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Hello new to the site, seeking some advice/opinions.
Old 04-12-2019, 09:47 AM   #1
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Hello new to the site, seeking some advice/opinions.

Hello all. I'm hoping to get some advice on how I'm doing with my retirement planning and what I could do differently/additionally. This will be long-winded, so bear with me.

I’m a family practice physician in the USA. I'm married, 36 years old, and just finished residency and started practicing late last year. My wife is 38 and is a college professor at a state university. She's on a tenure track, but still pretty low on the pay scale, with significant pay increases to come as she gets tenure and gets promotions. We have four kids that range from newborn to 16 years old.

Annual Income:
Me:
Salary $240,000
National Guard drill pay $15,000
Loan repayment (Guard and employer) paid directly to student loans: $75,000
Wife:
Salary: $75,000
Total annual gross earnings (excluding loan repayment paid directly to loans) $330,000

Assets:
My current 401k: $10,000
My old 403B from residency: $25,000
Our brokerage account: $50,000
Her current 403B: $10,000
Her old 401K: $70,000
Her mutual fund: $100,000
Home value: $300,000
Total assets: $565,000

Liabilities (the worst part of our financial picture):
My student loans: -$440,000
Her student loans: -$50,000
Mortgage: -$200,000
Total liabilities -$690,000

Total Net Worth -$125,000


Retirement annual contributions:
My 401K $28,500 (including employer matching)
Brokerage account: $12,000
Her 403B: $19,000
Total annual contributions: $59,500

Defined benefit pension estimates:
Social security (both of us, rough estimates): $65,000
Army National Guard pension: $35,000
Her College pension: $90,000
Total pension: $190,000 in today’s dollars

Our biggest downfall right now is our negative net worth in our mid to late 30s and our late start to aggressively saving. Unfortunately that’s a biproduct of large educational expenses and many years of low earnings prior to getting our professional degrees. We’re pretty aggressively paying these loans down, with help from student loan repayment programs through the army and my job, we’re on track to have these paid off in just under 6 years, and hope to have a positive net worth in about a year from now. We’re paying out-of-pocket about $25,000 after taxes per year toward student loans. Once they’re paid off, we’ll add about half of that to retirement savings and the other half toward paying off our mortgage, which currently has 25 years to go (and we're planning to move once student loans are paid off, so the additional will go to that mortgage).

After figuring in student loan repayments (and the large tax bill that comes from the $75k annually paid to the student loans) and retirement savings, we realistically live off of about $120k net income annually, which is very comfortable for us. With four kids and us both working full time, child care costs are quite high for us. We could definitely decrease discretionary spending, but I don't know that either of us really want to. We both spent a lot of time living lean, and know how to, and not having to do that is really nice right now. We're also not living above our means by any extent.

I know that most experts recommend planning to live off of roughly 80% of pre-retirement income. However, we have grand plans of traveling the world throughout our retirement and would like to retire with more income than we have pre-retirement. How much more? We don’t know. That figure has been tough to nail down for us. And I know that really determines everything...

Assuming we continue our course, I’m very confident that we’ll enjoy a great retirement financially. However, all of the defined benefit estimates are based on retiring at age 67. In fact, I’ve never really considered that retiring earlier than normal retirement age would be a possibility. However, we’ve been recently discussing the idea of retiring earlier, in our mid to late 50s. If I lower that to 55, we’re looking at only 2/3 of our expected defined benefit pensions, and that’s if we wait to take them until normal retirement age. If we take them early, our expected defined benefits would be even less, maybe even half. And we’d have to fill that gap between retiring and collecting benefits 100% with savings, and those savings would obviously be much smaller with a decade less of compounded interest and contributions.

Unless we want to significantly change our financial retirement goals, I don’t know that early retirement is in the cards more than a couple of years. I guess we have to determine what’s more important to us: retirement income or good years in retirement…

I’m just hoping to get some feedback, advice, etc. from the group here. I’m planning to set up a meeting with a financial planner so that I can go over things in more detail and get a better idea of where we stand and what our options are. But in the meantime, I know there is a ton of great experience here in this forum, that I’d love to tap into.

