FIRE Starter 002: Employed Orthodontist Destroys Debt

After 4 years of undergrad, 4 years of dental school, and 3 years in an orthodontic residency, which, unlike medical residencies, are often unpaid and charge tuition, today’s interviewee finally entered the job force.

That was a little over four years ago, putting him on a timeline similar to that of our friend Ether to FI. While he appreciates the fact that he’s got a great job as an orthodontist, he’s also realized that it’s not a job he wants do do forever.

Below, he details his FIRE and investment strategies and asks a couple of questions of readers. Please weigh in if you have a spare minute.

If you’re interested in participating in one of three interview series, please download the most appropriate form for your life situation: FIRE Starter, FIRE Crossroads, or Post-FI Notes. To see other posts in the series, visit our Q&A archive.

 

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Getting to Know You

 

Where are you on your financial independence journey? Have you reached a positive net worth? It’s OK if you haven’t! Most of us started out in the red.

I promised my mom I would get a real job by age 30 and a few years ago I finally, and just barely, did so after completing residency and becoming an associate orthodontist in private practice.

At that time I had about $300,000 of debt, all student loans.  I’ve been working over 4 years now and have a positive net worth of about $270,000.

 

Tell us about your household. How many people? Are you supporting anyone outside of your home? Where do you live?

I live in a suburb of a northeastern city with my long-term girlfriend and our two cats (is this a safe space to admit part of my FIRE motivation is to be a stay-at-home cat dad?).

I am currently not supporting anyone outside of my home, but I want to have money set aside to help my mother since she’ll likely need financial support someday.  After all, she’s a fantastic cook and it’s the least my stomach and I can do to repay the years of excellent meals.

 

In what field are you working? How is your career going? What do you like best and least about your chosen profession?

I’m an orthodontist and I think it’s a very good job.  I emphasize the word job because I’m not sure I would have a true passion for any profession.

I work 4 days per week, earn good pay, and most days have minimal worries once clinic ends, in part because I am an employee and not an owner.  Plus, unlike most other dentists, we can usually avoid use of needles/drills and our patients typically seek out treatment rather than having us talk them into it.

My favorite part of being an orthodontist is the before and after treatment photos.  It may sound cheesy, but orthodontics can change peoples’ lives and improve their oral health and self-esteem.

The toughest physical part of my job is the toll on my back, a common complaint of many dentists.  I started my career with back pain and I notice that after working several consecutive days the discomfort increases and I need the weekend to heal up.

One of my motivations for financial independence is to reduce hours and hopefully decrease risk of long-term back issues.  The toughest mental aspect of the job is the significant patient volume and multi-tasking that is required.

I see 50-60 patients per day (some of my orthodontic colleagues see 80-100 per day) and at any time there may be several patients in clinic waiting on me plus a new patient exam that needs review of records and creation/discussion of a treatment plan.  It’s challenging staying focused and delegating tasks to team members while also maintaining sufficient attention to detail and many days are quite draining.

 

What is the most challenging obstacle to making progress towards financial independence?

Balancing quality of life now with a desire for future financial independence and specifically how it relates to practice ownership.  In dentistry, starting or buying a practice is often an option and can be a great pathway to career and financial success.

However, there is often a quality of life tradeoff given the stresses of owning a business (after-hours commitment, staffing issues, making all the important decisions for the business, etc.).  I know plenty of dentists who have a practice and their ownership has increased their professional satisfaction, but I also know others that are frustrated with the extra headaches.

Financially, it makes more sense to own a practice as your income potential grows and the practice itself becomes an asset, but I often wonder if the quality of life benefits of being an employee dentist outweigh the possible financial benefit of ownership.  For me at this time (in my 30s, no children, and still trying to maximize free time socializing), I think the answer is no, but this could change in the future.

 

Investing

 

How is your money invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?

100% in U.S. stocks, broken down as follows:

  • $200,000 in a taxable Vanguard account (split between S&P 500 and Total US Stock Market funds)
  • $107,000 in Roth 401k account through employer (index fund that tracks the S&P 500)
  • $14,000 in Vanguard Roth IRA via “backdoor” Roth conversion (all Total US Stock)
  • $8,000 in Fidelity HSA (Total US Stock)
  • $4,000 cash in checking account
  • $63,000 remaining student debt
  • Net worth approximately $270,000

 

When I first started working, I knew that I wanted to refinance my student loans [PoF: see latest rates and cash back offers] (thinking about the interest rate on those Grad PLUS loans still makes me shudder).

I saved for several months and paid off some of my government loans with high interest rates to demonstrate my reliability to refinanciers.  After several months, my remaining student loan balance was $270,000 and a colleague referred me to First Republic Bank.

