Financial Independence....dental edition

[Incis0r]

Hey everyone,

I've come across many SDNers here who are interested in Financial Independence (FI). Several people have also PM'd me requesting more information about my FI plans.

By request, I am creating this thread for anyone interested in discussing FI. Keep in mind that I don't have all the answers, and I consider myself a humble beginner on this journey.

Oh and shoutout to @THS for being the person to introduce the concept of FI to me way back when. This concept has completely changed my life, has made me much more upbeat/confident about my future economic security, and I owe it to you mentioning it in a previous SDN comment you posted. I guess this is my way of paying it forward. If I can help even one person with this post, it's worth it.

I'm hoping this thread can serve as a resource for us to discuss our plans with each other, answer each other's questions, and allow anyone in the broader SDN community to get a glimpse of what FI offers and determine if it is a goal they want to set for themselves.

note: FI/RE stands for Financial Independence/Retire Early. However, you don't have to retire early if you don't want to! That's the beauty of the FI/RE path! Keep reading to find out more.

I'll start with introducing what FI is/means to me and why I am pursuing FI.

FI means that you have built enough wealth (and income streams) that you are no longer dependent on your job to pay your bills- you have passive income that 100% covers your expenses. As a result, you can work in whatever type of position you want and do whatever you want (as long as its legal!) without being trapped under a mountain of debt that drains your wealth.

If you are FI, you can make the calls you want to make in your life without worrying about finances. FI does NOT mean you HAVE to retire early- it means that you have the options to make the calls you want in YOUR life.

Want to spend a year in Africa working with the UN providing dental care? You can do it.
Want to take a few years off and travel Europe? You can do it.
Want to go back to school or learn something new like flying? You can do it.
Want to work 2 days a week and spend the remaining 3 days doing something else? You can do it.

You get to FI by spending less than you earn and investing the difference.

I am pursuing FI because I personally would like to engage in a LOT of dental humanitarian trips over my lifetime (Mission of Mercy, international service trips, etc.). Participation in these trips requires a significant donation of time and money (flights, etc.). I don't want to wait till 65 to get the time to do these things.

Good reading material to learn more about FI (feel free to suggest more, guys and I'll add here):
The FI/RE Subreddit
Mr. Money Mustache
JLCollins
Root of Good

Sample Math
Say you live off of $60,000 USD a year. This completely covers your living expenses. How much do you need invested to support this spending level?

In FI vocabulary, we have something known as the Safe Withdrawal Rate (SWR) which comes from the results of a study known as the Trinity Study. I could get into all sorts of details about allocations here, but the general gist of the study was that you can withdraw 4% of your annual market investments every year, for life, and never run out of money.

So, to support $60,000 of annual spending (and increasing it for annual inflation- you don't want to lose purchasing power), you would need $60,000 * 25 = $1.5 million in the market.

Some people want a more conservative withdrawal rate (3% is a common figure), so then you would need $60,000 * 33.3 = ~$2 million in the market.

It's not hard to save this much money. If you live on less than you earn, and invest the difference, you can be FI in no time! For example, did you know that if you save $4,000/month in an investment that paid you 7%, that you'd have $1.67M in just 20 years? Do it for 25 years, and you've got $2.4M (enough to support ~$100K/yr in passive income)

Anyways, I've gone on long enough. I have high hopes for this thread - it'd be awesome to get some discussion going, and I'd love to see some of the experts on FI weigh in.

-With great respect,
Incis0r

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[Panis et Circenses]

It's not hard to save this much money. If you live on less than you earn, and invest the difference, you can be FI in no time! For example, did you know that if you save $4,000/month in an investment that paid you 7%, that you'd have $1.67M in just 20 years? Do it for 25 years, and you've got $2.4M (enough to support ~$100K/yr in passive income)

Hm... What do you invest in that will pay 7%... That's the question Admittedly I haven't looked much into investing.

 

[Incis0r]

Hm... What do you invest in that will pay 7%... That's the question Admittedly I haven't looked much into investing.

Great question!

Lots of options.

Some like real estate (measure return by "cap rate" which is short for capitalization rate; you can hit 10% if you know what you're doing).

The stock market had an average annual return of 9% in the past decade (including the recession). So if you owned shares in an index fund that tracked the market, you'd have done very well.

Lots of options.

7% is actually fairly conservative given recent history.

 

[Panis et Circenses]

Great question!

Lots of options.

Some like real estate (measure return by "cap rate" which is short for capitalization rate; you can hit 10% if you know what you're doing).

The stock market had an average annual return of 9% in the past decade (including the recession).

Lots of options.

7% is actually fairly conservative given recent history.

