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Do You Have More Good Debt Than Retirement Savings?

Most of us will start out with some debt, such as student loans, the supposed good debt, or some credit card debt. Higher education isn’t the best time to master personal finances, though some individuals are inherently frugal. If you aren’t among the frugal group then it’s important to put your debt burden into perspective.

You didn’t start your career out of high school like most Americans do. You may have started it 2-3 years after college, as in the case of affiliate clinicians or 7-10 years after college if you went the medical school route.

The excuse that you have time to save for retirement is even more concerning when you have decided to pursue a higher education. Not only do you have less time for you investments to compound but you are also starting your career around the time when you want to start a family, get married, and purchase a home. With less time you also have fewer chances to make mistakes.

It doesn’t matter much that you are a healthcare professional earning $150k or $400k/year because you had 10 years shaved off your interest-compounding years. You also started out with a couple hundred thousand more in debt than anyone making a third of what you make.

For the average healthcare professional, for every $100k of student loans you owe, it would be safe to deduct about $50k of income from the value of your paycheck.

The reason mortgages are 30 years is so that it allows a home buyer enough time to pay it off and have a few years of debt-free income to pad their retirement. Well, if you start your medical career at age 30 and have a 30-year mortgage then you’ll have 5 years to pad your retirement before hitting age 65.

This doesn’t take into account the fact that most of us will change homes at least once before being in it a decade. Not to mention that healthcare professionals tend to buy the most expensive homes they can afford.


How Old Are You?

How old is the average healthcare professional who is starting to pay attention to personal finances? Probably someone in their mid 30’s. They are likely married and have kids. They have a fairly fresh mortgage and plenty of student loan debt.

They haven’t yet had to deal with major illnesses and haven’t had to deal with aging parents. They aren’t old enough to yet worry about long-term care insurance and haven’t been in the market long enough to suffer through an economic downturn.

The younger you are the more time you have to recover from mistakes. And you must make some mistakes unless you have so much redundancy in your personal finance situation (incredibly high income, frugal by nature, large inheritance coming your way, working spouse) that the effects of your mistakes will be negligible.


How Much Debt Do You Have?

Those who went for an MD or DO probably have in the $300k range of student loan debt. Few will have refinanced, either because they aren’t good financial candidates or the process is too grueling.

Student loan interest on their debt varies because they hold multiple notes. Some are 3%, most are closer to 6% and a few at 8%. It’s hard keeping track of all of them and few have the patience (or time) to calculate a weighted percentage.

Your car loan or car lease is also debt. Then there are the credit cards or any personal lines of credit that you might floating around. Also, there is the mortgage. This is considered good debt so some financial experts don’t think you need to worry about it. I’d agree as long as nobody can hold me to paying back the debt – which isn’t the case, so the good debt versus bad debt argument only makes sense when we’re trying to distinguish one debt from another – but debt is always money that you’ll owe someone. It’s someone else’s hands in your pocket.

Quite a few of my colleagues also have business debt. If it’s not money they took out for their own practice, it’s money their partner has taken out. After all, your debt along that of your partner’s makes up your household debt.


How Much Do You Have Saved For Retirement?

Many won’t like the term retirement. Either they think it’s far too early to think about it or that their retirement is taken care of by their employer through the 401k and the pension.

So let’s talk about savings. Every household should have savings and should be investing their savings in order to benefit from the power of compounding interests. Because 5% a year for 10 years on $100k isn’t $105,000.

The average 30-year-old healthcare professional has somewhere around $80k in their employer sponsored retirement accounts. They have another $50k in their private brokerage account. Their money has been earning an unsteady return because every few months/years they change their investments around and therefore rarely hold a position long enough to profit.


So Where Do You Stand?

If you’re a doctor and have $300k in student loans and $800k in a home mortgage while sporting only $150k in your retirement/savings then you aren’t doing too hot if you’re coming up on the big 4-0.

If you are an affiliate clinician and have $100k in student loans, $400k in a mortgage and $25k in an auto loan then you aren’t in that much of a better position because your retirement/savings is likely in the $0 range.

More Debt Than Retirement Savings

The traditional American lifestyle tells us that it’s okay to go into debt for a home because it’s good debt. Sure, I can totally understand that argument. But you are still losing money out of your pockets towards a sizable interest payment to the bank.

You might think that things will get better once you have less on your plate and can pay more towards your debt. However, what that means is that you are throwing most of your money towards your student loans for the next 5 years. And then you realize you still have the other good debt, the mortgage, so you start throwing most of your disposable income at that too.

When do you get to enjoy your income? When do things finally get better? I’m not trying to come across harsh or condescending but it can through you for a fucking whirlwind if you find yourself 10 years from now still chasing your good debt. I don’t want you to be jaded, bitter, or depressed that you’ve been trading your free time for debt payments for the past decade.


But Dr. Mo, You Don’t Understand…

No matter how many arguments you have at your disposable to justify why you must live the lifestyle that you are living, understand that there is at least 1 other similar healthcare professional who will get to where you want to be, have their kids in a comparable school, with a lot less debt, with a lot more in their savings, and with a lot more free time in the near distant future.

It doesn’t mean they are right or that you’re wrong.

It’s not about comparing ourselves to others. But if we don’t know what’s possible then we may never believe in that opportunity. And in fact, money is much harder to come by than debt. So, you do need to be aware of what others are doing because you can quickly find yourself shackled to your biweekly paycheck.

You’re not single, I get that.
You have kids, sure.
You have a parent to take care of.
Your partner isn’t on the same page as you.
Your house was a great deal when you first got it.
Or there are no other cheaper homes anywhere near you.
Rent is insane for a family of 4 in your hood.
The commute would kill you if you didn’t have that particular car.

Look Ahead 10 Years

I won’t pretend knowing what it’s like to raise a family and deal with the same financial shit that us single folk have to deal with. However, 10 years from now what matters isn’t whether I can feel your pain. What matters is if you are okay having just as much good debt as savings/investments.

What about 20 years from now when all your debt is paid off? You are free then to spend as much as you want with all that extra income, right? No. You’ll then be hustling in those last few years before retirement to save as much as possible from your income.


The Future Will Be Better

I have very little doubt that most healthcare professionals will do just fine. 90% of us will retire with plenty of loot. Our debt will be gone, we’ll have stable careers, and maybe even a pension.

The far distant future looks good for doctors and AC’s because we continue earning and ever-increasing income, adjusted for COLA.

There is value in sitting down and doing the math to see where you will be in 1 year, 3 years, 5 years, 10 years, 15, 20, 30, and 45 years. You don’t have to get super technical and there are wonderful calculators online which will let you figure out compound interest returns and give you estimated debt payoff times.

If you aren’t on track then make small adjustments now. No need to go crazy. Sure, the 20-day makeover is a bit harsh but that’s why I wrote the more subtle one too. Even if you don’t follow those, taking one step in each category of your personal finances will get you that much closer to your goals.


Refinance it.
Get out of debt that you don’t need (expensive home, car).
Increase your payments.


Create one. Use YNAB.
Plan for every expense.
Stretch every dollar and give every dollar a job.


Choose the most hands-off investment possible.
Spend your time focusing on adding more to your investments.
Diversify with real estate, business, skill acquisition.

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