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White Coat Investor Podcast
WCI #438: The Resident Episode
00:37:54
Today we are answering questions from our residents in the audience. We discuss saving vs investing, buying houses, physician loans, and Roth IRAs. Then we interview a recent graduate about to start his first job as an attending, and he walks us...
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Podcast Host
This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.
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Dr. Margaret Curtis
Welcome to the White Coat Investor podcast. This is Dr. Margaret Curtis. I am a general pediatrician and a White Coat Investor columnist. And I'm filling in today for Dr. Jim Dali. And the feeling I'm having right now is, you know that feeling when a patient comes in and they think they're gonna see their own doctor and then they get put on your schedule instead and you go in to see them and they say, oh, we thought we were seeing Dr. Dali today. And you say, I'm so sorry, he's not available. Is it okay if I see you instead? And they say, okay, that would be fine. Will he be back soon? That's how I'm feeling. That's how you're feeling too. If you're a little disappointed cause you tuned in to hear Dr. Dali. I'm so sorry, he's not available today and he'll be back next week. Welcome to episode 438, the resident podcast. We'll be taking questions from residents and talking to a recent graduate who's about to start his first attending job. He'll tell us about his financial plan. And if you want to learn how to do everything right, you might want to take notes on this one. But before I dive into that, today's episode is brought to us by SoFi, the folks who help you get your money right pay. Paying off student debt quickly and getting your finances back on track isn't easy. But that's where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans. And that could end up saving you thousands of dollars, helping you get out of student debt sooner. SOFI also offers the ability to lower your payments to just $100 a month while you're still in residency. And if you're already out of residency, SoFi's got you covered there too. For more information, go to sofi.com whitecoatinvestor SoFi student loans are originated by SoFi Bank NA member FDIC. Additional terms and conditions apply. NMLS 696891 thank you all for what you do and especially thank you to the residents. We know you're in the trenches right now. We know you didn't go to medical school to become a resident. You went to medical school to become a physician. We appreciate you and we're looking forward to welcoming you to the community. So I'm going to start with a question from a Canadian resident who's working in the United States. She says, I am a PGY3 and as a Canadian resident most of what's on the white coat investor doesn't apply to me. But my general question is about saving versus investing. I have a line of credit available to me and I carry some balance on it. But I'm wondering if I should put my money toward that or put it towards saving for something like house down payment. So what I know about the Canadian finance system is really two things. One is that you have health care. Lucky you. And the other is that your money is also called dollars. That's all I know. So I'm going to trust you to figure out what investment vehicles you have and what retirement savings vehicles you have available to you. But really the generalities of this apply to everyone. Regardless. There are also some specifics for residents that I will get to. This is a very, very common question. You'll see it all the time on forums and financial blogs. But there are some specifics for residents because your situation is unlike most people in the general public. So first I'll talk about the general principles of saving versus investing and then I'll get into what residents should be thinking about. So the question of whether to save or invest or pay down debt really comes down to do you think you'll do better receiving interest from your investments or paying interest interest on your debt? Now you don't always know the interest you're going to receive from your investments. What we think of as vehicles for long term wealth like the stock market and real estate have no guaranteed return over time. Historically they tend to do well. The stock market averages around 8% return over many many years, but there's no guarantee. Whereas the interest rate you're paying on your debt is known to you unless you have an adjustable rate mortgage. I'll get into that in a second. So most people would agree that if you carry high rate debt, and I'm talking about double digit interest rates, you should pay that off first. The higher the rate, the faster you should pay it off. And that's things like credit card debt, some unsecured loans, you should pay that down as a priority. If you have very low interest rate debt, like you had a mortgage at 2% that you refinanced back in 2020, most people would say you should keep that debt, keep that line of credit open and put any extra cash you have toward investing instead. Now there some nuances in there. Some of this has to do with your age and where you are in your career. So the longer time you have to invest, longer your time frame, the more likely you are to receive those higher rates of return over time. It's called time in the market, and it's more important than timing the market. So if you are younger and early in your career, you probably want to take advantage of that long exposure to the stock market that you'll get by investing some right now. And at the same time, you have more working years ahead of you. So you may want to carry some low interest debt going forward, knowing that you have plenty of opportunity to pay it off. That's not so true later in your career as you approach retirement. No one wants to take debt into retirement. And when you're older, you have less time ahead of you to stay in the stock market. So