Interesting. I think as long as you diversify your investment, this can be attainable. My friend's dad put lots of eggs into his own company's basket, during the recession he lost 700k in the stock market.

 

[Incis0r]

Interesting. I think as long as you diversify your investment, this can be attainable. My friend's dad put lots of eggs into his own company's basket, during the recession he lost 700k in the stock market.

Good point. I was editing my post to add a sentence just as you quoted me, but I mentioned the index fund (where you buy a tiny slice of the entire market).

Also, market corrections and recessions are normal and expected. We're going to have at least a few in our lifetimes. The key is to stay the course and not sell in a panic when the market is down. Several of the websites I linked in my first post contain articles that address this very issue.

 

[Panis et Circenses]

Good point. I was editing my post to add a sentence just as you quoted me, but I mentioned the index fund (where you buy a tiny slice of the entire market).

Incis0r, I think you are going to have a successful future.

 

[Incis0r]

Incis0r, I think you are going to have a successful future.

Thank you Panis We all will succeed- we're joining one of the best professions in the world!

 

[como]

I'm excited about this thread and learning more from others as well as motivating each other to attain our goals. Thanks @Incis0r for getting it going! I know I have a lot to learn. This thread is in "pre-dental". Are we assuming that everyone here is a predent?

I am in a slightly unique situation as a non-traditional student. My husband is a dentist and graduated in 2005. I am applying now for the 2017 cycle.

The one thing I can say that has given us a great jump start is to contribute to our Roth IRAs. For those that are unfamiliar, the Roth IRA allows you to contribute to an IRA with money that has been taxed. From then on, neither the principal NOR the compounding earnings is subject to taxation so long as it is withdrawn as a "qualified distribution" (after age 59.5, due to disability, or up to $10,000 for purchase of a 1st home). If the average dental student enrolls at 24(?) and can contribute $5,500 for 5 years, by the time they would take qualified distributions at 59.5 the $27,500 at a conservative 7% compounding interest would be ~$293,000. If you are married and you max your contributions, that amount is ~$587,000. Imagine having access to that kind of money, tax-free, when you will likely be in the highest tax bracket of your life (unless you RE, as is the goal for many of you, but this should help you achieve that goal even faster!).

In order to max the Roth contributions one must have a MAGI of $5,500<$117,000 if single or $11,000<$184,000 if married filing jointly. Making less or slightly more than these amounts will reduce your contribution amount, but doesn't necessarily make you ineligible. For many in this profession, the years in which you can contribute to a Roth will be limited - hopefully at some point soon after graduation your MAGI will exceed the income limits. For those on the HPSP or that are married with an employed spouse (or both, as was our case), earning the amount to contribute to the Roth shouldn't be a problem, although disciplining yourself to set aside the max amount for the Roth might be. For single students putting themselves through school with loans, they would have to weigh the pros and cons of working a small job (we're talking $500/month), and if it's better financially for any money earned to be used to reduce the loan amount or contribute it to a Roth. That's a hard question to answer.

 

[mayhugs]

Of course, real estate is the number one and most common way to invest your money!

Might I also maybe suggest a life insurance policy after you graduate, or even now if you have the money or have someone who can save with you (although this may be more of a sales pitch b/c I sell life insurance, hmu if you're in socal ;^) ).
It's difficult to explain online but definitely do some research and think about it as a back up! It's also a great way to help out your family when you get really old and pass. But basically, you put money into the policy and when you reach a certain age, you can withdraw money, interest free.

 

[Incis0r]

@mayhugs , do you sell term life too?

 

[Incis0r]

The one thing I can say that has given us a great jump start is to contribute to our Roth IRAs. For those that are unfamiliar, the Roth IRA allows you to contribute to an IRA with money that has been taxed. From then on, neither the principal NOR the compounding earnings is subject to taxation so long as it is withdrawn as a "qualified distribution" (after age 59.5, due to disability, or up to $10,000 for purchase of a 1st home). If the average dental student enrolls at 24(?) and can contribute $5,500 for 5 years, by the time they would take qualified distributions at 59.5 the $27,500 at a conservative 7% compounding interest would be ~$293,000. If you are married and you max your contributions, that amount is ~$587,000. Imagine having access to that kind of money, tax-free, when you will likely be in the highest tax bracket of your life (unless you RE, as is the goal for many of you, but this should help you achieve that goal even faster!).

For those on the HPSP or that are married with an employed spouse (or both, as was our case), earning the amount to contribute to the Roth shouldn't be a problem

Roth IRA is a great way to go..only thing here is that you must contribute earned, taxable income to the Roth IRA. I'm not sure how many dental students have earned income during dental school. I do not know if the HPSP stipend counts as earned income since it is a scholarship benefit.

