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Where to put new savings money?

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  • Where to put new savings money?

    I am an intern heading into radiology. I'm 32 now and I have around 6 years of training left. I am currently on PAYE with $300k in student loans at 6.8%. My ideal job after after fellowship is one that qualifies for PSLF, but it's obviously way to early to know if I will be able get a job at my chosen institution when the time comes. If not, the odds of getting a PSLF qualifying job in radiology I'm assuming are pretty low.

    I am also fortunate enough to have a spouse who will make at least double what I do for the foreseeable future. We live below our means and would not have a problem maxing out our 401k/403bs and two backdoor roths.

    Option 1 is to max out our retirement accounts now and put any extra savings into a taxable side fund to lump sum a portion of my student loans if PSLF blows up.

    Option 2 is to put a larger portion of savings in the side fund and partially fund our retirement accounts. This year I get a 3% match in my 403b, but the following years I don't know since I'll be moving to a new institution. Wife gets up to $1200 match per year, which is not guaranteed, and is not fully vested until 4 years of service (likelihood of her staying with the same company that long is relatively low, vesting increases by 25% each year). Since the taxable account would have a much shorter time horizon, the asset allocation would be a lot more conservative, and we'd be forced to put bonds in our taxable.

    Option 3 is to forget retirement and put it all towards student loans since the interest rate is a ridiculous 6.8%.

    Since I am a few years older than most interns, I'm inclined to take option 1 to get as much money in our retirement accounts as possible to let the miracle of compounding work. I don't like debt, and would normally pay it off as soon as possible, but with PSLF still on the table, it doesn't make much sense to me to be putting extra money toward the student loans at this point. Any other factors I should be considering? What is the best strategy to hit a net worth of zero as soon as possible?

    Thanks for the help

    Pierre

  • #2
    Well, you have a 6.8% guaranteed return on loan payoff (assuming you have to pay). I think you need to determine what the drop-dead date is for giving up on PSLF - 6 years + what? If you don't get your chosen institution. how long will you hold out hope and try? That will help you begin to formulate a plan.

    Don't know your tax bracket and if it makes sense to go for the tax deduction - this may be a time to contribute to a Roth 401k if the option is available to either of you. Your time horizon for the taxable fund is just beyond what I would consider liquid territory (5 yrs or less) so I would recommend at least part in a diversified equity mutual fund/etf portfolio. Would not be comfortable with bond funds.

    Best strategy is to live on a shoestring, max out retirement accounts (jmo) and save as much as possible for the chance that you'll be paying your loans off yourself. 6.8% is a merciless rate in this environment so I hope you get your PSLF.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      MAX out ret plans without doubt

      the loans will get paid off

      being an md has already cost you yrs of compounding which is the 8th wonder of the world

      personal money-muni bonds

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      • #4
        Your odds of finding PSLF qualifying jobs are high.  Most hospitals are nonprofit.

        Saving in a taxable conservative fund for 5 years out, include a combo of series I bonds, high yield CDs, short term bond ( munis or not , depending on your tax braket. ) fund.

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        • #5
          When I initially started investing in this account I just went with Vanguard Total Bond Market Admiral (VBTLX, 0.07) for simplicity sake, preferring the three fund portfolio, even though I knew it was tax inefficient. My marginal tax bracket is 15% and the wife is 28%. We are sitting on less than $100 in short term capital gains in VBTLX in our taxable, and it is still pretty aggressive at around 80/20 equity bond split. I'm thinking it might be a good idea to switch VBTLX for Vanguard Tax-Exempt Bond Index Admiral (VTEAX, 0.12) and do some tax loss harvesting to bring us into a more conservative asset allocation. Any thoughts? Is there a different fund you would consider? I would prefer to keep it simple.

          When I first started investing I was considering all our accounts as one AA, but I think it might work better for us to consider this one account separately, given the significantly different time horizon. Does anyone else do this?

          Thanks again for the help

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