My Next Job

Even though we have probably twenty years of work remaining as physicians, like a lot of you, I like to think about how we will spend our retirement years. After all, in twenty years we will still only be in our early fifties, hopefully with no dependents, and a lot of financial security. Of course, my wife and I are interested in traveling, spending time with grandchildren (hopefully), gardening, and all of the other leisurely pursuits we enjoy and have largely put off to this point. But, unlike my wife, I also have a different kind of interest for my post-medicine life: a second career in politics. (I’m trying to convince my wife that she may have a future as a lobbyist/DC power broker like the sultry Claire Underwood.) At least perhaps we can eat breakfast at Freddy’s BBQ Joint.

Really? Politics?

I have always been engaged politically and interested in the political process, but the idea to run for office some day really came to me on a trip to Washington, DC, during residency. I was attending a legislative conference for my specialty and meeting with members of the House and Senate (and staffers) on behalf of my society. I really enjoyed the trip, though seeing the effect that lobbyists (and particularly monied lobbyists) have on policy was disheartening.

One of the more interesting meetings I had was with a then junior representative from Michigan named Dan Benishek. Dr. Benishek was a general surgeon in a small town in the Upper Peninsula of Michigan who retired from practicing medicine and challenged the incumbent Democrat from his district, eventually garnering a tremendous amount of support and winning his election. I had a few really interesting take aways from my meeting with Dr. Benishek. He told me that he had essentially never held any political office to that point, at either the state or local level. He, like most of us, was a busy clinician until retirement. He became disgruntled with political inaction at the federal level and decided essentially on a whim to run for Congress and was overwhelmed with the support he received. His message was that more physicians should run for political office because the populace in general trusts physicians more than most other candidates. “If you are interested in it, just do it,” he told me.

Dr. Benishek served a total of three terms in the House of Representatives before retiring from politics.

 

Dr. Benishek’s words stuck with me. When I researched the topic further, I found that the number of physicians (3 senators and 10 representatives currently) elected in both the Senate and House had steadily increased over time. According to research by the AMA, voters rated physician expertise in health care, “understanding of the problems facing our healthcare industry, including the bureaucratic red tape that is strangling health care providers and driving up the cost of health care for most Americans” as key factors in their decision to vote for them. Per the AMA, physicians rank highly with voters in terms of honesty and ethics. Indeed, voters are even willing to overlook a lack of political experience because of the perceived benefits of physician candidates.

As the White Coat Investor has pointed out, financial advisors don’t have to take a Hippocratic Oath. Politicians don’t either. Physicians, on the other hand, spend their working lives caring for others and practicing ethically within accepted professional standards. I believe this is great training for a second career spent serving others as a politician. Imagine if all politicians in Congress practiced with the same professional standards and ethical boundaries in which physicians practice?

But what about the long odds?

Congress has 535 voting members (435 Representatives and 100 Senators), compared to a US population of over 300 million. Certainly this makes for long odds when it comes to being elected to one of the highest political posts. Political campaigns are taxing and expensive. If elected, there is even more travel and the possibility of spending much of the year away from home.

Of course these are all concerns for me now as a young professional, but will be much less concerning after a long career in medicine is over and with all of my children out of the house (and financial independence attained). In fact, I am more concerned with failing early retirement due to boredom. After all, there are only so many rounds of golf to be played and microbrews to be consumed. The idea of having a second, invigorating career outside of medicine is exciting to me.

What do you think? Am I crazy for pondering a future in politics or do physicians make the ideal politicians? Leave a comment below.

 

The Corrosive Effect of High State Income Tax on the High Income Earning Family

 

One of the joys of making more money is paying more taxes. Before someone chimes in and tells me what a good problem this is – yes, I get it. We are fortunate to make a lot of money and therefore pay a lot of taxes. It beats the alternative. Now with that out of the way, let’s look at today’s topic: the corrosive effect of high state income tax on the high income earning family.

We paid $44,000 in state income tax in 2015 (pre-partner for me at my group) and $58,000 in 2016 (partner for half of the year). I anticipate we will pay greater than $60,000 per year moving forward. To date, this has been offset somewhat by a federal deduction for state income tax for those who itemize their deductions (most of my readers, I would imagine). In 2016, this deduction was by far our largest and worth:

$58,000 x 0.39 (highest fed. tax bracket) = $22,620

This deduction effectively reduces the state income tax for high earners in high income states by 39%. This may be changing soon. Recent discussion of tax reform centers on eliminating the federal deduction for state and local income tax.