 

[mayhugs]

@mayhugs , do you sell term life too?

Yes!

 

[como]

Roth IRA is a great way to go..only thing here is that you must contribute earned, taxable income to the Roth IRA. I'm not sure how many dental students have earned income during dental school. I do not know if the HPSP stipend counts as earned income since it is a scholarship benefit.

Yes, with the HPSP you have your tuition and school expenses paid for and additionally receive a monthly stipend that is taxable income. There are also 6 weeks a year when you are active duty and are paid accordingly.

I guess my advice would be for a student who is truly FI/RE focused to find something to be earning just enough to contribute to his/her Roth, but not have to work so much it takes away from school. For example, during dental school my husband taught piano lessons one night a week for three hours. He was paid $17/lesson x 8 lessons. It was at a studio so he got a paycheck with taxes withheld. If this had been his only source of income he would have been able to contribute to the Roth, not to mention any taxes would have been refunded because minimum income was not met, sweetening the "post-tax" Roth IRA deal even more.

It's not right for everyone, just something to consider. We had several friends in dental school that spent their weekends going out to dinner/bars, etc. while we knew other people that spent that same weekend time working a few hours. It imagine it just depends on what the balance looks like for each individual.

 

[gfs6]

So real estate and index funds were mentioned. Are there other common investments that FI-focused dentists can make?

 

[Incis0r]

Yes, with the HPSP you have your tuition and school expenses paid for and additionally receive a monthly stipend that is taxable income. There are also 6 weeks a year when you are active duty and are paid accordingly.

I guess my advice would be for a student who is truly FI/RE focused to find something to be earning just enough to contribute to his/her Roth, but not have to work so much it takes away from school. For example, during dental school my husband taught piano lessons one night a week for three hours. He was paid $17/lesson x 8 lessons. It was at a studio so he got a paycheck with taxes withheld. If this had been his only source of income he would have been able to contribute to the Roth, not to mention any taxes would have been refunded because minimum income was not met, sweetening the "post-tax" Roth IRA deal even more.

It's not right for everyone, just something to consider. We had several friends in dental school that spent their weekends going out to dinner/bars, etc. while we knew other people that spent that same weekend time working a few hours. It imagine it just depends on what the balance looks like for each individual.

This is outstanding! Didn't know HPSP stipend can go into a Roth IRA.

Also one more thing to look into is the HSA....triple tax-advantaged. Contribute with pre-tax dollars, grow tax-free, and withdraw tax-free for qualified expenses (and best part is you can withdraw years after the expense if you keep the receipt of the expense; thereby allowing you to let the money compound!)

Here is a great article on HSAs: http://www.madfientist.com/ultimate-retirement-account/

So real estate and index funds were mentioned. Are there other common investments that FI-focused dentists can make?

I've heard of a few opening side businesses like laundromats and doing very well there. Some open multiple practices and staff them with associate dentists. The beautiful thing is- you can invest in the way you like the most and the options are limitless!

 

[distressstudent]

Of course, real estate is the number one and most common way to invest your money!

Might I also maybe suggest a life insurance policy after you graduate, or even now if you have the money or have someone who can save with you (although this may be more of a sales pitch b/c I sell life insurance, hmu if you're in socal ;^) ).
It's difficult to explain online but definitely do some research and think about it as a back up! It's also a great way to help out your family when you get really old and pass. But basically, you put money into the policy and when you reach a certain age, you can withdraw money, interest free.

Do you work for a MLM?

I am vehemently against life insurance and any type of annuities; I think they are just absolutely predatory schemes. Especially for folks on FIRE. More often than not they are big big scams.

Disability insurance. YES
Life insurance. NO

https://momanddadmoney.com/why-whole-life-insurance-is-a-bad-investment/

http://forum.mrmoneymustache.com/in...-life-universal-life-insurance-is-a-bad-idea/

https://www.reddit.com/r/financiali...4d/universal_whole_life_insurance_yay_or_nay/

http://www.daveramsey.com/blog/the-truth-about-life-insurance/

My recommendation for anyone interested in going FIRE. Learn your finance! The White Coat Investor by James Dahle is a good start for anyone.

I do not know if the HPSP stipend counts as earned income since it is a scholarship benefit.

Yes it counts. You can open a Roth with your stipend.
The real question is if you can contribute to a TSP during your 45 ADT. I don't know the answer to that question yet

 

[Incis0r]

Yes it counts. You can open a Roth with your stipend.

You just made my entire weekend. Wow. Thank you!!!!!
Definitely going to max out the Roth while on the HPSP.

Disability insurance. YES
Life insurance. NO

What about term life insurance to shield your dependents? That's purely insurance, not an investment.

