What will my take-home salary look like and how much can I pay back in loans per year realistically?

[Angry Birds]

Hi, just finished residency and I'm about to start my new attending job. My salary will be in the 250-270k range.

I'm completely clueless when it comes to finances and recently was embarrassed to find out that I made some novice mistakes when it came to my credit score. That was a wake up call and I'm trying to fix my credit and become financially aware and responsible.

I've read one book already and my next book is The White Coat Investor (which I just started).

My question is: after taxes, what can I expect to take home per month (after taxes)? I know it varies from location to location, but is a ballpark possible to give? I realize that there may simply be too many variables to even give a ballpark so just let me know if that's the case...

Additionally, I have $100k in loans to pay back. Realistically speaking, how much can I pay off per year if I live frugally? And how many years do you think it would take to pay off the 100k if I lived like a resident? (I'm married without kids... No second income right now.)

Sorry for sounding so clueless. I'm trying to work on this very much neglected aspect of my life, i.e. my financial well-being. Thank you.

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[gman33]

http://www.adp.com/tools-and-resour...l-calculators/salary-paycheck-calculator.aspx

Plug in your state and other withholding.

If you are really going to live on your resident salary, $50k, you could pay off $100k in loans in 1 year.
While it's great to get rid of loans, no need to get this done that fast.
Give yourself some rewards after all the training you've been through.
You could easily pay them off in 3-5 years and still live a nice lifestyle.

 

[Birdstrike]

Expect to take home 1/2 to 2/3 with lots of variability between location, deductions, exemptions, and individual circumstances.

 

[deleted547339]

I respectfully disagree with gman. Pay it off ASAP, especially considering that you're not used to having a high income and your interest rate is probably about 7%. I know I'm a couple years younger, but I knocked out 20k of debt as an intern (wife works and makes about 35k). Couldn't be happier to see it go down. If I moonlight enough, I'll probably be debt free at (or shortly after) graduation. Knowing I don't have a loan burden will be peace of mind.

I'm a big fan of Dave Ramsey, try checking out his website.

 

[shopsteward]

Also have a look at Mr Money Mustache http://www.mrmoneymustache.com/ particularly on the subject of saving for retirement - http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ which will be good to have in mind for those days when medicine sucks.

 

[The White Coat Investor]

Glad you've got the book. It contains my answer.

You're done one thing very, very well. You only owe $100K, half what most med students graduate with. Nice work.

You don't tell us enough to be able to predict your taxes like your employment situation, your # of dependents, your state etc. But I would expect to pay something between 15-30% of your income in taxes. I was around 16% when I had that income, but I was married and have lots of deductions.

You can increase your lifestyle quite a bit, still pay your taxes AND have your loans gone in a year. Let's say you've got $260K. Let's say you pay $65K in taxes. That leaves you $195K. You pay $100K toward the loans. That leaves you $95K to live on. That's twice your residency salary and you see a big bright light at the end of the tunnel, just one year away. At that point you can redirect that $100K. Put $52K toward retirement, and spend the other $48K. Your eventual lifestyle will be around $143K, about 3 times what you had as a resident. It's not oodles of cash, but it's enough to have a very nice life, about $12K a month, net of taxes and retirement.

 

[dotcb]

You'll take home 1/2 to 2/3rds of your total salary. How much you can pay toward loans depends on how low you can keep your other living costs. Live cheap and you'll be debt free soon.

 

[link2swim06]

I'd pay it off in the first year.

Ignorance is bliss....it is easier to live like a resident for another year before upgrading to the attending lifestyle.

Logging in to studentloans.gov and seeing a loan balance of $0 would provide me 10^5 times more happiness than seeing a BMW in my garage....but to each their own (oh and I can probably buy 2 BMWs with the interest I would save by doing that).

 

[two guys]

You know what you live on now. Take your take home pay, add 15% and that is your new salary.

Everything else is for paying off the loans (easy to do 100k in 1 year but most people don't because they don't prioritize it), saving for a house (might as well buy with a big down payment and not turn around and sign up for more debt, back up fund, disability, etc.

Make yourself a budget with a 15% increase in your current take home. Deposit that amount into your checking every month. Leave the rest in your business or savings account and use it only for the things above.

 

[EctopicFetus]

If you can do it put some money into retirement. Letting interest/return on income work for you is the key to financial freedom.

 

[BoardingDoc]

If you can do it put some money into retirement. Letting interest/return on income work for you is the key to financial freedom.

This is only true if you have no student loans at the current common rate of 7%. If you do have debt at that rate, retirement investing is not the right move unless you have a guaranteed investment that will do better than 7% ROI (hint: you don't).

