[Editor’s Note: This is a republished post from Physician on FIRE, a member of The White Coat Investor Network. The original post ran here, but if you missed it the first time, it’s new to you! It’s a discussion of just how much of an impact lifestyle inflation can have on retirement dates and lifestyles. Like usual with the PoF “4 Physician” posts, he gets into the nitty gritty of the numbers and shows you just how big of an effect seemingly minor amounts of spending can have.]
I have met at least two physicians over the years who told me they planned on retiring at age 45. We humans seem to like to measure things in multiples of five, and 45 is probably the earliest milestone age that a physician can realistically and comfortably retire [based solely on a physician income-ed.]
The first of these two physicians was a pediatric chief resident who worked with me when I was a third year medical student. He had at least 15 years to go but already had the perfect sailboat chosen to sail the ocean blue.
Another was an anesthesiologist I worked with a few years ago when I was doing locum tenens work. He only had a few years to go before reaching the milestone, but he also had an affinity for Porsche vehicles and his first baby on the way. My guess is he may need a few more years, but I hope for his sake he proves me wrong.
Retiring at 45 ain’t easy for anyone regardless of profession. It’s especially tough when you’re in debt to your eyeballs when you get your first decent paycheck sometime around age 30. But, with proper planning, it can be done. Depending on where you’re at, it’s probably too late to do all these things without a fully functional flux capacitor, but anyone can start to take control of his or her finances. So how do you go about retiring at 45?
# 1 Don’t Overspend On College
You don’t need to go to a prestigious undergraduate school to get into medical school. It’s far more important to do well at your chosen school, score well on the MCAT, volunteer and/or do research, and show genuine interest in medicine. And once you’re in, the slate is pretty much wiped clean. You’re on the same level as your classmates, and almost all of you will go on to earn an M.D.
The flagship public university in my state charges about $7,000 a year in undergraduate tuition and fees. A select few private colleges now charge over $50,000 a year. Will you have a “better” experience at Tufts University compared to State U? Depends on how you define “better”, but I’ll bet it won’t be seven times better, and I guarantee it won’t give you a sevenfold advantage on your medical school application, if any.
If your parents foot the college bill regardless, your college choice may not play a role in your ability to retire at 45. Conversely, if you actually pay full sticker price for a private college or university (few actually do) and you do it all with loans, you’ll be starting medical school with debt that will continue to grow for many years.
# 2 Don't Overspend On Medical School
This can be trickier as most matriculants have fewer options compared to undergrad. Paying in-state tuition at a public medical school may not be an option. You may want to go to a top tier medical school, or may be forced to take what you can get. But, if you have options or can obtain a scholarship, try not to overspend here. If you have no choice, take comfort in the fact that you’ll be 4 years closer to an attending’s salary when you finish racking up that massive debt.
A resident’s salary is pretty close to the average American’s salary. Hourly, it stinks, but $45,000 to $55,000 is enough for a decent life in most locales. An apartment in a decent part of town. A used car and gasoline to keep it going. Groceries, the occasional restaurant meal, happy hour on Friday, etc… You won’t be saving much and that’s OK. In the first few months after residency, you’ll be able to set aside as much as you could from scrimping during several years of residency. If you’re able to max out a Roth IRA throughout residency, that’s awesome. But I wouldn’t blame you if you didn’t try. Dollars will be much easier to come by soon enough.
On the other hand, residency is not the time to start living like a full fledged attending physician. I had friends in residency driving Infiniti, BMW, Mercedes, etc… a vanity plate doesn’t look half as good on a Chevy, am I right? If you want to even think about retiring at 45, you must live like a resident when you are a resident.
Once you finish, you’ll be used to working hard and spending little. Keep doing that for at least a couple years. Pay off some loans. Fund that IRA / 401(k) / HSA. Sure, reward yourself a little, but keep it within reason.
Take a nice vacation; have a dinner at the fancy steakhouse. Buy a case of your favorite wine, double IPA, or single malt scotch. Buy the name-brand Chicken-in-a-Biskits. Upgrade your lifestyle to that of a fellow making $60,000. But hold off on the McMansion and the Humvee. Those can easily erase any hope you might have had of retiring at 45. Once you finish, you’ll be used to working hard and spending little. Keep doing that for at least a couple years. Pay off some loans. Fund that IRA / 401(k) / HSA. Sure, reward yourself a little, but keep it within reason.
# 3 Say Thank You” For The Free Meal, Then Walk Away
Savvy insurance salesman have aligned themselves with medical schools and residency programs. You will probably have several opportunities to enjoy some good tapas or strip steak on their dime. By all means, go for it. Free steak is about as frugal as it gets, and I’ve found most of the advice at these gatherings to be pretty good.
Of course, the free advice comes with a side of sales pitch. It may be subtle, but the goal is to obtain you as a client. Initially, they may help you with products you should have anyway, like disability insurance and term life. If you need those and have the ability to comparison shop, then the host may be a good resource for you. But don’t invest in anything costly that you don’t understand (whole life insurance, variable life, etc…).
# 4 Choose Wisely
When Indiana Jones chose the holy grail, it was important to choose wisely. Things did not end well for the man who did drinketh of the shiny cup.
Financial disagreements are a huge source of marital discontent, so it’s best to marry someone who shares at least some of your financial ideals and goals and understands the importance of setting a chunk of that paycheck aside for your glorious future together. Many a physician’s retirement plans have been foiled by a spendthrift spouse. If you don’t see eye to eye, opt for counseling. You may find a happy medium and get back on the same blissful page, and well, divorce will completely derail any hopes of retiring at 45.
