a plan (or really combination of plans) that will pay $14,715 monthly benefit. He has $10,650. So I think (?) we're pretty good for life and disability?

              My husband is a W2 employee. His contract is set up as a percentage of collections. He gets a set amount every 2 weeks and then they true up at the end of each year. He currently contributes his full $19,500 and is employer does a 4% match (~$12,000).

              My practice is a scratch start. Initial loan was $550,000 at 4.79%.
              I have a 401k at the new office and in 2021 put in my $19,500 right at the end of the year just to not miss the opportunity. We will hopefully be profitable enough this year that I will sort out matching myself (we also have a profit sharing component to our 401k that I need to understand).

              I am a pediatric dentist and have a partner who is an orthodontist, no associates. Right now clinically he works 1 day/week and I work 2. We have been running 3 columns and have just this year opened our 4th and are starting to fill it. We are fully equipped for 7, but I don't think I will ever run that many alone (although I did in my associate position). Assuming finances work out my ideal plan would be to work 2-2.5 days per week clinically running 4 columns (maybe 5 as overflow). Beyond that level I would start looking at adding an associate. I do all the admin (and our partnership agreement accounts for this) but so far have been able to mostly do it at home while my kids are at school.

              My husband gets his health insurance through his employer (they pay half, he pays half)
              The kids and I are on my plan through my office (I pay $885/month for the 3 of us)

              We have a 3 month emergency fund in place.

              My car is relatively new/nice, but my husband drives a 2011 Prius with 188K miles on it, so a new (to us at least) car fund is definitely a short term priority)

              It sounds like my next steps are:
              - Investigate what opportunities we're missing with my husbands retirement options (rollover IRA into 401k, mega backdoor, 457 etc) and mine (cash balance plan?)
              - Figure out what we truly "need" to live off of and start doing some math to set our goals


              • #8
                Fyi the employee contribution for a 401k this year went up to $20,500


                • #9
                  With a combined income of $500k and likely to grow, the minimum to save for retirement is 20%. The question is actually for you both, how do you want handle the remainder?
                  Gross - taxes - retirement @20%= Spending. If you want to work to full retirement, that is fine. However, carving out and additional 10% will serve you well. Because of your focus on student loans, I would suggest a back of the envelop calculation of how much you are short in your retirement savings now. Use an additional 10% to catch up and then decide if it is feasible to continue. I don't see the Medicare age 65 being lowered. I don't see any advantage to claiming Social Security earlier than 70. As far as the delaying RMD's I would not worry about that. It will be what it is.
                  The unknowns are both of you desiring to retire early or to keep working. Hint, there is a ton of advantages by being perfectly happy with your work until 65 built into the system and delaying withdrawals until 70.
                  Actually, I disagree with CordMcNally , you don't need to know the projected expenses. You will need to live on what you have. Same result however, you won't run out of money and likely your kids will inherit and nice piece of wealth. That is because you will have to plan for the worst case.
                  Catch up on the 20% and see what you are looking at.


                  • #10
                    Great job!!

                    As said, if you can love off 3-4% your nest egg per year, you will “probably “ have enough to retire.

                    3.3% is what use as a safe withdrawal rate but many variables.

                    Great job so far!

                    Keep saving!


                    • #11
                      Originally posted by JBME
                      Fyi the employee contribution for a 401k this year went up to $20,500
                      Also the 2022 employee compensation eligible for a match is $305,000. If your husband is productive enough to hit $305K this year, his 4% match would be $12,200 this year.

                      Is your orthodontist a 1099 or a W-2 employee? Does he value saving a large amount annually towards retirement? Two high earning specialists working in the same practice would drive quite a lot of profit share and cash balance contributions for both of you, plus some towards the employees. If you and the orthodontist both are on the same wavelength about valuing total compensation (and lowering taxes), then it can be fine to make large retirement contributions for both of you. If he only wants beer money today, then you’re going to pay a pretty penny to be able to make your own contributions and he won’t appreciate the money going towards his profit share and share of the DB plan. (Ants and grasshoppers, possibly somewhat lower W-2 compensation in exchange for lower taxes and higher total compensation, that sort of thing.) You might find a hygienist or office manager who appreciates the retirement plan compensation, but it tends to be rare for non-dentist employees in a dental practice.

                      Anyway, it sounds like you have most of your ducks in a row. Need to figure out what your annual spending is and how long you intend to work to determine how much you need to save for retirement. Also, dentistry is physically demanding. Even if you plan to work until you’re 60, you should arrange your finances so you could retire by 50. You have your disability insurance, but most policies stop at 65.

                      EDIT: If the orthodontist is a true partner / co-owner, then you definitely both need to agree what you’re going to do for 401(k) profit share and cash balance plan. Also, the possibility of dropping the health plan at your office and putting you and your kids on your husband’s group plan probably goes out the window if your orthodontist partner is leaning on a group health insurance plan at your dental office for his own health insurance.

                      A good business partner is a force multiplier, especially for complementary specialties like peds and orthodontics.
                      Last edited by Hank; 04-02-2022, 12:15 PM. Reason: OP said the orthodontist is a partner


                      • #12
                        WCICON24 EarlyBird
                        All of the above is great advice.

                        You will be in early to mid 50s with children going to college. It is hard to estimate the costs now. But if you want to pay for school for them , based on todays rates of college would expect at least 50-100k per kid per year. I would make sure you have your personal interests, such as retirement addressed before interests of your kids. Now is also the time to start building a non retirement cash / equity buffer which you can dip into latter in life for college , and paying off the house , because I am sure you dont want mortgage payments when you are 65 or 70. I would put addition money into this account rather than paying down the mortgage early. Having a large non retirement account in 10-15 years will put you in a good place an open up options for early retirement letting your tax advantaged accounts grow untouched in the future.