With debt with an interest rate that high, you should be putting every free dollar into paying that down. Once it's gone, start working on your 401k/403b, vanguard funds, etc etc etc.

 

[Lysinee]

You can also work a few extra shifts every month for loan repayment purposes.

 

[Angry Birds]

Glad you've got the book.

I completed reading your book. It was excellent.

Thank you very much for all the sage advice in it. It was quite eye-opening.

My only suggestion/feedback is that you add a chapter on credit scores.

You're done one thing very, very well. You only owe $100K, half what most med students graduate with. Nice work.

Great, thanks! Included in this 100k is some toxic credit card debt and Sallie Mae, so those are the two things I'll attack right away. First paycheck will wipe out credit card debt, and then the next few months to Sallie Mae. Then I'll attack the federal loans the rest of the year...goal is to get it all done in a year.

You don't tell us enough to be able to predict your taxes like your employment situation, your # of dependents, your state etc. But I would expect to pay something between 15-30% of your income in taxes. I was around 16% when I had that income, but I was married and have lots of deductions.

I read your chapter on taxes and it was very helpful. I know taxes screwed me during residency. Unfortunately, I withheld so much money (due to not knowing what I'm doing) that my bi-monthly paycheck was too lean to survive on.

I know you said to do your taxes by yourself... But, I'm not sure if I will be capable of doing this. Therefore, I'm considering hiring someone and taking the $1,000 hit to pay for that.

My question to you is: does it matter how much I withhold in advance (i.e. at the start of the year, with each paycheck)? Should I just do the "standard deduction" for now and then adjust when I do my taxes? And what exactly is the "standard deduction?" What does that mean?

Also, what can I do from now until tax time to make sure I get taxed as little as possible?

I saw many of the things you do to get your taxes down, but it seems to me that most of them don't apply to me. I support my wife (who doesn't work) but I have no kids. If I had kids, that would cost more than any tax break I'd get from them. You put a lot in retirement and healthcare, but should I really focus on that right now? Shouldn't I put every free dollar into wiping out my student debt?

Another question: about giving to charities, I know you get a tax break from that. But overall, it doesn't save you money, right? Because you're giving the money to charities, i.e. it is leaving your pocket, whether to the government or to the charity? Or have I misunderstood this? Does one actually save money by donating to charities? (I realize one should give to charities, but I feel right now my priority should be to wipe out my debt instead of donating...The time for that can come later, right?) Do you see any benefit of someone with 100k of debt to give to charity?

You can increase your lifestyle quite a bit, still pay your taxes AND have your loans gone in a year. Let's say you've got $260K. Let's say you pay $65K in taxes. That leaves you $195K. You pay $100K toward the loans. That leaves you $95K to live on. That's twice your residency salary and you see a big bright light at the end of the tunnel, just one year away. At that point you can redirect that $100K. Put $52K toward retirement, and spend the other $48K. Your eventual lifestyle will be around $143K, about 3 times what you had as a resident. It's not oodles of cash, but it's enough to have a very nice life, about $12K a month, net of taxes and retirement.

Wow, thanks! That was very helpful!

Do you have any recommended reading about how to do my taxes? That's still an area where I need to do more reading... I'm really scared of paying 50% of my salary in taxes... Reading your site and knowing that it should be WAY less than that was a huge relief.

This is only true if you have no student loans at the current common rate of 7%. If you do have debt at that rate, retirement investing is not the right move unless you have a guaranteed investment that will do better than 7% ROI (hint: you don't).

With debt with an interest rate that high, you should be putting every free dollar into paying that down. Once it's gone, start working on your 401k/403b, vanguard funds, etc etc etc.

Thanks for your advice. This corresponds to my goal right now, i.e. use every free dollar to pay off my debt, then focus on other things like retirement. Do you agree with this, The White Coat Investor?

Thank you all!

The White Coat Investor: A special thank you to you. If I asked you too many questions, I apologize. I understand if you are too busy to answer them.

 

[EctopicFetus]

This is only true if you have no student loans at the current common rate of 7%. If you do have debt at that rate, retirement investing is not the right move unless you have a guaranteed investment that will do better than 7% ROI (hint: you don't).

With debt with an interest rate that high, you should be putting every free dollar into paying that down. Once it's gone, start working on your 401k/403b, vanguard funds, etc etc etc.

Really? When you put that first dollar into retirement you usually are getting 30%. If you read the WCI blog on putting money into retirement you might feel different. You pull that money out at avg under 5%.

Doing that math you will return way more than 7%.