The “choose wisely” mantra also applies to location. In medicine, there exists an inverse relationship between cost of living and potential income that doesn’t exist in other fields. Physicians in middle and rural America, where housing and other costs tend to be lower, typically have higher salaries than physicians in population centers along the coasts. If you can take advantage of this geographic arbitrage, you will have a much better chance of retiring at 45.
The same is true for housing. It’s really tough to resist buying or building your dream home when you land a job out of residency, but it’s a really good idea to rent for awhile. You may not be satisfied with your job, your colleagues, or administration. They may not be satisfied with you and the promised “partnership track” is a Road to Nowhere.
You probably don’t know all the neighborhoods where the best schools are or where it might be most convenient for you to live. When you have been around a couple years, buy yourself a nice home with a low-interest 15-year mortgage. It’s not unreasonable to spend a couple years’ salary, just don’t go for the most home the lenders will allow.
# 5 Learn About Personal Finance
Financial decisions can seem daunting and it can be as complicated as you want it to be. You don’t want it to be complicated, so keep it simple and educate yourself. You’re a physician; you are intelligent and you’ve proven to be a good learner.
To help you, I’ve written a 20 Step guide to Effective DIY Investing. Step 1 is to start with a good book.
My introduction to personal finance was Andrew Tobias’ The Only Investment Guide You’ll Ever Need. A physician would be well served by Dr. Dahle’s The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing.
For great general investing knowledge, turn to The Bogleheads’ Guide to Investing. For retirement specific issues, check out The Bogleheads’ Guide to Retirement Planning. Once you have a fairly good general understanding, and you have specific questions, look to the Bogleheads® wiki or ask a question on the Bogleheads® or White Coat Investor® forum.
Investing a little time to understand personal finance will save you a lot of money in the long run. Odds are you’ll be better off handling your money on your own compared to deferring all those confusing financial decisions to your colleague’s money guy.
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It is astounding how much of your nest egg can end up in someone else’s hands if you let them make decisions for you. According to Personal Capital, the range is $500,000 to over $900,000 over 30 years for someone with a $500,000 portfolio with overall fees ranging from just over 1% to just under 2% per year (full white paper here). I’ve also shown how high fees can result in millions lost over a lifetime. You can easily construct your own simple portfolio with a low cost fund family such as Vanguard with total fees under 0.1% per year.
Act like the smart person you are and learn a little something about personal finance.
# 6 Develop a Plan and Stick To It
If you want to retire at 45, you can’t afford to make too many mistakes. I’ve made a couple, but thanks to a long-running bull market and a well compensated chosen specialty, I’m easily on track. If I had listened to someone like the current me ten years ago, I’d be in even better shape.
The specifics of your plan will vary depending upon your personal situation, but there are some general ideas that should be included. Try to pay down debts, particularly those with high interest. Fund your available retirement plans to the max, taking advantage of any available employer match.
If you buy a home, look for one of the nicer homes in a decent neighborhood. Anecdotally, you might be happier in a $400,000 home surrounded by $300,000 homes than you would be in a $500,000 home surrounded by $600,000 homes. And the neighborhood full of $600,000 will have a lot more of the pesky Joneses with fancy toys in the driveway tempting you to get your own Yeti ice house.
# 7 Use New Money to Accelerate Your Retirement Savings
You receive a raise. New money!
You pay off your school loans. New money!
You made partner. New money!
Don’t use the new money to increase your lifestyle, use it to increase your savings. Exercise relative frugality. Learn to Live on Half.
Before your upgrade, you were putting $3,000 into a taxable account each month, now you can afford $5,000. When you pay off the 15-year mortgage early, you can do $8000 a month. Now you’re getting somewhere!
Know your expenses. I’ve written about this elsewhere, but your retirement nest egg needs to be a multiple of your anticipated retirement expenses. Keeping those expenses low is a double win. You’ll be saving more quickly to reach your goal, and your magic goal number (let’s say expenses x 33) will be lower. That, my friends, is a win win.
# 8 Track Your Progress
Are you on track to retire at 45? Or ever? I use 2 websites and 2 spreadsheets to help me figure this out. The sites are Mint and Personal Capital. One spreadsheet shows my mutual fund holdings, real estate, brewery investment, etc.. The websites can do this (in fact I use Personal Capital to update my spreadsheet), but my own sheet is infinitely flexible unlike the 2 sites. My other spreadsheet is full of projections. I use a compound savings calculator to project where my balances will be in 2 year increments based on different interest rates. It’s a little bit of work, but I find it fun, just like writing these articles. Speaking of fun…
# 9 Don’t Forget to Have Fun!
My prescription of state schools, reading, and not spending might sound super-lame. It’s easy to get caught up in the dollars and cents and forget that it’s OK to let loose and have a little fun sometimes. I believe that having fun doesn’t require massive spending. Some fun things are really expensive, but there are a million ways to have fun that don’t cost much. Mr. Money Mustache seems to have a lot of fun spending about $25,000 on his family of 3 annually.
My spending on a family of 4 is nearly triple his, but I’m still spending a lot less than my physician (and some non-physician) friends. I just don’t want to walk away thinking you have to live like a loser to retire at 45. I feel I’ve had a ridiculously fun time throughout the years, and I haven’t sacrificed my future one bit to do so.
When you do loosen up the purse strings to spend a little extra, spend it on experiences, not things. My wife and I take this message to heart, having traveled to places like the Galapagos Islands, Japan, Alaska & Hawaii, Europe, the Caribbean, and around our own great nation. Yeah, I’m showing off a little, but in an attempt to illustrate that a life of relative frugality does not have to be boring.