most people would say pay off debt aggressively before you retire. Even low interest rates, great debt. I think another nuance in there is your own personal comfort level with debt. Not that any of us should aspire to be comfortable with all debt, but some people just hate knowing they owe money even at a very low interest rate. I have a very dear friend who was widowed in her 30s with two young children, and her husband had a very small life insurance policy and she used some of that, the benefits from that, to pay debt off her mortgage. And you could argue that she should have saved that money and put it towards college or whatever. But for her, it was really important to know that she owned her house outright as she was trying to navigate raising two kids on her own. So I think that was the right decision for her. You may find that you just feel better paying off your debt, and I don't think anyone could really fault you for that. So that's the big picture. Now there are some particulars for residents because you're in a different situation than most of the general public. You are more likely to carry debt, which may be high, at a high rate, from student loans, from moving to start residency. You have high earning potential in the future, but you have low current earnings. So the priorities for residents kind of create something. It's called the resident waterfall. You can see it on the white coat investor webpage. The first thing to do is just kind of secure yourself, get disability insurance, get term life insurance, especially if you have a spouse or kids who are depending on your earnings. And the reason to get them now is that it will never be cheaper than it is right now. You are the youngest, you're Ever going to be. Hopefully if you're in good health, you'll be able to get insurance at a quite low rate and lock it in now. So go ahead and get disability insurance and life insurance. You should have a small emergency fund. Three to six months expenses is about right for most people. And as a resident you're probably living pretty lean and so that's not a whole lot of money. You should refinance your private loans if they're at a high interest rate. You can look into some of the student loan repayment programs. I'm not going to get into those in depth here because honestly, the landscape is changing so fast that I think that information is going to be very quickly outdated. But start thinking about your plan for repaying your student loans. And at the same time, of course, when you're a resident, your priority really is just becoming the best doctor you can be. But you can also, if you can, carve out a little time to improve your career and financial literacy. So maybe read a little, maybe cruise the blog a little, go to a conference if you can, to set yourself up for success in the future so you have some knowledge preparing you as you make these bigger decisions down the road. And then we can start talking about investing. So if your employer, if your residency program offers you access to a retirement program and a match, you should absolutely take that. A match is free money. So prioritize that ahead of other things. If you still have some money after that, you could consider a Roth ira. This is a great time in your life to do a Roth because your salary now is lower than it will ever be as an attending. So putting away money after you paid taxes on it, letting it grow tax free, and then taking it out tax free can be a huge benefit to you. Down the road. You can consider a health savings account. A health savings account is a special kind of savings vehicle that you have access to. When you have a high deductible health plan. You put it in as pre tax money so you don't pay taxes on it. If you take it out to use for healthcare expenses, it stays tax free. Or if you take it out later in life, to use for anything you want is also tax free. So it's called triple tax protected, which makes it a very valuable investment. And then if you have money left over after that, consider just maxing out your retirement accounts, using a Roth if possible. And then start thinking about things like taxable investments, house down payment, things like that. Now you might be disappointed to learn to hear that a house down payment is really one of the last things you should consider. And I'm going to get into that when I answer some of these questions. But in general, it's not a great idea to buy a house when you're a resident and not even for the first few years out of residency. Most physicians don't stay in their first attending job. Either they change jobs within in their area or they move entirely. And it's really a good idea to not be tied down at that point in your career. You also will find it much easier to save up for a down payment as an attending than you do as a resident. So after a couple years of living like a resident, living below your means while making an attending salary, you'll be able to save up a really nice down payment and be able to afford a house that you love. So I hope that helps. Thank you for your question and best of luck in your training. Okay, now we're going to take some questions. So there are several questions today about buying a house as a resident. I'm going to combine them because they're very similar in tone and in substance. So New resident mortgage. How much should I expect to be pre approved for looking into potential homeownership when starting residency next year? How much do new residents typically get approved for? With a position loan at 60 to $65,000 income, we will not have verifiable spouse income at the time of applying. Another one is position mortgage as a resident fourth year Waiting to hear match results for general surgery. I'm strongly considering buying a home using a physician mortgage versus renting for the 56 years of residency. I'm very fortunate we'll graduate with zero debt. I'm not trying to go out and buy some $500,000 home as a resident. My rough estimate range is 250,000 