Author Topic: Dual Physician Income Starting Off Mid-20s  (Read 4711 times)

ando90001

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Dual Physician Income Starting Off Mid-20s
« on: March 14, 2016, 03:08:16 PM »
Hello all,

I was hoping to have some people weigh in on my upcoming new financial situation. The Mrs. and I were blessed enough to be able to go to our state medical school together and we are graduating in 2 short months. With some help, we were able to graduate debt free and will be starting our residency training in the next few months (unkmown location as of now). I recently began reading MMM and love everything about it. We are both 26 years old.  I do not have a huge financial background other than the reading I have been doing over the past 6 months. I know that physicians are known to have very high incomes but I truly would like some advice on how to get off on the right foot early!

I was hoping to get some advice to help us with our future investments and retirement accounts. More than likely, we will have an opportunity to contribute to a 403b or even 401k but I am not sure if this is the route I will want to head if their options are not to my liking and there is likely not any matching at the institutions we are considering.

I was thinking it would be best to open a Roth IRA for myself, or both of us, but I cannot choose what would be better (1 account w/ $5500 or 2 accounts with that $5500 split between them evenly as we may not have enough savings to cover both)?

Even though our salaries will most certainly increase after residency, will we be in a higher tax bracket when we retire compared to the ~110k we will make as a combined income in residency?

I am also likely going to invest around $6000 into betterment and add monthly installments (~$250) once we start generating an income. Doe this sound like an adequate plan? If we end up in an expensive city, our hope is to start slowly and save ~20-30% of our income (taxable account, Roth IRA, and cash savings). Any help would be greatly appreciated!

JLee

  • Walrus Stache
  • *******
  • Posts: 5557
Re: Dual Physician Income Starting Off Mid-20s
« Reply #1 on: March 14, 2016, 03:36:17 PM »
What are your goals? Do you want to retire early?  With two physician incomes and no debt, you should be able to save far more than 20-30% of your income.

If you haven't yet, read this post: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

ando90001

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Dual Physician Income Starting Off Mid-20s
« Reply #2 on: March 14, 2016, 03:43:15 PM »
My goals are to hopefully be working part-time within 10 years after residency training (15 years from now) and definitely retire by 45-50. We will be making 105-120k during residency. Our salary will increase each year. Once we are out of training, obviously the income will sky rocket. I mostly would like advice on what I can do now and in the next 5 years to set us up for when we do have a larger amount of our savings to put towards retirement. We don't have any children and likely will not for another 5 years. Thank you very much.

JLee

  • Walrus Stache
  • *******
  • Posts: 5557
Re: Dual Physician Income Starting Off Mid-20s
« Reply #3 on: March 14, 2016, 04:00:44 PM »
My goals are to hopefully be working part-time within 10 years after residency training (15 years from now) and definitely retire by 45-50. We will be making 105-120k during residency. Our salary will increase each year. Once we are out of training, obviously the income will sky rocket. I mostly would like advice on what I can do now and in the next 5 years to set us up for when we do have a larger amount of our savings to put towards retirement. We don't have any children and likely will not for another 5 years. Thank you very much.

Avoiding lifestyle inflation will be key. When your income triples, don't let your expenses triple too. :)

I'm sure others will come in with far more detailed advice, but lifestyle inflation will have a major impact. You may find a case study to be helpful as well.

fasteddie911

  • 5 O'Clock Shadow
  • *
  • Posts: 23
Re: Dual Physician Income Starting Off Mid-20s
« Reply #4 on: March 15, 2016, 02:53:30 PM »
Check out the bogleheads forum and the whitecoat investor if you haven't already and read up.  Save hard, avoid lifestyle inflation, protect yourself and your assets, and treat yourself every so often.  It shouldn't be too difficult to live on one person's income as a resident, depending where you live, similarly when you become an attending.  As for a roth, 401k and taxes, that can be highly variable and uncertain.  You can rack your brain over it, but personally I would setup a 401k and roth for both of you and add as much as you can to both while giving yourself enough income for expenses.  Even though there's no match, a 401k is tax-deferred savings which can still be beneficial.  Try to avoid lifestyle creep as much as possible, this is where physicians mess up.  Look into disability insurance and self-insure well (vehicle, liability, etc.).  Not sure what betterment means.  You should have no problem being financial independent in 10 years or so.

I'm guessing you're finding out soon where you match, I've been through this before as well, feel free to pm me if you have any questions.

serpentstooth

  • Handlebar Stache
  • *****
  • Posts: 1217
Re: Dual Physician Income Starting Off Mid-20s
« Reply #5 on: March 15, 2016, 02:55:30 PM »
Search for FuckRx's journal on the forum here. He was (is?) an ER doc.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4836
  • Age: 34
  • Location: Seattle, WA
Re: Dual Physician Income Starting Off Mid-20s
« Reply #6 on: March 15, 2016, 03:09:37 PM »
Even if the 401(k)/403(b) has no match, you probably still should contribute to it. Contribute to IRAs first since you have more control over the investments, but any additional savings will likely be better in a retirement account than a taxable brokerage account.