# 10 You Don’t Have To Do It All
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It may be too late to avoid school debt; you might have no clue what your annual expenses are. One of the reasons I chose age 45 is that it gives you a several year cushion to absorb the blows of a less than perfect plan, assuming you became an attending physician in your early 30’s. In A Tale of 4 Physicians, Dr. A was on track to retire in about 10 years.
Personally, I could have retired before my 40th birthday with a 4% safe withdrawal rate, despite making some costly mistakes and having a fairly rudimentary understanding of personal finance until quite recently. A high-paying specialty and a quick recovery from a down market early in my career helped make up for a few missteps.
It’s best not to go overboard on cars, boats, and hobbies that might erode your ability to save. But you don’t have to live like a pauper, either. Do most of what I said, and a couple things differently, and you’ll likely be in great shape. If not, you might have to wait until you’re 50 or 55 to retire early. It’s not too late to change course (well… perhaps it is if you’re already in your sixties).
What do you think? I think I could have written a dozen more paragraphs telling you not to spend frivolously, but that advice seems fairly obvious. In fact, everything I’ve put on the screen in front of you is pretty straightforward, but if you polled 100 forty-year old physicians, I’ll bet more than 95 of them would have no hope (and perhaps no desire) of retiring in 5 years.
If you have the desire and the youth to make it a reality, you now have a roadmap. Godspeed.
What do you think? Do you think retiring at 45 as a physician is easy? Is it even doable? Are you interested in doing that? What other tips would you have for someone who is? Comment below!
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Nice guide. I agree with the importance of monitoring your progress to stay motivated. Calculators are great, but I prefer to use a very simple spreadsheet. Here’s how it works:
1. Project your yearly expenses in retirement (say $80,000 per year)
2. If you like the 3% rule, multiple your projected yearly expenses by 33 to get your goal retirement fund (net worth). In our example, that would be 2.6 million.
3. Set a goal retirement date (say 45 years old) and figure out how many years you have to reach your goal. Let’s say you have 10 years.
4. Subtract your goal retirement fund from the amount you have already saved to get the additional amount you need to save. For this example, let’s say you have 600k saved. So you need to get an additional 2 million.
5. Make a spreadsheet with each month of the 10 year period as a row, and include a column for goal net worth and actual net worth.
6. Assuming a linear increase in net worth over time, compute how much your net worth will need to be each month to reach your goal at the end of the 10 years. In our example, your net worth would need to increase by $16,667 each month ($2 million / 120 months).
7. Use the spreadsheet to auto-fill what your net worth needs to be each month to reach your goal at the end of 10 years. These numbers will go in the Goal Net Worth column.
8. At the end of every month, look at your goal net worth and your actual net worth to help keep you motivated and make sure you’re approximately on track to reach your goal.
Obviously this is a very simplistic way to see if you’re on track for retirement. It will require much more brute force saving in the beginning than the end. It will also make you look way ahead of schedule when the market is booming and way behind when the market is crashing. Nonetheless, you may find it helpful.
Very clear guide. 45 is the new 65, thanks to PoF.
Like a fully functional flux capacitor – Jigowatts in and Jigowatts out will determine how soon can you time travel. And these Jigowatts make more of themselves as time goes by.
Of all these points, Choosing your partner wisely #4 is very important, otherwise, the drain will kill any plan. This is also the part least under your control as compared to the other points mentioned.
Good stuff. I’ll add:
11) Avoid unnecessary delays. Two extra years to do a masters to get into medical school, a year off to discover oneself, doing a 4-year EM residency instead of a 3, etc. will all have a fairly pronounced effect on savings if the plan is to be done working by a fixed age/date.
Unfortunately that’s exactly what I did. Still likely able to put the savings rate in high gear and live well while being FI at 45.
That’s a great #11, Ticker.
I don’t necessarily recommend against the “gap year,” but a 4-year EM residency or masters before med school doesn’t make much sense.
The good thing about a gap year early on is that your life doesn’t cost much when you’ve been used to living like a college student. A sabbatical later in life has a greater effect on your finances, since you’ve become accustomed to living expenses associated with an attending’s salary. http://www.physicianonfire.com/4-physicians-revisited-dr-c-impact-sabbatical/
Cheers!
-PoF
It’s true that a gap year and the like will delay retirement, but the point of early retirement is to live a better life. In my case, a gap year improved life immensely.
I met a number of UMKC grads during training. They started a six-year combined BS/MD program at 18, so they had a 2-year head start on most. That’s a terrific program for some physicians, but it means no senior year of college, and no opportunity for a gap year. I wouldn’t trade those two years at that age for any amount of money, and certainly not for an extra two years of middle-age retirement. YMMV.
I disagree. I think there’s a rush sometimes to FIRE. Time spent in the 20s and 30s is great – no kids, no obligations, healthy and free to travel the world in your youth! It’s a marathon, not a sprint.
What % of docs will ever achieve that; less than 1%
most cannot reach FI at 65
And that’s why we’re sharing this message — to help physicians reach financial independence sooner.
Actually, there are a lot of us who have achieved it.
If you retire at 45 and there is another meltdown, are you going back to work
Health insurance and kids education might be there as well
Way too risky
That’s why some plan to save 33x expenses rather than 25x for an early retirement, to allow for more of the “fluff” spending you may want some years or some unexpected expenses.
An early retirement certainly takes some planning and sacrifices, but is very possible, especially for high earners who have no trouble living on half or less of their take home pay. When it comes down to it, an early retiree is essentially purchasing their time as a luxury item while others are purchasing an expensive home or car.
