[Editor's Note: This article originally appeared on WCI Network partner site Physician on FIRE, where you can learn more about financial independence and retiring early. We'll be running these from time to time on Saturdays, both with new content and classics from Physician on FIRE. You can read the original article here. ]
Let’s consider 4 physicians who live decidedly different lifestyles in terms of spending. I like to crunch numbers, and the best way to truly evaluate the effect of lifestyle is to do just that.
We’ll establish a baseline that is identical for the 4 physicians in question. Each of them is now debt free, but has not started saving for retirement. Each has purchased a home that suits them. Each has a household income of $300,000 and files taxes as married, jointly. They’ve each got a couple kids and contribute a total of $10,000 to 529 accounts each year.
Who Are The 4 Physicians?
Dr. Anderson discovered this site in medical school, and has educated herself in personal finance. She has made financial independence a goal and knows how to achieve it. She contributes the max to retirement accounts, and puts the remainder in a taxable account. She lives in a low cost-of-living city and drives a reliable used Honda. Her annual expenses after income taxes are about $80,000 a year.
Dr. Benson discovered this site in residency. He doesn’t want to work forever, but he enjoys some of the “finer things” in life now that he’s making $300,000 a year. Like Dr. Anderson, he contributes the max to retirement accounts, and puts the remainder in a taxable account. He lives in a moderate cost-of-living city and drives a new BMW 3-Series. His annual expenses after income taxes are about $120,000 a year.
Dr. Carlson discovered this site last week, but she’s been reading The White Coat Investor for several years. Her favorite post is the one about loosening the purse strings. Like the others, she contributes the max to retirement accounts, and puts the remainder in a taxable account. She lives in a high cost-of-living city and drives a leased BMW 7-Series. Her annual expenses after income taxes are about $160,000 a year.
Dr. Dahlgren has not discovered this site and hasn’t found the time to pay much attention to his finances. Like the others, he receives a profit sharing contribution to his 401(k) from his employer. He also contributes a little from his paychecks to the 401(k) to receive a partial match. He has no debt, but lives pretty much paycheck to paycheck. The Ferrari doesn’t pay for itself, you know. His annual expenses after income taxes are about $200,000 a year.
Budgets of the 4 Physicians
Here is a sample budget for these 4 physicians. Most expenses are scalable, but some, like healthcare costs and donations, I kept constant. I didn’t include line items for country club dues, second homes, stable fees, etc… but I do have a travel & miscellaneous category as a catch-all. Let’s have a look.
Time to Financial Independence for the 4 Physicians
Now, let’s see how all this spending relates to the focus of this blog, which is Financial Independence and the ability to Retire Early.
Dr. Benson is in pretty good shape, with a cushier lifestyle, reaching financial independence in 16 to 21 years, perhaps in his late forties or early fifties.
Dr. Carlson, spending twice as much as Dr. Anderson annually, won’t be financially independent for 24 to 36 years, depending on market returns.
Dr. Dahlgren will be working well into his seventies, even in a best case scenario. This is a good time to ask yourself a simple question, what do you value more, Your Money or Your Life? I hear that’s a good book, by the way.
What do you think? Would you rather live a pretty good lifestyle and achieve financial independence in 10 years? Or live for today until you’ve got great-grandchildren?
Perhaps Dr. Benson or Carlson are more your style. As you might have guessed, my finances these days more closely mirror Dr. Anderson’s. Now that we are debt-free, we have a net savings rate around 75%. It does take some discipline, but it makes me happy and helps me sleep well at night (as long as the pager is quiet).
Follow this link for the rest of the 4 Physicians series.
What do you think? Which of these doctors is your lifestyle most like? What is the earliest you think you could retire? Comment below!
This was my favorite POF post (amazing for a resident about to be an attending) and one saved to my phone for occasional re-reading. As many times as WCI can say “live like a resident” – seeing what the actual numbers do may have been even more effective!
How do you get access to a 457b account? Is that possible for an independent contractor?
457(b) plans are available to some employed physicians. An independent contractor can utilize a solo 401(k) and contribute up to $54,000 tax deferred in 2017.
Ok thank you! I already maximize the solo 401k, but I wanted to make sure I wasn’t missing out on the 457b. Great post
I would love to see the independent contractor flavor of FOUR PHYSICIANS. For example, is it possible to contribute PRETAX to a roth IRA, spousal roth IRA, 401k, and AFTER tax contributing the max 54k to a solo 401k ? Thank you so much for your blog.