Remember that you can roll that 401(k) into an IRA the next time you switch employers. The high-fee funds aren't forever, but the tax-sheltered status is.

The "standard" advice we tend to give around here is to prefer traditional contributions over Roth contributions when you have a choice, since most of us expect to retire to a lower tax bracket. Since you'll have a really high salary for several years after your residency, you may very well retire to a higher tax bracket than you're in as residents. If you expect that to be the case, Roth contributions during residency for both IRA and 401(k)/403(b) accounts may be a good idea.

thingamabobs

  • Stubble
  • **
  • Posts: 145
Re: Dual Physician Income Starting Off Mid-20s
« Reply #7 on: March 15, 2016, 03:18:12 PM »
I think a good plan would be to start by living off one of your salaries. Even if you end up somewhere expensive, you'll be eating 2-3 meals (or whatever you can grab) a day at the hospital. Depending on specialty, you may not even need to do any clothes shopping/laundry if you're just circulating hospital scrubs everyday.

Many would advocate that you should open Roth IRA's now as this may the only time you can do it. Personally, I wish I could go back and fund Roth accounts for us. Or just fund traditional IRA's. Either way, make sure you start something especially if you're concerned that you may not like your 401K options or there is no match.

Have you found www.whitecoatinvestor.com yet?

Edit: to add link
« Last Edit: March 15, 2016, 03:19:59 PM by thingamabobs »

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: Dual Physician Income Starting Off Mid-20s
« Reply #8 on: March 15, 2016, 03:19:37 PM »
I will second (third?) what has been said: Avoid lifestyle inflation!  Everyone around you is going to be buying fancy cars and huge houses.  Unfortunately they generally also work so damn much that there is precious little time to enjoy them.  Keep your life lean.

I would also say you REALLY need to keep your eyes out for scammy investment advice.  There is nothing that screams "rip me off" louder than an MD.  Scam artists will descend on you.  It will sound awesome.  All of your friends will be in on it.  And it will start out great.  But it will implode.  If you're of the mindset to manage it yourself -- you're likely to do just fine.

As for Roth IRA of "one vs two accounts"... I am fairly sure you are required to each have your own accounts.  I do not think you can physically combine them.  (You just need to have each other listed as the primary beneficiary in case of death.)

...and be very happy for that $50k salary during residency.  Talk to a few old timers.  I know of a few that made $25 a month (working 48 hour shifts).  Even running that through an inflation calculator, that's only about $2600/year in today's money!

PhysicianOnFIRE

  • Bristles
  • ***
  • Posts: 452
  • Location: Up North
    • Physician On FIRE
Re: Dual Physician Income Starting Off Mid-20s
« Reply #9 on: March 15, 2016, 05:01:08 PM »
Good luck in the couples match!  3 days away, I believe.

Anesthesiologist here.  You will soon learn what investment options you'll have via your residency program.  Roth IRAs are a good idea while in residency.  The most important thing to do in the next 5 years is to learn to live comfortably and happy with a middle-class income & spending profile and plan to continue to live that way until all your goals have been met after residency.

I discovered MMM and became FI months later at age 39.  That was a single income household, 2 kids, some typical doctor mistakes (bought too much house, etc...).  You guys are way ahead of the game, having found this site / forum, no debt, and your goals clearly defined.

Use the next 5 years to set aside a little money, and come up with a plan to set aside most of your income once you finish (or half your after-tax income) and you'll be FI in short order.  Educate yourself to be able to invest in a DIY fashion.  WCI, Bogleheads, a book or 2.  You should do great.

Cheers,
-PoF

Abe

  • Handlebar Stache
  • *****
  • Posts: 1264
Re: Dual Physician Income Starting Off Mid-20s
« Reply #10 on: March 17, 2016, 01:01:31 PM »
Good luck with the match! My wife and I were in your exact same position when we started. I'm a 4th year surgery resident, my wife is a medicine attending.

My recommendations:
1. Completely agree with avoiding "investment advisors". They generally have an incentive to make things more complicated than they need to be. I will summarize the important information here.

2. Only useful advice from advisors: get speciality-specific disability insurance in your last year of residency. That's actually worth it and for some bizarre reason insurance companies offer a much lower premium if you get it as a resident with minimal increases once an attending. This is more relevant if you are in a procedure-based specialty as they will insure you against loss of ability to operate or perform a specialty-specific procedures.

