# Starting late - suggestions?



## turp (Jun 13, 2010)

Hi, I am getting started very late in life planning and saving for retirement. I was hoping to gather some suggestions, tips, further reading suggestions from the people here.

Briefly, I will be about 44yo when I am able to start seriously saving for retirement. I was one of those career students in the 20s and early 30s - I completed a bachelor's degree, and then not knowing what I wanted to do I spent 2 years just doing general undergraduate courses. After that I completed a master's degree, and then I decided I wanted to go to medical school, so I had to go back to undergrad to pick up a few more courses. Medical school for 4 years, residency another 5 years, and then I can start working.

By the end of medical school and residency, I will be about $160,000 in debt but earning $300,000 - $500,000 depending on where/which hospital I work. $130,000 of the debt will be at prime at a bank LOC (2.5% for now), and the remaining $30,000 will be student loan (about 8%). I am in residency now earning about $55,000/yr with little savings. I have started repayment on the $30,000 loan but am only paying interest on the $130,000 loan. The low interest LOC is near maxed out which is why I haven't moved the high interest loan over to it.

My questions - should I start saving now or focus on paying down the student loan and LOC with any extra money? When I finish residency, how aggressive should I be in paying off the low interest LOC - all extra money or save for retirement at the same time? What would your strategy for the next 15 years be given my situation? Thanks.


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## Cal (Jun 17, 2009)

Based on your eventual earning potential....

I would not start saving for retirement yet. Pay off your debts as aggressively as you can, when you can. Pay off the higher rate loan first.

I believe you annually get salary increases throughout your residency as well. Which will help to come up with 'extra' money to pay down the debt, assuming your lifestyle stays the same.

Yes, that is alot of debt. And as a student, it probably feels like a big number. However, you will earn more in the future too. Student debt arguably is the best type of debt to have. Live reasonably for 2-3 years after finishing and your probably won't even have any debt and probably will have a downpayment on a home.

Recommendations beyond 3 years of graduation are probably too much of a stretch in that you really don't know where you will be working/living at that time.


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## MoneyGal (Apr 24, 2009)

You aren't starting late. You made a massive investment in your human capital which will pay significant dividends - far above what the average Canadian worker can ever hope to earn - for as long as you choose to generate them. 

In addition, from a life-cycle economics point of view, what you are doing now - borrowing to invest in human capital - is perfectly rational. It does not make sense (looking at life through that lens) to try and pay off your debt now. 

But given the choice between saving money and repaying debt; I'd repay the debt. 

You may also want to check out the services provided by MD Management. They offer seminars etc. directed to med students and residents. I think you could benefit from talking to others who've been where you are now. 

Disclaimer: I am a former financial advisor who at one time worked exclusively with medical professionals. I am no longer an advisor but I have knowledge and experience with these issues.


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## MoneyGal (Apr 24, 2009)

Coming back to say my co-author on my forthcoming book uses med students as a specific example in his article in today's Wall Street Journal. Here you go. 

_"Recall that the dividends you receive from your human capital are not solely the result of hard work, innate skills, fortuitous parents or sheer luck. Rather, these dividends can be traced to the investment of time, money and effort during your student years. The skills you acquire in your late teens and early 20s set the stage for the value of human capital. Surgeons who spent more than 10 years as undergraduates plus medical school and then internship and residency invested in their human capital. They were not consuming time. They were investing time."_


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## turp (Jun 13, 2010)

Hi,

Thanks for the info. My concern was that I'm starting about 10 years behind most of the medicine crowd because I didn't know I wanted to do medicine right out of high school, so I'm even further behind in terms of time for saving for retirement. I've been reading recently about how time makes such a huge difference for your retirement savings and this is what concerned me.

Thanks.


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## steve41 (Apr 18, 2009)

Can you fill in the holes? how old now? when starting work? loan details?


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## turp (Jun 13, 2010)

steve41 said:


> Can you fill in the holes? how old now? when starting work? loan details?


Hi Steve,

40 now, starting work at 44. Loan details as described - Bank LOC, I am paying interest. Repayment on principle starts after finishing residency. Student loan is currently $30,000 with interest rate 8%. Any other infor?

Thanks for your advice


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## FrugalTrader (Oct 13, 2008)

My advice would be that when you do graduate and your income soars, keep your current lifestyle for at least 2-3 years. You should be able to get ahead relatively quickly if you can keep your expenses low.


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## steve41 (Apr 18, 2009)

OK... I ran this off in a hurry, so check the numbers.

I reduced your near term lifestyle significantly (to $35K) until you start into your full salary mode. I paid off your student loan at age 48 and your 2.5% loan at age 61. These were arbitrary, but seemed reasonable. 

Once you are in full salary mode, your 'die-broke at 95' number comes in at $70.8K if you choose to retire at age 60. Working to age 65 results in an $87.2K lifestyle. Here is the plan for retiring at 60.

The Doc's plan

A case could be made for taking out an even larger loan immediately, in order to give yourself a more generous lifestyle, near-term.

Oh, and I opted for a rate of 4%, inflation 2%, living in BC.


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## the-royal-mail (Dec 11, 2009)

Whoa steve, that is VERY cool. I looked at the report you produced and checked out your website. This is quite interesting, reminds me a bit of a site that MG once shared. All that from the Gulf Islands too!! Colour me impressed.


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## steve41 (Apr 18, 2009)

Tnx RM. BTW, I could have married him, had him buy a trophy house in 6 years, diverted some of his nonreg capital to his TFSA.... this was a 10 minute quickie.


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## MoneyGal (Apr 24, 2009)

I often go for 10-minute quickies too. But it's because I'm already married, and not looking for...wait a minute, are we still talking about his financial plan?