You don’t contribute pre-tax to Roth IRAs, no.
In general, an IC would do a personal and spousal backdoor Roth IRA and an individual 401(k) up to $54K a year. Usually the entire $54K is pre-tax.
Great post! Would you share the spreadsheet? I’m interested in playing around with my own numbers to see when is my FI. Thanks.
One question, has the calculation factored in inflation of the “Required Nest Egg for FI”?
I have seen a few posts like this and think the exercise is wonderful as an educational tool. I always chuckle when the expenses are broken down, though.
Anyone with a family is paying closer to 20-25k per year in healthcare expenses (assuming they are paying both premiums and the deductible). Disability insurance, auto insurance, life insurance, home insurance…1000 bucks? More like 5k.
And I guess these folks never have anything go wrong with their house. Downed trees from a storm, leaky roof, broken windows, exterior house painting). All of these thinks have cost me between 3 and 10k each in the past two years alone.
Plumber, electrician, appliance repair? Hvac? New appliances? Water heaters, etc?
What about your termite bond? That’s 500-1000 per year.
And I guess there is no need for furniture in this scenario.
If you are getting away from the dental office spending 1000 for a family for the year, you and every member of the family must have perfect teeth. Congrats!
Also, I assume that none of the children in the above scenario are playing any sports. No uniforms, registration fees, tournament fees, equipment?
And these are physicians, right? What about society membership fees? And fees to the medical boards to maintain your licence?
There are lots more but I think I have made my point, which is that one does not need to necessarily be “living for today” to have expenses mirroring that of Dahlgren. The point of the blog is well taken that you have want to be saving as much as possible to earn your returns and retire early.
However, obviously, it is frustrating to look at the numbers when they do not necessarily accurately reflect real life. It puts a numeric goal for savings which is likely not realistic to achieve.
Thanks for the comments, Jason.
The budgets are based on my reality as an employed physician, but everyone’s going to have different expenses based on where they live, how much they or their partner do themselves versus hiring out, what expenses are covered by their group, etc…
I tracked every outgoing dollar for a year, and we spent $62,000 living pretty well as a family of four. (http://www.physicianonfire.com/62000-spent-heres-where-it-went/)
We do “cheat” in certain ways by having already paid off our mortgage and student loan debt. We’re financially independent, so we now forego term llife and disability insurance. Our boys are in public school. My employer pays the bulk of my health insurance and all of my licensing, CME travel, and association dues.
The docs above do have home improvement budgets of $4,000 to $12,000 a month and travel / misc budgets of $6,000 to $30,000 a month. Those would cover many of the scenarios and services you questioned.
It’s easy to nitpick the particulars, but I’m glad you can appreciate the point. I do think it’s realistic for some physicians in low cost of living areas to get by on $80,000 a year (you did it on less in residency, right?) and $120,000 to $200,000 should provide for a comfortable lifestyle most places.
Cheers!
-PoF
As an employed doc I also think these numbers are accurate. For health costs, we only spend about 3k/year on premiums and don’t have a deductible. I just had a baby and the total cost was $0. Dentist is much less, $400/ year for the premium and the twice yearly visits are free. Even with spending 3k/ year on a 15 year mortgage and 24k/year for travel/misc we only spend 96k/year. We live in a MCOL area. So this is very realistic for our situation. But if you are an IC I could see how things don’t add up the same way.
You’re right about that. My health insurance alone is nearly $15K a year. At least I can pay it with pre-tax dollars though.
Yeah I was shocked the first time you mentioned that. I somehow had no idea health insurance could be so expensive. We’ve always gotten it through work.
That’s actually a big problem in this national health care debate. Everyone debates over who’s going to pay for it rather than how much it costs. Too many people are shielded from the cost of health care. Health care is expensive stuff and even with reform to increase transparency and cost-sharing, will still be expensive stuff. When you have to choose between health care and an iPhone (BTW, I totally agreed with Chaffetz’s poorly-phrased comment and will vote for him again as long as he keeps sleeping on a cot in his office in Washington D.C.) or a newer car or a nicer place to live then you can make rational economic decisions. Until that time, we’ll continue to muddle along without the vast majority of voters realizing just how expensive it is. Truthfully, we probably can’t afford to consume as much health care as our country consumes currently. But nobody will consciously make a decision to consume less if there is no personal, immediate, transparent cost to consuming more.