I decided to look at the true cost of living in a high income tax state like mine. For simplicity, I will imagine that our state income tax moving forward remains constant at $60,000 per year and that our alternative is living in a state with no tax on wages  (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, Tennessee, New Hampshire). I will also assume that tax reform passes and the state tax deduction is eliminated. Of course, this is all overly simplistic to some extent because states with no state income tax tend to have higher property and sales tax. We also may earn more money moving forward so it may in fact be overly conservative.

So let’s say we moved to one of these states and now had $60,000 extra in post tax income to invest in VTSAX earning a conservative annual return of 6%. Where does that leave us after our 25 year careers are up? Here we have it:

Ouch.

Now there are a lot of assumptions at play here, as I alluded to earlier. I am assuming:

  • we would take this extra take home income and be disciplined enough to invest all of it and not grow our lifestyle
  • our savings on state income tax would not be significantly offset by extra costs paid in sales tax or higher property tax, or perhaps even private school.

For high earning couples early in their career and residing in a high income tax state like my wife and I, it is worth considering how strongly you feel about living in one of these states. Naively, we didn’t really run the numbers or consider how much state income taxes would cost us when we were interviewing for our first attending jobs out of residency. Now we are very settled where we live and we have our reasons for loving it here – a great job as a partner in my specialty group; living in a nice part of the country with reasonable weather, limitless outdoor activities, and excellent public schools; family close by. If you don’t have these things tying you to your area (and particularly if the proposed tax reform passes), it may be worth considering a move earlier in your career than later.

 

Track your finances the way we do with Personal Capital’s Retirement Planner

Readers, what are your thoughts?

How We Improved Our Net Worth By $730,000 In Less Than Three Years

This month marks a big financial milestone for us as we (finally) have a positive net worth.

There hasn’t been any grand secret for us. We didn’t hit it big on leveraged positions on hot tech stocks. We worked hard in residency and obtained lucrative jobs and save more (a lot more) than we earn. We refinanced our student loans to very good rates.  In an average month, here is our breakdown of our spending:

  • student loan payments $12,500/mo
  • mortgage payment $3,000/mo
  • retirement contributions $7,500/mo average (401ks, Roth IRAs, HSA)
  • 529 contributions $400/mo

There is certainly an element of luck. We have benefitted from fairly good returns in the market the past few years (although we’d benefit a lot more from a deep bear market as discussed in one of my favorite finance books). We are certainly grateful for our family’s good health (although we are well-insured against illness and death).

We haven’t deprived ourselves greatly to get to this point. We partake in selective extravagance – hiring a housekeeper to come twice a month, going on a few nice vacations, attending local sporting events, buying a nice (nicer than we needed) family vehicle. Like PoF, I can’t cut the cord. We bought a very comfortable home with room to grow into that we hope to own until our children leave for college (and plan to pay off in less than eight years). We have had two kids during this period and taken two sets of maternity and paternity leave and employed a nanny throughout. We could have taken jobs that earned even more and that were located in states with no/low state income tax but we picked a part of the country we love and a city with great public schools.

One of the adorable reasons we will be working an extra year or two at the end of our careers.

At times we are also selectively frugal. We don’t shop at expensive grocery stores and I use my old cell phone rather than constantly buying new ones. We grow a lot of our own food in our garden (which we mainly do because we enjoy it and not for financial reasons). I’m lucky enough to wear scrubs so I don’t spend much on clothing.

But by and large we have reached the conclusion that our path to financial independence will not be based on cutting out the occasional latte or some of the other extreme frugality espoused online, but rather will be paved by working hard, having a stable combined income in the 99th percentile for the country, and devoting a large percentage of our income to debt repayment and retirement savings. We are confident we will reach our goals by age 50 by making a lot of money, setting our investments on autopilot and forgetting them, and avoiding some of the common physician pitfalls of divorce, huge real estate losses, timing the stock market/day trading, failed side business, etc.