I'm in favor of disability coverage (including the riders that Dr. Dahle shares on WCI), and term-life insurance to shield dependents until I get fully established. I'm seeing a USAA quote for a $2M policy for a 20 year term at ~$18.5K total premiums.

 

[zhngbrg]

Do you work for a MLM?

I am vehemently against life insurance and any type of annuities; I think they are just absolutely predatory schemes. Especially for folks on FIRE. More often than not they are big big scams.

Disability insurance. YES
Life insurance. NO

https://momanddadmoney.com/why-whole-life-insurance-is-a-bad-investment/

http://forum.mrmoneymustache.com/in...-life-universal-life-insurance-is-a-bad-idea/

https://www.reddit.com/r/financiali...4d/universal_whole_life_insurance_yay_or_nay/

http://www.daveramsey.com/blog/the-truth-about-life-insurance/

My recommendation for anyone interested in going FIRE. Learn your finance! The White Coat Investor by James Dahle is a good start for anyone.







Yes it counts. You can open a Roth with your stipend.
The real question is if you can contribute to a TSP during your 45 ADT. I don't know the answer to that question yet

Life insurance isn't an investment...it's insurance against high variance events. Yes, chances are (hopefully) you won't ever need it, but if you're the primary source of income for your family you don't want to leave open the possibility of getting hit by a truck and leaving your wife and children completely high and dry. You don't buy life insurance to get sweet returns and retire early, you buy it so your family can stay afloat for awhile should something happen to you.

 

[Incis0r]

Life insurance isn't an investment...

It actually can be. I may be wrong, but I believe @distressstudent was talking about whole life insurance when he said he is against life insurance. Whole life insurance indeed is a dubious investment.

This is the precise difference between whole life insurance and term life insurance. Whole life insurance has the investment component. Term life insurance is the insurance you're thinking of (to protect your family if you can't earn anymore).

Read more here: https://www.nerdwallet.com/blog/insurance/what-is-the-difference-between-term-whole-life-insurance/

 

[distressstudent]

Life insurance isn't an investment...it's insurance against high variance events. Yes, chances are (hopefully) you won't ever need it, but if you're the primary source of income for your family you don't want to leave open the possibility of getting hit by a truck and leaving your wife and children completely high and dry. You don't buy life insurance to get sweet returns and retire early, you buy it so your family can stay afloat for awhile should something happen to you.

http://www.investopedia.com/article...appens-retirement-accounts-if-spouse-dies.asp

 

[como]

From the limited research I've done on life insurance, if you have other investments and are disciplined in your saving, the only way whole life ends up being a great investment is if you die young, in which case term life would serve the same purpose at a fraction of the cost.

If you finance the purchase of a practice at any point it is almost certain that the financing institution will require you to carry both life insurance (can be whole or term) as well as disability.

For those who will be looking at obtaining life insurance in the next few years, the best way to get the lowest premiums will be to stay in good physical health (maintain a healthy weight, no smoking, limited drinking, etc.) and avoid high risk activities. For most policies you will be given a physical and asked a series of specific questions regarding high risk activities.

 

[zhngbrg]

It actually can be. I may be wrong, but I believe @distressstudent was talking about whole life insurance when he said he is against life insurance. Whole life insurance indeed is a dubious investment.

This is the precise difference between whole life insurance and term life insurance. Whole life insurance has the investment component. Term life insurance is the insurance you're thinking of (to protect your family if you can't earn anymore).

Read more here: https://www.nerdwallet.com/blog/insurance/what-is-the-difference-between-term-whole-life-insurance/

In that case it was a misunderstanding and I agree whole life insurance is mostly unnecessary, but term life is absolutely not a scam and worth purchasing IMO even if you end up losing out financially 99% of the time.

http://www.investopedia.com/article...appens-retirement-accounts-if-spouse-dies.asp

This is assuming you live to a long enough age where your retirement accounts are actually worth something, but I believe we are talking about two different things so I digress.

 

[doktorinprogres]

I haven't read everything in this thread yet but the SWR is being called into question.

This is just one source but if you scroll down to pg 10 according to the booklet (pg 9 of 14 according to your pdf reader)
they estimate a SWR of about half the current so 1.8% rather than 4%.

Kinda throws a huge wrench in ppls plans

http://www.fa-mag.com/userfiles/sto...-Sustainable-Withdrawal-Rates-Whitepaper-.pdf

 

[Incis0r]

I haven't ready everything in this thread yet but the SWR is being called into question.

This is just one source but if you scroll down to pg 10 according to the booklet (pg 9 of 14 according to your pdf reader)
they estimate a SWR of about half the current so 1.8% rather than 4%.