I am in favor of universal health insurance so that everyone has access to needed medical care. I’m not advocating for people getting whatever medical care they want totally free, however. I totally agree that much greater (complete? ) transparency is needed for any kind of real sustainable reform though. It’s pretty ridiculous that I only use about 3 billing codes but have no idea what that translates in to in terms of cost to my patients. Why doesn’t anyone know how much anything costs in medicine? If the restaurant industry can figure it out, why can’t we?
The reason is that the lack of transparency boosts what we make, along with everyone else who works in health care. Make it transparent and the hospitals make less, the doctors make less, the pharmacy makes less, Big Pharma makes less, insurance companies make less etc. That’s why. I’m not sure it can be reformed from the inside.
You are probably right about that. I’m ok with lower pay, but I suspect many others would not be happy about that (and would probably be totally screwed if that happened mid career). If pay was lowered across the board, they’d need to significantly drop the cost of med school in order to keep a steady supply of MD’s though. There’s certainly no easy solutions.
Yes if you pay it yourself the number is shocking. I will be 60 in a few months and my premium for one is around $6500 per year. I expect this to significantly increase next year. The uncertainty keeps me working.
How is this not a tax? Yes, we may have a choice of not having it now, but what a terrible choice would that be.
If PoF has to retire, he has to factor this cost into his annual expenses. And it is not a small expense. We paid about 16k (premiums + expenses, especially some unexpected dental expenses) in 2016, for a family of 5. How do you plan to do it, PoF?
And lack of transparency like WCI says, includes the price for a healthcare bureaucracy that costs a lot within the system.
I anticipate carrying a high deductible plan with an HSA. I won’t need to be insured against costs in the low tens of thousands, but against six-figure and up expenses from a catastrophic event or illness.
I’m expecting our costs to run in the neighborhood of $15,000 a year for traditional insurance for our family of four. I plan to do more research on the health sharing ministries. I learned a couple weeks ago in a post on this blog that there is a plan with no cap, which is one reason I hadn’t considered them seriously in the first place.
I work for an Employee Benefits brokerage firm and look at the health costs of companies of various sizes every day. Generally you want your health care costs to run no greater than 80% of your total premium (the other 20% is used for admin expenses, risk retention, and profit). Even if a company runs at its ‘target’, it can expect an increase of premium at renewal to account for medical and pharmacy trend. In my area, it seems most companies are going over their targets resulting in some alarming increases in premium costs. It’s pretty rare to see a monthly cost for Family coverage to be below $1,000 a month, even for high deductible plans.
That being said, having health insurance run through employers seems like an inefficient way to deliver the product. You have companies who are good at making Widgets in the business of health care insurance (and really, health care itself when you include Care Management, Wellness, and other Incentive programs). Even if you don’t like Universal health care, we can all agree that a better model than this is out there.
My spouse is a graduating resident (finally!) so I am able to have some interesting perspectives on this issue, with exposure to the business of health care from the insurance companies and the provider. No easy fixes to be found.
I have not looked at this comparison for a while, and I would echo Jason’s comments. I think that the construct works well as a model, but I have trouble reconciling my relatively (in italics) frugal lifestyle with the fact that, as an example, my property tax and homeowner’s insurance (with umbrella) are about double (in bold) that of Dr. Spendthrift! There are lots of expenses thrown at me, at a minimum weekly, that do not fit into any of these categories.
I would add that as children get older, they seem to get more expensive. Camps, sports, lessons, trips, religious school, etc. pile up. I remember the good, old days when I could buy them clothes at Target. My wife and I have a much more difficult time denying our kids than we do ourselves, and I suspect a lot of other parents feel the same.
That said, if I were starting out in my professional career, it would be useful to pick a track (A, B, C, or D) and understand the implications of that path in life, and therein lies the lesson.
I agree with Jason above, both 1) this is a great and really educational example for young doctors, and 2) some of these expenses are so far from my own experience that I laughed. Some of that is probably due to my husband and me being early 50s/late 40s while I assume your Scandinavian-American doctors are in their 30s with pretty young kids. Our mortgage is long since paid off and we have no car payments, but our medical and dental expenses are much like Jason’s–at least 10K medical out of pocket each year due to a couple of chronic conditions (not counting insurance premiums), a few root canals and crowns here and there… And let’s just say my husband makes no effort to rein in our grocery bill. Although as a parent of teenagers I’ll be interested to see PoF’s grocery bill when his two boys hit their mid teens!