“Way too risky?”
Really?
Better to grind away 60 hours a week continuously and battle burnout?
There are ways of decreasing expenses or boosting income if needed.
Worst case is you work part time for a bit.
What’s so bad about that worst case scenario? It is better than the normal grind.
You are kidding yourself living on80k in retirement age 45
Just health premiums for a family can be 30k
Most have six figure debt including school mortgage practice autos. Etc etc
U are kidding yourself if u think 80k is inadequate for getting by. Stop and think about it…the average US household income is 50 to 60 k.
I am in my lower 30s and have Med school loans paid off. My mortgage will be paid off in 1 to 2 years.
With no debt, 80 k to me will be like 120k to a household still paying down debt.
And I don’t know what my retirement number is yet, maybe I will want 100 or 120k per year. All I know is that it’s very much possible. Just look at PoF
The most expensive healthcare plans can be $30k. High deductible plans, healthcare sharing ministries are less expensive. But the cost of healthcare going forward remains a big questionmark for everyone.
I wouldn’t consider retiring with debt unless I had ample assets to eliminate it in an instant. Personally, I carry no debt. My plan will be to retire with anticipated expenses of $80,000 but the ability to spend $100,000 or more with a withdrawal rate less than 3.5%. I’ll be quite comfortable with that. Last year, our family burned through $62,000 with healthcare provided by employer (value $17k) and about $7,000 in out-of-pocket healthcare expenses. http://www.physicianonfire.com/62000-spent-heres-where-it-went/
Best,
-PoF
I had zero debt at 45 and could easily live on $3K every other week.
80k gross or net
It’s still a pipe dream for 99%
What’s the difference? Taxes can all but disappear in early retirement. http://www.physicianonfire.com/the-taxman-leaveth-taxes-in-early-retirement/
FWIW, I’m talking $80,000 in total annual expenses. That’s a comfortable lifestyle for us in a LCOL.
I don’t agree with the 99%
Have you seen data or are you just making these up?
Great advice. I would like to add #11, become debt free as fast as you can. You will reach your financial goals faster if interest isn’t sucking away your wealth. Interest needs to be compounding in your favor. My book, “The Doctors Guide to Eliminating Debt” will help you speed up your debt free journey. I left medicine at age 54 (was financially able to do so at 50) and being debt free for the last 16 years of my practice played a big part.
I’ve read that book!
It’s amazing how quickly your expenses drop and your leftover money to invest increases when eliminate the last of your debt. In the last five years, I’ve eliminated both student loan and mortgage debt. It’s very liberating.
Cheers!
-PoF
If u r paying family health premiums you will need more than 80k
Your gross would be 120 or so so you better have 3/4 million in assets liqiid
I do! Several times over.
We can agree to disagree on the $120k, but with $55k in non-healthcare expenses last year, it would seem highly unlikely. Probably closer to $80k.
Here are the specifics of my current portfolio including asset location and drawdown plan for you to poop on: http://www.physicianonfire.com/drawdown/
Cheers!
-PoF
Honestly how many docs will retire before 60-65 and what % will be able to live at the same lifestyle
Docs are notorious big spenders and poor investors
POF-what% of your assets are in bonds;’ seems low
you unique retirememnt at such an early age is VERY FAR from the norm but congrats
it too me 25yrs to achieve a net worth of 5 million because I was born in the right year
look at all the docs who got waxed in the last crisis
Ken,
I think you may be putting your own life and experiences into the lives of others. I am in my early 40s. We pay for our own health insurance. We spend about $60k/yr living very comfortably and then we spend an extra $15k-$25k/yr on travel and restaurants.
We can technically retire today but planning on working for a little longer to up our luxury and toys as well as a potential cushion.
Most physicians are very poor stewards of their money. But with some education and understanding of personal happiness any physician can retire in 10-15 years.
You can scream “No it’s impossible,” but it is only impossible if you make it so.
BTW, regarding health insurance. If you are unemployed and have a sizable taxable account which you probably do if you are looking to retire early, you qualify for health care subsidies.
How many will retire before 60-65?
Why even ask that?
First of all just because you can retire, doesn’t mean you have to.
I know dozens of doctors who are FI well before age 60.
Almost all of my partners in private practice had multi-million dollar portfolios well before age 50.
Just because doctors have such a reputation doesn’t mean there aren’t thousands of us who are doing well.
This spam is hilarious… poorly written and poorly targeted. ?
I do aim to entertain. ?
Any physician can retire in 10-15 years is absolute insanity; more so if you live in an urban area
PLEASE explain how they would accumulate such wealth in a single doc family
Maybe I am missing something but stock mkt returns nowadays might be 7% going forwards
If you need HC subsidies you cannot retire
I live in NJ-its EXPENSIVE!!!
HOW MANY HERE THINK THEY WILL BE ABLE TO RETIRE IN 10-15YEARS?????
Ask yourself the question “can I live on half of my pay”. If you can, after 15 years, you have already CONTRIBUTED 15x living expenses. Assume an average 7 percent return on that money and you are most likely at 25x living expenses or financial independence. Also, hopefully, all that debt you had while making those contributions has disappeared after 15 years, further lowering expenses.
Granted, how easy this will be can vary greatly among physicians. It may be hard for the pediatrician with 5 kids making 120k to live on half. The orthopedic surgeon making 800k can probably live just fine on a little over 10 percent of his pay and retire in 10 years if he wanted to.