to 300,000. This obviously depends on where I match, given that I have zero debt and these loans as I understand them often offer zero down and waive PMIs, private mortgage insurance. Is this something I can reasonably consider or is this smarter move to rent for the next five years and plan to buy once my income increases as an attending. If this is something I can consider any advice on the steps I should be taking once I find out where I match. Okay, so first of all, Jim Daly will kill me if I say go ahead and buy a house as a resident. And I think he's right. You. Of course you'll find people who say we bought a house as a resident. It was great and we made a killing. But those folks were really, really lucky. Most residencies, even long surgical residencies, aren't long enough for you to be confident that you will money on the sale of a house or even break even. And in worst case scenario, you are underwater. You owe more than you, than you can sell the house for. And as a resident, you're really busy. Homeownership is demanding. It takes a lot of time and a lot of effort. So generally don't encourage people to buy. As a resident, you are saying if you're thinking about a house that's going to cost 250 to $300,000, you're probably looking at lower cost of living areas, which is great, but, but historically those areas don't appreciate as much as more expensive areas. Of course, I don't know how anyone would buy a house in an expensive area. High cost of living area. As a resident, I just don't know how you guys do it. So here's, here's what I really want to talk about is physician loans. Physician loans are jumbo. Loans are very hot. They're very large loans specifically for physicians and other people with high incomes. They often, as this writer said, they often waive the requirement for a down payment. They waive the requirement for private mortgage insurance, which you typically have to have. If you don't have a down payment, they let you borrow more than you would normally qualify for with your salary. The problem I have with these loans is first of all, those guardrails are in place for a reason. If you don't have down payment and you don't have that income, you are going to be hard pressed to pay your mortgage. It's especially true if it's one of these adjustable rate mortgages. You will typically get kind of a teaser rate, which is a lower rate early on and they readjust later. And you have no way of either you know it's going to be a higher rate or you have no way of knowing what the rate's going to be. It could be dependent on the market. And many, many people found out, much to their dismay, how much their mortgage rates could go up back in 2008. So an adjustable rate mortgage is really not a good idea, especially when you are buying at kind of the max of what you're capable of. The other reason I don't like these loans is that it's very easy to go too big on your house purchase. And any broker or realtor who's worth their salt will try and upsell you. They will say, oh, this is the doctor's neighborhood. This is the doctor's house because they know you're going to be good for it down the road. But you really don't want to be tied to a bigger mortgage than you could afford. So don't encourage doing this. I don't encourage using a physician loan. Much, much smarter to wait till you're intending, save your money for a couple years and have a nice down payment on a nice house that you can actually afford. Two Related Questions about Saving and Investing Dear Auntie March doesn't actually say that. I just wanted it to Dear Auntie March, Should I, a resident, start a Roth IRA? I have 2.5 years left of residency projected to make 250,000 to $300,000. Residency offers a 403 retirement plan without matching, which I've been putting money into. I also started a savings account this year. Is it a good idea to start a Roth IRA now or wait until I'm an attending? I feel like with student loan payments pending, rising rent and housing prices that is it even worth it to put money into a Roth IRA now in residency I don't spend a lot, but I do enjoy eating out or traveling during time off. And the second related question is I'm a resident with a couple thousand put aside just for investing and I'm new to it all. Where do I put it for long term growth? So to answer the first question, yes, you should start a Roth ira. The reason to start one in residency is that your salary now is much lower than it's ever going to be again. And the beauty of a Roth is you pay tax on it before tax on that money before you put it into savings and then it grows tax free and we take it out. It's still tax free. So putting it in now while you are in a lower tax bracket is definitely to your advantage. If you've been putting money into a 403 retirement plan without a match, I would say skip the 403 and use the Roth IRA instead. If your employee offered a match, I would say invest enough in that just to get the match because that's free money. But after that, switch over to a Roth IRA. You might even have Roth options within the 403. So yes, start a Roth IRA and then to the resident with a couple thousand put aside just for investing. I'm going to assume you've done everything else in the resident waterfall. You've got disability insurance, life insurance if you need it. You've got a plan for paying off your student loans. You've done all the things and now you find yourself a little extra cash to invest, get that Roth IRA open and put it into a long term investment like an index fund at Vanguard or Fidelity or Schwab. Lots of exposure to stocks because you're still young and got a lot of years of working ahead of you. You've got a long time horizon for this investment. So put it into a stock like a stock market total market index fund and just leave it alone. All right. Hope that helps. Hi, this is Dr. Patrick Arpin. He just graduated from pediatric residency and is about to start his new job in Washington state. How are you, Patrick? Nice to see you again.
