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35 yo working toward FI, open to advice
Old 02-24-2011, 12:28 PM   #1
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35 yo working toward FI, open to advice

I'm a 35 yo physician out of residency for 1.5 years now. Right now I have a base salary of 190k, but make somewhat more based on "production." My husband just started a regular job at 85k, he had been self-employed, but had not really made much doing that for about 2 years.

We don't have children, but would like to. Unfortunately it looks like we will need some medical help with that.

We have:
-A house which Zillow values at 284k. We did do some remodeling, so I hope we could get more, but it's hard to tell in this market. We owe about 240k at 4.75% 20 year mortgage
-Investment accounts 114k, with some Roth, some 403b, some 457b, some taxable, and a 529 started for the yet unconceived child(ren). The vast majority of above is in a Fidelity target date retirement, because the expense is lower (0.2%) based on some sort of deal with my employer.
-Student loans (mine) ~140k at 2.75% fixed
-Tax debt (husband) ~83k at variable interest/penalties ~8%. He has an agreement to pay $500 a month, but it gets re-evaluated every 2 years, so now that he has a job that would probably change in 2 years. The tax debt would expire in 10 years, but we would rather pay it off and try to repair his credit. (All of our accounts are separate and the house is in my name only due to the taxes.)
--27k in emergency fund

Our plans:
1. Pay off tax debt. I think we can do this within a year without difficulty. I am currently maxing out all retirement savings. He is contributing 10% to his 401k, and will plan to put everything he takes home toward the taxes.
--We thought about increasing his 401k contribution to the max and then have me make up the difference so that the taxes can be paid off in <1 yr.

2. We are generally LBYM, but certainly could do better, so will continue to work on that.

3. Am considering whether we should have a smaller house. I think I really bought into the whole doctor lifestyle thing right out of training. Our house isn't extravagant, but is probably more than we need. But it's hard to tell whether it would be worth the expenses of selling and moving.

4. I'm interested in what others would do with leftover cash after the taxes are paid off. I think my goal would likely be for financial independence in 10 years, more so than retirement. I do find my career rewarding, but would just like the option to change my practice without having to worry about the financial situation too much. My job is very stable, so I'm not sure how much of an emergency fund I need, but it is always possible that I could have a complicated pregnancy, and so I do want to be prepared.

Thanks for any thoughts or advice!

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Old 02-24-2011, 12:38 PM   #2
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You have a great plan. You should do well. If you pay off the debts and build up a big nest-egg then you can do whatever you want. Work or play it'll be your choice.

It's not all about getting to FI as soon as possible though. So smell some roses along the way too. I don't buy the "run as fast as you can now, so that you can rest later" thinking.

If children are in your future, that would change your plans quite a bit. Would you work less then ? or hire some help ?

Regarding extra cash outside of qualified plans. I would suggest a low cost broad based index equity fund (or funds). Vanguard has some funds that may do the trick. (VTSMX, VGTSX). Funds like this won't throw off much capital gains until you cash them in.

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Old 02-24-2011, 12:43 PM   #3
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welcome! always great to have new folks come on board. looks like you'll have an income level which, combined with LBYM, will get you to FI sooner rather than later. Perhaps you've already done this but you may want to chat with an attorney regarding the tax issue, just my opinion of course, but I would want them out of my life fast - maybe there are other options other than a payment plan with a relatively high interest rate. I like to have 1 year+ on hand as an emergency fund but everyone is different.

best of luck on your journey.
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Old 02-24-2011, 06:40 PM   #4
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Welcome, Spooky. Looks like you are doing great. You should be able to FIRE in 10 years, if not before.
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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Old 02-24-2011, 09:21 PM   #5
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MasterBlaster, At this point my husband would probably quit work before I would or we may hire help or get help from family. We'll see how he is enjoying his job at that point. I would love to work less or stay home, but I think it make more sense for DH to stay home, and he is happy with that plan. VTSMX, VGTSX are what I have in my taxable account so far, so good to know that that was a reasonable choice.

JBmadera, we did talk with an enrolled agent (although not an attorney, she is apparently the person around here who does this sort of thing and was recommended by multiple CPAs) about the tax situation, and she felt like the installment agreement was really the best we could do. Although legally the taxes are not my responsibility, the IRS is not going to give my husband a super deal while our married filing jointly tax returns show income like mine. An offer in compromise is usually what people think about and what all the TV ads are about, but it sounds like the system for that is pretty broken (shocking!). So I think the thing is just to suck it up and pay it down as fast as possible. The other option was really to have him not work for 10 years until the statute of limitations expired, but neither of us felt good about that. With the partial payment installment agreement, we could also just keep paying the $500 per month x 10 years, and at the end the rest is forgiven. But, the agreement is re-evaluated every 2 years. Although our enrolled agent knew someone who just got a call where an IRS person said, "Is everything roughly the same?" And the person said, "Yes." And that was it. But the downside is that if they cancelled the installment agreement, we would have all this interest and penalties built up, and it would be even more ridiculous. (And how easy would it be for the IRS to look at our tax returns and figure out Hey! Now he has a job!) The enrolled agent did tell us that when we had paid about 70% of the debt, we could call and try to get the penalties reduced, and that has a reasonable chance of happening. Sorry--more than you wanted to know about back taxes.
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Old 02-24-2011, 10:09 PM   #6
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Sounds like you have good control over your finances - LBYM alone will take you a long way towards FIREing.

A small query, you mention (i) possibly having children and (ii) possibly downsizing your house. Even assuming that the costs, expenses and trouble associated with buying and selling make the expercise worth while, would a downsized house still work for you if you do have children? It wouldn't make much sense to downsize now and then have to upsize in the near future.

In any event, the value of your house is close to your combined annual income - hardly extravagant (unless it has unusually high upkeep costs).
Budgeting is a skill practised by people who are bad at politics.
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Old 02-25-2011, 10:39 PM   #7
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Traineeinvestor, if we were to downsize houses, there are some decent 3bed/2ba houses in the 180s now. (Or at least they look decent from the pictures online. Might be different in real life!) Our house now is 4bed/3ba, and is obviously too big for the two of us, but might feel much different in a few years. Your point is well taken. I think we could manage very well in a smaller house, but we would certainly lose some options, like moving in some aging parents or having a live-in nanny, etc. And we have a good location close to two hospitals that I am often called to in the middle of the night. So, I think we are staying put. But I just like to try to consider all of the possibilities. And I'm addicted to Zillow.
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Old 02-28-2011, 07:49 PM   #8
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I would stay in the same house - once you get caught up on taxes and student debts, that is a very affordable home at your income level. Moving costs a lot in money, time and aggravation.

Also - if you haven't already read The Millionaire Next Door, give it a read. It's getting a bit dated now but the author actually talks a bit about physicians and how many struggle to manage their money. The prime driver of this is the "buying into a lifestyle image" that you mentioned yourself.

Good luck!
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Old 02-28-2011, 09:59 PM   #9
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No advice here. I just want to commend you for paying off those back taxes.
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Old 03-01-2011, 10:45 AM   #10
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CorporateSoldier, I did read the Millionaire Next Door and loved it.

Freeatlast, Thanks! It is a little overwhelming to look at how much we need to pay, but I will be so relieved when we are finished.

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