Again, unless if one is naturally frugal, this is something that does have to be planned out early in ones career
For those docs who answer no to the question of can I live on half of my pay, I agree that retirement after 10 to 15 years is out of the question. I also agree with you that most doctors probably don’t want to live on half for many reasons–HCOL area, McMansion, Tesla, college savings, expensive vacations, low paying specialty, student loans.
The point is it is possible if you want it. The vast majority of the population lives on much less than half a doctors salary
If you earn about $650K/yr (including 401K match) and spend about $75K/yr, then you can save about $350K/yr. You’ll have over $3M in 9 years by brute force savings alone.
Based on comments on this site, quite a few docs here earn this much and more. You’ll earn more and spend less in the middle of the country than on the coasts.
Despite this I’m reluctant to consider early retirement because of worries about healthcare–not just cost, but availability. The subsidized Obamacare plans provide coverage similar to Medicaid plans. Access to the best physicians is sharply limited. That doesn’t matter until you’re actually sick and looking for the best care. People with no history of serious illness tend to overlook this.
When/if the ACA is repealed it may become impossible to obtain insurance at any price for those with a chronic and/or serious illness.
While “quite a few” do earn $650K, the average income of a physician is far below that, in the $200-225K range, and the average for a dentist is even less, in the $150-175K range as I recall.
Ken, I know you post here a lot, but you seem to forget you are at the WCI/POF blogs. In my best Keyshawn Johnson: “C’MON, MAN!”
Ken,
1) no one is forcing you to live in NJ. Personally I think living in the NE and west coast is insanity. You make your choices and you are forced to live with them.
2) Many people in the NE live on less than $100k/yr. If the average doc makes $250k/yr and can’t figure out how to make that money work for them, then again it is that docs choice.
You want to know how? The answer is simple. Spend less money. If you want to spend more, then you are going to have to work for it. There is nothing wrong with spending more and working more, but It is a choice and once again you are tasked to live with that decision.
You want to retire sooner then live in a smaller house and drive an old car. Don’t spend $500/wk on groceries and eating out. Don’t send the kids to private school. Don’t have a maid. Don’t fly first class. Don’t outsource all of your home maintenance. Don’t pay high fees for investing. The more you do from the above list, the longer you will work. Make your choices on what you think is important to you and your family and go with that.
There really is no reason someone making $250k/yr can’t save $100k of it and live on the rest.
I realize this isn’t a typical case. But nonetheless, it can be done and quite easily:
– I make > $1 million/year
– I save > $500000/year
– I live on < $70000/year I'm pretty sure I can do retire in 10 - 15 years if I wanted to. (That being said, I don't want to retire in 10 - 15 years. We currently live in the middle of nowhere and wish to return to a more urban area for retirement. We do have concerns about the cost of healthcare. Our mindset has shifted from having enough to retire to having enough to retire luxuriously to potentially leaving a legacy behind for our children. And the kicker: I like what I do and do it in a very lifestyle-friendly field. I intend to go as long as my health allows me.)
Ken,
I easily could have stopped working after 10-15 years. And I spent much of that time in academia – not at all maximizing my profits along the way.
I usually agree with you but I think you are a little off on this one.
Ken is playing the Devil’s Advocate role. I certainly agree that lots of docs are big spenders and do not think about personal finance until they are older and have made many mistakes. I think the thought process for fire is important for each individual to figure out. Accumulate the assets and get the psychological freedom of being able to walk away or go part time on your own terms is really powerful.
@hotmail??? That’s always confidence inspiring…If you’re going to run a scam, at least pay for your own domain to have a legit looking address.
You did not become an md or dmd to live a lower middle class lifestyle; most are upper middle or upper class and most of us enjoy the qua;lity of life near urban centers for culture and all else
as I said VERY VERY FEW docs will retire after 15yrs; its comical to me to even think about it as the facts are quite the opposite
A study yrs ago said 3% of dentists could retire at 65 at their present lifestyle
BTW-the average doc is not grossing 650k as most are salaried employees
I agree that few will. I also agree that few can. Kind of like running your own portfolio, just because few do doesn’t mean it is hard to do so. But you’re right, you’re retiring at 45 to a middle class lifestyle.
A middle class that doesn’t have to work..
The ability to live a middle class lifestyle without having to work sounds like my idea of luxury.
I didn’t give a thought to money when I decided to apply to med school. I had no idea what a doctor earned relative to a businessman like my father, and I certainly didn’t care.
Money never crossed my mind until my senior year (of med school) when I began dating women with real jobs and nice cars. I picked them up at their luxury apartments in my 12 year old Dodge Valiant that frequently stalled in the middle of intersections and brought them to my roach-infested apartment that I shared with three roommates. I can still remember the look on Elizabeth’s (not her real name) face when she first walked into my place. She might have preferred to sit down in a horse stall. 🙂
I do think about money now, but spending $75K per year with no mortgage, no car payment, and no life or disability insurance is way more than a middle class lifestyle (median household gross income is something like $56K). It seems like plenty to my wife and me.
Most physicians and other high-income professionals don’t retire in 10-15 (or even 20) years, but in many cases it’s just because they never considered the possibility and didn’t know the first thing about personal finance. I know this only because I read a lot of personal finance blogs and the comments below the articles. Blogs like this one provide an epiphany for professionals with very demanding jobs and a frugal predisposition.
Spending less in order to retire earlier is not for everyone (e.g., Ken), but articles like this are invaluable to many others.
Hey I had a Valiant as well. I think it was made by Plymouth. It would not start in the rain. I agree when there is no mortgage, car payment, life or disability insurance 75k is more than a middle class lifestyle.