I also agree with Vagabond MD that it’s hard to deny your kids when you can afford to pay for experiences you value. Both my kids are musical and if our income were a lot lower they would have to make do with school instruments, school band, etc. But when you know how much difference a better French horn makes ($3000), along with lessons from a member of the local symphony ($200/month), and you had your own great experiences playing in youth symphony and want that for your kid ($600/year)–it’s hard to say no just so you can retire a year earlier. (Though in our case we’re already on track to be FI several years before my husband envisions retiring, so I guess it’s a moot point.)
@Jason,@Vagabond,@Pyrite,
I appreciate where you are coming from, but I think it is important to emphasize that these are choices, not absolutes. In your town, in your offices, are literally thousands of people living happy healthy lifestyles with smart educated kids who make way less than you, and get by on less than $80,000 after taxes. You choose different things that may be more expensive, and that’s cool – you have the money. But you certainly could live like people who make less, and some people choose to do that. Being Dr Anderson or not is always an option.
Thanks for posting this – this is one of my favorite Physician On FIRE articles, and it’s one of the articles that made me a regular reader of his blog. Combining WCI’s standard advice of saving 15–20% of gross income and this article, a physician who starts work at age 30 and wants to retire at age 65 can live like Dr. Carlson.
This post depresses me a bit because I’m a late convert reformed Dr. Dahlgren turned Dr. Benson, who is trying to save like Dr. Anderson. After a late start in life, we are catching up fast, for the last several years saving over $200,000/yr tax deferred, and another $200,000/yr into combo of taxable account, home/rental property principal, and 529s for four kids. Suffice to say that we spending a LOT less and still working very hard. Biggest early mistake, the “big doctor home” still eats at me but not going to downsize.
Congratulations TheGipper,
You’re rapidly making up for “the errors of youth” so don’t beat yourself up. You’ll have a respectable retirement stash in five years with your current colossal savings rate.
Yeah, you are going to be just fine! The benefits of making a ton of money. Mistakes don’t hurt nearly as much at your income level.
I know at various points in my career I have been Dr A, B, C, and D. You just need more A & B years than C & D years. Geographic arbitrage really helps as well.
An excellent point that you don’t have to be the same letter every year.
Is this available as an excel download with explanations for how each line item was calculated? I would love to plugin my own numbers for apples to apples comparison. I have similiar calculations but not laid out the same way.
Yes! I’m glad you asked. Here it is. You can use the calculator online or download by subscribing with your e-mail address.
http://www.physicianonfire.com/calculators/savings-calculator/
Thanks PoF for the post.
Quick question — is there a difference between tax-deferred and tax-sheltered when people use those terms? Is there ever a case in which it would make sense to contribute to a taxable account before contributing to a tax-deferred or tax-sheltered account?
Yes. Tax-deferred means you are deducting those investments from your taxable income. Tax-sheltered means tax-advantaged growth, such as a Roth IRA will give you.
If you are in a high tax bracket, tax-deferred contributions will benefit you if you expect to be in a lower tax bracket someday. I don’t contribute to a taxable account until I have the tax-deferred buckets filled (for me, that’s a 401(k), 457(b), and HSA).
The biggest advantage of a taxable account is that it can be accessed easily and penalty-free at any time. There may be reasons to invest there in place of tax-sheltered / tax-advantaged accounts, but I am able to do both. Roth IRA contributions (but not growth) can also be accessed at any time, penalty-free.
Cheers!
-PoF
Great scenarios PoF. I would venture that most of us fall between Dr. B and Dr. C where choice of Geography and kids+schooling being primary data point drivers. eg: $6000 property taxes gets 2BR condo in our neighborhood.
That’s a good way to look at it. I pay high state income tax but low property taxes. It will be opposite for some.
If your annual expenditures are in the $140,000 range (between Dr. B & Dr. C), you can extrapolate that your time to FI at the 2% to 6% real return range will be 20 to 30 years, which is still a reasonable timeframe.
Best,
-PoF
Dr. A all the way! Thanks for a fantastic post.
