For an audio version of this post, please click on the speaker icon (top left).
Welcome to this episode of The Doctor’s Bill (Can You Afford It?).
Wonder if you should buy that big ticket item or not?
Well here’s your chance to have a wealth management expert, Johanna Fox Turner, of Fox & Company Wealth Management analyze your overall finances and make a final verdict on whether or not you can indeed swing for the fences and splurge on yourself or whether you should just walk away.
[Johanna and I have no current financial relationship]
Disclaimer: This is not meant to be a substitute for paid professional advice but only meant to serve as a suggestion/guideline.
The following are the details from our submission form:
Item/Experience Desired:
Paying children’s complete college/grad school bill (they both plan on college and medical school).
Approximate Cost:
$800,000
How do you plan on paying for this item/experience?
Savings and income over the upcoming decade
On A Happiness Scale of 1-10 (10 Being Happiest), rate what this item/experience will do for you A) Short Term and B) Long Term:
10
Age:
46
Gender:
Male
Occupation:
Physician Business Owner (Family physician)
Wife is a pharmacist
Marital Status:
Married
Any Children (If so please provide ages)?
2: ages 14 and 16
How Many Years Till Planned Retirement?
21
What is your total household income?
$1.2M (all sources: business profits, real estate profits, interest income)
State Income Tax (if Any)
$0
What is your % Annual Savings Rate? (savings/gross income)
50% of gross pre-tax income
Estimated Annual Living Expenses (Current):
$170,000
Estimated/Desired Annual Living Expenses (In Retirement):
$120,000
Market Value of Primary Home [For Renter =$ 0]
$2M
Additional Real Estate Holdings Equity (Market Value-Debt):
$3M ($4.5M-$1.5M loan @ 3.5% 10 year fixed) with rental income about $360k before debt service.
Current Liquid Asset Value (Savings, Checking, Etc.):
$1.8M (savings accounts and 12-24 month CDs (2.4-3% APY)
Retirement Assets (401k/IRA/HSA):
$1.8M
Brokerage Account (Taxable):
$250k
Miscellaneous Asset Value (Please elaborate):
$4M (business)
Mortgage Balance:
$360k (2.75% 5 year arm, resets in November to over 5% so plan to pay off in full from savings at that point)
Student Loan Balance:
$0
Additional Liabilities:
$49k credit cards (0%); 75k auto loans (2%)
Unfunded Future College Costs & Years Left Till Needed:
$800k. 1/2 needed after 2.5 years, 1/2 needed after 4.5 years.
Other Unfunded Goals and Years Remaining (Today’s Dollars):
$0
Any other pertinent information not addressed?
I am a family physician with essentially no financial training other than that which is self-taught or instinctual.
I am a bit paranoid about emergency funds and therefore currently enjoy having more than 1 year reserves to cover a major downturn.
I don’t like the currently lofty market valuations and, although market timing is generally not recommended, I would consider investing some of this money after a significant downturn so I catch the equivalent of a 2009 market bottom, otherwise I see a Japan like stagflation coming to the US over the next decade.
Business and commercial real estate generating roughly $2.5M with expenses roughly at $1.2M
Have $22k/mo loan debt which will be paid off within 8 years.
We tithe 10% of our post tax income ($80k).
The youngest child should be done with educational expenses after 13 years.
If we are still doing well would like to pay for their wedding and help with their first homes.
Also not sure if I should let them take out some debt so they have some “skin in the game” even if we ultimately decide to pay it off for them.
So does this family doc have what it takes to give his children a full ride to both undergraduate and graduate school?
Or does gifting his kids higher education ends up lowering his retirement outlook?
Click on the Doctor’s Bill Image and find out the verdict:
Click on the Bill (image) and find out if can afford it or not
After you see the verdict please come back to this page and comment whether you agree or not with the decision (and no cheating by looking at comments first!)
If you would like to submit your own Doctor’s Bill request please fill out the submission form.
Note:
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Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
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Dr. Don has first world problems. Currently maintains a highly conservative balance after ‘winning’ the real estate game and positioned to double down with that high cash balance. He continues playing the interest arbitrage credit card floats despite this and that’s fun to see him doing that ? Like Johanna’s assessment, his largest benefit would come from optimization of his current assets and planned spends. 529 funding for the kids for both college and grad – every penny earned now — even if continued cash funds, is 2%+ tax free then it’s now sitting in taxable funds. One for each… Read more »
Thanks star trek doc for a very insightful comment. Fully agree with your assessment. With what he has accomplished even a very conservative approach is not going to do much for lifestyle capability in retirement (when you won the game you stop playing).
This is an interesting series! It gives a nice glimpse into the financial lives of other people’s lives.
This family doctor’s financial success is staggering. I’m jealous!
Let’s see, my kids will be college age in about 13 years. My chance of equaling his financial success in that timespan? Very low, if I’m only relying on my W2 income.
I shouldn’t feel sad about that, but to some extent, I do. It’s the danger of comparison!
— TDD
Appreciate the compliments TDD.
I find the analysis always fascinating myself and there have been some truly incredible financial success stories shared in this series. The most successful so far have been docs who have become entrepreneurs and started their own business (one who was I believe primary care and became a decamillionaire). Gives an example of how a business can be where true wealth is made
Yeah this one didn’t require a lot of brain power to determine that they’d be just fine. $112,000 into SEPs? Wowza!
It’s great that they’re looking to take care of their kids so well. I personally vote that you make the kids take out loans, then surprise them by paying it off at graduation. It’ll give them a sense of responsibility/an idea of the weight of their decision to pursue medicine but still keep the burden off them. And hopefully they can use all the money they *would* have paid to start funding 529s for their future children too!
Hey Abigail,
That really is a great suggestion about the surprise payoff at graduation. Of course it will end up costing more doing it this way but the lesson of responsibility may be worth it. And yes hopefully they will pay it forward with their kids.
Thanks for dropping by and dropping some knowledge 🙂
I don’t have much to add here, just my snaps for this hard worker.
I think the whole loan fake-out thing reallllllly depends on the individuals. For some, that crippling weight may be so overwhelming and seemingly impossible to bear that the plan could backfire. But for others, it’s a great way to motivate the student and then give the grad gift of a lifetime! Just depends 🙂
Thanks MFM. True it might even cause an individual to choose a medical specialty that they were not too keen on just so that they would be able to pay back a loan that technically they didn’t have to. Great counter point.
Wow! Definite thumbs up. Kudos to them. That is an amazing amount of net worth for a 46 year old family physician home. That’s wonderful.
I was floored too. It really goes to show that the business side of medicine can be far more lucrative than the clinical side.
True Dat I ran my practice for 30 years, and only spent 2 years as an employee after we sold out till I retired. Hated being an employee
My suggestion is for Dr Don to put some if not most of his cash into a tangent portfolio. A 21% US stock market fund plus 79% in TIPS is expected to return 5.68% WITH 5.73% risk. A tangent portfolio is the efficient frontier portfolio that returns the most return for the least risk. TIPS are inflation protected. In a 21/79 stock to bond portfolio if the stock market drops in half with this portfolio, the portfolio value would still be 90% of its original value. If you re-balance yearly you will keep a constant ratio between stocks and bonds… Read more »
Good point about the tangent portfolio. With essentially already winning the game, capital preservation should be a priority.