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Forum Mailbag: Ethics of FIRE for Physicians, Paying for Med School with a 529, Investing a $100,000 Windfall, and More!

There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, and Rockstar Finance. This is a roundup of my favorite discussions happening around the internet.

1. White Coat Investor: Is Retiring Early Ethical for a Physician?

Question: Arkad was listening to the latest White Coat Investor podcast where WCI interview Physician On FIRE. He was intrigued by the discussion of whether it was ethical for physicians to retire early, given that there is a shortage of physicians and our residency is subsidized by Medicare.

WSP’s Take: This is a question that comes up from time to time. While the concept of FIRE (financial independence, retiring early) is relatively new to most physicians, the debate over the ethics of working less than full-time as a physician is not.

I remember an editorial in the New York Times back in 2011 when a female anesthesiologist forcefully argued that female physicians should not go into medicine if they had plans to work part-time or leave medicine in order to raise a family. She knew that it was not politically correct to say this, and she was right. She was heavily criticized for her op-ed by the New York Times readership.

There has already been a number of excellent points made by other WCI forum members, and White Coat Investor plans to run a guest post by Physician On Fire addressing this question. I would just add one point. Medical school is not free in this country like it is in some countries in Europe. In fact, there are several for-profit medical schools in the United States, and certainly lots of for-profit medical schools in the Caribbean and elsewhere. Medical students may accumulate a lot of student loan debt to become doctors, but they owe no debt to society to work for 35+ years full-time. Why stop at full-time, shouldn’t they work like residents for their whole life so long as there is a shortage of medical care in this country?

To use an investment analogy, medical schools and the government are investing in their medical students to provide medical care for this country. Some of us turn out to be great investments, working as primary care physicians in rural America for 50+ years. Some of us turn out to be terrible investments, quitting before finishing medical school or residency. Medical schools definitely take steps to improve their return on investment, such as rarely taking older (35+) medical school applicants. But once they invest in us, they can’t take it back. We can work as much or as little as we like.

2. Bogleheads: Optimal Use of 529 for Daughter’s Med School

Question: Indexlover has $245,000 in Utah’s 529 plan. Her daughter is a junior in college on a full tuition scholarship. He has been paying for room and board from the 529. Now, she is interested in medical school. Initially, she was willing to go to a private medical school, but now she is interested in the state public medical school. Maybe she even wants to go to an MD-PhD program, which often is completely free. He has $3 million in other assets and no debt. He would like to know how to optimally use the 529 to pay for her future medical school education.

WSP’s Take: Congratulations on building such a large nest egg and giving your daughter the opportunity to graduate debt-free from medical school. This will open up so many options to her and relieve her of the anxieties of student loan debt that so many medical students face.

The question is about maximizing the value of his investment accounts. Clearly, he has more than enough to retire as well as pay for his daughter’s private medical school, even without the 529. One option is to just use the 529 for her daughter’s medical school. She is interested in an MD-PhD program, but if she were to go to a private medical school (or even a public medical school), most if not all of the 529 money will be used. If there is leftover 529 money to be used, he can withdraw the money penalty-free (but not tax-free) for the amount of her college scholarship.

Another option would be to pay for her medical school from his taxable accounts and use the 529 as an estate planning tool. I don’t think this is a great option because he will likely have to sell some of his investments (incurring capital gains) in order to pay for medical school.

3. Rockstar Finance: What to do with a $100,000 Windfall

Question: Soupy wants to know how to handle a $100,000 windfall, assuming that he has already maxed out his retirement accounts and has no debt. Specifically, he is thinking about investing it in the market now, but is worried that a correction may occur soon.

WSP’s Take: This is a pretty common question. Mathematically, the best option is to put it all in the market now. However, I know that it is hard for many investors to stomach putting in a large sum of money into the stock market all at once, especially with political uncertainty and the stock market at all-time highs. An alternative would be to slowly invest the money over time (for example, $10,000 a month over 10 months). While this is not the optimal way to invest, psychologically it makes a lot of sense for many investors.

What he should not do, is try to time the market. People (including many investment professionals) have been pessimistic about the stock market for years now, and the stock market keeps on going to all-time highs. The market may indeed have a correction later this year, but it could just as easily rise another 10% or more. If you’re worried about a correction, dollar-cost average your windfall.

4. White Coat Investor: Taxable vs. Tax-Free Accounts

Question: Gonefishin asks a theoretical question: If he had one million dollars in a tax-free retirement account, how much money would that be equivalent to in a taxable account? A financial advisor he spoke with said it would be two million. Gonefishin is wondering whether that number is too high or too low.

WSP’s Take: Two million is almost certainly too high. At worst, $1.25 million in long-term capital gains is worth one million in after-tax money, assuming a 20% long-term capital gains rate. The actual equivalent taxable account value of a 1 million dollar tax-free account (i.e. a Roth IRA, not a cash value whole life insurance policy) is probably somewhere between 1 million and 1.25 million.

Wall Street Shares: 5 Articles I Enjoyed Reading This Weeek

  1. High Income Parents via Mustard Seed Money: Is Your Heuristic Showing? — a great read on how the principles of behavioral finance affect our investing and personal finance decisions.
  2. Full Time FinanceIntrinsic Motivation, how to change yourself and others — I thought the carrot or the stick were the only two options to motivate people, but Full Time Finance writes about a better approach.
  3. Physician On FireConfessions From a Physician Who Failed Early Retirement — FIRE is not for everyone, as guest poster Dr. Douglas Segan explains.
  4. Life ZemplifiedAre You Spending Your Health on Wealth? Stress for a Paycheck — Keep this in mind when you take that extra shift.
  5. Senior Resident: The (Temporary) First Job — Try to avoid these four types of first jobs after residency.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?

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12 thoughts on “Forum Mailbag: Ethics of FIRE for Physicians, Paying for Med School with a 529, Investing a $100,000 Windfall, and More!

  1. I like your answers here WSP, although I must admit to not knowing enough about 529 plans to agree or disagree with your answer to that question.

    Thanks for the mention of my article in your reading list, I’m truly honored to be included with the other great reads!

  2. My wife and I often talk about the ethics of retiring early as a physician. She makes a good point that in most cities, there is no shortage of doctors. So unless you are willing to move out to an underserved area, then who cares if you retire early. The reality is that you are not actually hurting your patient population because some young physician is ready to move in behind you.

    1. In high cost of living areas, the young residents want people to retire early! Many specialities (e.g. Radiology) had a surplus of graduating residents because many older radiologist would not retire because of the financial crisis.

  3. Thank you kindly for featuring the WCI podcast and the guest post on a failed early retirement.

    We obviously hang out in the same places — I had already commented on three of the four forum threads in today’s roundup. The only one I hadn’t was the Windfall thread because I feel like I’m beating a dead horse typing in the same answer over and over. It’s such a common question.

    Cheers!
    -PoF

  4. Thanks for sharing. I think the difference between the taxable and tax free account is a bit of a function of how long until you divest it. Since the tax free account skips capital gains each year, each additional year adds to the gap. So the future value of the tax free account can be significant even though the present value is just the effective tax rate.

  5. I like my plan best. My son got his engineering degree on a free ride because he was quite bright and then spent six years working as an engineer and putting his wife through med school to get her PhD CRNA. Now she is paying off her loans and cash flowing his med school with her six figure income while I watch happily and financially immune from the sidelines.

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