For an audio version of this post, please click on the speaker icon (top left).

 

 

For those just joining us, The Physician Philosopher had just taken the X-ray table to its very limits and for the first time a multipart X-ray Beam was required.

Please refresh your memory if needed with part I.

Alright TPP, sorry for the equipment malfunction but let us continue.

19) What is your advice to the medical student/resident/early physician who may be facing a monumental amount of debt early on in their career?

 

Stick with me here.

This is going to be a long, but important, answer for those who need it.

The quick answer – that is debt-only focused – is this, you must make a plan early in your career.

If in the early stages of medical school, look into state forgiveness programs.

My home state, North Carolina, offers $14,000 per year (Tax-free) for each year – up to four years – that you work as an attending physician once you are finished.

Many states offer comparable programs.

If you are a fourth year medical student, please file your taxes so that you can apply for Income Driven Repayment (IDR) programs.

Then, as an intern it becomes an “assume REPAYE is right unless you can prove it wrong” because of the effective interest rate reduction provided through the REPAYE subsidy on unsubsidized debt.

This interest rate reduction normally provides a better rate than what can be provided through a private refinance.

For this reason, REPAYE is usually the best option regardless of whether you plan on privately refinancing or pursuing PSLF.

If REPAYE isn’t right for you – because you don’t qualify or are married to a high-income earner where REPAYE doesn’t make sense – then you have the choice to pursue PAYE, IBR, or to privately refinance.

ICR isn’t a great option, in my opinion.

If your debt to income ratio is > to 1 (i.e. you have > $250,000 in debt and earn $250,000 a year), then you should really consider doing Public Service Loan Forgiveness, particularly if you have a long training period.  [75% of hospitals are 501(c)3 or state organizations that meet PSLF requirements].

In this case, my preference would be PAYE because it limits the amount of interest that can capitalize and it also limits the total monthly payment – unlike REPAYE.

Make 120 payments and get tax-free forgiveness through PSLF.

The game here is to minimize payments and maximize forgiveness.

For you ethics majors out there: don’t hate the player; hate the game.

If your debt to income ratio < 1, then consider a private refinance during training to minimize the total amount of debt.

At the time of this writing there are four companies that will refinance your debt as a resident physician.

It bears repeating that REPAYE is usually better than privately refinancing – if you are not married to a high-income earner – because the of the effective interest rate reduction.

20) What is your advice to the early career physician when they have a high-debt burden and ask you whether they should invest or pay down debt?

 

This is one of the most common questions that I receive both in real life and through my website.

It’s an important question to answer given that 80% of students come out of medical school with debt, but they feel the need to save for their future at the same time.

This is my algorithmic way of thinking through this question:

Room to Invest Your Money While you Pay Off Debt

Debt to income ratio is <1 OR you are in PSLF

(i.e. $250,000 in debt with $300,000 in annual income)

1. Max out your 401K/403B for both you and your spouse (if married) to at least receive all matches and contributions from your employer.
   1. Make the above in a pre-tax fashion so you can put extra post-tax money towards your debt.
2. Max out any governmental 457 for you and your spouse, if you have one.
3. Max out your backdoor Roth space for both you and your spouse (if married).
4. If in PSLF, make minimum payments and max out other investment vehicles (taxable account, etc).
5. If not in PSLF, privately refinance and use any extra money after Step 3 towards destroying your debt. Pay it off in 2-5 years.

 

Paying Off Your Debt at All Costs

Debt to income ratio is >1.5-2

(i.e. $450,000-$600,000 in debt; $300,000 in annual income)

1. Make sure you take advantage of PSLF, if you can!  In this situation, starting PSLF now – even if you’ve missed out on previous payments – may still be the best choice.
2. Max out your 401K/403B for both you and your spouse (if married) to at least receive all matches and contributions from your employer.
   1. Make the above in a pre-tax fashion so you can put extra post-tax money towards your debt.
3. Every extra dollar should go towards debt in this situation if you are not pursuing PSLF.
4. See the step above this… every extra dollar towards debt.

 

21) Do you have an annual retirement spending goal that you are aiming for?    

A target net worth?   

What would be your exit strategy after achieving these goals.

Absolutely.

After all of our debt is gone (mortgage, student loans, car loans, kids’ college educations, etc) we want to be able to spend $100,000 post-tax annually.

Remember, this is just to cover health care, food, utilities, and leisure.

That money should be able to stretch pretty far.

Not to jump to the next question early, but I’ll likely become financially independent by age 45, and start working part time.

I plan on retiring around age 50.

My youngest kid will still be in college at this point.

My FI number is around $2.5 million.  ($100,000 annually x 25).

Taking out 3.3% annually – which is pretty safe – would get us right at $100,000.

That said, I’ll work an extra five years to protect us from a long retirement timeline – and the ensuing bear markets that will likely occur and cause problems with SORR – and continue to save closer to $3-4 million.

Take note, that the above plan does not include my wife’s pension as a public school teacher, social security, any income I could be earning from side hustles, or the money put into my kids’ 529 if they earn full-rides.

That’ll all just be gravy on top of the outlined plan above, which will all come from a healthy savings rate and investing.

22) Another trend that is sweeping the physician blogosphere is the concept of FIRE (Financial Independence/Retire Early).   

What are your thoughts on this and do you see leaving the medical profession earlier than what has been the traditional timeframe?

 

My thoughts on this can be found in the guest post article I linked above on CampFIRE finance.

Essentially, I think FI is a powerful tool to combat physician burnout.

When physicians achieve FI or are on a pretty sure plan to get there, I truly believe it will make them better doctors.

I haven’t personally seen a lot of physicians leaving the workforce early, but I do realize there is an ethical dilemma here that some people get hung up on.

For example, I say that I’ll retire at age 50.

This means that I potentially had 10-15 more years to give to the patients in our country.

With the doctor shortage that will likely continue, don’t I think this is a problem?

Yes and no.

Even after I retire, I’ll probably do mission work or locums work to keep my skills up and to fend off boredom.

I just want complete flexibility in my schedule to pursue my desired life in retirement.

The trend towards FIRE will only get bigger and bigger as administrators fail to fix the burnout problems that doctors now face.

23) What is your greatest fear, if any, you have in retirement, and are there any ways you are addressing that now?

Most people who have thought about this consider two things to be their greatest fear in retirement given the current situation in our country.

Number 1 is health care.

 

It’s really expensive to pay for health care in retirement right now.

That can really steal a lot of the money you planned on spending elsewhere.

Number 2 is the problem known as sequence of return risk (SORR) where you face a really down market right after you decide to retire.

In a risk adjusted portfolio, hopefully you’re exposure to this would be limited, but the truth is that a long bear market right after retirement can sink the ship.

This is why it is advisable to have a couple years worth of living expenses saved in cash when you retire; to have a risk adjusted portfolio of a high percentage of bonds/TIPS; to live a flexible life that can adjust in down years; and to have more money saved than you actually need so that you can take out the least money required.

 

Xrayvsn, it has been an absolute pleasure!  Thanks for having me on.

 

 

 

 

Again thank you so much for your time answering these questions and being placed under the “X-ray beam. (not once but twice)”   I look forward to your continued posts and wish you much success.