In my opinion you should maximize ret plan contributions from Day 1; non deductible and roths when possible. COMPOUNDED PROFITS, the 8th wonder of the world
Non-deductible IRAs don’t always make sense, particularly if there is no eventual conversion. It may require decades of additional tax-protected growth to make up for the fact that gains are taxed at the higher marginal rates.
but non-ded ira is add’l FORCED SAVINGS; which is good for most big spenders and poor savers
I don’t buy the forced savings argument. Whole life agents use that. You can save in taxable just as easily as a non-deductible IRA. At any rate, for most docs it’s a moot point. Just backdoor that non-deductible IRA contribution. Roth is (almost) always better than taxable.
There is a forced element to it due to less ease with which you can withdraw before a certain age. I know you can withdraw your contributions but still that mental barrier may be enough for many people to let this money grow vs. taxable. This is a behavior issue.
Very nice post. It’s important to do the math on our goals with precision.
The more Iras you own, the more you can leave as inherited Iras which if the law is not changed, is a windfall for your kids
This too
The tricky thing is not ruining them by giving them windfalls. I like Buffett’s theory- leave them enough that they can do anything they want, but not nothing.
When I read this post and plan for retirement one variable I am having a hard time accounting for is pensions. I serve in the National Guard and very likely may be taking a job at the VA. However, as of today neither of these retirements are guaranteed (at the VA I could be vested but for retirement calculations are probably planning for a 20 year retirement not a 5 or 10 year pension). I work in primary care so am not at the top end of physician salaries and therefore how much we save directly affects our vacations, hobbies, ect for our family (with 4 little kids). If I end up starting to draw pension money around age 60 (with a final potential pension of up to about $60,000/year) it would certainly reduce the overall amount I need for savings. Any thoughts on how to use potential pensions when calculating your goal savings and money required retirement.
If they’re pretty sure, then I’d use them to directly reduce your need for retirement income. So if you need $100K to live, and the pension provides $60K, then you only need your portfolio to provide $40K.
If they’re not very sure at all, I’d ignore them.
Love this post. Need to do some of these calculations myself. My initial thought was that the act of tithing would really mess these numbers up as well. Thoughts?
Tithing, while tax deductible, certainly adds a line item cost. For every dollar I give, it costs me 55 to 60 cents out of pocket (thanks to a 40 to 45% marginal tax).
I did the math on a 10% tithe on take-home pay versus 1% investment fees (which is quite common). http://www.physicianonfire.com/which-costs-more-a-10-tithe-or-a-1-account-fee/
The person who tithes ends up with more money than the person who has an advisor keeping a 1% management fee.
To factor it in to these examples is pretty simple. If you tithe 10% of salary, that’s $30,000 a year. While these docs have a total tax of about 25%, the marginal tax rate is going to be around 35%. So it’s going to cost these docs about $20,000 out of pocket to tithe 10% of salary. That bumps them halfway up to the next doc’s level.
If you tithe based on paychecks / take-home pay, that’s ~18,500 a year, or $12,000 out of pocket per year. Just add $12,000 to the physician’s expenses.
I don’t personally tithe, but we give to a variety of charities, and one of our criteria for retiring early is to have 10% of our investment goal donated to our donor advised funds. The goal numbers are at least $2.5 million and $250,000 in the DAF.
Best,
-PoF
It’s an expense for sure, but it also reduces another expense, so the hit isn’t as big as many assume.
In addition, many of those who tithe believe they are blessed such that they never miss that money. Whether that is from better financial management and perspective, or literally making more money, depends on the person. Obviously proving that in a randomized, double-blind study is going to be difficult.
I like how this quantifies things!
One beef with the numbers that hasn’t already been mentioned (as far as I could see), though.
How are any of these doctors buying auto, life, and own-occupation disability for $2500, much less $1000?
Case in point:
Our umbrella & auto is $2300/year. We drive 2 cars that are on the newer end (3 & 6 years old), but not luxury (both were purchased for under $20k) My husband has an accident that might be driving that up a tad, but I also used an insurance broker and picked a non-name brand policy, so I know the rate is about as good as we can get.
Our life ($2 million) and own-occupation disability is $2664 a year. It’s possible we could shop that more and get it a tad lower, but that is a disability policy for a resident-level salary and was purchased for a completely healthy 27 year old.