What are your keys to financial success?

 

Paying Off Debt: Debt Snowball or Some Hybrid?



One of  my great readers commented after reading my post, Our Debt Paydown Plan, with a few thoughts of his own:

My wife and I are also a dual-physician couple finishing our 4th year in practice. Starting to plan for a family so will look forward to your future posts on how you operate your household. We also practice in Canada – so marginally reduced student loan sizes, a whole different series of retirement account acronyms as well as the benefits of incorporating a small business for planning, although likely disappearing this year.

You state you have adopted a “modified snowball” debt repayment strategy. I recognize this is based upon the positive psychology of getting loans off the balance sheet as rapidly as possible, math be damned. But when I look at your repayment priority it appears to be: student loan A, car loan, student loan B then Mortgage.

A pure snowball would be: car loan–>A–>B–>mortgage and the “avalanche” method, paying highest interest first, would be B–>mortgage–>car–>A.

Just asking for a little more rationale for the approach you have taken. Combined you have stable and excellent income, focused goals, realistic lifestyle expectations, a long runway to retirement and are through the high impact maternity/paternity years – you’ve won at each of these but I don’t follow your strategic decisions for this plan specifically.

My takes:
1. You have committed yourself to debt repayment as a priority (versus accelerated retirement savings) for the better part of the next 10 years. Many would argue that you’d be ahead by accumulating savings and subsequent investment income versus the relatively low interest rates you’re paying down. And now you’re paying your cheapest loan first.
2. Usually debt snowball is setup for individuals with a lot of small loans – so in a series of months the number of loans on your balance sheet grows smaller. You’re a couple years away from the first being removed from yours – and the relief from its final payment a lot of nights and weekends on call away. Do the same benefits apply?
3. Are there specific requirements of your loan refinancing that force you above the minimum payment for some loans versus the others?

I don’t me to challenge you significantly but on the surface it appears that you’re less likely to achieve the benefits of snowball at the expense of paying more over time.

I really enjoyed this comment and I thought the best way to address some of the issues raised was to go through point by point and discuss our rationale for doing what we are doing. First, as a refresher here is our current breakdown of our debt:

It’s not all bad. The good news is that it will all be paid off by my 40th birthday (if all goes according to plan):

So, let’s break this thing down.

You state you have adopted a “modified snowball” debt repayment strategy. I recognize this is based upon the positive psychology of getting loans off the balance sheet as rapidly as possible, math be damned. But when I look at your repayment priority it appears to be: student loan A, car loan, student loan B then Mortgage.

A pure snowball would be: car loan–>A–>B–>mortgage and the “avalanche” method, paying highest interest first, would be B–>mortgage–>car–>A.

Just asking for a little more rationale for the approach you have taken. Combined you have stable and excellent income, focused goals, realistic lifestyle expectations, a long runway to retirement and are through the high impact maternity/paternity years – you’ve won at each of these but I don’t follow your strategic decisions for this plan specifically.

Fair enough. There are some mitigating factors that I didn’t discuss in the original post that lead us to our current strategy of aggressively paying down my wife’s student loans. For cash flow (and psychological/behavioral) purposes we decided when we refinanced our student loans to focus the majority of our capital to one of the two student loans versus equally splitting our money between both loans. Since we were planning on aggressively paying off my wife’s student loans, we felt comfortable taking the gamble and refinancing her loans into a five year term variable rate loan (refinanced through Sofi). We only felt comfortable doing this because we had no intention of taking the full five years to pay off these loans – and therefore the risk of the variable rate increasing dramatically enough to seriously hurt us was low enough we were comfortable proceeding. We then refinanced my student loans (also through Sofi) into a 20 year fixed rate loan, which allowed us to have as much extra money available as possible to pay toward her student loan principal.

Since we budgeted about $12,350 per month to student loan repayment essentially our options came down to the following (rough numbers/even numbers used because I don’t remember the exact details!):

Option A:

Student Loan A: $400,000, rate 4% (fixed) 10 year: $4,049/mo. Additional principal payments of $2,126/mo. Loan paid off 6 years, 2 months from origination date.

Student Loan B: $400,000, rate 4% (fixed) 10 year: $4,049/mo. Additional principal payments of $2,126/mo. Loan paid off 6 years, 2 months from origination date.

