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:
Build Retirement/First Home in a Very High Cost Of Living (VHCOL) area plus a multi-million dollar Nest Egg
Approximate Cost:
$1.2 million dollar home
$2.5 million nest egg
How do you plan on paying for this item/experience?
Cost of Land: $500k (approved already for land loan $260k with balance from expected savings of $240k by June 2019)
Planned Home Construction in 2027: estimated at $700k (includes $200k buffer for over budget on a $500k build) with 20% downpayment ($140k) and rest in construction loan ($560k).
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:
47
Gender:
Male
Occupation:
Specialty Surgeon
Marital Status:
Married
Any Children (If so please provide ages)?
0
How Many Years Till Planned Retirement?
8 years (possibly semi-retire and work as needed to pay expenses: I want to avoid drawing from my retirement nest egg until age 65 and be mortgage free by 65)
What is your total household income?
Last year income (2018) was $850k but plan on scaling back:
2019: 775k
2020-retirement: 500k/yr with take-home of about $320k
What is your % Annual Savings Rate? (savings/gross income)
42% currently
Current Annual Living Expenses :
$100k/yr
Estimated/Desired Annual Living Expenses (In Retirement):
$150k
Market Value of Primary Home [For Renter =$ 0]
$0
Additional Real Estate Holdings Equity (Market Value-Debt):
$0
Current Liquid Asset Value (Savings, Checking, Etc.):
$50k
Retirement Assets (401k/IRA/HSA):
$250k
Brokerage Account (Taxable):
$145k
Miscellaneous Asset Value (Please elaborate):
$0
Mortgage Balance:
$0
Student Loan Balance:
$0
Additional Liabilities:
$0
Unfunded Future College Costs & Years Left Till Needed:
$0
Other Unfunded Goals and Years Remaining (Today’s Dollars):
$0
Any other pertinent information not addressed?
I graduated late at 45 years old and we won’t have the benefit of decades of compounding retirement accounts, so we are making up for that with brute force savings.
We are trying to make a plan for how to retire in 8 years at 55 with enough to afford a house in a VHCOL and adequate retirement funds.
I am pretty burned out and will cut back next year to a schedule that I believe will preserve my career for another 8 years.
We have no debt (paid $450K in debt in 2 years after fellowship) and live on about $100K a year.
FatFIRE for us would be $150K/yr withdrawal.
We don’t have a house, and we are trying to figure out how afford a decent house in a VHCOLA [Very High Cost of Living Area] and not be chained to a job for life.
I am a surgical subspecialist and can make $300-500K with locums pretty reliably.
Also at age 55 I could work few days a month to cover expenses and not touch the retirement for 5-10 years.
So is this late bloomer specialist surgeon on track to achieve his dream and exit medicine in less than a decade?
Or does his plans to build in a high cost of living area put the doctor on a shaky financial foundation?
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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Why decide now what will be possible 8-10 years from now? Maybe the doc will exceed expected income, savings, and investing returns and have plenty of money to build the house and retire. Or, more likely, perhaps the doc will earn less, save less, and or experience less favorable investment returns over the next 8-10 years. There is no reason for the doc to abandon this goal, if it is what he wants, but he just might need to tweak things as he draws closer to his retirement age. This might mean working longer or having a more modest retirement… Read more »
Thanks for the insight Vagabond. You are spot on about how difficult it is to project something that far into the future. A lot might have to do with how the markets behave etc. Your suggestion is a valid one. My concern is it looks like they are close to locking in buying the land right now which would force their hand years from now.
Or they could buy the land, recast their goal to be measured in dollars! He may “want” to retire, but may have to keep saving. Consider building retirement funds before the house. YES, failure means he sells the land and keeps the retirement fund.
Not bad in LCOL area.
Thanks Tim for the comment. This decision could easily swing to the positive if they did geoarbitrage to their advantage. But it looks like a reverse of the situation they are in going from low to high cost. Financial derailment is much more worrisome in that scenario
Thumbs down with the current plan. Too many things can derail it. If would consider buying a LCOLA house in a LCOLA area it could easily work.