I guess a difference of opinion. My loans are at dollar cost avg of about 2.1%. Im in no rush overall but I think failing to put money into retirement is an error. Less so the first 6 months after residency since you probably wont get into a high marginal tax bracket. But months 7 ona full year of attending income you will probably be at 30+% in that marginal bracket. IMO a mistake not to put money into tax deferred.

 

[EctopicFetus]

to the OP. Turbotax is pretty simple and way cheaper than an accountant. You obviously can learn so I think you can probably figure it out.

 

[The White Coat Investor]

Really? When you put that first dollar into retirement you usually are getting 30%. If you read the WCI blog on putting money into retirement you might feel different. You pull that money out at avg under 5%.

Doing that math you will return way more than 7%.

I guess a difference of opinion. My loans are at dollar cost avg of about 2.1%. Im in no rush overall but I think failing to put money into retirement is an error. Less so the first 6 months after residency since you probably wont get into a high marginal tax bracket. But months 7 ona full year of attending income you will probably be at 30+% in that marginal bracket. IMO a mistake not to put money into tax deferred.

While I agree with you that paying down a 7% debt is not necessarily better than maxing out a retirement account (best to live like a resident so you can do both), I think you overestimate the benefit. While it is quite likely your effective tax rate on tax-deferred money could be under 20% (remember you get to fill the 0%, 10%, and 15% brackets up with something), it will probably not be less than 5%. Your 2.1% loans are a far cry from what these younguns have.

 

[The White Coat Investor]

I completed reading your book. It was excellent.

Thank you very much for all the sage advice in it. It was quite eye-opening.

My only suggestion/feedback is that you add a chapter on credit scores.



Great, thanks! Included in this 100k is some toxic credit card debt and Sallie Mae, so those are the two things I'll attack right away. First paycheck will wipe out credit card debt, and then the next few months to Sallie Mae. Then I'll attack the federal loans the rest of the year...goal is to get it all done in a year.



I read your chapter on taxes and it was very helpful. I know taxes screwed me during residency. Unfortunately, I withheld so much money (due to not knowing what I'm doing) that my bi-monthly paycheck was too lean to survive on.

I know you said to do your taxes by yourself... But, I'm not sure if I will be capable of doing this. Therefore, I'm considering hiring someone and taking the $1,000 hit to pay for that.

My question to you is: does it matter how much I withhold in advance (i.e. at the start of the year, with each paycheck)? Should I just do the "standard deduction" for now and then adjust when I do my taxes? And what exactly is the "standard deduction?" What does that mean?

Also, what can I do from now until tax time to make sure I get taxed as little as possible?

I saw many of the things you do to get your taxes down, but it seems to me that most of them don't apply to me. I support my wife (who doesn't work) but I have no kids. If I had kids, that would cost more than any tax break I'd get from them. You put a lot in retirement and healthcare, but should I really focus on that right now? Shouldn't I put every free dollar into wiping out my student debt?

Another question: about giving to charities, I know you get a tax break from that. But overall, it doesn't save you money, right? Because you're giving the money to charities, i.e. it is leaving your pocket, whether to the government or to the charity? Or have I misunderstood this? Does one actually save money by donating to charities? (I realize one should give to charities, but I feel right now my priority should be to wipe out my debt instead of donating...The time for that can come later, right?) Do you see any benefit of someone with 100k of debt to give to charity?



Wow, thanks! That was very helpful!

Do you have any recommended reading about how to do my taxes? That's still an area where I need to do more reading... I'm really scared of paying 50% of my salary in taxes... Reading your site and knowing that it should be WAY less than that was a huge relief.



Thanks for your advice. This corresponds to my goal right now, i.e. use every free dollar to pay off my debt, then focus on other things like retirement. Do you agree with this, The White Coat Investor?

Thank you all!

The White Coat Investor: A special thank you to you. If I asked you too many questions, I apologize. I understand if you are too busy to answer them.

You've got to be a in a pretty terrible tax situation to get to a 50% effective tax rate on just $260K of income. I don't even think it's possible. It certainly isn't likely. Your marginal tax rate may get close (28 or 33% federal + 0-9% state + 2.9% Medicare) but that's not the same thing. I stand by my estimate of 15-30%, but again, without further details it's hard to say.

If you don't feel competent to do your own taxes, hire someone. It isn't that big of a deal. But try to understand what they're doing. The big benefit of doing your own taxes isn't the few hundred dollars you don't have to pay the preparer, it's the thousands you save because you learned how the tax code works.

You're right about charities. Paying $100 to get $33 off your taxes isn't a solution to getting rich. But if you're giving to charity anyway....might as well get some tax benefit for it.