Option B:

Student Loan A: $400,000, rate 2.6% (variable) 5 year: $7,116/mo. Additional principal payments of $2,539/mo. Loan paid off 3 years, 8 months from origination date.

Student Loan B: $400,000, rate 5.25% (fixed) 20 year: $2,695/mo. $355,380 principal left upon payoff of Student Loan A. Then refinanced to 5 year variable loan at 2.6%. Loan paid off 6 years, 2 months.

So the interesting thing to note here is that the month that we definitively pay off all of our student loans is the same regardless of which option we pick. What we gain by picking option B (and why we went this route) is: 1. The psychological benefit of more quickly paying off one of the two loans (on target for two years from today). 2. Once my wife’s student loan is paid off our mandatory minimum payments decrease dramatically. Even though we intend to snowball her student loan payment into mine, we are both looking forward to the day when our mandatory minimum loan payments are not $12,000/month. This may allow my wife to go part time sooner. Of course, should the variable rate offered increase dramatically over the next 6 years we may pay slightly more in interest and extend our payoff by a month or two.

While we would love to pay off the car first (we could do so in about seven months if we paid the minimum on everything else in the meantime, or right now if we emptied out a chunk of our emergency fund), we’d rather eliminate the loan with the variable interest rate and decrease our mandatory minimum loan payment. The auto loan will be paid off in the month after my wife’s student loan is wiped out. Then the focus turns to my student loan, and then the mortgage (probably, see below).

1. You have committed yourself to debt repayment as a priority (versus accelerated retirement savings) for the better part of the next 10 years. Many would argue that you’d be ahead by accumulating savings and subsequent investment income versus the relatively low interest rates you’re paying down. And now you’re paying your cheapest loan first.

I am reminded a little of a recent post by the White Coat Investor discussing his decision to pay off his mortgage in spite of the fact he almost certainly could make more investing the money elsewhere. There are clearly psychological benefits to paying down debt that really speak to some of us and not as much to others.

As I mentioned in my original post, we have gone back and forth about what to do with this extra $13,000/month once we only have a mortgage left. Dr. Cory Fawcett makes a compelling argument for paying off your mortgage as soon as possible in this scenario in his book The Doctor’s Guide to Eliminating Debt. Dr. Fawcett makes the argument that being debt-free is empowering and liberating and that the argument supporting carrying a long mortgage for tax benefits or a hedge against inflation is largely overstated. I would tend to agree with him.  

From the point we send in our last student loan payment it will only take us three years to fully pay off our mortgage and be totally debt free – at age 40. As I mentioned in the prior post, since we are very aggressive with our investments (100% equity) due to risk tolerance and our young age/career longevity, I view this equity as being the equivalent to the bond portion of a portfolio. Since we would only be 40 at this point, we would still have a decade or more to aggressively fund our kids’ 529s and our brokerage account. If we decide to go part-time at this point it would be easy to do so given our monthly expenses would now be $17,000 per month less than they previously were.

Essentially the idea of not owing anyone a dollar and still having a decade or more of productive earnings ahead appeals greatly to us even if paying the minimum on the mortgage and investing the difference might result in a slightly greater nest egg at retirement age.

2. Usually debt snowball is setup for individuals with a lot of small loans – so in a series of months the number of loans on your balance sheet grows smaller. You’re a couple years away from the first being removed from yours – and the relief from its final payment a lot of nights and weekends on call away. Do the same benefits apply?

I think they do. I view the debt snowball for us as a safeguard against lifestyle inflation. Currently we allot over $17,000/month of our take home income to debt repayment (along with roughly $8,000/month to retirement savings in various forms). If we continue to maintain that same monthly commitment to debt repayment we will have paid off all of our debt by age 40 and set ourselves up for one or both of us to work part-time at that time and/or to retire by age 50. Of note, once debt free we plan to take that $17,000/month of take home income and invest it fully between 529s/brokerage accounts.

3. Are there specific requirements of your loan refinancing that force you above the minimum payment for some loans versus the others?

Covered above.

Thanks to my readers for following along on our journey. Good luck to you all and please share your stories in the comments section.


