Due to my fascination with this topic and the bewildering debt of new residents, I wondered how much headstart you would get to accumulate five million dollars if you had no student loans vs. substantial student loans. So, I have decided to use the following numbers for student loan debt- 0 dollars (paid for by a rich Mom and Dad) or 500,000 (private schools, no help, or excessive spending).
This time around, we will make the following assumptions: Either you will live in a relatively low-cost-of-living area and have a decent attending lifestyle or live in a relatively high-cost-of-living location with a proper attending lifestyle. I chose these assumptions because they are within reason for many residents. Of course, you can live with more or fewer expenses, but this will have a significant impact on the outcomes.
Also, we will have you save for college for two kids (twins), starting as an attending on day one. We are using the magical five million dollar amount because it is the amount that studies like Medscape’s annual net worth survey use for a reasonable retirement amount. We will calculate everything for inflation using that 3 percent inflation rate. Again, based on the survey, this will be a one-income family with an average radiologist salary of 413,000 dollars. Go directly to the end of the blog to check out the final numbers and conclusion!
Low Cost Of Living Area With Student Loans Of Five Hundred Thousand Dollars
Low cost of living areas with significant student debt
Additional numbers for this assumption:
- The house will cost 500,000 with a down payment of 100,000, saved over your first five years of working. (20,000 dollars saved per year)
- You will pay off student debt over ten years at an interest rate of 4 percent (5062 dollars per month*12 months)= 60744 per year.
- Practice puts away 30,000 dollars, including a match, into your 401k starting 1st year.
- Investment rate of return 8%
- Federal Income Taxes after deduction will be 76182 dollars per year based on an internet calculator.
- State Income Taxes are 0 dollars.
- You have twins beginning at the of your attending work and are putting away 556 dollars per month per kid to get to 250,000 dollars at age 18. (13,344 dollars per year)
- Rental of a three-bedroom house for five years at 2500 dollars per month
First five years
Total Salary 413000
Expenses
401k: 30,000 (383000 left)
Taxes: 76182 (Federal) + 0 (State) (306818 left)
Loan payments and house savings and children 529 plan: 60744 (student loans) + 20,000 (house down payment) + 13,344 (529 plan) (212730 left)
Rental/heating/electricity 30000 (182730 left)
Subtracting food for family 10000 (172730 left)
Transportation expenses for two cars/insurance 10000 (162370 left)
Vacations 10,000 dollars (152370 left)
Computers/Cellphones/Electronics/Cable Bill 3600 (148770 left)
Preschool/Day Care Expenses for two kids 24,000 (124770 left)
Clothes 5ooo dollars (119770 left)
Life and Disability Insurance 9600 (110170 left)
Dues and License and CME 5000 (105170 left)
Miscellaneous Entertainment 10,000 (95170 left)
Saved
Remaining available to save around 95170 per year (not including 401k)
30,000 dollars in 401k
Assuming an 8% rate of return on 125170 over five years- 734334 dollars in savings
Following five years (Own house)
Expenses
401k: 30,000 (383000 left)
Taxes: 76182 (Federal) + 0 (State) (306818 left)
Loan payments and house savings and children 529 plan: 60744 (student loans) + 13,344 (529 plan) (232730 left)
Salary after mortgage payments and taxes (400,000 mortgage -30 year fixed at 3.5 percent 1796*12 (211178 left)
Salary after property taxes and insurance 12000 (199178 left)
Home maintenance= 5000 (194178 left)
Subtracting food for family 10000 (184178 left)
Transportation expenses two cars/insurance 10000 (174178 left)
Vacations 10,000 dollars (164178 left)
Computers/Cellphones/Electronics/Cable Bill 3600 (160578 left)
Education and Expenses for two kids 12,000 x2 (136578 left)
Clothes 5000 dollars (131578 left)
Life and Disability Insurance 9600 dollars (121978 left)
Dues and License and CME 5000 dollars (116978 left)
Miscellaneous Entertainment 10000 (106978 left)
Saved
Remaining available to save around 106978 per year (not including 401k)
30,000 dollars in 401k
Assuming an 8% rate of return on 136978 over five years +734334 in savings= 1882500 dollars
Following eight years (Student Loans Paid Off)
Savings After Expenses
Savings now 106978+60744 +30000 (401k)=197722 dollars per year
Assuming an 8% rate of return on 197722 over eight years +1882500 in savings= 5587000 dollars or 3428000 in today’s dollars
Next 5 Years (No More 529 plans)
Savings now 197722+13344= 211066 per year.