The standard deduction, if you choose to take it, combined with any exemptions you're eligible for, is your 0% tax bracket. That money isn't taxed. I think it's $11,200 married this year and half that for singles. It's important to understand how that works.

How much you have withheld and how much you actually pay are totally separate questions. You generally don't want a big surprise either way, so the goal is to estimate about what you'll owe and try to have about that much withheld. If you have no idea, just do the W-4 and let the chips fall where they may. If you're self-employed, be sure you stay within the safe harbor rules with your quarterly estimated payments. If you don't understand any of the terms I've used, google them, because they're all important.

 

[DreamingTheLive]

Looking at likely future tax bracket = not fun. Possibly paying a whopping 50% to state and federal uncle sams. I need a beer.

 

[EctopicFetus]

While I agree with you that paying down a 7% debt is not necessarily better than maxing out a retirement account (best to live like a resident so you can do both), I think you overestimate the benefit. While it is quite likely your effective tax rate on tax-deferred money could be under 20% (remember you get to fill the 0%, 10%, and 15% brackets up with something), it will probably not be less than 5%. Your 2.1% loans are a far cry from what these younguns have.

On 100k if you are married you would be paying $16,600. Or 16.6%.

If you earn 270k you are into the 33% marginal tax rate. For me thats reason enough to put money into savings. That delta isnt small.

I agree live cheap for a yr or 2 and you will be rich forever. Even though my loans are cheap I have some loans at 4.5%. thats my highest and i pay extra to pay that off. For me I have to get to zero to feel like I am moving to my point of financial freedom.

To each their own of course. I dont begrudge anyone with what they do with their money. As long as you pay off your debt or put money into retirement you have my utmost respect. If you have 250K in loans at 7+% and jst bought a new maserati well.. thats a different animal.

 

[Birdstrike]

f you have 250K in loans at 7+% and jst bought a new maserati well.. thats a different animal.

Excuse me?

Excuse, ME?

Are you trying to start somethin'?

 

[two guys]

What is your retirement vehicle? Are you an IC or employee? Does your estimated salary include a retirement benefit?

It is not unreasonable to max out your IRA/401k in the first tax year (ie the next 6 months) and put $8,333/month (100k in 12 monthly installments) towards your retirement and debt. But, it will take some commitment. I know several folks (myself included) who did this but we all had a spousal income. The max for your 401k/IRA will be a little lower this year than next, there's some online calculators to help you estimate. If I had no spousal income I would probably try to put 4,333 into my retirement and 8,333 into my loans per month. I think you'll do a little less which is fine, you just have to decide which one to give less to. If you gave 4,300 per month to retirement and 8,300 per month to loans that would leave you 3,584/month to live off tax free which is a pretax income of about 65k. That'd probably be pretty tight for you right now. So, you just need to decide which you're going to shortchange and by how much. Any extra money you need to live off of must come at the expense of one of these 2. It's debatable whether retirement or debt is the more noble goal - pick the one you like the best. I was older than most my first year and had no retirement and really liked the tax benefit so retirement was my first priority. I accepted slightly less than 100k/year loan repayment plan as the tradeoff. I ended up making more and spending less than I expected so both goals ended up being met.

I would warn against picking up extra shifts as a long term plan. I don't know a bunch of unhappy people in EM, but the ones I know grew into a big lifestyle that they could afford only by working a few extra shifts. I think the better strategy is to figure out how to keep your expenses as low as possible. Then, when you work a few extra shifts (which you will) it will truly be extra money.

The oblivious investor writes a tax book for independent contractors. I think its $10 and less than 100 pages. It's worth reading no matter your employee or IC status. Even if you let a accountant do your taxes (mine charges $300), its good to know how things work. He's linked on WCI's site.​

 

[dchristismi]

Turbotax is surprisingly straightforward, and I would recommend it as well. There is something to be said for understanding the tax code as it applies to your life. I'd just use the W4 setup for withholding and see where you end up.The first year is sort of a crapshoot anyway -- half residency wages and half big attending salary.

I am a huge advocate of maxing out any pretax deductions you can - not to mention that you don't really even "see" that money. I have both my 403B and a 457 maxxed out, and if you never see it, you don't miss it. (Granted, my loans are at a really ridiculously low interest rate, so I'm in no hurry to pay them off, but plan to knock them out in the next 5 years.)

I'm getting a big raise this fall... my alimony goes away! And since I was easily able to pay him 100K over 4 years, you can pay of your student loans in that same span or less and still save as above. And I don't live like a resident. Well, maybe I do. A heavily moonlighting resident!