Kinda throws a huge wrench in ppls plans

http://www.fa-mag.com/userfiles/sto...-Sustainable-Withdrawal-Rates-Whitepaper-.pdf

Ooh this is interesting, thank you for sharing!

If you want to retire completely on your assets, never earn another dime, never changing your spending level in response to fall/rise in the markets, and never collect social security, then I agree with taking a lower/more conservative SWR.

However, I think your concerns can be alleviated if you use this tool: FIRECalc

I keep shifting around my individual plans, but one thing that is consistent is that I intend to continue practicing dentistry for as long as I am able. Just on my terms. A 2% SWR doesn't throw a wrench in my plans because withdrawing at 2%, combined with income from practicing dentistry in the way that I want to, will easily exceed my projected spending.

 

[P0W3RL1FT3R]

Skimming over this thread just exposed how little I know about investing

 

[doktorinprogres]

Ooh this is interesting, thank you for sharing!

If you want to retire completely on your assets, never earn another dime, never changing your spending level in response to fall/rise in the markets, and never collect social security, then I agree with taking a lower/more conservative SWR.

However, I think your concerns can be alleviated if you use this tool: FIRECalc

I keep shifting around my individual plans, but one thing that is consistent is that I intend to continue practicing dentistry for as long as I am able. Just on my terms. A 2% SWR doesn't throw a wrench in my plans because withdrawing at 2%, combined with income from practicing dentistry in the way that I want to, will easily exceed my projected spending.

Also found it amusing how at the bottom of most of the pages it has
"FOR FINANCIAL PROFESSIONAL USE ONLY - NOT FOR USE WITH THE GENERAL PUBLIC"

 

[Incis0r]

Skimming over this thread just exposed how little I know about investing

The good news is that you are attempting to learn, which itself puts you in an excellent position. The resources are right here, man. You can do this!
Few people know much. I know nothing compared to some of the people here.

 

[P0W3RL1FT3R]

The good news is that you are attempting to learn, which itself puts you in an excellent position. The resources are right here, man. You can do this!
Few people know much. I know nothing compared to some of the people here.

Do you own any assets at the moment? I've neglected studying for my biochemistry exam to learn more about investing… I'm just not sure how much I expect to make with a measly 4k net worth, but I think exposing myself to the material will help out quite a bit in the future

 

[Incis0r]

Do you own any assets at the moment? I've neglected studying for my biochemistry exam to learn more about investing… I'm just not sure how much I expect to make with a measly 4k net worth, but I think exposing myself to the material will help out quite a bit in the future

You've got the right attitude, both towards investing and towards Biochem
Yes, I do own assets right now.

You're doing very well!!! $4K net worth at this stage is not a bad place to be!

As far as learning new concepts, go at your own pace and don't feel pressured to learn everything at once- that's the easiest way to burn yourself out. MMM is my #1 pick. It's a blog AND a forum. The blog covers the lifestyle, investing, etc. and also suggests some easy beginner-level books to become more comfortable with the concept. The forum is filled with discussion and will enrich your understanding. Best part: it's all free. There is no attempt to sell anything to you.

Oh, and go to the library & pick up Rich Dad Poor Dad by Kiyosaki. I credit that book and MMM's blog for laying the foundation for what I know.

Moral of the story: Focus on MMM, not beta oxidation.

 

[deleted547631]

Hey everyone,

I've come across many SDNers here who are interested in Financial Independence (FI). Several people have also PM'd me requesting more information about my FI plans.

By request, I am creating this thread for anyone interested in discussing FI. Keep in mind that I don't have all the answers, and I consider myself a humble beginner on this journey.

Oh and shoutout to @THS for being the person to introduce the concept of FI to me way back when. This concept has completely changed my life, has made me much more upbeat/confident about my future economic security, and I owe it to you mentioning it in a previous SDN comment you posted. I guess this is my way of paying it forward. If I can help even one person with this post, it's worth it.

I'm hoping this thread can serve as a resource for us to discuss our plans with each other, answer each other's questions, and allow anyone in the broader SDN community to get a glimpse of what FI offers and determine if it is a goal they want to set for themselves.

note: FI/RE stands for Financial Independence/Retire Early. However, you don't have to retire early if you don't want to! That's the beauty of the FI/RE path! Keep reading to find out more.

I'll start with introducing what FI is/means to me and why I am pursuing FI.

FI means that you have built enough wealth (and income streams) that you are no longer dependent on your job to pay your bills- you have passive income that 100% covers your expenses. As a result, you can work in whatever type of position you want and do whatever you want (as long as its legal!) without being trapped under a mountain of debt that drains your wealth.

If you are FI, you can make the calls you want to make in your life without worrying about finances. FI does NOT mean you HAVE to retire early- it means that you have the options to make the calls you want in YOUR life.