Selling Out

Photos in this post are from a recent trip to the beautiful city of Seattle

As I have mentioned previously, I am a partner in a large physician-only specialty group. My specialty – like many in medicine – has seen a lot of sales of groups to large national management companies. Let’s look at a hypothetical example of a physician named Jim.

Currently Jim is production based and making about $540,000/year gross, which after overhead/billing expenses is about $500,000/year. Out of that he pays his own expenses such as malpractice, health insurance, etc. He has a corporate profit sharing ($54,000/year) plan.

Jim’s group is discussing selling his practice. Initial offers are in the $1.6-2 million/partner range (depending on the multiplier negotiated). In exchange he would sign a 5 year agreement to work for about $400,000/year (including paid malpractice, subsidized health insurance, +/- small retirement match) with a clawback of the buyout if he left early. Jim will have been a partner >1 year at that point so he would owe long term capital gains only on the buyout money.

Jim weighs whether this makes financial sense for someone like him in the early stages of his career. If Jim took $1.2 million (roughly the post-capital gains amount he would be left with) and dropped it in to VTSAX, it would be about $4.8 million at age 55 (assuming 6% growth).


Contemplating taking the leap

In exchange for this Jim would be trading some a lot of autonomy. Jim would also be taking a decrease in income ($500,000/year to $400,000/year, but that $100,000 would be at the top of the federal/state tax bracket = taxed at 50%). Jim would also lose his corporate profit sharing plan (only the standard 401k plan is offered as an employee of the new company). Jim could of course leave after five years and pursue another partnership track job or a better employed job, but that would mean uprooting his family.

Jim’s group has been hesitant to sell to this point in spite of massive interest from multiple national suitors. Jim’s group values autonomy and is very “principled” in terms of how they want to practice. People in Jim’s position can often be conflicted if the job currently is pretty good in every way – good money, fair lifestyle, and fair internal governance.  However, from a purely financial standpoint Jim may think $1.6-2 million dollars each in a tax advantaged buyout would make a lot of sense. In spite of the number of years of practice he has in front of him, he may think he would be okay with being a cog in the machine and an employee of a large company for the long term security that the sale would provide.

Of course, ultimately any sale of the group would require an affirmative vote of the majority of Jim’s partners.

Any thoughts from my readers on this hypothetical scenario?


Our debt paydown plan

All photos from our most recent trip to Kauai

 

I have had a few questions from readers about our budget and how we prioritize debt repayment. Here is a snapshot of our current debt and plan:

A picture of our indebtedness

We are essentially doing a modified version of the Dave Ramsey debt snowball strategy. The lion’s share of our debt repayment effort is being funneled into my wife’s student loans (refinanced with a five year variable rate repayment through Sofi). We chose to refinance my student loan (also through Sofi) to a longer term (at the expense of a higher rate) so as to be able to pay more towards my wife’s loan and pay it off sooner. This was done for both psychological reasons (e.g. the sense of accomplishment that will come with paying off one set of our loans) and for more practical reasons – getting rid of one set of student loans significantly improves our cash flow/decreases our monthly mandatory expenditures.  Once her loan is paid off we will take a month or two and pay off our auto debt and then refinance my student loan to the lowest rate/shortest term possible.

So in about two years my wife’s student loan and my auto loan will be paid off, at which point we will use the money we were paying for her loan and the car loan to help pay down my student loan – to the tune of $13,000/month. In 2021 our only debt will be our mortgage.

We have gone back and forth about what to do with this extra $13,000/month once we only have a mortgage left. Dr. Cory Fawcett makes a compelling argument for paying off your mortgage as soon as possible in this scenario in his book The Doctor’s Guide to Eliminating Debt. I would tend to agree with him. It will only take us three years from that point to fully pay off our mortgage and be totally debt free – at age 40. Since we are very aggressive with our investments (100% equity) due to risk tolerance and our young age/career longevity, I view this equity as being the equivalent to the bond portion of a portfolio. Since we would only be 40 at this point, we would still have a decade or  more to aggressively fund our kids’ 529s and our brokerage account. If we decide to go part-time at this point it would be easy to do so given our monthly expenses would now be $17,000 per month less than they previously were.