🙂 You are correct: https://en.wikipedia.org/wiki/Plymouth_Valiant
I’m obviously not a car guy. I frequently confused Plymouth, Dodge, and Chrysler.
Medical specialists now average > $300K. The salaries are determined mostly by specialty choice, not employer status. I have several friends who are salaried employees of nonprofit systems who earn >$1M / year.
The average specialty doc now makes >$300K/yr.
The salary is driven more by specialty choice than employer status.
I have several friends who are employed by nonprofit hospital networks who make >$1M/yr.
I took the wrong turn somewhere along the way. 🙂
For the people who retire at 45, what do they do about health insurance for 20 years before Medicare kicks in? Honestly I only work now for the health insurance and I’m in my 30s, but with $5 million of net worth but work part time.
I get this question so often. With PPACA as the current law of the land, anyone can go buy health insurance on the open market. Sure, it’s expensive, but so is gas, groceries, and rent. Why doesn’t anyone ever say “I’m working for the rent money” or “I’m just working to cover my property taxes and utilities?” What’s so magic about health insurance? Sure, it’s expensive, but so is a lot of other stuff.
I’ll take this one.
Premiums would have been $25K for us last year, versus the $3.6K we spent for employer-sponsored insurance. We could retire on $75K/year with a $3.6K bill, but that difference would increase our budget by about 28.5%. That is a gigantic difference, but it’s only the beginning.
Premiums increase by 40% year-over-year in plenty of locales. When the biggest line item in your budget is more than 25% of total expenditures in year one, and may then spiral upward out of control, it’s impossible to make a plan with any confidence.
Of course, cost isn’t the biggest worry; it’s access. Insurers have withdrawn completely from some regions, and this problem appears likely to worsen. The system may implode; slowly at first, and then all at once. I think this would be the most likely outcome if the law was left unchanged.
Beyond that, the plans available in our area up to this point are effectively similar to Medicaid (but not Medicaid). Before we married, my wife had a subsidized ACA plan. When she needed care I obtained a recommendation from a friend and my (now) wife confirmed that the provider accepted her insurance.
Well, we made the 2 hour drive to his office only to find out he did not accept that particular plan. Almost no one does. It apparently pays Medicaid-like rates and most physicians don’t participate. Before that event, she/we thought she had the best available plan under the ACA.
Of course, the current president and congressional majorities have all vowed to abolish the ACA. Depending on the particulars of the new law, insurance may be unavailable at any price to people with pre-existing conditions. That would be me.
I almost died six years ago. I’ve had no problems since and have a normal life expectancy, but the condition could recur. From the point of view of an insurance company, I’m a non-ideal customer. In the days before ACA, I probably wouldn’t have found a taker on the individual market. In the days after ACA … ?
Sure. If you need $80K a year to retire and your portfolio can only generate $60K a year, you can’t retire, whether that last $20K goes for rent or health insurance. I just find it odd that health insurance/health care is always the expense that gets singled out for this treatment.
Health insurance premium inflation is undoubtedly crazy. Do you suppose that’s the reasoning for most people? But I think of it like this…if a trend can’t go on forever, it won’t. The trend that health insurance premiums are on the last 5 years can’t go on forever, so it won’t. I mean, do you really think it’ll increase at 40% a year indefinitely? Really? Who’s going to buy it in 10 years?
I agree that without a guarantee for coverage for pre-existing conditions it’s a different story, but both parties and most Americans seem to want that to continue, so I’m not all that worried about that.
http://www.nationalreview.com/ahca-preexisting-conditions-democrats
“I mean, do you really think it’ll increase at 40% a year indefinitely? Really? Who’s going to buy it in 10 years?”
Fewer and fewer people, some because of cost and some because they don’t have access. This will be similar to our pre-ACA condition.
“… so I’m not all that worried about that.”
Well I am. If I choose to retire now I probably won’t be able to find my way back into practice, and I don’t share your confidence in the statements of politicians.
The current situation is unsustainable. That is, promises above can’t be honored over the long term. We’ll either have a growing number of uninsured (as pre-ACA) or we’ll end up with a European/Canadian-type system with effective rationing of care.
So when only 1% of patients have insurance, do you expect hospitals and doctors to continue to only cater to them? It’s not a politician thing, it’s a simple economic thing. When a trend can’t continue, it won’t.
Many patients will continue to have Medicare and Medicaid, and most of the rest will have group plan coverage through employers, the same as pre-ACA.
Most had insurance pre-ACA and most will have insurance post-ACA.
It’s only the poor schmucks on the individual market (like early retirees) who will be progressively squeezed out, and we’ll have increasing numbers of uninsured, the same as pre-ACA.
As long as the law requires insurers to cover everyone and requires every policy to cover just about everything, but does not force everyone to pay (i.e., does not force the average healthy young person to subsidize older customers with pre-existing conditions), then the system will ultimately collapse.
Before the ACA, insurers were happy to accept young, healthy customers at low rates, but could refuse 50-something customers with pre-existing conditions. That was fine for healthy young people and insurers, but not so good for the older or sicker.
Now insurers can’t refuse older customers with pre-exisiting conditions and they can’t offer low prices to young healthy customers (and still make a profit). Therefore, the latter don’t sign up, and insurers continue to raise prices to counter adverse selection. This worsens adverse selection. Rinse. Repeat.
The trend will continue until/unless voters decide we should have Medicare-for-all or some similar European/Canadian-type plan.