Want to spend a year in Africa working with the UN providing dental care? You can do it.
Want to take a few years off and travel Europe? You can do it.
Want to go back to school or learn something new like flying? You can do it.
Want to work 2 days a week and spend the remaining 3 days doing something else? You can do it.

You get to FI by spending less than you earn and investing the difference.

I am pursuing FI because I personally would like to engage in a LOT of dental humanitarian trips over my lifetime (Mission of Mercy, international service trips, etc.). Participation in these trips requires a significant donation of time and money (flights, etc.). I don't want to wait till 65 to get the time to do these things.

Good reading material to learn more about FI (feel free to suggest more, guys and I'll add here):
The FI/RE Subreddit
Mr. Money Mustache
JLCollins
Root of Good

Sample Math
Say you live off of $60,000 USD a year. This completely covers your living expenses. How much do you need invested to support this spending level?

In FI vocabulary, we have something known as the Safe Withdrawal Rate (SWR) which comes from the results of a study known as the Trinity Study. I could get into all sorts of details about allocations here, but the general gist of the study was that you can withdraw 4% of your annual market investments every year, for life, and never run out of money.

So, to support $60,000 of annual spending (and increasing it for annual inflation- you don't want to lose purchasing power), you would need $60,000 * 25 = $1.5 million in the market.

Some people want a more conservative withdrawal rate (3% is a common figure), so then you would need $60,000 * 33.3 = ~$2 million in the market.

It's not hard to save this much money. If you live on less than you earn, and invest the difference, you can be FI in no time! For example, did you know that if you save $4,000/month in an investment that paid you 7%, that you'd have $1.67M in just 20 years? Do it for 25 years, and you've got $2.4M (enough to support ~$100K/yr in passive income)

Anyways, I've gone on long enough. I have high hopes for this thread - it'd be awesome to get some discussion going, and I'd love to see some of the experts on FI weigh in.

-With great respect,
Incis0r

Great post, @Incis0r!

The more our SDN community is exposed to the principles of frugality and investing the better. Doctors poised with the knowledge and goal of becoming financially independent, FI, will certainly be able to get there within their working careers. Understanding of this is liberating, I agree.

 

[thegoatest]

I'm excited about this thread and learning more from others as well as motivating each other to attain our goals. Thanks @Incis0r for getting it going! I know I have a lot to learn. This thread is in "pre-dental". Are we assuming that everyone here is a predent?

I am in a slightly unique situation as a non-traditional student. My husband is a dentist and graduated in 2005. I am applying now for the 2017 cycle.

The one thing I can say that has given us a great jump start is to contribute to our Roth IRAs. For those that are unfamiliar, the Roth IRA allows you to contribute to an IRA with money that has been taxed. From then on, neither the principal NOR the compounding earnings is subject to taxation so long as it is withdrawn as a "qualified distribution" (after age 59.5, due to disability, or up to $10,000 for purchase of a 1st home). If the average dental student enrolls at 24(?) and can contribute $5,500 for 5 years, by the time they would take qualified distributions at 59.5 the $27,500 at a conservative 7% compounding interest would be ~$293,000. If you are married and you max your contributions, that amount is ~$587,000. Imagine having access to that kind of money, tax-free, when you will likely be in the highest tax bracket of your life (unless you RE, as is the goal for many of you, but this should help you achieve that goal even faster!).

In order to max the Roth contributions one must have a MAGI of $5,500<$117,000 if single or $11,000<$184,000 if married filing jointly. Making less or slightly more than these amounts will reduce your contribution amount, but doesn't necessarily make you ineligible. For many in this profession, the years in which you can contribute to a Roth will be limited - hopefully at some point soon after graduation your MAGI will exceed the income limits. For those on the HPSP or that are married with an employed spouse (or both, as was our case), earning the amount to contribute to the Roth shouldn't be a problem, although disciplining yourself to set aside the max amount for the Roth might be. For single students putting themselves through school with loans, they would have to weigh the pros and cons of working a small job (we're talking $500/month), and if it's better financially for any money earned to be used to reduce the loan amount or contribute it to a Roth. That's a hard question to answer.

I started doing this two years ago. The key is to open a "self-directed" Roth IRA with zero management fees from your bank. Then invest in safe ETF's with practically no management fees like Vanguard S&P 500. I'm married and on the HPSP scholarship, so I'm planning on maxing out both of our contributions each year, then I'll retire from the military at age 48-50 and collect a HUGE ROI at age 59.5 (or perhaps I'll collect it in small increments so it can keep compounding till I die lol)! Nice post, glad to see others who have a good understanding of this. P.S. Are you from Utah? Everyone from Utah is either a dentist, a pianist, or both haha.

