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Doctor to retire in 22 years...woohoo!
Old 04-29-2012, 03:01 PM   #1
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Doctor to retire in 22 years...woohoo!

Hi all....

I was diverted here from Bogleheads.com and I am loving this site. I'm a 34 yo anesthesiologist with a wife (part time ER doc) and 2 young ladies (2.5 and 1.5 years approx). I figure to work until after they get through school and then hang things up (or at least reallllllly slow it down). My parents paid for my education all the way through med school, so education is a top priority for me (and, luckily, my wife), so if they go to grad school, my plans may be thwarted a bit.

Anyhow, although I am an avid reader of bogleheads and FIRE, I don't quite follow the philosophy b/c I use an adivsor. He's been very helpful with many things beyond just my finances (mortgage refinance, taxes, estate planning when it becomes time, etc)....and he's actually encouraging me to pay my house down rather then push more money into his accounts (after fully funding our tax sheltered accounts, that is). I figure one day, I'll go at it alone, but I'm not quite there yet.

Anyhow, my 2 big questions are....

1) Pay off mortgage early or no. I'm in the middle ground right now, paying extra monthly payments here and there. Mortgage recently refinanced to around 400K, 15 year at 3.375 I believe. Of course, I fully fund my 401k, profit sharing keogh, and wife's 401k and even save monthly into a non-tax sheltered account.

2) Assuming my daughters have free reign to chose whichever college they want, how much would you save into a 529 account for them.

Pretty wide questions, but that's where I stand now. Thanks for looking! Now go retire early!

Tudpop
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Old 04-29-2012, 03:08 PM   #2
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Hi tudpop, welcome to the forum. So, you ask about paying the mortgage and saving for college. I think it's safe to say a few members will have opinions. After all, those have been hot topics for years, with no clear or easy answer. If you browse the past threads you will find many. Here are two to start you off.

Paying off the mortgage early grows in popularity

How Should We Think About College Savings?

Good luck.
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Old 04-29-2012, 03:41 PM   #3
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Quote:
Anyhow, although I am an avid reader of bogleheads and FIRE, I don't quite follow the philosophy b/c I use an adivsor.
So what does your advisor say regarding those questions you posted?

-ERD50
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Old 04-29-2012, 05:13 PM   #4
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Quote:
Originally Posted by tudpop
Hi all....

I was diverted here from Bogleheads.com and I am loving this site. I'm a 34 yo anesthesiologist with a wife (part time ER doc) and 2 young ladies (2.5 and 1.5 years approx). I figure to work until after they get through school and then hang things up (or at least reallllllly slow it down). My parents paid for my education all the way through med school, so education is a top priority for me (and, luckily, my wife), so if they go to grad school, my plans may be thwarted a bit.

Anyhow, although I am an avid reader of bogleheads and FIRE, I don't quite follow the philosophy b/c I use an adivsor. He's been very helpful with many things beyond just my finances (mortgage refinance, taxes, estate planning when it becomes time, etc)....and he's actually encouraging me to pay my house down rather then push more money into his accounts (after fully funding our tax sheltered accounts, that is). I figure one day, I'll go at it alone, but I'm not quite there yet.

Anyhow, my 2 big questions are....

1) Pay off mortgage early or no. I'm in the middle ground right now, paying extra monthly payments here and there. Mortgage recently refinanced to around 400K, 15 year at 3.375 I believe. Of course, I fully fund my 401k, profit sharing keogh, and wife's 401k and even save monthly into a non-tax sheltered account.

2) Assuming my daughters have free reign to chose whichever college they want, how much would you save into a 529 account for them.

Pretty wide questions, but that's where I stand now. Thanks for looking! Now go retire early!

Tudpop
1) Paying off your mortgage depends on future plans. If you plan on buying that megahouse when you turn 40 as most docs do then an extra payment here or there will make little difference.
2) Not a fan of 529s but it may make sense in your tax situation. I live in Florida and bought into Florida Prepaid which was a great decision. I think we paid about 5 grand each for our 2 kids when they were 5 and 2. With grad school our total college expenses were probably about 250k for the both of them. You have a great job so I would concentrate on your own retirement and mortgage and pay the college with earnings from your jobs when it comes due.
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Old 04-29-2012, 05:24 PM   #5
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I thought physicians bought big-ass houses in order to shelter assets from lawsuits. Maybe you should pay off the mortgage after getting a bigger house?
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Old 04-29-2012, 06:27 PM   #6
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Hey all....thanks for the quick responses and really appreciate the input. I look forward to perusing the 2 links MichaelB offered.

Regarding my adviser: he believes in being debt free and is encouraging me to pay off my mortgage as fast as possible...after saving into all the necessary accounts. As far as the 529s go, he seems neither here nor there.

My house is probably the house I will stay in for the long haul. Young community with lots of kids and easy commutes to work for the DW and me. Lawsuits are a b-tch, but we have insurance for that....hopefully I won't need it too much in my practice.

