[Editor's Note: It’s that time of year when The White Coat Investor changes the financial lives of 10 talented medical school students. And today is the day when WCI officially calls upon eligible medical school students to apply for the WCI Medical School Scholarship. To learn all the details of this year’s scholarship, to find information on how you can donate, or to apply to be a volunteer judge, all the information is here. This is the eighth year WCI has given out these scholarships, and every year, it’s gotten bigger and better. We want to make sure that trend continues in 2022!]
[FIRE week continues here at WCI, where we celebrate all things Financial Independence, Retire Early-related, including the Physician on FIRE blog. Every post this week is going to be about topics relevant to the FIRE community.]
By Dr. James M. Dahle, WCI Founder
There are many financial bloggers and readers out there in the FIRE (Financial Independence Retire Early) community including our own Physician On Fire, who writes a blog about FIRE directed at doctors. A WCI forum post from a few years back got me thinking about this subject. The forum poster asked, “Why don't more MDs retire in their early 40s?” I answered that there were three main reasons:
- Most doctors aren't financially savvy enough (both knowledge and discipline) to have enough money relative to their expenses to retire that early.
- Most doctors like their job, their career, and their profession and didn't spend more than a decade learning how to do it just to quit as soon as they could. They truly weren't in it just for the money.
- Many people who are savvy enough to retire early simply would rather not make the financial sacrifices required to be financially independent that early in life.
Obviously, the main benefit of financial independence is having the choice to retire early. However, there are a number of other benefits to early financial independence, and that's what I'd like to discuss in this post. Before doing that, however, I'd like to take a minute to discuss why I'm still working.
Why I'm Not Retired
Financial independence got really squishy for our family when I originally wrote this post in 2017. It used to be a very hard and fast number. We even wrote it into our financial plan and indexed it to inflation. Back in 2006, it was $2 million (which is now closer to $3 million). Using the handy-dandy 4% rule (or suggestion, depending on how you feel about it) with a nest egg of $3 million, we felt we could spend about $120,000 a year, or about $10,000 a month. Our net worth now significantly exceeds that number. According to our original written financial plan, I suppose we're now the big winners—and more than a decade earlier than planned (we officially became FI in 2018 or 2019). Yay us! So why was FI so squishy at first?
There were two reasons.
First, a large part of our net worth is now tied up in the value of The White Coat Investor. Illiquid is an understatement. However the return on this “investment,” even subtracting out a reasonable figure for our time, is better than the expected return of any other investment we have. Why sell something with a 15%-40% yield (depending on how you value it) and significant potential capital gains just to invest in something with an expected return of 7%-8%?
Second, it's squishy because we started spending more money. We spend $15,000-$20,000 a month. That doesn't include taxes and charitable contributions either. [We paid off the mortgage in 2017.]
Is this some sort of weird financial disaster? No. It was a conscious decision to loosen the purse strings. Could we have spent less than $180,000 a year [or $150,000 a year in our post-mortgage life]? Sure. We'd done it for many, many years. But when considered from a budgetary perspective, does spending such a small fraction of a rising income seem so bonkers? Not really. Barring an impending retirement, that seems pretty darn sustainable. And if it's not, at least we can console ourselves that we made hay while the sun was shining by saving something like 2/3 of our net income.
Why am I still working now, three years after we reached FI? Because I'm a workaholic. There I said it. Are you happy? Just kidding. But I do see work as an important part of my life.
In between my first and second year of medical school, I had a one-month mandatory class with the Air Force. On either side of that month, I had a month completely off. My wife was working and going to school, and we had no kids. We didn't have much money, but I had all the free time I could desire. I got a season pass to the university golf course (it was $32 for the whole summer, as I recall) and played most days. Then, I'd go home and play video games. Some days I'd go climbing or mountain biking. Guess what? By the time I'd done that for three of four weeks, it felt like work. It sucked all the joy out of my recreational activities. Weird, huh? I felt very purposeless and like I wasn't making a significant contribution to society. I didn't like that feeling at all. I did, however, manage to shoot one scratch round at our little nine-hole course—five birdies, three bogies, and a double-bogie. That never happened again.
I spent a grand total of 11 years in school and training to become an emergency doctor. Like many doctors in similar specialties, I've always been one to look at medicine as more of a job than a calling, although this concept is a spectrum. Some doctors might be 90% calling and 10% job, while others are 90% job and 10% calling.
I knew in medical school that I had many other interests outside of medicine and that I wasn't going to be happy being a resident for seven years or for working
80 60 40 hours a week for the rest of my life. But that didn't mean I didn't LOVE doing it for 20 or even 30 hours a week. It turns out there is really not much in my life I actually enjoy doing for more than 20 hours a week, but I've got a dozen things I could spend 10 hours a week doing and love every minute of it.
At any rate, it seems a waste to spend a large chunk of my life training to perform a valuable, much-needed service that I enjoy performing and then stop doing it completely as soon as I get good at it just because I had enough money to do so. (Studies tend to show doctors about a decade out of residency are the most competent, and patient preference surveys agree.)
My “other job” running the WCI Empire is also enjoyable to me and lends purpose to my life where I feel like I'm making a big difference in the lives of others. Why would I want to stop that?
Kids Matter, Too
Finally, I've got three school-age children and one about to graduate from high school. I would like to go on more adventure trips than I currently go on (I know it seems I already go on an insane number to some of you). However, it isn't money or time that is keeping me from going on more trips. It is that my wife doesn't want me leaving her home with the kids for 3-10 days at a time any more than I do now. [Don't give me crap: the year I originally wrote this, she went without me on three trips, including one to Finland, Sweden, Estonia, and Russia.]
