New Attending Investment Waterfall: Where to Invest Your Savings

You've just started as an attending and suddenly have $10,000-15,000+ per month in leftover income after expenses. Where should it go? Retirement accounts? Pay off student loans? Save for a house? Invest in taxable accounts? The wrong prioritization can cost you tens of thousands in lost returns or unnecessary interest payments.

This guide provides a clear, prioritized decision tree for where to allocate your savings as a new attending physician—optimized for both financial returns and life flexibility.

The Investment Waterfall Framework

Think of your savings allocation like a waterfall: money flows down through each level, filling each bucket completely before overflowing to the next. Each level is prioritized by importance, tax benefits, and risk-adjusted returns.

Level 1: Foundation & Protection (Months 1-3)

Bucket 1A: Emergency Fund

Target: 3-6 months of expenses ($15,000-$40,000)

Where: High-yield savings account (currently 4-5%)

Why first: Financial emergencies happen. Car repairs, medical expenses, job transitions—you need liquid cash before investing.

Bucket 1B: Disability Insurance

Cost: $3,000-8,000/year

What: Own-occupation disability insurance

Why critical: Your income is your most valuable asset. Protect it immediately before any investing.

Action: Get quotes, apply, and start paying premiums from month 1. This is non-negotiable.

Level 2: Tax-Advantaged Retirement Accounts (Months 1-12+)

These accounts offer immediate tax benefits and decades of tax-deferred or tax-free growth. Max them out before taxable investing.

Bucket 2A: 401(k)/403(b) to Employer Match

Amount: Whatever gets you full employer match

Why: Instant 50-100% return on your money. Never skip this.

Example: If employer matches 50% of first 6% you contribute, contribute at least 6%.

Bucket 2B: HSA Maximum

2026 Limit: $8,550 (family) or $4,300 (individual)

Why second: Triple tax advantage—deductible, grows tax-free, withdraws tax-free for medical

Strategy: Invest it aggressively, pay medical expenses out-of-pocket, let it grow for 30+ years

Bucket 2C: Max 401(k)/403(b)

2026 Limit: $23,500 ($31,000 if age 50+)

Tax savings: At 45% marginal rate, saves $10,575 in taxes immediately

Long-term value: $23,500/year for 30 years at 8% = $2.8 million

Bucket 2D: Backdoor Roth IRA

2026 Limit: $7,000 ($8,000 if age 50+)

Why important: Tax-free growth and withdrawals forever, no RMDs

How: Contribute to traditional IRA, immediately convert to Roth

Bucket 2E: Mega Backdoor Roth (If Available)

Potential: Up to $46,500 additional to Roth

Requirements: Your 401(k) allows after-tax contributions and in-plan Roth conversions

Check: Call your HR department—many physicians miss this opportunity

Level 3: High-Interest Debt Elimination

Bucket 3A: Credit Card Debt

Priority: IMMEDIATE—before all investing

Why: 18-29% interest destroys wealth faster than any investment builds it

Action: If you have credit card debt, pause all Level 2 contributions beyond employer match and eliminate this debt within 6 months

Bucket 3B: Private Student Loans Above 7%

Priority: Pay off aggressively after maxing Level 2

Why: 7%+ interest is higher than expected investment returns

Federal loans: Different decision—see Level 4B

Level 4: Student Loan Strategy

This is where it gets nuanced. Your student loan strategy depends on your employment and loan details.

Bucket 4A: PSLF Path (If Applicable)

If you qualify for PSLF:

• Make MINIMUM income-driven payments
• Don't pay extra—you want maximum forgiveness
• Skip to Level 5—invest the difference
• Submit Employment Certification Form annually

Bucket 4B: Aggressive Payoff Path

If NOT pursuing PSLF:

• Refinance federal loans to lower rate (if comfortable giving up federal protections)
• Pay off loans aggressively after Level 2 is maxed
• Priority by interest rate: highest rate first

Level 5: Short-Term Savings Goals (1-5 Years)

After maxing retirement and addressing high-interest debt, save for near-term goals.

Bucket 5A: House Down Payment

If buying within 1-3 years:

• Target: 10-20% down payment ($60,000-$120,000 for $600K home)
• Where: High-yield savings or short-term bond funds
• Don't: Invest in stocks—you can't afford volatility

Note: Physician mortgages allow 0-5% down with no PMI, so saving 20% isn't required. Consider putting 10% down and investing the rest.

Bucket 5B: Major Purchases

Examples: Wedding, car, furniture

Timeline: Under 3 years

Where: High-yield savings or CDs

Level 6: Taxable Investment Accounts

After maxing all tax-advantaged accounts and funding short-term goals, invest in taxable brokerage accounts.

Bucket 6A: Core Taxable Portfolio

Amount: Whatever's leftover after Levels 1-5

Asset allocation: Total stock market index funds or target-date funds

Recommended platforms: Vanguard, Fidelity, Schwab

Tax optimization:

• Hold tax-efficient funds (index funds, not actively managed)
• Tax-loss harvest annually ($3,000 loss offset against income)
• Hold investments for 1+ year for long-term capital gains rates

Sample Portfolio Allocation:

• Age 30-40: 90% stocks, 10% bonds
• Age 40-50: 80% stocks, 20% bonds
• Age 50-60: 70% stocks, 30% bonds

Rebalance: Annually or when allocation drifts 5% from target

Level 7: Alternative Investments (Optional)

Only after completing Levels 1-6 should you consider alternatives. These are higher risk, less liquid, and more complex.