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Dr. Patrick Arpin
Doing well. Thanks for having me on, Dr. Curtis. Great to be here.
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Dr. Margaret Curtis
Of course, of course. So I should explain that I knew Patrick when he was a resident and I think our first conversation was actually about. Or one of our first conversations was about the White coat investor.
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Dr. Patrick Arpin
It was. Yeah, I actually, I was thinking back on it when we talked about doing this podcast. And I was at the time looking at getting term life insurance because I had just gotten married and I came to you and had known that you had written some columns for the blog and were kind of active in the community and wanted to pick your brain on it a little bit. So we talked about setting up a ladder policy, I think.
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Dr. Margaret Curtis
Yeah, yeah, that's right. And I remember that. And you're a bit of a ringer, I have to say, because you've been following the White Coat investor for a while and even before that you were pretty savvy financially. So you're. You've really set yourself up. Can you tell us a little bit about how you set yourself up even before residency?
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Dr. Patrick Arpin
Yeah. So I was first introduced to White Coat Investor in medical school. One of my classmates, I think, was part of the Champions program or at the early start of that 2017 or 2018. But we all got a copy of the book, which was really cool. But even before that, going back all the way to high school, my summer job, I opened up a Roth IRA and was putting just a little bit of money, kind of 25, 50 bucks from each paycheck into that. And kind of from an early age was thinking about how do I set myself up for success and then found a white coat investor and kind of things have evolved since then.
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Dr. Margaret Curtis
That's amazing. Could you mind if I ask how much is in your roth now?
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Dr. Patrick Arpin
Close to 70ish, I think.
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Dr. Margaret Curtis
That is amazing.
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Dr. Patrick Arpin
Yeah. And a lot of that is kind of from. I made some other mistakes early on. I was doing a lot of kind of individual stock trading and made some nice gains on some Apple, but others not so much. And I've since kind of consolidated everything into more just ETFs. And I have a very quote boring portfolio of ETFs. And that's kind of just letting it do its thing and continue to grow wealth.
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Dr. Margaret Curtis
That's great. Boring is really good for portfolios. It shouldn't be exciting. Yeah.
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Dr. Patrick Arpin
Great.
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Dr. Margaret Curtis
And I think we also talked last year about how your next step and your what you're going to do as your first attending job and how did you end up. Tell us what you're doing now and how you end up choosing that.
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Dr. Patrick Arpin
Yeah, so I am starting as a pediatric hospitalist at Washington State. So my wife and I just did a big cross country move, which was very, very fun. And we can talk about that in a little bit. But as far as my job, I was kind of really torn my third year of pediatric residency of looking at fellowship versus kind of getting out and just starting to work and become an attending. And I knew long term, I'm originally from Montana, that I wanted to be kind of in a more rural kind of community setting rather than at a larger city or academic institution. And when I was thinking about fellowship options, one of the things that really I enjoyed in residency was critical care. And then thinking about kind of, well, what type of jobs would that be like for a job market long term? And a lot of PICUs are consolidating into larger centers. There are kind of those smaller community ones that do exist. But I was thinking about just from the standpoint of marketability and where I want to live. And I kind of realized that community pediatric hospital medicine is going to be where I find my niche. So that's kind of what drew me to applying to be a pediatric hospitalist. And I'm excited to get that kind of part of my career going and jump into it. I'm a little nervous, but I was also able to kind of use resources throughout residency. Dr. O', Day, our program director, I remember I met with her one day and she said, let me, you know, there was a resident here a couple of years ago who had like kind of was dealing with the same kind of question. And she pulled out her phone and texted her. And then, you know, two days later we had an hour long conversation about kind of her career decisions and the things she was thinking about. So that was really helpful. And I think for a lot of residents, if you're facing this kind of conundrum, utilizing your networking resources was huge. For me. And a lot of programs are very supportive to really want to make sure that the residents when they graduate, have something in place and have kind of confidence in what they want to do. And so using that is a big asset to think about.
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Dr. Margaret Curtis
That's so great. Were there any other mentors, either formal or informal, who kind of helped you as you figured this out?
