ProV1

i'm 26 and i'm a responsible consumer, no debt, own a house, >$30k saved up, etc etc. I'll be an MD in a few yrs and get out of surgical residency in ~7 yrs. I'm guessing i'll be pulling in 300K+ in 10 yrs, 500K+ in 15 yrs if i work hard.

last weekend a few fellas told me i should open a Roth IRA and start contributing max allowed every year, and that fidelity is the one to go with. they said i should go w/ stocks or mutual funds with the money.

if i understand Roth IRA correctly, the money I put in now will not be accessible until I retire.. so i wonder if it's worth it to put away $4k a year now and live more frugally, when the same $4k in 10 yrs will be peanut change? any ideas?

vader1

A roth is a very nice retirement plan, however income limits are strict. If you want to use a roth, do it now because you will not be allowed if you earn the amounts you are assuming you will.

Hell, if I could earn $500K I would work for about 5 years and be done.

ricosuave

been there doing that right now in my surgical residency.
i'd say go ahead with the roth ira and go with an aggressive fund since we time on our side.

Elistan

The goal of an IRA is not to sock away $4,000 today so that you'll have $4,000 available when you retire. The point is to invest that money and leverage compound interest so it ends up being $100,000 (hehe, or whatever) by the time you require.

Now, you can do this on your own by purchasing stocks, bonds, mutual funds, or any of the other funds Fidenity offers. However, the beauty of a Roth IRA is that you contribute to it after you've paid taxes - and the money you take out is NOT taxed. So you pay your taxes on that $4k, but the $96k of "profit" you've made is not taxed at all.

Of course, with a $500k salary you will have plenty of funds to set asside for retirement anyway. But 15 years is a long time from now - who knows, you might decide being a ski instructor is what you want to do with your life. In my opinion, make financial decisions based on your situation NOW, not what you MIGHT have in the future. So yes, investing in an IRA is a very good idea IMO. It'll certainly help out, I think, when you don't want to bother with a job any more.

steven975

Generally, at 10-11%, which is the long-term stock market return, you'll double your money every 7 years or so. That means if you put away $4000 at 25, you'll have $128,000 at age 60...TAX FREE.

Of course, it won't be $128,000 in today's dollars...more like $60,000 in today's bucks...still a lot.

ProV1

even if i put in $4k every year, I still have to make good decisions HOW to invest this money, right? if i'm lucky I'll get 10-11% returns every year, but OTOH I could also see only 1-2% returns or even negative returns..??

steven975

true. since you are beginning, i suggest index funds. they go up and down with the market.

yes, you may lose money in some years. it happens. in others you make a killing. LONG TERM historical rates are 10-11%.

tigertail

I was playing around with IRA calculator when I was interning at retirement fund managing firm. Start now because 5-10 years of $4k can make a huge difference when you retire...

TwistedS2k

you're gonna be an MD and asking us these kinds of questions? shouldn't you know this stuff already? It's common knowlege especially for an educated person like yourself.

steven975

^
actually doctors often know next to nothing about this kind of stuff.

One interesting thing is that if you have a BA in business or economics, you are MORE likely to get into med school as the AMA wants doctors with business knowledge.