Yeah WCI those of us who are older and otherwise could retire are working because of the fear of the unknown. I am turning 60 and I really want to get an idea of next years rates before I decide to retire. No one knows about the final health care bill and pre-existing conditions so I think CM is also wise to see what happens. I have always been very healthy and not used much health care myself. I have been having several diagnostic tests recently and have been surprised at the charges outside of my known deductible. Coinsurance, facility fees, etc. It is not that I can’t afford it but it is maddening.
The uninsured will probably always be with us. The % of self-pay patients my practice saw prior to the ACA was 17%. After ACA? 17%. There is a high percentage of uninsured people who can’t figure out how to apply for Medicaid nor ACA subsidies. So unless the onus is put on someone besides the patient to sign-up, we will always have uninsured patients. So I agree with you that the only way we’ll get rid of uninsured patients is some sort of single-payer plan where we can just bill the payer and the patient doesn’t have to do anything. Whether single payer is good or not, of course, depends on the details.
The % of self-pay patients our hospital saw prior to ACA was also about 17%. After ACA? 0%. Anyone who comes in without insurance gets insurance before they leave. The only person I have seen since ACA without insurance that was adequate was from Canada and had emergency-only Medicaid.
Wow! That’s amazing! Which state are you in?
You get this question a lot because it is a huge issue. It isn’t so straight forward as allowing for a rent expense. Maybe things are wonderful in Utah but it varies state to state. Where I live the best insurance plans are all through employers. The one that individuals can purchase is basically a Medicaid program that pays for almost nothing. It isn’t pretty. Furthermore rates are increasing and coverage is declining. And that is assuming preexisting conditions remain covered – which isn’t at all certain now. It sounds like you and your family are healthy and I hope you stay that way but some of us are not and this is a huge issue.
Have you called a health insurance broker or are you basing your comments off the ACA exchange website? Since you don’t qualify for a subsidy anyway, you might as well use a broker. It doesn’t increase the price of your insurance.
I’m not sure why you call Medicaid a program that pays for almost nothing. While lots of docs don’t take Medicaid, in my state Medicaid co-pays are very low, probably too low (like $3 for an ER visit.) So it doesn’t make sense for me that your Medicaid would pay for almost nothing while ours pays for almost everything.
No I haven’t shopped around or contacted a broker. I am going by what patients and small business people tell me. Well if I’m not working for money I guess I could move to a better state. Maybe Utah! We don’t have Kaiser or Intermountain or some organized care (for better or worse).
Our state’s Medicaid is “managed” by “Managed Health Services.” The few doctors who do accept this “insurance” will make patients wait months to be seen. I just know when I order a drug, a MRI, a consult, and injection etc. it won’t be approved. They have “guidelines” for care. Basically reasons to deny stuff from what I can tell. Occasionally they will let me perform a “peer-to-peer” to get routine care covered but the doctor on the other end of the phone invariably had no knowledge of the field, testing need, or treatment issues. It is so frustrating that I quit doing peer-to-peers. I think that was their intention. They are saving money. I’m sure there were abuses – so it isn’t all that bad. But if I have that insurance I want to be able to see specialists and get care.
Ugh.
I wrote a comment but it seems to have disappeared. This has been happening a lot lately. Maybe it will re-appear.
Medicaid is the main option for purchase according to my patients and small business people I have talked with. We don’t have Kaiser or other big systems.
Medicaid became too costly so they hired MHS to aggressively review services. They still do pay for ER costs well. But they aggressively review consults, medicines, procedures, and tests. The reviews seem to be based more on cost than on evidence.
On the other hand, If I don’t work for money, I could move to a state with better insurance options if needed.
Your comments are going to the trash folder, not even the spam folder. Can’t explain why. Maybe you made a duplicate comment once so I trashed one of them and now it sends some of your comments there? Dunno.
OK. I must be trash-talking too much!
WCI or POF,
Can you please show some numbers as to what would happen to your portfolio if the market takes an extended down turn. For example a 30-50% drop for an extended period of time (5-10 years). Obviously this would be Great Depression style drop, but not out of the realm of possibility. Also, if there was a 30-50% drop for even a couple years as we just got through 2006-2010 range. From my understanding it takes a significantly stronger bull marked run to make up for such significant losses. I ask, because if many of us were to retire at age 45 with our current holdings and a great plan, but then 5 years into our retirement the next big recession hits, it would be hard to climb out of that hole with no income and another 15-40 years to live.
Thanks,
I am curious about this too. Based on your blogs, you are very stock heavy. if market crashes and goes down to 30-50%, are you still considered FI? even if you have 5M at 45 yo, it will still bring you down to 2.5M. I understand that you will continue to invest in equities but isn’t it better to have high income of a physician to continue to invest? I assume the income from blog/businesses are doing well. What about others who do not have these?
I would encourage you to set aside a Saturday and read all 16 parts of Early Retirement Now’s Safe Withdrawal series. https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
A withdrawal rate in the range of 3.33 to 4% (25x to 33x expenses) hasn’t failed retirees in 2000 or 2007 who saw stock markets drop 40% to 50%. It helps if you can curb spending a bit in the event of a market meltdown. Save the big international trips for after the market recovery. If you’re retiring with a barebones budget, you won’t have much wiggle room, but most physicians will want a portfolio of at least a couple million dollars, which should offer plenty of room to maneuver.
As to whether or not you’re still FI if the market tanks? If you use a strict definition of 25x, I guess not, but after a drop, future returns will be expected to be higher (once we have lower P/E, CAPE, etc…), so I wouldn’t freak out if you had met your desired number prior to a bear market.
While most people won’t have ongoing active income in retirement, you will have the ability to earn income if things go poorly. You can also focus on income streams less dependent on the stock market (i.e. real estate).