At the time their rates were nearly a full percentage point lower than SoFi and the other major players in the field and I decided to refinance with them at a fixed interest rate of 2.35% over 7 years with a minimum monthly payment of $3,500.  The catch?  I had to bank with them and have regular direct deposits into a checking account, but in the era of online banking plus their offer of no-ATM fees, this was not an issue.

I decided I had a high risk tolerance and a long investment horizon so I put my money exclusively in stocks.  My initial plan was to pay the minimum each month for student loans and invest all my excess income in stocks, figuring there was a good chance to build a sizable nest-egg if the market performed near historical average.  My investments have grown as stocks have performed well in recent years and I did not sell during the market downturn of early 2020.

But more recently, the debt bug grew very annoying and was an itch I had to scratch.  In early 2021 my net worth was around $150,000 due to investment returns, but I still had about $135,000 in student loans.

I now wanted the financial flexibility of being debt-free to do things like save for a mortgage down payment or be out of work for a few months without having to worry about a huge monthly loan payment hanging over my head.  Since then, I have cut down significantly on my investment contributions and put most of my surplus money towards my student loans.

While this plan worked out well, a large part of the success was the fortune of having a few good stock market years early in my working career.  This amount of risk may not be appropriate for everyone.  Finally, I plan on increasing my exposure to international stocks and bonds in the future.

 

Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?

Most are in taxable accounts but I max out IRA, 401k, and HSA accounts at the beginning of the year.  I had a hard time deciding whether to make my 401k a traditional or Roth account.

Given my current income and desire to retire early, I understand the logic of opting for the traditional IRA for the up-front tax benefits.  But sometimes even in the FIRE community we take actions for peace of mind and I like the notion of being able to withdraw 401k funds at retirement age tax-free.

 

Do you have investments in an HSA? How about 529 Plans?

Frank Sinatra singing “Fly Me To The Moon” sounds beautiful, but “triple tax advantage” isn’t bad either, right?  I qualify for an HSA and max out my account each year and my only regret is that I didn’t learn about this sooner as I missed two years of contributions (PoF, help the people out and link your HSA posting here!).  [PoF: Done.] I’ve also decided not to withdraw any funds for healthcare cost reimbursement at this time so I can let the money grow.

No 529 account for now but would open one if we start a family.

 

What has been your best investment?

Vanguard 500 Admiral Fund and Vanguard Total Stock Market Admiral Fund: low expense fees, great track record of performance, a good combination that allows you tax loss harvest, and excellent customer service through Vanguard (isn’t it nice when someone actually picks up the phone right away and is helpful?).

Even if the market wasn’t great the last few years, it’s hard to overstate how awesome these funds are, especially with a long investment horizon.

 

Your worst investment?

I bought some individual stocks a few years ago with “play money” that went down in value and I realized I’d rather have all my investments in low-cost index funds so I sold them and cut my losses.

Other than that, it’s my daily Starbucks habit.  Yes, I’ve heard of the “Latte Factor” and certainly believe in the magic/math of compounding interest, but getting out of the office at lunch for a tasty caffeine boost before the afternoon patient rush is not something I’m willing to give up.  Plus, I’m not cruel enough to subject my colleagues to an uncaffeinated version of me!

 

FIRE Kindling

 

What attracts you to the FIRE movement? Do you think you’ll retire early when you’re in a position to do so?

For those of us that view our jobs as jobs, it offers a way to free up time and pursue the things that truly make us happy and healthy.  I work 4 days per week but would like to cut down to 3 or 2 in the future.

The thought of working because you want to and not because you have to is incredibly motivating.  My tentative plan is to cut down hours in the next 5-10 years and then fully retire in the next 10-15 years.

Also, I love how the FIRE movement feels like a community.  I’m truly grateful for the high-quality, free information provided by Physician on Fire, The White Coat Investor, and others that have helped me to make better financial decisions.  It’s great to know that there are other healthcare professionals who have like-minded goals and that the community is so generous in helping its peers.

 

How do you anticipate your life changing post-FI?

Cutting down hours first and eventually fully retiring, extra time with children if we start a family, more travel if the seemingly never-ending pandemic actually does end, teaching at an orthodontic residency program as part-time faculty, more time with relatives and friends, and pursuing new hobbies (like learning a new language, taking courses at a local college, trying new sports) and old hobbies (as an only child, the video game habit never really goes away).

 

What steps have you taken to hasten your time to FI?

Living comfortably but within means, i.e. “Live Like a Resident”.  My last “you can’t afford this, so we’ll help you gift” from my parents was a used car and I’ve continued to drive that and plan to run it into the ground.

My girlfriend and I rent a nice apartment but it’s a small one-bedroom and while we could certainly afford a bigger/nicer place, we’re plenty happy with the space we have.  I’ve also cut down on purchases of clothing and started to do paid surveys in my free time to fund my aforementioned caffeine habit (thank you, PoF, for recommending some great paid survey companiesGLG and M3 are particularly good for dentists).