I agree the vhcola is the part that concerned me the most. Especially if you want to retire and have golden years can get way more bang for the buck in a low cost area
I’d recommend putting the land on hold. Who knows what it will cost to build in 8 years or even if you will want too. Meanwhile you have a taxable asset that may not appreciate and has no current value. Figure it out then as things change. Add to that you currently have little savings. Going out on a limb for something on what if’s in the future is a bad idea imho.
Appreciate the input FTF. I know there is a part in the back of mind where lock in prices now especially if area prices have shown yearly increase in past (but past does not predict future).
Carrying costs of land do add up with property tax as well as potential liability issues if something happens on it.
Like you if I was doing this I would have to have the purchase of land and construction as an almost simultaneous event. If can’t afford it at that time then you have your question answered if can afford it or not
Just fyi for all posting about the COL area – it is my understanding that the HCOLA for the WJTs is non-negotiable. I overlooked making that point in my commentary, and so want to clarify why moving to a LCOLA instead was not an adjustment I recommended.
Perhaps WJT will stop by and comment about why they want to have this plan in place so early in his career – not something we discussed but Vagabond makes some encouraging points.
I think FullTimeFinance’s recommendation to hold off on the land purchase is a good one, also.
Just because Dr X expects to be mortgage free at 65 does not mean he will be free from the cost of living. A recent 2018 study of the cost of financing a cancer diagnosis is 92K/yr. The average patient with serious cancer was 100% out of money in 4 years, as in dead broke. 4/5 survive cancer meaning you have an 80% chance of being broke with decades left to live. Sandra Day O’Connor retired from the supreme court to care for her Alzheimer’s husband who went on to die after a long illness. Justice O’Conner is now 85… Read more »
Valid points. Health can be the greatest disruptive issue in any financial plan.
Interesting point. If the remaining spouse is healthy, running through the portfolio would be a horrible ending. If Alzheimer’s occurs with the surviving spouse, the spouse would end up on Medicaid. No children to worry about, at least, but not a happy ending for a financially successful professional/spouse. Should that come about while both spouses are living, this could make a great case for a SPIA. Always a crap shoot if you’re not truly FI.
Sipa Schmipa, why pay an insurance company? It makes a great point for a 50/50 Roth account funded this minute before any other account is funded and before he “cuts back”. At 48 if he Roth converts $100K actual dollars (post tax) for 4 years and 6%, at 52 he’d have 437K in his Roth, and 1M by 65 with no added funds and 3M by age 90 with no added funds. You can buy a lot of nursing home care for 3M for you and the ol’ lady. At the half way point if necessary you “COULD” start to… Read more »
I agree. My original comment was directed to them (or anyone) experiencing Alzheimer’s later in life, not planning for it today (as few do). In those cases, a SPIA is probably the best alternative for the surviving spouse to preserve remaining wealth.
I didn’t mean to be curt, just pointing out the value of planning. $500K of SPIA gets you 30K/yr. So let’s say you get diagnosed at age 70 and pay $500K The average course of an Alzheimer’s diagnosis is 12 years so your 500K buys you $360K of support. You loose the insurance company wins. Saving $11/yr x 6 yrs in a Roth by age 30 gets you 1M at age 70 and 3M at age 90 if you don’t tap it. If you tap it at 70 (get diagnosed) at 3% you get 30K/yr TAX FREE forever and it… Read more »
No disagreement from me and I didn’t think you were being curt, dearest Gasem. Very important thoughts not just for the WJTs but others who are following this post.
Not going to lie, was a little distracted by how he doesn’t have student loans. And I forgot about inflation for a second there, whoopsies ?
But… there are too many “what ifs” in this scenario for me to be comfortable (but then again, I’m a chronic over-worrier).
It seems that Doc needs to lower expectations for either the amount of time he will need to work or the cost of the lifestyle/home he is eyeing — it’s just banking on a LOT of things to go right, and nothing to go wrong otherwise.
You and I are cut of the same cloth in terms of being worriers. I try and plan for doomsday scenarios that will likely have me working a couple of years longer than I need to but in the end it’s better to work too long than not enough (plus I’m still going to be relatively young when I make my swan song). If things fall perfectly, yes you can have your cake and eat it too. But rarely does life play out the way it was envisioned so have to build a buffer and the above scenario doesn’t give… Read more »