If you stuck around and kept reading until the end, thanks and cheers!
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Old 04-12-2019, 10:21 AM   #2
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Hi dirtbiker....welcome! I am sure more experienced members will chime in shortly. In my opinion, though your current net worth is negative, you guys have great earnings potential combined with awesome DB plans. You’ll be posting a very positive picture here in the coming years.... :-)
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Old 04-12-2019, 10:46 AM   #3
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depending on how your practice is structured you could start a db plan and really sock away the $$$
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Old 04-12-2019, 10:54 AM   #4
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Hi,
I am new to the forum and I am trying my best to provide a solution to your situation. Your only source of income is salary. In my opinion try to increase your income source. Secondly you have debts. If possible do some frugality and get rid of them asap. Hope you will create more money that way for your retirement.
If you like to share thoughts on the same I am more than happy to be of any help.
Best of luck.
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Hello new to the site, seeking some advice/opinions.
Old 04-12-2019, 11:02 AM   #5
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Hello new to the site, seeking some advice/opinions.

I highly recommend you familiarize yourself with The White Coat Investor website, books, etc. I think he would recommend you scale back the lifestyle --just for a few more years. Then you can more easily take advantage of the value of time + compounding and start living a bit larger. Also forget those nonsense formulas about replacing a certain percent of income. The number you have to estimate to determine how much you will need is how much you plan to spend- period.
High interest Debt elimination is priority number 1 followed by building up retirement savings. Also I notice no money for any of the kids' college. If that is your plan- fine. But if not, 529 accounts should be part of the discussion for you.
Good luck!
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Old 04-12-2019, 12:11 PM   #6
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Thanks for the quick replies everyone.

The only job around here with a defined benefit plan is with the VA, and that involves a significant pay cut, a soul-sucking government work environment, a 45 minute commute (compared to 15 minute one now), and the defined pension multiplier is a measly 1.1, which isn't enough to justify my pay cut - not even close. So, no DB for me, other than SS and army pension.

I could increase my salary with another job, or more hours at my current job, but honestly I'm not going to. I've worked a lot of long, long hours (100+ hours/week sometimes) over the last few years. Prior to that I was deployed overseas three times with the army for over 3.5 years in total. I've missed way too many holidays, birthdays, etc. from working too much. My wife and I both need me to be home more, not working more.

I am familiar with the White Coat Investor. It's a great resource. Thank you for the link!

Scaling back my lifestyle would definitely help me sock away more toward savings. I know I could scale back, but I honestly feel like I'm living at or below my means... At least compared to other physicians I'm friends with who are all driving new Mercedes and BMWs, etc. living in homes 2-3 times the value of mine. Of course, they could be leaving way above theirs...

There are two areas we could really cut back our spending. We eat out a couple of times per week, plus I usually buy lunch instead of packing at work. This all adds up significantly throughout the month. The other area is vacations. We like to travel. We don't travel extravagantly, but we like to go to a lot of places. I would definitely be willing to cut back on the restaurant budget... But not travel. To me, this is a necessary expense.

My wife is a professor at a state university, which means free tuition to in-state universities for all of our children. And we'll cover room and board, which we'll adjust our budget for at that time. There are 14 to choose from in PA, so that means our children have a choice of 14 to go to, or find scholarships. I know this is off-topic, but expensive private colleges for undergrad are one of the biggest wastes of money you can spend IMO, with a few exceptions. /off topic

