For an audio version of this post, please click on the speaker icon (top left).
Welcome to this episode of The Doctor’s Bill (Can You Afford It?).
Wonder if you should buy that big ticket item or not?
Well here’s your chance to have a wealth management expert, Johanna Fox Turner, of Fox & Company Wealth Management analyze your overall finances and make a final verdict on whether or not you can indeed swing for the fences and splurge on yourself or whether you should just walk away.
[Johanna and I have no current financial relationship]
Disclaimer: This is not meant to be a substitute for paid professional advice but only meant to serve as a suggestion/guideline.
The following are the details from our submission form:
Item/Experience Desired:
“Doctor’s House”
Approximate Cost:
$3,500,000
On A Happiness Scale of 1-10 (10 Being Happiest), rate what this item/experience will do for you A) Short Term and B) Long Term:
A) 10 B) 9
Age:
33
How Many Years Till Planned Retirement?
37
What is your total household income?
$1,200,000
What is your % Annual Savings Rate? (savings/gross income)
50%
Primary Home Equity (Market Value-Debt) [For Renter =$ 0]
$500,000
Additional Real Estate Holdings Equity (Market Value-Debt):
$1,000,000 (cash flows $50k/yr)
Current Liquid Asset Value (Savings, Checking, Etc.):
$500,000
Retirement/HSA Combined Value:
$2,000,000
Miscellaneous Asset Value:
$0
Mortgage Balance:
$0
Student Loan Balance:
$0
Additional Liabilities:
$0
Future College Plan Funding Needed (Today’s Dollars):
$200,000 (16 years from now)
Future Parental Support Funding Needed (Today’s Dollars):
$0
Additional Future Obligation Support (Today’s Dollars):
$0
How do you plan on paying for this item/experience?
$2M down payment
- $375k/yr savings toward downpayment over 4 years
- Reduce investing savings to 20% over this 4 year period
Borrow $1.5M with plan to pay off mortgage < 8 years
Any other pertinent information not addressed?
We make a lot currently, but do not know how long it will last.
My concern is we buy this home and reimbursement gets slashed and our solid financial foundation crumbles.
My wife is pushing hard for this home.
I am perfectly happy in our current cheaper home that is already paid off.
In looking around, it also seem the sellers of these $3M+ homes are having a difficult time unloading them.
Part of my concern is that even if reimbursement isn’t slashed, I’ve locked myself into this area for the long haul once we shell out for this kind of house.
1st World problems but one that grows daily as my wife wishes to expand to a larger home.
What do you think?
Does this submitter get the keys to the castle but ends up in the financial outhouse?
Or is happy wife/happy (financial) life a possibility?
Click on the Doctor’s Bill Image and find out the verdict:
Click on the Bill (image) and find out if can afford it or not
After you see the verdict please come back to this page and comment whether you agree or not with the decision (and no cheating by looking at comments first!)
If you would like to submit your own Doctor’s Bill request please fill out the submission form.
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I’d also run a case considering divorce. If his wife “needs” a 3. 5$M house then she will probably “need” a lot of other expensive things. There isn’t much information about her but if she is extremely materialistic then the forecast for a long and happy marriage is not good. Hopefully that isn’t the case and they just live in a very expensive area. Plus with that savings rate they have to have controlled their (or her) spending so far.
Divorce can certainly change the financial outlook in a heartbeat. It did sound like they were on two different financial pages regarding this
Yep, obviously that would change the whole picture. As I mentioned, the recommendation assumes there is no divorce. Can’t plan for everything or you’ll end up doing nothing. Which may be the best course of action but no way to know the “true” inside story here or the psychology behind the wife’s desire for a “doctor’s home”. May be something that ends up making perfect sense to this couple – everybody has their own happiness switches. While a large retirement account will be more meaningful to some (which, btw, is also achievable even with the doctor’s house), a very nice… Read more »
I also wonder about the cost of living. If this is silicon valley then that is an average house. If this is a rural area then it would be very hard to sell etc.
That was my first suggestion. If the spouse’s happiness is riding on this house, the doc has bigger problems.
Is there no middle ground between a $500k home and a $3.5M home?
Probably so, and possibly a compromise can be reached after the impasse of affordability is resolved.
Ask him about the cost of ownership. What will be the cost of maintenance, repair, insurance, property taxes, utilities, and of course the principle and interest. My guess is $175,000 annually.
All great points. Depending on whether this is a HCOL living area like California or not, the property taxes could be incredibly high (and with the new tax system in place, SALT deductions would not offset it as much as it would have in the past).
A larger house dramatically increases the utility bills as well. If in a colder climate, heating during winter could lead to some eye-popping utility bills.
Thanks for the input. Appreciate the comment.
Honestly, that was a big consideration for me, too, and is one reason I kept the savings rate low even after 10 years and cut the income by 50%. If Dr. Vader continues at his current earning rate and retires even 10 years earlier than he is planning (I agree with others on WCI that is is unreasonable to expect him to work until 70, particularly at this pace).