 

[como]

I started doing this two years ago. The key is to open a "self-directed" Roth IRA with zero management fees from your bank. Then invest in safe ETF's with practically no management fees like Vanguard S&P 500. I'm married and on the HPSP scholarship, so I'm planning on maxing out both of our contributions each year, then I'll retire from the military at age 48-50 and collect a HUGE ROI at age 59.5 (or perhaps I'll collect it in small increments so it can keep compounding till I die lol)! Nice post, glad to see others who have a good understanding of this. P.S. Are you from Utah? Everyone from Utah is either a dentist, a pianist, or both haha.

Agreed! No or low management fee funds rock. Sounds like you are truly on track to do awesome things. I am not from Utah, but then I am neither a dentist (yet) nor much of pianist! However, you seem to know your random facts because my husband happens to be all three.

 

[DMikes]

In the realm of investing, I suggest checking out the app "Robinhood." It is a commission-free stock market investment app. I LOVE it.

 

[distressstudent]

Oh, and go to the library & pick up Rich Dad Poor Dad by Kiyosaki.

yuck. good book. terrible person

 

[0rgansm]

What exactly is Vanguard, a stock?

 

[Incis0r]

What exactly is Vanguard, a stock?

It's a company that sells investments, including index funds.

One of the most reliable companies imho due to their unique structure- Vanguard is owned by the people who invest with them, not by other shareholders- so they aren't trying to make a profit for anyone else. They also have some of the lowest expense ratios in the industry, rivaled only by the government's TSP.

 

[gfs6]

A few questions for those more experienced than I am on financial matters (I'm learning):

Would you advise that educational debts be paid off before contributing to an IRA? For example, should I crush my school debts to $0.00 after school and then max out my IRA?

Can dentists - as business owners - set up a 401k for themselves? Can self-employed people contribute to a 401k?

As a future FI dentist, traditional or Roth IRA? I'm guessing my income will increase as my career advances, so I should prefer a Roth, correct?

 

[BluntForceTrauma]

It's a company that sells investments, including index funds.

One of the most reliable companies IMHO........ They also have some of the lowest expense ratios in the industry, rivaled only by the government's TSP.

My brother works in finance and has done thorough research on the subject of investment companies. He is about 1000% behind Vanguard in every respect. They're awesome.

 

[powerballwinner]

Rich Dad Poor Dad by Robert Kiyosaki, best read of my youth

 

[powerballwinner]

The Intelligent Investor by Benjamin Graham is also a MUST by anyone interested in investing, great sound advice and experience from one of the gurus of the trade

 

[powerballwinner]

Wait wait wait, youre telling me i can drop etrades a@@ and stop paying 9.99 a trade for free trading?!?!

In the realm of investing, I suggest checking out the app "Robinhood." It is a commission-free stock market investment app. I LOVE it.

 

[powerballwinner]

Dividend reinvestments with household bluechips like Proctor & Gamble, Coca-Cola, Colgate, and Clorox are also a great way to invest. When it comes to investing, keep it simple.

Yes but you need substantial capital for blue chips 1) price per share 2) dividend yield 3) need loads of capital to get a large dividend check

 

[como]

A few questions for those more experienced than I am on financial matters (I'm learning):

Would you advise that educational debts be paid off before contributing to an IRA? For example, should I crush my school debts to $0.00 after school and then max out my IRA?

Can dentists - as business owners - set up a 401k for themselves? Can self-employed people contribute to a 401k?

As a future FI dentist, traditional or Roth IRA? I'm guessing my income will increase as my career advances, so I should prefer a Roth, correct?

I think we are all learning together here! I think the best way to do that is for everyone to keep posting questions. Take my advice for what it's worth. I'm not a professional or an expert in the field.

Question 1) You will find some varying opinions on this, with the ultra conservative debt-a-phobes like Ramsey advocating to yes, pay off the debt first while others might tell you that every month/year delayed in saving for retirement will cost you that amount multiple times over if you get it in there early and let it compound. However there are so many contributing factors to answer for yourself, such as your age, amount of student loan debt, if you are financing a practice and/or a home. Additionally, the interest rate on loans must be weighed against the potential gains in the market.

Question 2) No and yes. A self-employed 401K is intended for sole proprietors that have no employees. The plan you would utilize as a business owner with employees is called a SEP IRA. The benefit is that this have higher contribution limits than other IRAs.