I love how everyone is nit-picking the budgets. Chances are all of us have one category above that listed and another category below it. It’s really all about the total. If your insurance is expensive, try to make up for it on the utilities or food or vacation part of the budget.
BTW- your auto seems really high. Maybe it’s the brand. Maybe I need to pay more attention, but my auto, property, and umbrella are $110 a month. I’m at about $400 a month for disability though. Hopefully not for too much longer.
Auto is $166/month for 2 cars–I actually just redid all our insurance a year ago. I shopped all the “known” brands and then went through a broker and ended up with Safeco. I think Texas is relatively high for insurance (especially property) in general. Our (also recently shopped) home policy has increased 80% in 5 years and I know I’m not alone in that number. It is what it is.
I agree it really is all about the total, but there are couple of unrealistic “fixed” line items on here altogether. To be a Dr. A and make up for our insurance (which would need to go up as an attending), we’d have to wipe out the eating out budget completely and take another $3k from somewhere else to cover health insurance ($7200/year in premiums alone as a resident!).
I guess what I’m saying, is Dr. A becomes unrealistic pretty quickly unless he is single and remains that way (only way that eating budget is going to happen with the cuts I mentioned above), is ok with skimping on things I would consider to be unwise (like disability insurance), or is a doctor in an insanely low cost, likely rural, area.
Or, I guess he or she could be living like a resident for the duration of their relatively short medical career?
Maybe that is the point?
I assure you that Dr. A exists. I am married and live in Alaska (NOT a low cost of living area). We do not have kids, but we are fully insured and spent just under $60K last year. With kids, this may increase to 80K. It’s not a luxurious lifestyle, but if you take a look at some of our pictures, we’re living a pretty sweet life. In 10 years, if all goes well, we might become Dr. B. And yes, that’s definitely the point. ; )
Sorry, I should have said “childless” instead of “single.” It’s not a frugal (and likely working) spouse that eats up all that extra income, it’s these little hungry, preschool/daycare attending, diaper wearing kids!
It’s not that I don’t believe it is possible (prior to kids, we lived on about $40k/year quite happily) at all. I just believe it is unrealistic with a family–unless you are living in an insanely low cost area.
With the birth of your first child, you can expect to add $1200/month in expenses if your spouse is currently working, $200-300 if not. (Of course you would be losing X amount of income to do that.) I’m assuming that you don’t have to change your car or living situation to accommodate a child. I’m also assuming you aren’t buying formula, have had a generous shower that covers some of your bigger baby needs (or you are going bare bones–no crib or stroller, etc.), you aren’t spending a ton on cute baby clothes, and the baby is breastfeeding exclusively. That $2-300 gets eaten up by increased health premiums, diapers, and clothes alone. I’d like to say it gets cheaper as they age, but experience has taught me otherwise. These are very low estimates, too. Any physician family that has delayed having children is probably going to want to spend more on some of these items.
Boom–you’re up $15k a year and you haven’t increased your standard of living at all. Have twins or another child within the Pre-k time period? You can see how this gets expensive quickly! In fact, my husband and I both agree that we felt we had more free money to spend when we were childless and living on that $45k a year.
Again, I admire all the Dr. As out there. I am totally fine with aiming our lifestyle towards Dr. B. (Heck, if my husband told me he wanted to work no more than 10 years after dragging us through 14 years of medical training, we’d be having a big discussion) However, I do think the choice between Dr. A and Dr. B becomes less of an option with a family along for the ride, although the range between them is definitely more doable.
Our discretionary spending puts us somewhere between Dr. A & Dr. B. Spending is closer to $70,000 a year, but we own our homes outright and have no mortgage.
Earning $300,000 a year, Dr. B is FI in 15 to 20 years, potentially by age 50 if finishing residency in the early 30s. On this salary, I’d say Dr. B’s lifestyle might be the sweet spot. Living better than a resident, but on pace for financial independence at a relatively early age.
I respect the Dr. A’s, but if we had a mortgage, our budget would exceed $80,000 a year.
Cheers!
-PoF
My mortgage makes me a B, my savings rate makes me an A, my total spending puts me around a D (or over if we buy a car or boat or big home improvement that year).
Everyone is in a different situation, so while it is fun to have something to compare to, you’ve got to realize you’re probably not going to fit perfectly into one mold. I don’t have anything in some of those categories and I have 10 times the listed amount in others.