Assuming an 8% rate of return on 211066 over five years +5587000 in savings= 9447000 dollars or 4786000 in today’s dollars with 3 percent inflation
Following ten years (No More Kid Expenses)- if you were to go past 5,000,000 dollars
Saving now: 211066 +24000= 235066 dollars per year
Assuming an 8% rate of return on 235066 over ten years +9447000 in savings= 23802000 dollars or approximately 9.0 million in today’s dollars with 3 percent inflation
Changed Assumption: No Student Loans In Low Cost Of Living Area: How Much Headstart?
First five years:
Savings: 125170+60744 (headstart without loan)= 185914 per year
Assuming an 8% rate of return on 185914 over five years- 1090000 dollars in savings
Following five years (Own Home)
Savings: 136978+60744=197722
Assuming an 8% rate of return on 197722 over five years +1090000 in savings= 2762000 dollars
Next eight years
Savings= 197722
Assuming an 8% rate of return on 197722 over five years +1090000 in savings= 7215000 dollars or approximately 4.23 million in today’s dollars with 3 percent inflation
Next 5 Years (No More 529 plans)
Savings now 197722+13344= 211066 per year.
Assuming an 8% rate of return on 2110666 over five years +7215000 in savings= 11840000 dollars or approximately 5.99 million in today’s dollars with 3 percent inflation
Following ten years (No More Kid Expenses)- if you were to go past 5,000,000 dollars
Saving now: 211066 +24000= 235066 dollars per year
Assuming an 8% rate of return on 235066 over ten years +11840000 in savings= 28960000 dollars or approximately 11.9 million in today’s dollars with 3 percent inflation
High Cost Of Living Area With Student Debt Of Five Hundred Thousand Dollars
High cost of living areas with significant student debt (500,000)
Additional numbers for this assumption:
- The house will cost 1,000,000 with a down payment of 200,000, saved over your first five years of working. (40,000 dollars saved per year)
- Student debt will be paid off over ten years (4049 dollars per month* 12 months), or 48,588 per year.
- Practice puts away 30,000 dollars, including match, into your 401k starting 1st year.
- Investment rate of return 8%
- Federal Income Taxes after deduction will be 76182 dollars per year based on an internet calculator.
- State Income Taxes will be around 6 percent or (413,000*0.06)=24,780 dollars.
- You have twins beginning at the of your attending work and are putting away 556 dollars per month per kid to get to 250,000 dollars at age 18. (13,344 dollars per year)
- Rental of a three-bedroom house for five years at 4000 dollars per month
First five years
Total Salary 413000
Expenses
401k: 30,000 (383000 left)
Taxes: 76182 (Federal) + 20290 (State) (286528 left)
Loan payments and house savings and children 529 plan: 60744 (student loans) + 40,000 (house down payment) + 13,344 (529 plan) (172440 left)
Rental/heating/electricity 48,000 (124440 left)
Subtracting food for family 10000 (114440 left)
Transportation expenses for two cars/insurance 10000 (104440 left)
Vacations 10,000 dollars (94440 left)
Computers/Cellphones/Electronics/Cable Bill 3600 (90840 left)
Preschool/Day Care Expenses for two kids 24,000 (66840 left)
Clothes 5ooo dollars (61840 left)
Life and Disability Insurance 9600 (52240 left)
Dues and License and CME 5000 (47240 left)
Miscellaneous Entertainment 10,000 (37240 left)
Saved
Remaining available to save around 37240 per year (not including 401k)
30,000 dollars in 401k
Assuming an 8% rate of return on 67240 over five years- 394446 dollars in savings
Following five years (Own house)
Expenses
401k: 30,000 (383000 left)
Taxes: 76182 (Federal) + 20290 (State) (286528 left)
Loan payments and house savings and children 529 plan: 60744 (student loans) + 13,344 (529 plan) (212440left)
Salary after mortgage payments and taxes (800,000 mortgage -30 year fixed at 3.5 percent 3592*12 (169336 left)
Salary after property taxes and insurance 14,400 (154936 left)
Home maintenance= 10000 (144936 left)
Subtracting food for family 10000 (134936 left)
Transportation expenses for two cars/insurance 10000 (124936 left)
Vacations 10,000 dollars (114936 left)
Computers/Cellphones/Electronics/Cable Bill 3600 (111336 left)
Education and Expenses for two kids 12,000 x2 (87336 left)
Clothes 5000 dollars (82336 left)
Life and Disability Insurance 9600 dollars (72376 left)
Dues and License and CME (5000 dollars per year)= 67376 left
Miscellaneous Entertainment (10000 dollars per year)=57376 dollars
Saved
Remaining available to save around 57376 per year (not including 401k)
30,000 dollars in 401k
Assuming an 8% rate of return on 87376 over five years +394446 in savings= 1092000 dollars
Following eight years (Student Loans Paid Off)
Savings After Expenses
Savings now 57376+60744 +30000 (401k)=148120 per year
Assuming an 8% rate of return on 108480 over eight years +109200 in savings= 3596000 dollars
Next 5 Years (No More 529 plans)
Savings now 148120+13344= 159454 per year.