Best,
-PoF
The great depression was a 90% drop, actually a double drop. The Trinity study shows “what would happen” in that scenario. It turns out you can only withdraw about 4% of your portfolio a year because events like that happen. The study has also been updated to include the 2008 bear market as well. Again, around 4%. It’s all about sequence of returns risks. If not for periods like those, the safe withdrawal rate number would be 5-7%.
I’m a little late to this party, but I completely agree. I’m always skeptical of posts like these saying how easy it is to retire super early especially when said person hasn’t truly been through the hurricane that is a financial downturn. Maybe it’s the anesthesiologist in me always preparing for the “what if” disaster scenario – and no offense PoF & WCI – but you guys are very heavy in the stock market and have invested during the perfect time. There is no way the markets will continue this upward trajectory over the next ten years and though I agree by staying frugal you’ll survive a downturn, it won’t be enough to retire comfortably in the midst of it with 30-40 years of life to live w/o significant income streams outside of the market.
Wow! People are now calling the last 10 years the perfect time. Am I back in the 90s or something? How wonderful that I didn’t let that little downturn in 2008 dissuade me from buying more stock.
The “perfect time” to invest is when you have the money. You’ll find that some years and some decades it works out better, but stick to it long enough and you too can invest at the “perfect time.”
Pessimism always sounds so smart, but history suggests that it is the “dumb” optimists who have triumphed.
a 50% loss requires a 100% gain to get back to even!
I can hold off on the McMansion and the Humvee, but really if you’re being honest, to “retire at 45” you can’t just “hold off” on the McMansion and the Humvee, you have to do without them forever.
Living like a pauper for a few extra years now so that I can retire early sounds good, but only if I don’t have to live like a pauper forever. There has to be some gold at the end of the rainbow. Sacrificing now so that I can retire early and still have to come up with a budget for groceries every week for the rest of my life sounds horrible.
The “gold” is the freedom from the requirement to work for a living.
That looks more or less valuable depending on the stress level of your job, the enjoyment you would find in the things you would do sans job, and the value you place on material possessions.
If you like your job and Ferraris, and aren’t sure what you would do with all the free time in retirement, then more work is best for you.
It’s hard to put a number on the value of freedom. For me, I would gladly live on 60k for the rest of my life if it means not having to work. Others might value freedom even more and be content to live on 40k. Still others might value freedom less and prefer to work longer for the opportunity to live a more comfortable/extravagant lifestyle of 120k per year.
I imagine we all have different ideas of what’s living comfortably, and what’s living like a pauper. My anticipated annual spending budget of about $80,000 a year is 1.5x to 3x that of most of the prominent early retirees that post their numbers online.
If I wanted more, I’d gladly work longer, but my kids aren’t getting any younger, and I can see where in a few years, I’d probably regret not retiring earlier versus regretting retiring too soon. Striking the perfect balance is my goal.
Cheers!
-PoF
Agreed. If you prefer to spend more than $150K a year or so, it’s going to be tough to pull that off by 45. That said, you can live a pretty good life on < $150K a year. Isn't it wonderful that you get that choice?
Age in BONDS-John Bogle a pretty bright fellow
JD-Take a survey of when docs think they will be able to retire comfortably
“Comfortably” is tricky.
I can retire with a substantial margin of safety based on the 4% rule, but I’m not comfortable with that. Others would be comfortable on less.
Already have.
Just added it to this post. Basically it shows pretty wide variation from before 50 to after 70. About 15% before 50, which I think is what you’re looking for. Of course, that’s WCI readers, not doctors in general, which is likely a very different thing.
Just a thought… most doctors spend about 15 years of post high school training getting to the position where they are. Quitting after 15 years or so just seems odd to me…
It will be nice to scale back, work part time etc. so you can enjoy life… that way you keep your healthcare and a steady income stream etc…
Part-time is up next for me. It will be a good trial to see what it’s like to work a lot less.
http://www.physicianonfire.com/solong/
Basing decisions based on what you’ve done to get to a certain point is essentially invoking the sunk cost fallacy — it’s a common psychological trap. Like staying at a bad show because you’ve already paid for the ticket. All that really matters is what life looks life going forward.
Best,
-PoF
Seems odd to most. That’s why they don’t do it. But for those who are interested, this post is a guide.
I definitely ascribe to much of what you wrote about. And I plan to be financially independent by 45 to the point that I could go part time, choose my hours, or just do locums as I see fit. #5 and #6 are what I see to be the most important things to achieve your goals. If you plan to save 70% of your income and stick to it for 15 years, I think one could easily see how you could retire by 45 with that plan. Thanks for the post!
I love reading the posts by my American colleagues. Retiring at 45 sure is feasible but one has to save save save and invest invest invest. All your points are valid. Living below ones means is the way and if you have always done it, it is easy. This is how I have always lived. I am 54 y old now, and FI . I do some locums for fun (Radiology). I work less than 18 weeks a year. The rest is spent travelling and enjoying our two homes. The one thing in Canada we don’t worry about is Health Care Insurance, as that is paid mostly from the Provincial plans. Dentists and drugs , chiropractic care, are our responsibility. I would add one thing also at least in Canada , learning about taxation and how to best situate your finances is very paramount in achieving FI early. We are allowed to incorporate in Canada with SBC taxation at 15.5% , then learning about dividend sprinkling amongst your family with decrease your personal tax rate . ( Mine last year was less than 10%, as my income is essentially dividend income). Tax planning should be another key point in achieving FI.
I’d love to get a guest post about the Canada-unique aspects of your planning- dividend sprinkling and incorporation to lower taxes for instance.