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Dr. Patrick Arpin
Also just a lot of the attendings at our program were helpful. And then kind of just thinking introspectively, I think was another thing that I spent a lot of time thinking about and really just making sure I'm not jumping into a decision right away and taking some time. So I did take. I think a lot of residents, if they know they're not going into fellowship, will probably start their job search in year two or if it's a three year program or maybe about a year before they graduate. And I actually didn't start mine until the winter of third year, which is, you know, some might say a little bit late. But for me it, it worked out because when I started looking at jobs, it was kind of like the fates or the stars aligned and jobs were opening up or being posted in places that I kind of wanted to live in. So I was like, oh, well, this is convenient. Like maybe it wasn't posted a year ago when I was. Might have been looking, but now here it is. And so I was able to have a lot of success and went on for in person interviews, was able to really get a feel for each place and then had the. I think the hardest decision was deciding between kind of two places which both checked almost every box. And it was like, how do you, how do you put yourself in two different places, you know, and having to choose one of them. But my wife and I are pretty.
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Dr. Margaret Curtis
Excited, so that's great. I really do think there's a certain. Some kind of serendipity or something that happens when you find the right job and the right path. Everything kind of falls into place. And if you're struggling, it's probably not the right path. But that's, that's been my experience anyway. It sounds like it was for you too, with this job. Yeah, that's great. And so kind of coming back to the financial aspects of it, what did you. How would you describe what you did in residency, medical school, medical school and residency to set yourself up, to put you where you are now?
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Dr. Patrick Arpin
Yeah. So I think kind of I would break it down into, I guess, three kind of buckets. One things I did and I have been doing since before medical school and residency and really trying to set some of those habits and behaviors in place. So a lot of people will talk about or you hear about it sometimes in the community of paying yourself first. So taking some of that money that's coming in and putting it into retirement, knowing that that money is going to sit there and it's not going to be touched for 30, 40, 50 years and then just let it grow. So being kind of disciplined to do that. And prior to medical school, I was a non traditional kind of medical school applicant and I took some time off between college. So I had old 401ks or 403bs that I kind of consolidated during residency into my residency. 403b during residency I contributed to maximize the match from my employer. And then I did a separate Roth IRA that I maximize every year, which was a little tough. And I recognize I'm in a very fortunate position that my spouse also is working full time. And so we're kind of dual income. We have no children, we do have a dog, but that is a lot easier than I know I have some colleagues that have children in residency and people are in different circumstances. But I think trying to do as much as you can and knowing that don't compare yourself to other people necessarily. If you're trying to stick to the basics and really work and be disciplined, that's where you're going to start seeing those dividends pay off. And then when you come into the position of having an attending salary, you're going to have more income and you already have those kind of habits in place. So it's very easy to then maximize all of your retirement accounts. And now you have this extra discretionary income afterward. Some other things I did is I once I moved everything into my employer retirement account from my old like 401ks and 403bs. I did a Roth conversion, which our plan allowed, which was nice. So now all of my retirement is in Roth and I have an empty basically traditional IRA that I can then start using as a backdoor in 2026, which I'm planning to do because we'll be above the Roth threshold at that point.
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Dr. Margaret Curtis
Congratulations.
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Dr. Patrick Arpin
And then I took some notes here. Other things that I did. We didn't have an HSA at my residency, but I had a previous hsa, so that's just kind of been sitting there. I do get an HSA option at my new job, so I'm going to start utilizing that as well just to kind of as like a another vehicle for retirement. And then one Thing that was told to me my intern year by one of my advisors was that if you can kind of save a little bit of money from every paycheck, 25, $50 something just into, like, whether that's in part of your, like, emergency fund or like a separate account or an envelope, that you're saying, like, this is my going to be my end of residency expenses. And so things that you don't think about. But boards, the pediatric boards were about $3,000 that I had to pay in March or April. So. And I'm sure every board is different, but having that money up front to be able to pay for that. Some employers will reimburse your board costs, and I think some fellowship programs will too, is what I've heard. But it's not universal. So don't put yourself in a position where you're banking on that. And then all of a sudden, oh, my job or my fellowship program is not paying for my boards. And now I have to come up with three grand plus also moving expenses. That kind of can add up pretty quick too. So just if you have a little bit of cushion from that standpoint, I think it can be helpful. And again, just being a little bit forward thinking. And I'm not perfect. I was very fortunate that my wife is also disciplined. And we're not big spenders, per se. We're kind of, you know, we spoil our dog. But outside of that, we do a lot of just kind of hiking and things outdoors where we're not, you know, spending a lot of money.
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Dr. Margaret Curtis
Yeah, yeah, yeah. Have you done. You guys are very disciplined and you've really.