In some sense there is probably no right answer as long as that money doesn’t get funneled into lifestyle expansion. In the same way that I believe we have good risk tolerance (this will surely be tested at some point by a bear market), we also are quite debt averse. This no doubt influences our decision making.

Even with this aggressive debt repayment plan we conservatively expect to have $2,500,000 in our various investment accounts by age 42 (assuming 6% returns, no increase in salary over this time). From that point on the asset side of our portfolio really starts to take off.

Projections

 

What are your thoughts on debt repayment vs. investing?

 

What’s unique about the two physician/two high-earner couple?

In short, why did I start this blog? What makes the two physician couple unique?

Extra debt
The average graduating medical student in 2015 had a debt load of $207,000, according to the AAMC.  Assuming a tuition increase of about six percent per year (our medical school averaged eight percent per year), in 2017 this would be $233,000. If this medical student, like us, deferred her loan repayment through a four year residency, she would finish residency with an average debt load of $308,000 (assuming a 7% average interest rate). Given that some medical students graduate with zero debt (or close to zero debt) because of family support or military or other service obligations that pay their tuition/living expenses, this is probably a misleadingly low number. I couldn’t find the number, but I would assume the median figure is considerably higher than this.

One could logically deduce then that the average two physician household would then carry a debt of about $616,000 per year upon finishing residency (or potentially considerably higher, as noted above). This is a staggering debt load – and sadly is only increasing with time. As noted in an earlier post, when my wife and I met with our financial advisor (who meets with most physicians in my 200 plus-person physician owned practice) coming out of residency he had never met a couple with more debt than we had. Next time I see him I’ll have to ask if that is still the case.

Extra income
If the hole that we start with is indeed twice as big, at least we have large shovels with which to dig ourselves out, as the White Coat Investor is fond of saying. Of the thirteen physicians at my hospital in my practice I am the only one with a working spouse and certainly the only one making in excess of $250,000 per year.  As I plan to outline in a future post about our financial plan and how we manage paying down debt, saving for retirement and lifestyle, currently a lot of our gross income goes to paying down debt – $17,000 per month ($13,000 of which goes to student loans). Eventually, this extra income will pay off our house (and all outstanding debt) by age 40 and should fund a comfortable retirement (and college/postgraduate education for our kids) by age 50 if we choose to retire early.

Keeping our eye on the big picture

We also have a lot more pretax retirement savings available. I fully fund a $54,000 per year corporate profit sharing plan through my group practice and my wife has a standard 401(k) that she funds to the $18,000 limit. Because we bring home more money we pay for medical expenses out of pocket and can use our HSA as a stealth IRA.  We have the capital to do annual Backdoor Roth conversions to the maximum allowable $5,500 each. Rather than wasting time trying to beat the market, because we have a high savings rate and stable income (and a long time horizon) we can invest 100% in equity index funds using a simple investment allocation as espoused here.

Tax issues
Of course this extra income comes with (disproportionately) higher taxes. The marriage penalty (also explained well by one of  my favorite sites Financial Samurai) cost my wife and I a painful $29,000 last year. We have paid AMT each of the past three years.

Our combined federal and state effective tax rate was 37% in 2016. Our marginal tax rate was a staggering 49% – a decision that really comes in to play when deciding if it is worthwhile to pick up that extra call in December.

Childcare issues
Because we both have busy practices with the requisite demanding schedules we require a nanny for childcare (yes, again a subject of a future post). This is a luxury that we think is not only beneficial for our children, but also necessary given our hours. It also means that we have certain obligations as a household employer. We must file all applicable federal and state nanny tax forms (and register as an employer). We pay payroll taxes, FUTA tax, and workers compensation taxes – all of which cost us thousands of dollars per year. But after a massive daycare failure when we first started working as attendings (and no family in town), we quickly realized a nanny was the only feasible way for us to work full-time. We have been lucky enough to find two outstanding and experienced nannies and our kids have benefitted but it is certainly costly and burdensome.

Emergency fund
Two physician households probably do not need to follow the conventional wisdom in regards to having an emergency fund equivalent to six months of living expenses, given the high earning potential and stable income that each partner provides. We currently have three months of expenses set aside in a high yield (at 1.2% this seems like an oxymoron) savings account. Since at this point the majority of our expenses go to debt repayment, this number will go down over time allowing us to have more money invested in our brokerage account and less sitting in a savings account that doesn’t even keep up with inflation. More important than this small sum of money is the stability that having two breadwinner incomes provides. An unforeseen medical leave or prolonged maternity leave is easily weathered versus a household totally dependent on one income.