Thanks again for all the advice so far!
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Old 04-12-2019, 12:43 PM   #7
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Instead of thinking of scaling back, consider managing your lifestyle. Vacations periodically are necessary to recharge. Plan vacations, research their potential for fun and maximize their effect. Off the cuff needs to escape are less valuable and seem to be wasteful of time and money. Dont deny yourself some fun, just schedule it up, rather than trying to replace lost opportunities.
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Old 04-12-2019, 12:56 PM   #8
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The only job around here with a defined benefit plan is with the VA
lots of doctors, professional service advisors, etc have DB plans that cover themselves and staff - it would depend on your employment situation but you and your partners may be able to start one of these yourselves - most are cash balance plans
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Old 04-12-2019, 12:56 PM   #9
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If early retirement is what you want it may require sacrifices now. Your income is stellar in the real world but your debt is staggering. Although your peers may be living it up you have the advantage of the loan repayment which is an amazing benefit which gets you closer to your personal goals faster. I have a physician friend with no dream of retiring and honestly many physicians work til really late in life 70-80yrsold. 330k annual income -59.5 savings rate some of which is company contributions. 120k in lifestyle. That still leaves 150k for taxes and other. Reevaluate your budget and make sure your money is working for you efficiently. Even if you are paying 100k in taxes that still 50k that can go towards more savings, debt repayment etc to help towards your goals. In 4 years you could have a paid off house and her student loans paid off easily. Sit down talk it out with your wife and develop a game plan. Blessings on your journey.
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Old 04-12-2019, 12:57 PM   #10
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First and foremost.... get a handle on how much you are spending... from your OP it sounds like it will be your combined take-home pay less the $12k annual savings to the brokerage account. Not sure how much that is but it sounds like it would be quite a lot.

I highly recommend that you get a copy of Quicken Deluxe or higher and spend some quality time with the Quicken Lifetime Planner. It is a fairly intuitive, easy-to-use retirement planner.

How soon will the student loans be paid off with payments of $75k a year?
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Old 04-12-2019, 01:01 PM   #11
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I highly recommend that you get a copy of Quicken Deluxe or higher and spend some quality time with the Quicken Lifetime Planner. It is a fairly intuitive, easy-to-use retirement planner.
geez I need to get that lol
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Old 04-12-2019, 01:57 PM   #12
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I think you probably sacrificed quite a bit to get to where you are now. I don't think you should live a more extravagant lifestyle, but I believe you should see what can be done to accelerate the paydown of your student loan debt. Get that yoke off of your neck, and combined with likely substantial increases in your income as your career continues and you should be fine.
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Old 04-12-2019, 02:15 PM   #13
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Welcome! I would tend to agree that every $$ you can avoid spending in the next few years will really add up in the long run. It sounds like eating out is your low hanging fruit so I would start there. Investing in some kitchen equipment to make cooking in easier (pressure cooker/Instant Pot/slow cooker, vacuum sealer to package pre-cooked food or portioned meats purchased on sale, lunch containers, etc.) would pay off immediately. Personally, I would not cut back on the number of vacations as those are priceless experiences for your family, but I'd probably try to reduce the costs for a few years.

Your 16 year old could be earning some money now - babysitting, lawn mowing, and/or a summer job. They could save some of that for college spending so you don't have to give them a spending allowance along with room & board.

You're already ahead of the game to be thinking this way, so good for you!
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Old 04-12-2019, 02:48 PM   #14
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I think you are positioned good for the future, but as you are aware it is starting out of a hole. So digging out of that debt hole is what I suggest as priority. Yes it means some sacrifice and maybe less extravagant vacations. I understand the hard work part to get where you are at finally. I worked my way through school and had a bad case of senioritis when I reached graduation. It's OK to enjoy some of the benefits of your hard work, just understand the trade-offs you are making and the life costs involved with those trade-offs.