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## steve41 (Apr 18, 2009)

OK.... now my definition of 'quickie' is around 90 seconds. I guess it all depends on your POV.


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## Mike59 (May 22, 2010)

turp said:


> ..By the end of medical school and residency, I will be about $160,000 in debt but earning $300,000 - $500,000 depending on where/which hospital I work. $130,000 of the debt will be at prime at a bank LOC (2.5% for now), and the remaining $30,000 will be student loan (about 8%). I am in residency now earning about $55,000/yr with little savings. I have star ted repayment on the $30,000 loan but am only paying interest on the $130,000 loan. The low interest LOC is near maxed out which is why I haven't moved the high interest loan over to it.


I'm a M.D. as well (in practice 2 yrs now) and can relate to your situation. First, I would agree with advice earlier suggesting sustainable living. I'd make the student loan payoff priority #1, especially with prime rates expected to rise in coming years. 

Second, I don't think you're starting too late at all...You may be familiar with Dave Trahair  , consider his advice about the "working years vs. saving years". I think you may have to set some parameters about when your retirment planning would start, and if I were you it would probably come in the last 5-10 years of the career. You shouldn't have any trouble saving up a nice nest egg toward the end. 

As a final word of warning, I would also suggest you reconsider your income targets when drawing up the budget, and question how realistic you projections are. Have you reviewed billing codes recently for your specialty? I'm not sure what speciality you are aiming for and in what province, but factoring in taxation and overhead, it is extremely rare for a Canadian M.D. to attain those numbers ("$300k-$500k") in the real world.

Best of luck!


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## turp (Jun 13, 2010)

Thanks to everyone who replied. I'm feeling a bit less anxious now.

Mike - my numbers are realistic for my specialty as the hospitals I've polled the staff are partnerships where they share the billing pool and get paid the same amount (so no individual fee for service variations within the same hospital) and the average has been about $400,000 - $475,000 at a few downtown hospitals and $350,000 at a peripheral community/academic hospital, up to $800,000 (outlier) at a purely community hospital with high turnover and some out of hospital private clinic work.

I just hope these numbers stick around by the time I'm finished and working for a while. With the rising costs of healthcare, I'm sure people will start pointing the finger at MD fees and the gov't will likely start clawing back the fee schedule.


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## bean438 (Jul 18, 2009)

FrugalTrader said:


> My advice would be that when you do graduate and your income soars, keep your current lifestyle for at least 2-3 years. You should be able to get ahead relatively quickly if you can keep your expenses low.



ANd once you get ahead, try to keep your lifestyle within reason.

Many of my friends are big earners, and have a lifestyle that "fits". It is called lifestyle inflation.

The more you earn, the more you spend, and the more you have to save to sustain your lifestyle in retirement.

Think hockey players, and rock stars who earn millions and when the money runs out the end up dead.


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## Larry6417 (Jan 27, 2010)

*Congratulations!*

Congratulations for achieving a huge milestone! You've been given very good advice so far. I would add that you should talk to MD Management. The financial advisors there can give you independent advice, and they can provide you access to lines of credit and practice advice. For example, there's no reason, once you graduate, why you can't get a larger LOC at prime (or less) to pay off your 8% loan. Also, you should consider incorporating (if your provnce allows it). Incorporating will allow you to shelter income at a lower tax rate as well as to income-split.

I agree that you should live frugally until your debts are paid but with one proviso. You've worked hard for a long time. You deserve to reward yourself a little bit. Don't misunderstand me. I'm not advising you to get a trophy home/ car. I am advising you to do something you enjoy as a reward - perhaps travel. Financial security is very important, but there's more to life than just your finances. Given your future income, you're likely to achieve financial security despite a late start.


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## Mike59 (May 22, 2010)

Larry6417 said:


> I would add that you should talk to MD Management.


I would be careful about MD Management... Many of my physician colleagues who were invested with them through the 2008 crash took a huge hit (significantly higher percentage losses than the index itself). The MedicalPost newspaper has written several articles about controversies within this organization and gave examples of portfolios that were severely and irresponsibly mismanaged. I recall a few unfortunate stories about age 70+ MDs who had to come out of retirement to find locum work because of the significant losses following poor advice from MD Management/CMA. 

I personally never joined with them (and even opted out of the CMA to avoid paying unnecessary dues), and have made much more than I've lost through investing on my own, even after the 2008 decline/rebound.


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## Larry6417 (Jan 27, 2010)

Mike59 said:


> I would be careful about MD Management... Many of my physician colleagues who were invested with them through the 2008 crash took a huge hit (significantly higher percentage losses than the index itself). The MedicalPost newspaper has written several articles about controversies within this organization and gave examples of portfolios that were severely and irresponsibly mismanaged. I recall a few unfortunate stories about age 70+ MDs who had to come out of retirement to find locum work because of the significant losses following poor advice from MD Management/CMA.
> 
> I personally never joined with them (and even opted out of the CMA to avoid paying unnecessary dues), and have made much more than I've lost through investing on my own, even after the 2008 decline/rebound.


Actually, I didn't say that TURP should invest with MD Management. I said that he should talk to them and take advantage of the financial advice and services that they've negotiated, including a line of credit. I have a good financial advisor there, but I still invest on my own. I don't doubt that there are poor/irresponsible advisors at MD Management, but that's true of every organization. In the end, we have to be responsible for our own financial well-being. Also, MD Management has access to products besides investments, such as insurance and practice advice.


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## MoneyGal (Apr 24, 2009)

Ditto to what Larry said. I never, not ever, give investing advice online (and my understanding was that the OP essentially has no money to invest at this point, anyways). I recommend MD management for financial planning advice, including whether incorporation makes sense.


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## bbsj (Aug 26, 2010)

My advice to you is to be careful from leaches that attach to high earning doctors and take them to cleaners.


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