Life insurance/disability insurance
Likewise, the two high earner household with two breadwinners is inherently less dependent on one income and therefore can reasonably have smaller life and disability insurance policies – and drop or reduce those policies at a younger age. I will cover our disability and life insurance coverage (and experience with our excellent agent) in a future post in more detail.

What are your thoughts? Any other key differences between the two physician household and everyone else?

Our story: where we started, where we are, and where we are going

Medical School

My wife and I met and fell in love in medical school. We each graduated from undergrad without debt thanks to scholarships, working, and help from family but we attended an expensive private medical school and graduated with a significant amount of debt – mostly due to the high cost of tuition, but also due to taking out the full cost of living expenses allowed and living more comfortably than we probably should have (a trip to Cabo San Lucas and a particularly lavish dinner at Fogo de Chao are among my more prominent memories). White Coat Investor didn’t exist when I started medical school and even if it did I probably would not have been a devotee as a 21 year old MS1. The couples match and dual residency interviews proved to be a grueling and expensive process – one that many physician couples know well. But the possibility of not  matching in the same city compelled us to interview broadly and rank many programs. Thankfully we were both hard workers and had done well on board exams and clinical rotations and matched in our second ranked combination of programs in an amazing (but expensive) city. In order to finance the couples match/interview process we took out a $20,000 private loan at 8.5% interest (>$40,000 by the time it was paid back after residency). Talk about ouch.

Residency

Residency was a busy time. We were finally making money! We elected not to sign up for Income Based Repayment for a few reasons. We were in a high cost of living city and did not have a tremendous amount of extra money. I was training in a high paying specialty and had no plans to work for a nonprofit and also had doubts about whether the Public Service Loan Forgiveness program would truly honor its commitment to forgive loans for those working for nonprofits for 10 years. My wife was in a primary care specialty and could have potentially benefitted from PSLF, but we did not pursue this option and instead put our loans in forbearance. It was painful watching the debt accumulate, but what choice did we have? We did a few things right, like funding our respective 401(k) accounts and benefitting from a modest employer match.  We avoided the numerous predatory financial “professionals” that our respective programs inexplicably sent our way: the Northwestern Mutual insurance agents offering to take us out to Ruth’s Chris Steak House but of course actually pedaling whole life insurance; “student loan advisors” offering to basically fill out simple IBR paperwork for you in exchange for a small $1,000 fee. Even as a financially unsavvy junior resident I remember thinking how much money would an insurance agent have to  make off of my future income to justify taking out an entire class of residents to a $100 per plate dinner? The whole thing struck me as a lot like a timeshare presentation. This instinct served me well. The fact my program director sent those emails to us and yet never provided any form of financial education for the residents is bewildering to say the least.

We rented an apartment and later a house in residency. We had the first of our three children, saved a small amount of money, and towards the end of residency I started to take an interest in personal finance and discovered White Coat Investor and eventually many of the excellent personal finance/investing books available. I took counsel in one of the few attendings at my program who had spent the majority of his career in private practice and learned as much as I could about the different practice models in my specialty, what groups to look out for in the region, etc. Our job search was much less expensive and much more fruitful than the couples match.

Prior to finishing residency (but while still young and healthy) we signed up for own occupation disability insurance coverage based upon our new attending contracts. We took out term life insurance policies with highly rated companies. Based on my new found knowledge and our new lucrative attending contracts we refinanced our student loans through Sofi at less than 4% each – a substantial savings over our Stafford and Graduate Plus loans that averaged a little over 7%.

Attending Life

We took jobs in the same region of the country that we did residency. I landed a partnership-track position with an excellent physician owned practice and my wife landed an employed position with a great physician-friendly practice. We have made a few mistakes in our first three years in private practice, but a lot more positive steps. I became a partner in my group, we have had two more children, and settled in our new community. Once a month, I update our debts/assets in Excel – a process that we find affirming. Our first month in private practice our net worth calculation read a shocking -$726,000. Three years later (in a couple of months) we will have a positive net worth.