It’s good for some doctors to realize they have peers living on $60-80K though. That’s new information for many docs. We did that for the first 4 years out of residency. Our total spending was probably Doctor A for the first four years, Doctor B for the next four, and then Doctor C for a bit and probably now around Doctor D.
The ratios are particularly helpful. What a lot of docs may not realize is that a high level of spending on a $300K income is $200K. Once you pay 20-30% in taxes and 15-20% toward retirement, the most of your income that you can ever spend if you actually want to retire someday is no more than 2/3rds and probably closer to 50%. If you’re blowing through more than 2/3s of your gross on a physician income, you’ve got a problem you need to correct quickly.
$60K a year isn’t all the different from living like a resident. I think residents are making $50-55K these days.
That’s a fair point about the insurance. I based the budgets loosely on our actual spending, which no longer includes life or disability insurance premiums. You’re right, though. These docs, who are not yet financially independent should be carrying both. For me, the cost was about $4,000 a year for both term life and DI. A two physician family could easily spend $10,000 a year on them.
Tack that on and it could add as much as a year or two to your time to FI. What will make a bigger difference than $5,000 to $10,000 in additional spending is your investment returns. A 2% difference in returns changes Dr. C’s timeline to FI by 5 to 7 years.
Cheers!
-PoF
PoF. One of the best blogs I have ever read. WCI – I so appreciate your work and I have learned so much from you over the years.
I just shopped our home (500K replacement) , auto (A 4 yo SUV and 11 SUV no accident hx) and umbrella (4 million) with Safeco – 400$ a month best I could do here in CO. I assume you have similar and being in the state next door why is mine 4X more than yours?
Thanks
JPG
I was assuming property=personal property insurance, not home insurance. If that $110/month number includes home insurance, then we most definitely need to consider moving to Utah. My husband wouldn’t mind…he would love the skiing!
Sorry. Looking at it it’s $110.82 a month for auto on two Sequoias, a wedding ring, and an umbrella policy. I forgot the homeowner’s insurance payment is still being paid by escrow since I still have a mortgage. It’s another $1501 a year.
What is the WCI network listed in the title of POF’s website? Are there other sites in the network? I tried briefly to Google Wci network and didnt find anything. I have read every new blog on WCI for at least a year. I must say the WCI tag on POF site did make me want to read more articles on POF. I guess The WCI brand has some serious selling power at least for me. Any site in the network for the mid 100k docs?
Link: https://www.whitecoatinvestor.com/physician-on-fire-applying-fire-principles-to-high-income-professionals/?utm_campaign=shareaholic&utm_medium=email_this&utm_source=email
“Physician on FIRE and The White Coat Investor are teaming up to reach more doctors and help them make their lives more fulfilling. Read the details here.”
There’s only two sites in the network so far, but they both love docs who make mid $100K! BTW, does that mean $150K or $500K. Either way, we’re writing for you!
Thanks Drg! I must have just thought I’d read every article! Fail! I meant around 150k. I know the principles you teach are applicable and I really appreciate those but it’s harder to connect to a story on 300k four physicians or a blog on spending 10k a month on loans when that plus taxes is basically your salary lol! I often refer non physicians to your site too and many of those folks live in the 100s. Thanks for being such a great resource!
You know I was making something like $150K when I started the blog, right? I’d been blogging for 14 months before I made partner in my group. I was making less than $150K my first four years out of residency. Trust me, I remember very well what it is like. But I also have to write for those making the average physician salary ($200-225K), those making a nice specialist salary ($300-500K), and those who are crushing it ($500K-$1M.)
Docs making $150K can do just fine, as long as they didn’t run up $450K in student loans and live in California. If you’re in all three of those categories, you’re going to have to use some more extreme tactics to be financially successful.
Oh I definitely remember your story. I really enjoyed your book. I wanted to give some out when I did a finance talk at my family medicine residency but I was too cheap :(. I appreciate all the free resources you provide for that reason. Have enjoyed the podcast-nice to have something other than ramsey to listen to! Thanks for all you do.
This is one of the most important series of posts on WCI. I am trying to plan this out for myself. I don’t plan to retire early, but the prospect of significantly cutting back after 10 years is very enticing. Can anyone provide me with guidance (or the actual spreadsheet) on making these calculations?
I think if you sign up for POF’s mailing list he sends you some calculators that might include this spreadsheet.