In that case, just keep contributing to the 401K, but I would just build up the emergency fund/non-retirement savings in the meantime. Maybe knock out the 5K student loan. If she's going to do the hospital employee/large medical group thing when she finishes residency, don't be shy about asking them to pay for at least some of her student loans if she agrees to work there. 60K really is a low number for a doctor. You could always consolidate into a 30 year loan and pay it off early later on.

My philosophy is based on the fact that interest rates in 7-9 years when you plan on buying the OT baller house will likely be higher than they are now, so if you move to a different city when she finishes residency, you don't want to be cash-poor in case you find a great deal on a house you could live in for 30 years (especially if home loan interest rates are as low as they are now).

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Posted by Siderophore

Member since Nov 2010

3338 posts

Posted on 4/10/13 at 6:50 pm to ZereauxSum

quote:
This example is a little warped.

Also isn't comparing the two equivalently temporally

You either have to look at the amount of interest paid over 2 years, or you have to look at the return from that match's investment returns over the 12.5.

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Posted by Duckman13

Tiger Stadium

Member since Dec 2006

3047 posts

Posted on 4/10/13 at 7:29 pm to FredSecunda

Sadly, your wife will be a government employee in 2 years.

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Posted by ljd4662

Baton Rouge

Member since Aug 2012

93 posts

Posted on 4/10/13 at 8:33 pm to Siderophore

quote:
You either have to look at the amount of interest paid over 2 years, or you have to look at the return from that match's investment returns over the 12.5.

The amount of interest is impossible to tell because it will vary based on the payments made.

If your employer matches 4500 a year for 12.5 years you will have approx 100k (assuming 10% growth). If the OP decides to quit funding the 401K for two years then he will have a match of 4500 a year for 10.5 years which will equal 77500 (assuming 10% growth). The difference being 22500. I know that he can save $22500 in interest by paying really aggressively on that loan. In his situation though, the numbers are close assuming the salary guess is correct.

these numbers also assume that he doesnt take the money he saved in interest and invest it in an IRA or mutual fund...

This post was edited on 4/10/13 at 8:44 pm

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Posted by ZereauxSum

Lot 23E

Member since Nov 2008

10176 posts

Posted on 4/10/13 at 9:57 pm to ljd4662

quote:
I know that he can save $22500 in interest by paying really aggressively on that loan.

I'm going to give this one more try before I move on.

The OPs wife has $60K in debt. In order to realize the interest savings that you believe are possible, you've stated that he would need to pay the loan off in 2 years.

In order to pay off the principle alone that fast, he would have to pay $60000/24 months = $2500 each month for the next two years. Obviously he would need to pay a little more when you consider interest but let's keep it simple.

He currently has $700 available each month. If he stops contributing to his 401k he will have an additional $375. 5% of his gross monthly income: ($90K*5%)/12

That gives him a grand total of $1075 to pay towards the loan. He needs $2500. He is short $1425. It is impossible to pay the loan off in two years.

Now, he will certainly pay it off faster than 12.5 years and he will save some money on interest (again, nothing near the money you believe), but he will have to forfeit the employer match for several years.

Every dollar he steers away from his 401k to debt reduction will save him $0.07, but that savings is costing him $1. The math simply does not work. You can't get around this without distorting reality or ignoring the math.

I'm out. Have a good night.

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Posted by RonFNSwanson