Net Worth vs. Time

The graph of debt vs. time has not been quite so smooth. We have had a few hiccups including selling the house we initially bought when we started our attending jobs and purchasing a more expensive house (but a much better home for us). We also financed a new car when one of our vehicles started to break down and became too unreliable. Even though selling our first home was never the original plan, we made the most of it by saving a lot of money on real estate commissions through a for sale by owner sale and netting $70,000 in profit thanks to a market uptick (fortuitous timing). We bought our new home for sale by owner and were credited the commission amount off the listing price. By our math we saved about $90,000 through this process and ended up with a home we plan to be in until the children leave for college.

Debt vs. Time

We meet once a year with a fee only financial advisor (the time for which is paid for by my group practice) to discuss asset allocation (a subject of a future post but exclusively low cost equity index funds through Vanguard), review changes in net worth and debt over the past year, and to discuss our plan moving forward. This advisor meets with most of the new physicians at my large practice. At our first meeting he told me that we had the dubious distinction of having the most student loan debt of any couple he had ever met with. At our last meeting he commented on how impressed he was at the progress of the turn around and how he was looking forward to our net worth vs. time graph starting to take on an exponential rather than liner curve in the years to come. At this point we don’t have a lot of questions for our financial advisor given my new-found interest and self-education in investing and personal finance but we still find the annual meetings to be a useful “state of the union” exercise.

The Future

Being a bit of a math nerd, I have fun playing with compound interest calculators and doing future value calculations to project our future portfolio. In order to be conservative, these calculations assume that we keep working at the same jobs for the same income and that our house does not increase in value.

Projections

I plan to update this post periodically to track our progress and share both our successes and failures in our pursuit to attain financial independence.

Share your story in the comments. What have you done well and what could you do better?

Physiciancouple.com: An Introduction

Welcome to our website. My wife and I are physicians in private practice. I became interested in personal finance later than I should have in life and therefore made some mistakes along the way. Since finishing residency I have become passionate about personal finance and educated myself on investing, debt repayment, and taxation. For all of the great financial resources out there (both online and in books), there is not a definitive one-stop-shop for two physician/two high earner households.  I intend to build this website into that and hopefully along the way build a community of like-minded individuals.

Future topics include:

  • Our story: where we started, where we are now, and where we are going.
  • Financial missteps we have made on our path toward financial independence.
  • Financial victories: what have we done right.
  • Starting attending life as a two physician couple: prioritizing retirement, debt repayment, and lifestyle expansion.
  • Debt repayment strategies for the two income household.
  • The role taxes play on the two high earner household.
  • Parenting in the two physician household: childcare options, part-time work, and more.
  • Avoiding financial predators: our experience dodging the leaches and financial predators disguised as financial advisors and insurance salesmen.

Note: I will have affiliate agreements with sponsors of the site, but I will continue to only recommend vendors and products that we have personally used and can vouch for.

Recommended Reading: Where To Start

Here are some books that have been helpful in our journey towards financial independence (I will update as I find more gems):

The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing
Where everything started for me in terms of my interest in personal finance. An excellent starting point for any physician interested in personal finance.

If You Can: How Millennials Can Get Rich Slowly: A newer e-book offering by William Bernstein (a retired neurologist). This is a great introduction to personal finance for anyone intimidated by investing. Dr. Bernstein’s other books and articles are also excellent. He writes in plain, common-sense language that is easily understood.

How to Think About Money: Another common sense book, written by long-time WSJ columnist Jonathan Clements. Eminently readable, this makes a great introduction to personal finance.

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy: Thomas Stanley and William Danko’s classic book that makes a compelling argument against lifestyle creep. A recommended read for the senior resident/junior attending.

A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing: Burton Malkiel’s classic, updated. I was initially intimidated by the size of this book and Dr. Malkiel’s academic pedigree but this is a readable and even entertaining look at investment strategy and why passive investing through index funds is a proven winner.

The Doctor’s Guide to Eliminating Debt: While conventional wisdom would tell you to invest as much as possible and forego paying off low interest debt, Dr. Cory Fawcett makes a compelling argument for the benefits of paying off your mortgage as soon as possible (along with all other debt).