If he lives in a HCOL area then it might be the norm. My 100 year old house is over 3M and most of our colleagues homes are between 3-10M easily. But we all rode a huge market up. None of us had that amount of money, high income or not. I agree with everyone here that the bigger issue is with a wife who NEEDS a 3 million dollar house while he is happy with the paid off one. It’s that single word of “need” and making her 10/10 happy that is worrisome. Can he afford it? The numbers… Read more »
Appreciate your comment as always DMB. Definitely can afford it in this case but it seems like he has reservations and thus should really have good discussion with his wife and even better in the presence of a financial counselor
Thanks to XRAYVSN, Johanna, and all the posters for their advice. Here are my responses to some of the posts above: – it’s funny how things don’t translate sometimes onto paper. I can understand how running a blog is trickier than it seems ? My wife is perhaps the most frugal person I know. Our arguments usually stem from her not spending enough money. This is the only time where we seem to have switched bodies where she really wants to live in an expensive part of town and I’m having reservations about prices (our Amazon account would show a… Read more »
I appreciate you chiming in and giving additional background. Hopefully there is common ground between you and your wife because it truly is a partnership and there can be resentment if one of you feels that your desire/concern is being completely overlooked. I truly think you are in an enviable financial position and things point to you being able to handle this. However that can not and should not invalidate how you feel and that issue has to be addressed appropriately so that you harbor no resentment (again beyond the scope of this post or my blog). It might be… Read more »
Dr. Vader! I am so glad you filled in some blanks. Obviously, a submission answering a few standardized questions will not give the whole back story to a request. The need for moderation between conciseness and completeness in the interest of time spent on an analysis naturally leaves readers to draw their own conclusions in some areas, so it is great to have a clearer picture.
Best of luck with your decision and in your career.
What kind of medicine does he practice? 1.2 million per year is pretty lucrative!
That’s the million (1.2 million actually) dollar question! 🙂 I’m not aware of his specialty, perhaps Johanna or the submitter will chime in.
Yeah, making half a million a year in medicine is doing reasonably well! Probably a spine surgeon.
Surprisingly there are some docs from any specialty that can hit the 7 figure mark. It helps that they have an entrepreneurial spirit that can boost their medical practice income. DocG from Diversefi is a perfect example. He’s a primary care doc (internal medicine) but does concierge medicine, medical directorship activities and I believe he hit 7 figures (or if not incredibly close) in the past. He’s slowing down now as he stated he is starting 1/2 retirement.
Yeah, I know several physicians that make that kind of cash. Medicine is a hard profession to generate those kinds of salaries. Running a business can be much easier and more lucrative since the caps are not there. My wife is an entrepreneur and runs a few!
I would hope that the option is not “new house or new wife”. The answer to his question is that they need to do the very hard thing and sit and talk about it. These types of questions are never easy. I will not be so foolish to say that I don’t avoid some of them from time to time. Everyone does from time to time. That’s besides the point, most times, the best long term option is to have the, potential, argument now, to get past this tough decision. Perhaps there is a 3rd option; what about a vacation… Read more »
Excellent points Gen X FIRE. I agree that the increase in lifestyle cost will most definitely go up to keep pace with the new luxury home (furniture likely will be needed or updated etc). Counseling from a financial planner may be the best money spent for this couple if it allows them to tackle the different view points in the beginning. I almost had the impression that the submitter would have rather been told he was denied based on the last paragraph. Even though he can afford it there may be feeling of resentment if things deviate too much
I would definitely give D V a big thumbs up. I’m still impressed that you could pay off a $3.5 million dollar house in less than 8 years. That’s awesome.
The force is definitely strong with this one 🙂 Yes I am amazed at all the financials achieved at such a young age. The fact that a 3.5 million dollar home can be legitimately purchased at age 33 is quite spectacular.
Dr. Vader makes me feel, in the words of Doug Neidermeyer, “worthless and weak.” But such is the life of a dead-animal picker upper and a ham and egg programmer. Anyway, I would encourage Dr. Vader to take a step back and go with a more modest step up the property ladder ($1.5 to $2 million house rather than a $3.5 million). The masses want socialized medicine and once that socialism comes, reimbursement rates will surely tumble. And I also imagine that when full-blown socialism comes to the medical field, the joy of being a doctor will tumble as well.… Read more »
Thanks Mr. Groovy for taking your time to come by and comment. It is scary as a physician to see exactly how this medical landscape has rapidly changed before my eyes and I have only been officially practicing since 2003. Declining reimbursements is likely a trend that will continue as Medicare finds ways to pay less for services (and private insurers soon follow that trend). In my field of Radiology, we have been hit with quite a few cuts on how MRIs for example get reimbursed. This means I have to read more to maintain what I made last year… Read more »
In this situation, unfortunately, I think it’s “either-or”. Property on the water is high $$. Otherwise, Dr. V is perfectly happy where he is. As others have commented, though, the effect of forced saving for 4 years will give them both plenty of time to think about goals and priorities.
I want to know what specialty this doc practices- I’m married to an anesthesiologist and am surrounded by physician friends in various specialties- even plastic surgery. No one making that much- have son in med school now- if high income is major goal (which it shouldn’t be necessarily) curious about his sprecialty.
There are definitely doctors out there making close to 7 figures and span various specialties. I have an anesthesia friend who makes 7 figures a year and I believe Doc G from diversefi has as well. I’ve come close myself
That really surprises me- I suppose reimbursement varies across the country but not too many earn anywhere near seven figures where we live. What part of the country do you live in? May direct my son to keep geographic options open.
Southeast. In most income maps of average doctor salaries the southeast tend to be near top.
It is possible. Most of our clients reporting 7-figure incomes on their tax returns are dual docs but we have a couple who individually report ~$1M. I would have to do some data-mining to find out the specialties but I think one is a practice owner, which can also add to the bottom line.
First, the wife has been mischaracterized a bit here. She wants a coastal, small, outdated, cheaper house, the OP wants the larger, updated, expensive house. By my calculations, they have $4m to their name, in 4yrs that’ll be up to 6.5M. In that 4yrs time, they can assure income stability, think hard about where they want to live and if it’s worth it. The cheaper outdated house may not be a bad option, they can upgrade and fix how they see fit, running costs may be lower and resell may be easier due to lower price or smaller size. OP… Read more »
Good points. They are almost at the stage where they can pay for a home outright (like you suggested could wait 4 years but the caveat is who knows where housing prices will be at that time).
Appreciate your perspective.