The power of time and compounding can not be dismissed. It works both ways, positively on savings, and negatively on debt. Therefore getting out of debt is an important goal. You can do it, and with the help towards loan payoff you have great opportunity. So just ease back a little on spending, put a bit more toward debt and have some fun. Don't worry about retirement spending at this time, just try to maximize the savings. Once closer, you can figure out the required budget needed, and determine where you are with savings to calculate the date you can retire.
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Old 04-12-2019, 04:29 PM   #15
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... We could definitely decrease discretionary spending, but I don't know that either of us really want to. ... would like to retire with more income than we have pre-retirement. ... we’ve been recently discussing the idea of retiring earlier, in our mid to late 50s. ...
HONK! HONK! HONK! (That is the sound of the cognitive dissonance alarm horn.)
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Old 04-12-2019, 06:43 PM   #16
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dirtbiker, what do you ride?
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Old 04-12-2019, 06:46 PM   #17
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You obviously have worked hard to get where you're at, and you have a good handle on what you need to do in the near future. Unfortunately, you're in the same position as so many health care professionals--owing too much on student loans. So many physicians put maintaining their lifestyle ahead of getting their student loans paid, and take into their 50's to be working 100% for themselves. And we see doctors working into their 70's more often than retiring at age 55.

My wife is retired from managing large hospital laboratories, and she has worked with many physicians of all specialties. The norm for physicians is that they quickly move up to owning numerous expensive cars, houses that are larger and much more expensive than they need, having too many children, and sending their kids to very expensive private schools and colleges--while self employed physicians have to 100% fund their retirement.

Unfortunately, governments are increasingly telling doctors how to run their businesses and there are forces working against doctors that are beyond their control. Unless there are changes in healthcare, you will spend more time trying to manage your practice and fighting with insurance companies and Medicare/Medicaid on patient treatments and what they'll pay for. Big hospitals are also buying out hundreds of doctors' practices making nurses and office personnel their employees--and hiring the doctors as subcontractors.

I understand how you cherish your vacations, but not every trip needs to be to Europe or some extravagant location--since you're paying for 6 family members at a time. And I understand how you want to maintain your standard of living at or better than you're at right now.

With 4 children to raise spread out over 16 years, retirement at age 55 is going to be very, very difficult without big changes in spending. You should work very hard to resist driving luxury (or expensive) cars and you should plan on keeping vehicles 10 years. You should stay in your current home at least until the student loans are completely paid. Your kids should stay in public schools if at all possible, and you've addressed their higher education is fortunately covered. They should know that graduate school is on them. They might have to even commute to school and live at home. The decision is whether you're willing to follow such a plan of action or whether you'll be working past normal retirement age.
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Old 04-12-2019, 07:23 PM   #18
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I'm going to be more upbeat than most here. You have a really good (dual) income. You have a plan to get the student debt paid off in 6 years, you have a plan to pay for your kid's education. I think you just need to grab the bull by the horns (no, not the market bull) and ride him for a few years.

And BTW, Thank you for your service.
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Old 04-12-2019, 07:25 PM   #19
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I don't mean to be flip, but did you discuss this idea of retiring early before racking up half a million plus dollars in student loans.

Also this 90K college pension is hardly a done deal your DW is just 38 and not tenured...Don't go near a financial planner until you can really figure out what you want for the next 20 years. I don't see anything for an emergency fund do you have one? Do you have life insurance to cover that student loan or would that go away if something happens to you?

I have to agree with Old Shooter the ideas of We've worked hard we deserve to eat out and take nice vacations and retiring early with 4 kids and huge loans don't work well together.
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Old 04-12-2019, 07:40 PM   #20
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I don't mean to be flip, but did you discuss this idea of retiring early before racking up half a million plus dollars in student loans.
In fairness, this is not an excessive amount of debt for a doctor. DS dated a doc student who already had $300k, and she was not done. And, it sounds like his employer and the National Guard will cover it in 6 years.

So, put aside the student debt, they have $565K in investments, and a $200k mortgage. Not bad for late 30's.

And, as far as vacations, the guy worked 100hr weeks while in residency. A few vacations does not seem unreasonable, as long as they don't over reach in this department, they should be fine.

Can they retire in their 40's? Not likely. But by 55-60, very probably.

Just my opinion.
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