Will continue to check out old posts....great material on this site! Thanks again
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Old 04-29-2012, 06:51 PM   #7
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#1 Son is beginning his career as an EM doc in a month or so. Single and debt free.
My advice to him was short and sweet.
Get some cheap term insurance. USAA comes to mind.
Save 15% of every dollar you make pre taxes.
We will put it in low cost FIDO and Vanguard funds.
When that method reaches one million we will reevaluate.
There is absolutly no need for an advisor at this point. Eat the donuts they provide, then run away.
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Old 04-29-2012, 06:55 PM   #8
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Welcome to the forum, tudpop.
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Old 04-29-2012, 07:18 PM   #9
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People will argue to the end of the world about pros and cons about paying off the mortgage, but I must say, that doing so was psychologically the best day of my financial life. After I paid off the mortgage, the sky was bluer and grass greener. Now I have a much smaller mortgage on a future retirement home that is on fast-track to be paid off within the next 18 months. I put $500 a month in a 529K for each of my 2 kids. It probably won't be enough to fully fund their education if they go to Princeton, but my plan too, is to at least work part-time until they get through school, and "pay as you go" as needed for college.
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Old 04-29-2012, 07:30 PM   #10
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Originally Posted by LOL! View Post
I thought physicians bought big-ass houses in order to shelter assets from lawsuits. Maybe you should pay off the mortgage after getting a bigger house?
I would say, if you want to ER, don't follow your doctor colleagues down the road of lifestyle creep. I see young doctors all the time upgrading to the beautiful suburban McMansion, replacing each car they buy with a more expensive one every 3-4 years as they advance in their careers, outsourcing all the work around the house they need to get done because 5000 s.f. on a beautifully manicured lot is more maintenance than they can do themselves. Nothing wrong with that lifestyle if appearances is more important than retiring early with a good but simpler lifestyle. Notice there are not a lot of docs that retire at 50, or even 60 (many docs on this forum the exception). It's not because they love what they do so much that they won't cut back from 60 hour weeks, it is because they can't.
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Old 04-30-2012, 07:01 PM   #11
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Greetings from a fellow anesthesiologist! I am a few years older than you and have a similar mortgage at 10 years and 3.25%. I have absolutely no plans to pay one extra cent on my mortgage. Inflation will almost certainly be higher than 3-4% (and possibly much higher). While I realize there is a certain mental peace of mind that comes from owning your own house, these are the lowest interest rates we will see in our lifetimes, and i intend to take advantage of them. My only regret is that I didn't drag my mortgage out for longer.

Anyway, I think that you are getting good advice on here about living below your means, something most physicians don't do. It is my opinion that physician's incomes and anesthesiologists incomes more specifically, are under threat and will continue to fall, regardless of whether obamacare gets thrown out or not. Reimbursements only go in one direction...down. Conversely, practice overhead seems to only go up. I know of many groups that have already sold out, given up their independence, and become hospital employees. Sounds like you have a good head on your shoulders and are already ahead of the game with no med school debt. Best of luck.!
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Old 04-30-2012, 08:34 PM   #12
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I would say, if you want to ER, don't follow your doctor colleagues down the road of lifestyle creep.
Amen to that!
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Old 04-30-2012, 10:05 PM   #13
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Greetings from a fellow anesthesiologist! I am a few years older than you and have a similar mortgage at 10 years and 3.25%. I have absolutely no plans to pay one extra cent on my mortgage. Inflation will almost certainly be higher than 3-4% (and possibly much higher). While I realize there is a certain mental peace of mind that comes from owning your own house, these are the lowest interest rates we will see in our lifetimes, and i intend to take advantage of them. My only regret is that I didn't drag my mortgage out for longer.

Anyway, I think that you are getting good advice on here about living below your means, something most physicians don't do. It is my opinion that physician's incomes and anesthesiologists incomes more specifically, are under threat and will continue to fall, regardless of whether obamacare gets thrown out or not. Reimbursements only go in one direction...down. Conversely, practice overhead seems to only go up. I know of many groups that have already sold out, given up their independence, and become hospital employees. Sounds like you have a good head on your shoulders and are already ahead of the game with no med school debt. Best of luck.!
Playing devil's advocate:
Since you anticipate a higher rate for inflation, and due to the fact that you could possibly loose your income for a long period of time or for that matter increases don't keep up with inflation, which option is better?
After all, if you still have the mortgage but everything costs more, and you haven't received compensation that meets/exceeds inflation, where are you then?
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Old 05-01-2012, 12:12 AM   #14
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Another MD here! And on this site, one who would love to FIRE SOON. On track to retire at 52 if all goes well over the next 18 months... The biggest challenge is health care insurance and how to budget for it.