Perhaps the most important thing I'm doing in my life right now is raising kids, which I also enjoy. I'll be 58 by the time my youngest gets out of the house. Given that I currently have two jobs I enjoy already, both of which pay me well, and given that I can't go on any more trips than I'm already going on and still take care of things that are more important to me than the trips, what would be the point in dropping work completely? Might as well keep working. It will allow me to have more money than planned to leave to my kids, give to charity, help others, pay toward the education of my children, spend in retirement, and spend now.
Plus I get to save a few lives, reassure a lot of anxious people, and help a whole bunch of docs stop doing dumb stuff with their money. Maybe I'll change my mind eventually, but it seems unlikely to me for now.
8 Things You Can Do with Financial Independence Besides Retire Early
#1 Lower Future Expenses
If you're financially independent, you can cancel your term life and disability insurance. That was $500 a month for me before I dumped my disability insurance in 2018, and I'm sure many of you are spending even more than that. You also could retire mortgage or student loan debt (if you haven't already) and possible future educational costs (by saving more now for them rather than cash-flowing them).
#2 Lower Risk
Dr. William Bernstein, author of The Investor's Manifesto, likes to say “When you've won the game, stop playing.” What he means by that is that when you acquire enough money to sustain yourself for the rest of your life, stop risking it. If you are financially independent but still working, you can dramatically lower the financial risks in your life by continuing to save and letting your investments compound—even if you use a less risky portfolio. You may go from a 4% withdrawal rate to a 2% withdrawal rate. Perhaps you can go from a 60% stock portfolio to a 40% stock portfolio. You don't have to invest on margin either. FI without RE can allow you to lower risk.
#3 Take Some Time Off
Who says retirement has to be a one-time activity? Why not do a bunch of mini-retirements throughout your career? If you're an academic, perhaps you can take an unpaid sabbatical. If you're a “gun-slinger” selling your services to the highest bidder, you can just stop accepting locums jobs for a few months or even a year, repeating as often as you like. If you're an employee, you can give your two weeks notice. Chances are good you can get another job in a few months. This one might be a little tricky if you have a private practice, but you could bring in a locums doc and have a nice, long, well-deserved vacation. You may find you miss work more than you think. Or you may find you don't miss it at all and decide that maybe early retirement really is for you.
#4 Go Part-Time
I guess I've done this one. Due to the rotating shifts, odd hours, lack of holidays, and high-paced work, most emergency physicians consider full-time to be a dozen 12-hour shifts or 15 8-to-9-hour shifts a month. In 2016, I went from 15 eights to 12 eights. What a marked improvement in lifestyle even that small change was! Imagine going half-time. I wonder how many burned-out doctors would fall in love with medicine again if they only worked half as much. I made that switch to half-time in 2018, and now I'm working six shifts a month.
#5 Drop Unpleasant Parts of Your Job
I did this one, too. I didn't just drop three random shifts in 2016. I dropped my three overnight shifts—you know, the ones that start at 10pm. Missing out on your entire anchor sleep is painful, and the patients who come to an ED at night are not the same as the ones who come to an ED during the day (more drug-related issues, more psych issues, more Medicaid patients, lower acuity, etc.). There was a significant loss of income because of this decision, since our group pays those overnight shifts the best (by far). But what an improvement in my practice and my lifestyle.
I got up at 7 or 8 most days energized to get things done. I lost 10 pounds and got myself in much better cardiovascular and muscular shape. No more DOMAs (Day Off My Arse—you know that day you worked until 6 or 8 am but are starting a transition back to day shifts). I get to go to bed the same time as my wife 27 out of 30 days a month (instead of more like 20 due to all the weird schedule flipping).
In your case, perhaps it is also dropping night shifts. Or perhaps you'd like to see patients at a slower pace. Or drop weekends. Or quit taking call. Or do less clinic or less obstetrics or less trauma. Whatever it is, financial independence could allow you to mold your practice into your ideal practice.
#6 Get a New Job
Sometimes, your job just sucks. But you need it because it pays more than a job that doesn't suck. Guess what? When you don't need the money, you can walk away and take the good job that pays less. Hanging around on FIRE blogs and forums sometimes made me wonder if many of those people just have sucky jobs. There's nothing quite like hating what you spend 40-60 hours a week doing that will motivate you to save 60% of your income.
#7 Change Careers
Maybe you realized medicine isn't your dream career after all. Unfortunately, it is the only way to pay off your student loans and that big mortgage you took out. And it's the only way to save enough to become financially independent any time soon. Once you reach financial independence, you can move into either a better job or an entirely different career. It may pay dramatically less; these are often called “encore careers.” Perhaps you would like to be a river guide or a host for a travel company. Or a ski instructor. Or a painter. Who knows? But if you don't have to work for money, you can do any job you like. Retirement is squishy anyway. Lots of people earn money while “in retirement.” Only the Internet Retirement Police care.
#8 Spend More
Imagine this scenario. You get to your financial independence number and realize you still like doing your job, which pays you very well. Now what? Well, now you start looking around to see if there are any ways you could spend money that might make you happier. Perhaps you can give more to charity. Perhaps you toss some more into your kids' 529 plans. Maybe you'd like to try heli-skiing. Or take your family on some expensive foreign trips. Or drive a Tesla instead of a Camry. Or renovate your home.
As long as these expenses are one-time, lump-sum expenses without an ongoing spending commitment, they won't affect your financial independence one bit. You probably ought to be a little careful about that hedonic treadmill, but it seems unlikely to me that someone with the financial knowledge and discipline to become financially independent in their 40s is going to get themself into financial trouble by loosening up a bit.
What do you think? What else can financial independence do for you besides allow you to retire early? Are you financially independent? If so, have you retired? Why or why not? If you are not financially independent, when do you expect to become so? Will you retire then? Comment below!
[This updated post was originally published in 2017.]