My first case study is a friend from college. She graduated with no debt from college due to an academic scholarship and generous parents. By the end of medical school and residency, she had about $200,000 in student debt. This brings us to now, almost 3 years after entering practice as a physician.
Current Spending: (estimates as she does not track her spending)
$2,500/mon on rent and utilities
$2,000/mon student loans
$400/mon eating out
$450/mon travelling (couple trips a year)
Total spending: $5750/mon
Annual: $69,000 (65.7%)
$3,000/mon (toward a down payment for a home)
Total saving: $3,000/mon
Annual: $36,000 (34.3%)
Assets: $100,000 in cash/savings
Has not given much to retirement.
Does not contribute to her 401k (expresses a desire but is not quite sure how to sign-up). Thinks there is a 5% match!
Knows that there was some automatic retirement contributions made during her residency years but is unsure how to access this information.
Her financial and lifestyle goals:
Pay off her student loan debt.
Buy a house between now and Oct 2018 with a $100,000 down payment.
Pay off house to minimize total interest paid.
Whenever she does retire, the Caribbean sounds nice.
At her current spending: $69,000/mon x 25 (using the rule of 4%) = $1,725,000 needed to retire
Using the Calculator, at her current savings, an compound interest rate of 6%: Nola can retire in 21 years.
If Nola, were to spend like a resident ($45,000/yr net avg while in residency) and save the rest, her projected retirement using the variables above would be in: 12 years
Annual spending: $45,000/yr
Amount needed to retire using 4% rule: $1,125,000
Annual savings: 105,000 – 45,000 = $60,000/yr
- Consider tracking spending with a helpful tool like Personal Capital.
- Speak to HR rep and enroll in 401k. Max out 401k.
- Make a point to track down information for retirement contributions made during residency.
- To make a big impact on retirement goals, consider living like a resident, and saving like a physician.
- Open an investment account like Vanguard or Betterment and initiate auto-deposits.
- Consider a budget with any number of free budget spreadsheets available.
Either way, with a hefty salary, Nola, age 34 could still leave the workforce before age 65 (traditional retirement) and retire in the Caribbean. If she lived like a resident, she could stand to reach that goal 9 years earlier!
Comment below with your thoughts!
After I did the case study with Nola, she contacted her HR person at her current job and was able to locate information from residency for a 403b. She learned that her employer contributes 5% of her salary after 1 year of work even if she does not contribute! Free money! And she had a balance of $17,000 in her 403b plan from residency which she has rolled over to her 401k. Kudos to NOLA on a job well done! This is one FIRE’d physician!
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