Assuming an 8% rate of return on 121824 over five years +3596000 in savings= 6220000 dollars or 3155000 in today’s dollars with 3 percent inflation
Following ten years (No More Kid Expenses)
Saving now: 159454+24000= 183454 dollars per year
Assuming an 8% rate of return on 145824 over ten years +5428000 in savings= 16080000 dollars or approximately 6.06 million in today’s dollars with 3 percent inflation
Changed Assumption: No Student Loans In High Cost Of Living Are: How Much Headstart?
First five years:
Savings: 67240+60744 (headstart without loans)= 127984 per year
Assuming an 8% rate of return on 127984 over five years- 751000 dollars in savings
Following five years (Own Home)
Savings: 87376+60744=148120
Assuming an 8% rate of return on 148120 over five years +751000 in savings= 1971000 dollars
Next eight years
Savings= 148120
Assuming an 8% rate of return on 148120 over eight years +1971000 in savings= 5223000 dollars or approximately 3.07 million in today’s dollars with 3 percent inflation
Next 5 Years (No More 529 plans)
Savings now 148120+13344= 161464 per year.
Assuming an 8% rate of return on 161464 over five years +5.223 million in savings= 8.622 million dollars or approximately 4.37 million in today’s dollars with 3 percent inflation
Following ten years (No More Kid Expenses)- if you were to go past 5,000,000 dollars
Saving now: 161464 +24000= 185464 dollars per year
Assuming an 8% rate of return on 235066 over ten years +8.622 million dollars in savings= 21.3 million dollars or approximately 8.03 million in today’s dollars with 3 percent inflation
The Final Numbers (How Much Headstart Will You Get?):
Low Cost of Living Area and High Student Loans: After 23 years, you have saved 4.78 million dollars in today’s dollars. After 33 years: 9 million dollars in today’s dollars
Low Cost of Living Area and No Student Loans (Headstart): After 23 years, 5.99 million saved in today’s dollars. After 33 years: 11.9 million dollars in today’s dollars
High Cost of Living Area and Student Loans: After 23 years, you have saved 3.15 million dollars in today’s dollars. After 33 years: 5.42 million dollars in today’s dollars
High Cost of Living Area and No Student Loans (Headstart): After 23 years, you have saved 4.37 million in today’s dollars. After 33 years: 8.03 million dollars in today’s dollars
Does Student Debt Prevent A Reasonable Retirement?
In a high-cost-of-living area and with lots of student loans, you will need a long career, over 30-something years, to accumulate that mythical number of 5 million dollars. But, if you have no student loans and live the same way, you will have a headstart of less than ten years of working if you desire to retire earlier. On the other hand, those with high student loans and who live in a low-cost-of-living area can reach that mythical number of 5 million dollars around the twenty-something-year mark.
You may want to work for an entire thirty-something-year career. And, of course, you may not want to live to save money. Also, there are lots of factors that should go into where you should live. But, for those of you with lots of debt, the debt will significantly impact the number of years you will need to work to accumulate your desired nest egg. Without that student debt, you may have a headstart and more flexibility in your decisions. Just something to consider!