 

Are your friends, family, or coworkers aware of your interest in financial independence?

My friends and family are aware that I’m interested in saving now to eventually cut back work hours, but most are not aware of how early I intend to retire.

In contrast, I keep my FIRE interests private from employers and coworkers.  I recommend this approach as a nice balance.

You need certain people, particularly your significant other, that you can be completely honest with and make sure they’re supportive of your goals, but be careful not to overshare with others in your personal and professional networks.  You never know how people will react.

 

What advice do you have for others beginning their own FIRE journey?

I said it already and I’ll say it again:  Live like a resident, especially early on!  Believe others when they say that the BMW and 3-bedroom high-rise apartment downtown won’t improve your happiness as much as you think.

The first 3-5 years of working and saving is crucial.  Form good habits, build your nest egg, and pay down your student loans.  Don’t get bogged down in more debt.  Leave yourself financial flexibility to build a family, save for a down payment on a house, and eventually cut down hours should you choose.

And for my dental colleagues, if you’re considering specializing (for readers, most dental students become general dentists and thus do not have multi-year residencies), try to minimize the cost of your specialty training.

Most physicians are paid during their residencies as they are hospital-based.  While many pediatric dental and oral surgery residencies are paid, most others, including orthodontics, are not because they are university-based and as such charge tuition.

Some private university based orthodontic programs cost $90,000 per year in tuition alone, nevermind the loans you’ll need for living expenses.  You likely already have some debt from college and dental school.  So if possible, try to match into a paid program.

If not, consider attending a program that allows you to attain in-state tuition rates and whose area has a low-cost of living.  I know some dental specialists who complete training with over $500,000 in debt.

You can pay that off, but it certainly adds to the burden and stress.  And while the quality of the program is important, most young dentists will tell you that you don’t get comfortable treating patients until you’ve worked in the real world for a few years anyways, no matter where your residency was.

 

Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.

 

Can I be “that” person in class and ask a two-part question?

I’d love to get some help with saving for a down payment on a house or condo.  My girlfriend and I are not in a rush to buy, but we may like to in the next few years.  Our area has fairly high real estate prices and we’ll likely want to stay.

In this situation, is it best to save money in something low-risk like a money market fund or does it make more sense to diversify that money into some slightly riskier investments like stocks and bonds and pay capital gains on the earnings when withdrawn?

And second, I believe that if I leave my employer, I must withdraw the funds in my Roth 401k.  What is the best option for moving this money if I am not working at that time or if my new employer does not offer a Roth 401k option?

Thank you so much!  This was a lot of fun and I hope it helps others who are early in their FIRE journies.  Stay safe everyone!

 

PoF: Catch all the future interviews from those just getting started, at a crossroads, or at the end of their FI journey with a free subscription to Physician on FIRE.

 

 

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I’ve shared my feedback privately with today’s guest. I wouldn’t want my opinions to influence yours. Please give your take in the space below!

Again, if you’d like to partake in a future Q&A, please download a FIRE Starter, FIRE Crossroads, or Post-FI Notes interview form.

 

 

3 thoughts on “FIRE Starter 002: Employed Orthodontist Destroys Debt”

  1. For mortgage savings, since you are not even thinking about looking yet, you might split between something aggressive and something safe. Remember you gotta pay taxes on the gains, so even when you’re winning, it isn’t as good as it looks.

    For retirement and 401k, how it is handled depends on the plan rules. Our docs are allowed to stay, but probably simple to roll over to Roth ira. You lose Erisa protection that way.

    Reply
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. Answers:
    1) Any money you plan to use in 5 years should be “invested” in a non-volatile asset such as a high yield savings account or a CD.
    2) I’m pretty sure you are incorrect when you say you “must” withdraw the funds from your Roth 401k. Unless the balance is $5000 (which you are well over), you should be able to keep it where it currently is. Or, if you’d like you just roll the Roth 401k money over to your Roth IRA and it’s combined with your Roth IRA money. Not a taxable/penalizable event

    Reply
  4. FIRE Starter 002,

    I used to work as an advisor specializing in Defined Contribution accounts and very rarely are you required to move a Roth 401(k) after separating from a company. Generally, you can leave the funds in the plan as long as you like, unless the plan terminates or it has a clause requiring you to leave. Notably, you no longer make contributions.

    The only companies I have seen eject participants are those run for pharmaceutical companies and usually they give you a 60 day window to move your funds. I would call your plan sponsor (Fidelity, Vanguard, Voya, Etc.) to confirm whether or not this is the case.

    If you want to roll the funds over after separation, you can, but unless you have a new employer run qualified plan that accepts Roth 401(k) dollars, you will have to move it to a Roth IRA. However, once in a Roth IRA, funds can never go back to a Roth 401(k).

    Hope that makes sense, if not, ask me to clarify!

    Olaf, the Mile High Finance Guy

    Reply

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