Question 3) Max out your Roth IRA whenever you are able because those days might be short-lived. Once your MAGI (modified adjusted gross income) exceeds $117,000 for single or $184,000 married the amount you can contribute diminishes quickly. Currently it's capped at $5,500 (per person if you are married) annually, so if you are in the income limits max it out. That money will compound and neither the principal nor any of the interest will be subject to tax upon withdrawal. Even if you can contribute to your Roth, I imagine you will want to contribute more than $5,500 so you could then use a SEP.

 

[DMikes]

Wait wait wait, youre telling me i can drop etrades a@@ and stop paying 9.99 a trade for free trading?!?!

If this isn't sarcasm, yes, absolutely. Robinhood is awesome. Sure it's limited in some ways, but for the bulk of investors it is everything they could ask for and more!

 

[distressstudent]

Rich Dad Poor Dad by Robert Kiyosaki, best read of my youth

Since there are a few people advocating for Kiyosaki, I feel compelled to voice my take on it.

Good analysis of why you shouldn't read Rich Dad Poor Dad.

http://johntreed.com/blogs/john-t-r...ert-t-kiyosakis-book-rich-dad-poor-dad-part-1

Amazon One star Review:

https://www.amazon.com/Rich-Dad-Poo..._cr_dp_d_hist_1?ie=UTF8&filterByStar=one_star


Even the wikipedia page gives a good summary of why you shouldnt read the book.

https://en.wikipedia.org/wiki/Rich_Dad_Poor_Dad

Even the praise section isn't very praise worthy... Endorsed by Orpah who endorses dr. Oz. Endorsed by Will Smith who raised jaden smith... And we know how Jaden smith turned out.



As for Kiyosaki himself... He got rich promoting MLM (legal pyramid schemes). Enough said.

 

[Incis0r]

I feel compelled to voice my take on it. Good analysis of why you shouldn't read Rich Dad Poor Dad.

^I thought you said it was a good book?

yuck. good book. terrible person

 

[distressstudent]

^I thought you said it was a good book?

After reading analysis of the book, I am going to retract my statement.

Terrible Book. Terrible Person

There are plenty of other good books out there. Don't pick one that is so controversial

 

[Incis0r]

After reading analysis of the book, I am going to retract my statement.

Terrible Book. Terrible Person

There are plenty of other good books out there. Don't pick one that is so controversial

I think it depends on what you expect from the book.

When I read it, I knew nothing about investing, money, finance, etc. But reading that book motivated me to learn more and more. I would not be here without that book - it was one of the most catalytic books I've read in my life. It introduced me to the concepts of passive income and real estate investing in a humorous, easy-to-follow way.

It's not a hard or long book to get through and I think everyone who is interested should give it a read.

 

[distressstudent]

I think it depends on what you expect from the book.

When I read it, I knew nothing about investing, money, finance, etc. But reading that book motivated me to learn more and more. I would not be here without that book - it was one of the most catalytic books I've read in my life. It introduced me to the concepts of passive income and real estate investing in a humorous, easy-to-follow way.

It's not a hard or long book to get through and I think everyone who is interested should give it a read.

Fair enough.

My personal recommendation is white coat investor and then the rest on this list:

https://www.reddit.com/r/financiali...lp_us_create_the_recommended_books_wiki_page/

A few questions for those more experienced than I am on financial matters (I'm learning):

Would you advise that educational debts be paid off before contributing to an IRA? For example, should I crush my school debts to $0.00 after school and then max out my IRA?

Can dentists - as business owners - set up a 401k for themselves? Can self-employed people contribute to a 401k?

As a future FI dentist, traditional or Roth IRA? I'm guessing my income will increase as my career advances, so I should prefer a Roth, correct?

IMO priorities should be
1. Max out any matches
2. IRA
3. Pay off your debt
4. Taxable investment vehicles

Think of it this way. Let's say you have the option of paying 5k to your debt or investing. You will only carry the debt for say 10~15 years. So you "saved" 6% interest on that 5k for that duration. Let's say instead you invested that 5k. You have nearly 30 or so years for that to grow. If you let it grow in a roth, you pay taxes on none of that growth. that's prettty good


Of course you always gotta hedge when playing the market. I definitely wouldn't recommend paying all your loans off before you start investing. However, allocating your budget is going to depend a lot on your risk tolerance. There's two way of paying off student debt the way I see it. Either you rely on IBR/PAYE and investing simultaneously and then take out a huge investment to pay off the tax bomb or refinance your debt and aggressively pay off your loans.


Also remember you have option of refinancing. So if your loans are something like 6.8% it's a pretty good "return on investment" if you pay it off, but your interest wont be that high after refinancing.

 

[Incis0r]

Fair enough.

My personal recommendation is white coat investor and then the rest on this list:

https://www.reddit.com/r/financiali...lp_us_create_the_recommended_books_wiki_page/

Agreed- great books in that list!