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May 26 2009 12:00AM


I am 32 years old and was working as a physician assistant for five years, making about $85,000. I had no debts and was able to save $100,000 when I decided to enter medical school four years ago. I am almost done with school, but my financial situation has changed drastically. I have taken a loss in my investments. I also loaned my mother $50,000 to help her prevent foreclosure on her house. I now have $130,000 in student loans and $50,000 remaining in cash. Do you think I should sell the mutual funds that took a loss, or will the market bounce back and recoup some of my losses? I also feel that my choice to return to school was financially not the best choice for me. Now I am faced with entering residency and making half my previous salary while working twice as much. The typical work week is 70 hours. In this soft market, I am considering putting off residency for a year and getting a position as a physician's assistant. This would pay me double of what I would be making as a medical resident, and allow me to get back on track financially. After three years of residency, I should be making between $175,000 to $200,000 year. Would not entering residency upon graduation be wasteful? Or, would it make good financial sense?  What are your thoughts?


According to FPA member, Ben Gurwitz, CFP®, of Financial Planners for Life, you should be congratulated for successfully doing the one thing that most people struggle with their whole financial lives. "You have been able to sacrifice your near-term wants for long-term goals," he said.  "The decision to forgo $85,000 a year for four years and spend an additional $100,000-plus shows great foresight and desire for the rewards both professionally and financially of being a doctor."

With that said, in respect to your specific concerns and questions, Gurwitz and other financial planners suggest:

To sell or not to sell your investments. Gurwitz said there's a need to differentiate between retirement accounts [401(k), IRA, etc.] — or what are sometimes called tax-deferred accounts, non-qualified investments or taxable accounts. "When you take money out of a non-qualified investment you are subject to short- and/or long-term capital gains.  If you get money from a retirement account, the distribution is generally taxable at ordinary income tax rates plus a 10 percent penalty, if you are under age 59½.  It is almost always cheaper to get money from non-qualified or taxable investments first."

"You should think about investing for periods of time longer than five years. If you plan on needing money from those investments to supplement your cash flow over the next few years I would recommend selling the non-qualified mutual funds, stocks, etc., and keeping those in a high-yield savings account until you need them. The market could rebound, but it could also fall further. It is dangerous to stake your immediate cash needs on something that is so uncertain.  I am confident over the long-term the stock market will bounce back, but I don't know if that is going to be in two years or five years," said Gurwitz.

"Now, the investments you have in a 401(k) or IRA are a different matter. These accounts would trigger tax and penalties if you cash them out. You are young, so the time horizon for these investments will be more than five years. If an emergency came along you could consider it, but I would try to keep that money invested," said Gurwitz.

If you end up going into residency immediately, Gurwitz suggested that you make sure your cash needs are covered until your salary increases. For his part, FPA member, Craig Wear, CFP®, of Game Plan Advisors, said "the next few years of your training really call for a lot of liquidity and emergency funds."

"However, if you need to cash in your 401(k), it would be better to do it while your tax bracket is low, possibly while still in school," said Gurwitz. "You should consult with a CPA to figure out the least expensive way to tap those accounts. If you choose to return to being a physician assistant for a year, you may not need to tap any of your existing investments, but there are other 'costs' to this decision." said Gurwitz.

No matter whether you decide against selling your investments or not, it's a good idea to examine your current asset allocation in light of current events, current research and current thinking. "Like never before, I'd strongly suggest that you challenge traditional portfolio thought and design — these times call for much more active management," said Wear. In addition, many planners today are suggesting that you review not just your financial capital, but your human capital as well when building a portfolio. That would be especially important for a person like you with a tremendous amount of earning power that often doesn't get realized until much later in life, after student loans and other financial obligations are gone.

Start your residency or not. According to Gurwitz, you already survived the hardest part of your financial road to becoming a doctor. "During medical school your opportunity cost was the salary you weren't earning plus the cost of medical school," he said. "So it really cost you more than $100,000 ($85,000 in salary plus the cost of medical school) a year during that time. Once you begin your residency that will change to only the higher salary you could have made minus your residency salary ($85,000 minus $40,000). If you can survive on the lower residency salary for the next three years, you will be able to quickly pay off your student debt and save money."

Others agree. FPA member, Marc Henn, CFP®, of Harvest Financial Advisors said, "I don't necessarily agree that it would be the best move financially for you to make twice as much as a physician assistant in the short-term when in the long-term you would make much more as a doctor."

Since you have already demonstrated that you can live on less than you make, it's quite possible — based on your history of hard work, sacrifice and saving — that you will you will pay off the debt quickly and save significant portions of your income once you become a doctor. Wear also suggests that you consider taking moonlighting jobs when and where possible as a way to boost your current income or to pay down debt.

And then there's the issue of pursuing your life's work rather than the money. "All of this financial reasoning aside, there are some things in life where the best financial move does not equal the best career or life move," said Henn.  "I think this is one of those cases.  If your career goal is to become a doctor then you should not delay.  If you have had second thoughts about it then it's time to really evaluate where you want to go in your career.  It's OK to not become a doctor if you are truly happy in life being a physician assistant.  It's your life.  So cast aside the financial aspect of this decision and make the decision that feels right to you."

If you really want to become a doctor, than it might be best to remember Frank Sinatra's famous song about regrets. "I would encourage you not to regret your choice of going to medical school. It is now a sunk cost, and you cannot undo it," said Gurwitz. "The best way to pay back the loans and lost earnings from going to medical school will be from the higher salary you will receive from being a doctor." 

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