I have 2 kids one set for college this fall, the other in 3 years. With minor accounts and 529 I have saved about $400000 between the two of them. In our state, 529 is a state tax deduction and grows tax deferred and is spendable on education tax free. The funds are Vanguard low cost funds. I cannot envision a better more efficient vehicle for saving for college than 529. You just cannot leverage those tax deferral and deductible benefits in your own accounts as you can with a 529.
Also, the money can be used for educating any relative if it is not all used up on the one you save for. So there is flexibility. Even if you do not use it for education you don't lose it, you just pay a 10% penalty plus cap gains taxes. In our tax bracket that is still better than paying tax on the income which you deducted whne you put the $ in.
Also if your kid needs financial aid, they calculate need based mostly on assets in the child's name, not so much or as much n the parents wealth. And the 529 is in the parents wealth, even though the child is the named beneficiary. So do NOT save it in the kid's name. If you are considering ANY college for your child, you have to at least figure on $50000 and up in today's dollars per year that you will need for tuition and expenses. You can calculate using inflation or higher since tuition has so far inflated well ahead of the CPI rate.
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Old 05-01-2012, 02:13 PM   #15
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Originally Posted by JPatrick View Post
#1 Son is beginning his career as an EM doc in a month or so. Single and debt free.
My advice to him was short and sweet.
Get some cheap term insurance. USAA comes to mind.
Save 15% of every dollar you make pre taxes.
We will put it in low cost FIDO and Vanguard funds.
When that method reaches one million we will reevaluate.
There is absolutly no need for an advisor at this point. Eat the donuts they provide, then run away.
Not to hijack this thread but shouldn't a single, debt free doctor be able to save much more than 15%? I would be telling my kid to save 50%!
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Old 05-01-2012, 02:20 PM   #16
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Amen to that!
Dave Ramsey talks a lot about this. Very common for doctors to live beyone their means and be in worse financial shape than people with much less income. It seems there is some sort of implied social pressure that doctors live a lifestyle that the masses expect them to live. Those that can live a comfortable lifestyle that other white collar professionals do will be the few that can retire ultra early.
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Old 05-01-2012, 09:18 PM   #17
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Welcome to the forum tudpop. I would have to agree that "creep" has been the downfall of many a physician. The fact that you are on this forum and that you have the fortune of having no student loans are two big things in your favor. I would also avoid indulging your two girls with "things" and that includes expensive colleges. We did 529 for all three kids and a prepaid plan for one (hedging bets) and these plans are transferable b/t siblings AND we get a state tax break. Even so, state schools are what they are getting from us. Because you started 10 years behind your engineer friend in college who was out at 22 contributing to retirement, you are behind the 8ball and will have to shovel large quantities into retirement between now and the relatively early time you want to retire. I was in a very similar situation as yours at your age (the difference being I lived off Raman noodles and canned beans for undergrad and grad school) and I'm now 48 and realizing that I can't take my foot off the pedal if I want to retire by 55. I have partners in their 70's still practicing because they did not take the steps you are seeking advice on. And they are not happy, just stuck having to generate mountains of cash for others that are on the doctor gravy train and/or pay the price of the trophy wife. Take heed my friend...excellent advice on this site.
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Old 05-01-2012, 09:40 PM   #18
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another retiring doc here, although older at 62.
My advices:
Keep your lifestyle low.
Live below your means.

Stay away from high maintenance women and divorce. I know of a few
MDs who makes tons of money but could not retire bec. the older ex wife
got 50% of everything and the younger wife drives a large BMW!
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Old 05-02-2012, 06:51 AM   #19
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From a purely financial perspective, if your expected after-tax investment return exceeds your after-tax cost of debt (the mortgage) you should take the money that you would have used to pay off the mortgage and invest it. However, usually you can only make an educated guess as to what your after-tax investment return will be, so there is a risk that you might be wrong and it will be less than your after-tax cost of debt and you will have made the wrong decision. However, there are nonfinancial aspects to be considered as well. Many people feel more comfortable having their home paid off and not having a mortgage payment hanging over their heads.

Like you, I recently refinanced my mortgage to a 15 year at 3.375%. The way I figure it, if my investment portfolio doesn't earn 3.375% to cover the cost of the mortgage then having a mortgage will be the least of my worries. While many people gain peace of mind from not having a mortgage payment, I gain similar peace of mind knowing that at any moment I can be mortgage free if I chose to with a stoke of a pen (since my investments far exceed my mortgage balance).

I'm not keen on 529 plans and just saved for my kids college in taxable funds. As it turned out, DD went to college during my peak earning years and I was able to pay for her college from cash flow and DS has (so far) decided that college is not for him (but I have $100k of my taxable accounts earmarked for college if he changes his mind). The taxable accounts gave me more flexibility than a 529 plan would and since my bond allocation is all in my IRA the tax inefficiency of taxable accounts compared to a 529 plan is minimal.
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Old 05-02-2012, 08:04 AM   #20
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+1 on ANY doc (or other healthcare professional) living well below their "means". Labor costs are largest single component of US health care costs so gov't has all high-earning professionals in their sights. Would not be surprised to see incomes take a significant hit over next several years (as has already happened in some specialties).
Actually this is prob good philosophy for most high-earners. Press is full of stories of ex-six-figure+ folks whose fortunes took a nosedive for whatever reason. Never know how long your personal gravy train might last.
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