Bucket 7A: Real Estate

Option 1: Primary Residence

• Buy when you're staying 5+ years
• Keep payment ≤ 28% of gross income
• Consider physician mortgage for low down payment

Option 2: Rental Property

• Requires significant time/management
• Minimum 20-25% down payment
• Cash flow should be positive after all expenses
• Best if you enjoy being a landlord

Option 3: Real Estate Syndications

• Passive investing in larger properties
• $25,000-$100,000 minimums
• Illiquid for 3-7 years
• High risk—vet sponsors carefully

Bucket 7B: 529 Plans (If You Have Kids)

After Levels 1-6: Start funding 529 college savings

Amount: $5,000-15,000/year per child

Why not earlier: You can't borrow for retirement, but kids can borrow for college. Prioritize your retirement first.

Bucket 7C: Other Alternatives

Only after you've fully maxed Levels 1-6 and have significant investable assets ($500K+):

• Private equity
• Hedge funds
• Cryptocurrency (max 1-5% of portfolio if you believe in it)
• Angel investing/startups

Warning: These are speculative. Most physicians should skip this entirely.

Real-World Examples

Example 1: Emergency Medicine Attending, First Year

Income: $350,000

Monthly take-home: $18,000 after taxes

Monthly expenses: $8,000

Leftover: $10,000/month

Allocation (first 6 months):

• Emergency fund: $3,000/month until $30,000 saved
• Disability insurance premium: $500/month
• 401(k) max: $1,960/month
• HSA max: $710/month
• Backdoor Roth: $585/month
• Remaining: $3,245/month → split between emergency fund completion and student loans

Allocation (months 7-12):

• Same retirement contributions
• All remaining ($3,745/month) → student loan payoff or taxable investing depending on PSLF status

Example 2: Hospitalist, Pursuing PSLF

Income: $280,000

Student loans: $350,000 at 6.5% on PSLF track

Monthly leftover: $7,500

Allocation:

• Emergency fund: $2,000/month (months 1-6)
• Disability insurance: $400/month
• 403(b) max: $1,960/month
• 457(b) max: $1,960/month (has access to both!)
• HSA max: $710/month
• Backdoor Roth: $585/month
• Student loan payment: $800/month (minimum IDR payment)
• Remaining after month 6: Everything to taxable brokerage ($2,585/month)

Result: Maximizing retirement accounts while paying minimum on student loans for PSLF forgiveness.

Example 3: Private Practice Surgeon, High Income

Income: $550,000

Student loans: $250,000 (planning to pay off quickly)

Monthly leftover: $20,000

Allocation:

• Emergency fund: Done in first 2 months
• All Level 2 retirement: $5,000/month
• Aggressive student loan payoff: $10,000/month (paid off in 25 months)
• House down payment fund: $5,000/month

After loans paid off: $10,000/month shifts to taxable investing and house down payment acceleration.

Common Mistakes to Avoid

Mistake #1: Skipping Emergency Fund

"I'll just put everything in retirement accounts and use credit cards for emergencies." Then a real emergency hits and you're stuck with high-interest debt.

Mistake #2: Forgetting About Taxes

Your first year as attending you might owe $60,000-80,000 in taxes. If you haven't adjusted withholding or made estimated payments, you'll owe a huge amount in April.

Mistake #3: Buying Too Much House Too Soon

Just because you can afford a $1M house doesn't mean you should buy one in year one. Housing costs above 28% of gross income strain cash flow and prevent wealth building.

Mistake #4: Lifestyle Inflation

Going from $60K resident salary to $300K attending and spending all the increase. Live like a resident for 2-3 more years and your wealth will explode.

Mistake #5: Investing in Complex Alternatives Before Basics

Physician gets pitched a real estate syndication in month 2, invests $50K before maxing 401(k). Now that $50K is locked up for 5 years while missing tax-deductible retirement contributions.

Quick Reference: Investment Waterfall Checklist

Use this checklist each month to prioritize your savings:

✓ Level 1: Foundation (Do These First)

• Build 3-6 month emergency fund
• Get disability insurance

✓ Level 2: Tax-Advantaged Retirement

• 401(k)/403(b) to employer match
• Max HSA ($8,550 family or $4,300 individual)
• Max 401(k)/403(b) ($23,500)
• Backdoor Roth IRA ($7,000)
• Mega backdoor Roth if available (up to $46,500)

✓ Level 3: High-Interest Debt

• Pay off credit cards immediately
• Pay off private loans >7%

✓ Level 4: Student Loan Strategy

• If PSLF: Make minimum payments, invest the rest
• If not PSLF: Pay off aggressively or invest (your choice)

✓ Level 5: Short-Term Goals

• House down payment fund (if buying within 3 years)
• Other major purchases (wedding, car)

✓ Level 6: Taxable Investing

• Systematic investment in index funds
• Tax-loss harvest annually

✓ Level 7: Alternatives (Optional)

• Real estate (primary or investment)
• 529 plans for kids
• Other alternatives (only if levels 1-6 complete)

Final Thoughts

The investment waterfall isn't about perfection—it's about prioritization. Every physician's situation is unique, but the fundamental order remains: build protection and emergency savings, max tax-advantaged accounts, address high-interest debt, then invest for additional goals.

The physicians who build sustainable wealth aren't necessarily the highest earners. They're the ones who systematically fill each bucket in order, avoid lifestyle inflation, and stay disciplined for years.

Start with Level 1 today. Even if you can only save $2,000/month right now, following this framework ensures that money goes to the highest-priority use. As your income grows or expenses decrease, you'll naturally progress down the waterfall.

Five years from now, you'll either have $500,000+ in retirement accounts and investments, or you'll wonder where all the money went. The difference is following a systematic framework like this waterfall—starting today.