3. You should be able to live an upper-middle-class lifestyle on 1.5 of your salaries (except NYC and San Francisco, even with housing subsidies). If not, you're being ripped off somewhere. A lot of people equate resident with rich person driving a BMW, avoid them. Also, don't go buy a BMW or Lexus right after finishing residency. Yeah you can afford, it but focus on the big prize. No one actually cares what you drive to work. Same thing with the house.

4. I recommend a Roth 401k because the tax advantages of a regular 401k is not much in the long-term, this is the money that will have the longest time to grow tax-free interest over your lifetime, and the ability to pull out the principal is well worth it. (Hint: your first job after fellowship/residency will almost certainly not be your ideal one.) Unless you are in a resident union (like in NYC), you will almost certainly not get a match. We didn't contribute to a regular 401k until my wife finished residency. Once you're both attendings, of course contribute the max to each tax-advantaged account, including 401k.

5. One thing to note when choosing jobs is that a lot of the academic centers offer significant advantages in tax-advantaged savings, even if they aren't state hospitals. These include 401ks, accounts that have a separate limit from 401k, pensions, or some combination of the three. You'll get paid less, but keep that in mind if leaning to an academic career.

6. Your income bracket once retired is whatever you want it to be. If you all do this right, you can easily retire fairly early while living off capital gains with minimal taxes (either gains will be taxed at a lower marginal rate rate from a regular 401k, or no tax from a Roth 401k). Frankly, if Social Security stays roughly as it is, you work long enough to vest, and you pay off your mortgage, you can live mostly off that.

7. Intern year isn't actually longer than all other years of your life, it just feels that way.

If you can provide specific about what fields you all are going to, I can give a little more detailed advice. For a framework, here's how my wife and I set up our savings when we were both residents:

W2 Income: $130k
Income after all income/payroll taxes: $90k
Roth IRAs through Vanguard (max out both, invest 100% in total stock market index fund): $11k
Taxable account (same investment as above) through Vanguard: $14k

Once my wife finished residency:

W2 income: $230k
Income after all income/payroll taxes: $160k
401k, both through Vanguard (90% SP500 index fund, 10% total bond index fund): $36k
Taxable through Vanguard (100% total stock market index fund): $45k

Basically we max out the 401k, and put the rest in a taxable account. There are back-door Roth IRAs options that will allow $11k per year to Roth IRAs we would otherwise be too high income for, but I haven't had the time to do this yet.

I hope this helps!



PathtoFIRE

  • Pencil Stache
  • ****
  • Posts: 584
  • Age: 40
  • Location: Dallas
Re: Dual Physician Income Starting Off Mid-20s
« Reply #11 on: March 17, 2016, 02:02:43 PM »
Pathologist here, and DW is a psychiatrist. I just skimmed to previous posts, so sorry for any repetition. My recommendations are:

-Don't buy a house during residency (we did), stay renters and try out different living arrangements in whatever city/town you live in, this is your chance to experiment
-Maximize any and all pre-tax savings that are available to you, like 401k/403b, 457s, etc. You should remain comfortably within the Roth limits throughout residency, so depending on your actual tax situation, maximize IRAs for both of you, and recharacterize as appropriate near the end of the year (we did an alright job in this area, but not because we actually knew what we were doing, just dumb luck looking back!)
-Don't get pets (like we did), try to keep whatever vehicles you have now, and prioritize traveling when you are able to
-Stay away from advisors unless you really feel that you need your hand held. There is a reason so many give discounts to docs, and it's not to our long-term advantage (we fell for the advisor, although ours was one that I would classify in the slightly expensive but still good guy category; our costs for this decision over the 4 years we used them were not large, and we were put in index funds that I happily kept after terminating the relationship, but still was responsible for putting off learning personal finance myself early on)
-While some here could certainly argue the opposite, I'd say that a Mustachian/FIRE mindset lends itself to paid employment over partnerships/owning a practice, so I'd think long and hard about what environment that you two really want to work in for your whole career, and focus on getting to that situation early. This is the one thing that DW and I did on this list really well, and while I can't claim to be overjoyed and brimming with giddiness and glee at work every day, when I look around at the alternatives, I'm glad we are where we are. Actually, it kind bolsters the OMY syndrome, so maybe that's not the greatest for FIRE, but still, work life is relatively stress free most of the time, and I know not many docs can say that.

IllusionNW

  • 5 O'Clock Shadow
  • *
  • Posts: 55
Re: Dual Physician Income Starting Off Mid-20s
« Reply #12 on: March 23, 2016, 03:39:59 PM »
I saw it referenced a couple of times above, but definitely read the White Coat Investor. It has some great info. I'm not in the medical field but I still love reading it.