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New attending, lots of debt - pay off debt vs max out retirement?

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  • New attending, lots of debt - pay off debt vs max out retirement?

    I recently read this post on PoF (just posted there this month). New to financial literacy, my wife and I have had several discussions about what our financial goals should be. As a new attending, I will make about 230k per year. We currently have 240k average ~6% Fed student loans and are going for PSLF. We have just refinanced a 25k 8% 10 yr private student loan to a 2.3% variable 5 yr loan. We have about 182k in a 4.5% 30yr fixed mortgage. We owe 50k in a 0% Loan from a friend that needs to go back to them ASAP as they are near retirement. Retirement options include a 403b not matched for the first year then matched up to 3% of contribution per pay period and a 457b but the non-profit I work for was just downgraded by Moody’s to baa3 so we consider this high risk. We agree on maxing our 403b. We agree on paying down the 50k loan in 2 years and maximizing payments on the private loan in case the interest goes up. Our big difference is that I want to put the money we free up from paying those towards retirement funds to make up ~20% of income but my wife wants to only invest the ~8% of income in the 403b (Max it out) and pay off our home loan first because she is worried about stock market risk of crashing again. I would like to get to about 20% retirement savings by maxing the 403b and the rest in a taxable retirement account. Her concerns are valid but I would appreciate some advice as to why either/or might be the better option. Thanks.

  • #2
    I would live on beans and rice and put every penny toward paying off my friend first. Two years!?! Try six months. I'd invest nothing til this was done, this is your highest moral imperative, no vacation and no eating out and no buying anything til this is done. You will feel so much better when this is paid off.

    Don't worry about the variable rate loan, interest rates aren't going anywhere soon.

    Refinance your mortgage if you can, should be able to get close to 3% on a 30 year.

    After paying off your friend you should be able to max backdoor Roth IRAs and the 403b = $31,000 per year plus taxable investing plus pay off all your debts in short order, with PSLF an option for the Fed loans if you want.

    To get to early FI you'll want to save 30-40% of gross asap.


    • #3
      Your wife's concerns really aren't valid to the financially literate and assuming you have a healthy long-term investment philosophy. With no disrespect intended, she just doesn't know enough to make that call at this point. Both of you need to do a lot more study on this site (including the blog) before prioritizing the mortgage at the cost of building retirement. (Stay away from all of the real estate posts for now if you have to choose.) Your goal should be 20% savings rate, as you stated.

      Recommend you both read Simple Wealth, Inevitable Wealth as part of your homework. Overlook that he uses an AUM model as the example for the cost of a financial planner (which is not the point) and focus on the message. Very simple, logical, and reasonable.

      Above advice with the exception of paying off your friend - agree with FIREshrink. Get their money back to them ASAP and make it a point never borrow from friends or family again.
      Last edited by jfoxcpacfp; 09-20-2020, 10:54 AM. Reason: updated bad link
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


      • #4
        You'll get more responses if you edit with an itemized list of earning, debt, & spending.


        • #5

          That zero interest loan from a friend near retirement needs to be gone. It’s not on the waterfall, it might be a higher priority than beans and rice! Just a personal opinion, you don’t have any money for personal benefit (even a match) until that’s gone. It’s not the market or cash flow, it’s the catastrophic risk. Place the lenders interest (friend) above anything personal.
          The waterfall gives you suggestions.


          • #6
            1) pay your friend ASAP, as you said. Like within 6 months

            2) refinance that mortgage...should get it to around 3% or so these days

            3) start investing in your 403b and Roth IRAs for you and your wife. Get her on board with that. It looks like you need to save even more. So while you're maxing those 3 accounts and putting all the rest to the debt, especially of your friend, ask you wife when the market will crash again. Tell her to give you a firm date. Circle that date. When the date comes, see if her concerns were valid. Then make her pick a date for the next crash. You get my point. You are investing for the next ~30 years I assume. During any running 10-year period the market has always been up. Always. Show her a graph of the S&P from 1900-present. Where on the graph, even looking at the great depression, has the market dipped and stayed there? the point is her concerns are not valid


            • #7
              i think OP is going to hear this a lot but that loan to your friend needs to go before anything else.

              i would hit your 403b to the match (free money) when that is possible, build up a little efund like 5-10k, and then do full-on Ramsey/beans/rice until that is gone. agree with other comments target should be 6 months. i would offer them installments of 5k as you get them so you don't get tempted to buy a hot stock or a new minivan w/ that pile of cash.

              it's not really cool to "pay yourself first" when you owe another individual money. if i were the holder of that "note" i wouldn't be at all happy to hear that you were maxing other accounts or doing much of anything until i was paid up.


              • #8
                Welcome to the forum.

                -Pay off friend ASAP 6-12months. This takes highest priority. Friend did a huge favor on helping find your footing. Pay it back with gratitude and nice bottle of something.

                -Refi the 30yr FIXED with cashout as much as possible to lower % -- lock in this rate and revisit when ALL OTHER debts paid and 20% retirement and overfunding other needs already ongoing

                -403b yes - max once two above are done

                -make sure PSLF checkboxes are triple checked and verified annually. Do not want to get surprised on this. high stakes.

                --also plan for the kids as not mentioned in there. Hold off on any lifestyle projects


                • #9
                  Hi all, thank you very much for your advice. We definitely have a lot to learn so I appreciate you being willing to share. We are going to prioritize paying down the friend loan as soon as possible and make minimum payments on the others (also deferring retirement funding) until that is paid off. Then we will move on to the other loans and funding retirement as noted above. Since we just refinanced our private student loan and took a hard credit pull on that, I do not know if it would be best to wait on refinancing the mortgage so we don’t get penalized due to the recent credit pull.


                  • #10
                    Hey man sounds like you have a great plan now. I wouldn't worry about having one hard credit pull recently- it will only ding your credit score a couple of points, assuming you didn't have other recent credit pulls for credit cards, etc. Any credit inquiries get wiped off your credit report after 2 years, and just from myself having 4 credit inquiries in the past 2 years will started ding my score 15-20 points. Also, if the inquiries are stacked very close like within a couple of weeks, it is considered one inquiry as FICO recognizes you might be shopping around for a mortgage, etc. So when I shopped for my mortgage, I went to like 6 different lenders in the span of a couple of weeks, all who did hard pulls, and score only dropped a few points.