Resident Finances Check Up

[recess]

Long time lurker, first time poster. Just wanted some opinions on my current financial situation and any recommendations from you all. We both love what we do but want to pay off loans quickly and build up a nice nest egg so we can scale back and avoid the pesky night shifts in the future.

 

Personal: Married, no kids (maybe in 5 years?), HCOL area currently but may move for her residency. No immediate plans for buying a home.

Income: his $60k (PGY3), hers $0 (MS4)

Expenses: ~$1500/mo

Loans: his -$100k @ ~5.9% (student), hers -$100k @ ~5.7% (student)

Emergency fund: $40k

Insurance: his disability + term life, hers none yet

Investments: ~$50k (all Vanguard index funds)

- his and hers Roth IRA maxed x3 years

- his 403(b) up to employer match

- HSA maxed x2 years

 

1) Would it be wise to utilize other tax-advantaged accounts available via institution (403b or roth 403b) or pay down student loans?

2) Wife likes to keep a good sized emergency fund, any recommendations for better places than a savings account

3) Thoughts on disability/life insurance for wife when she starts her residency?

[Dreamgiver]

1- I would do Roth into your tax advantaged accts first and foremost. I am not as well versed in current student loan repayment plans so can't comment on that but I'd take your student loan repayment plans into account when developing your strategy

2- High yield online ones, like Ally or such. Probably can reduce your EF a bit considering your current expenses

3-I personally did not get life insurance until I had a house and a kid. Before that I saw no reason. As far as disability I'd probably get a good personal policy in place during residency with the goal of exercising FPO once your income goes up.

 

[LizOB]

1. If you will be eligible for PSLF (or aren't sure) I would make minimum payments under whatever the income-adjusted repayment plan is that count towards PSLF. Your loans aren't so much that you couldn't tackle them quickly once you have an attending salary, if you take a job not eligible for PSLF.

2. Agree on reducing emergency fund- yours is currently 2 YEARS worth of expenses! Most recommend 3-6 months, maybe more in your case if cash flow will be tight with residency interviews coming up

3. I personally did not get life insurance until after I had a baby, however you are taking the gamble that nothing bad will happen to her health between now and whenever she gets a life insurance policy. If you know you want kids (and therefore will need a hefty life insurance policy) it's not a terrible idea to just get it sooner rather than later. Remember there are things that can happen during pregnancy that would affect life insurance rates: gestational diabetes, preeclampsia, postpartum depression. I landed on the winning side of this gamble but in retrospect I think the smart decision would have been to do it a little earlier

[jfoxcpacfp]

Are you living with one set of parents or do you just know how to make stone soup? $1,500/mo in a HCOL, especially with all you've managed to put aside is incredible. Practically speaking, a $40k emergency fund is not that much, it's just that you spend so little. That won't prevent you from needing several thousand for a true emergency.

When Low Interest Rates Are OK

Are you planning on PSLF? If not, I would recommend paying down some debt when you are an attending (and no longer get the student loan interest deduction) before you set up a taxable account. Unless something really goes wacky in your lives, I think you're going to be just fine. The big threat you face, imo, would be disability. I can't comment further without more facts and I rely on a couple of providers for specific advice, but there are some excellent articles on WCI. You might start with the articles below:

What you need to know about DI

Tips from Michael Relvas

[hightower]

There must be other money coming from somewhere or you're not fully aware of your actual expenses.  1500/month in a HCOL area is impossible.  That wouldn't even pay for rent in most true HCOL areas.  Can you give us some further detail?

How did you manage to save 40k emergency fund and put away 50k in investments on a 60k salary for two people?  That's incredible.  You should write a post for WCI about how to live below your means during residency.

In answer to your questions, I think doing what you're doing now in terms of tax advantaged space is good.  The 40k emergency fund is quite a bit for people with only 1500/month expenses.  That's well over 2 years worth of funds.  No need for that kind of cash sitting around doing nothing.  I would shrink that by at least half and either invest the 20k or pay off some of the student loans (really, I don't see why you would need anymore than 5-10k in emergency funds).  Put it in a taxable account and buy shares of a total stock market fund.  You can tap into it any time in the future for things like down payment on a house, etc. The other 20k can remain in an online savings account.  Ally gets 1.2% now and will likely continue to go up as the fed raises rates in the coming years.

For disability and life insurance, I don't think you need it yet.  I bought mine right when I got out of residency and that's what I would advise you to do.  Or wait until you are expecting a child.

[MochaDoc]

hightower wrote:

For disability and life insurance, I don’t think you need it yet.

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I'm guessing he gets this through his residency program.

[MochaDoc]

recess wrote:

1) Would it be wise to utilize other tax-advantaged accounts available via institution (403b or roth 403b) or pay down student loans? 2) Wife likes to keep a good sized emergency fund, any recommendations for better places than a savings account 3) Thoughts on disability/life insurance for wife when she starts her residency?

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1) If you're not pursuing PSLF, pay down your loans with your EF.

2) What's the root of this concern? You all are clearly excellent stewards of money and will soon be a dual-physician couple which is as stable as it gets regarding employment. Dial down the EF once she has a better idea of her residency interview costs. Any residency program worth it's salt should pay for her relocation costs once it's past a certain distance from her current home.

3) Residency programs usually provide some basic insurance policies. She should be fine with what they provide for free.

[Dreamgiver]

In my experience only the residency programs in undesirable areas may help out with relocation costs. That is certainly not the norm and would not count on it.

[hightower]

@Mochadoc Yeah I'm sure his employer sponsored plan is adequate at this point in his career

[MochaDoc]

Dreamgiver wrote:

In my experience only the residency programs in undesirable areas may help out with relocation costs.

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We've clearly had different experiences.

[Zaphod]

MochaDoc wrote:

Dreamgiver wrote:

In my experience only the residency programs in undesirable areas may help out with relocation costs. 

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We’ve clearly had different experiences.

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never even heard of this.