By Dr. James M. Dahle, WCI Founder
In the financial blogosphere becoming financially independent and sometimes retiring early seems to have become the end-all and be-all of our financial, and sometimes even non-financial existence. I think we're giving it too much credit. I don't think becoming financially independent in the traditional sense is actually going to make you dramatically happier than being almost financially independent. If it does, it likely means you are currently leading a terrible life. Let me explain.
What Is Financial Independence?
First, let's define financial independence. We'll do it very simply—you can live the rest of your life without changing your lifestyle or receiving earned income. Traditionally, using the 4% rule, that means having a portfolio that is something like 25 times what you are actually spending. If you have passive sources of income (Social Security, pension, rental property, etc.) then a portfolio 25 times the difference between your spending and your reliable passive income.
Now, let's assume you have a portfolio that is 24X your income and so you work and save a little more and compound interest does its thing and WHAM! You hit your number, 25X, and you are now FINANCIALLY INDEPENDENT! You're FREEEEEEE! The next morning you go into work, flip off the boss, moon your co-workers, take your Bobblehead dolls out of the cubicle, and you're off to a life of leisure, fulfillment, and happiness!
Really? That's how this is supposed to work? I just don't buy it. Hitting your number isn't going to increase your happiness much, if at all. Hitting that number allows you to do only one thing that you couldn't do before hitting it—stop working. If stopping work is going to dramatically increase your happiness, I would submit that you have allowed yourself to live a terrible, regrettable life. Life is short, you cannot plan to live a significant portion of it doing something you detest and expect to have a happy life. As Seth Godin says,
“Instead of wondering when your next vacation is, maybe you should set up a life you don't need to escape from.”
My Perspective on Financial Independence
[Update 2020: This post was originally published back in 2016, so I've made a few changes to the next three paragraphs for its republication in 2020.]
Let's take a look at financial independence from my perspective since that's the person I know best. I may or may not be am financially independent. It really depends. As George Foreman says, “The question isn't at what age I want to retire, it's at what income.” If I had to retire today in 2016, just on the investable assets we have had accumulated at that time, we could do have done it for the rest of our lives. We would have had an income higher than that of the average American household. But that would be have been a significant drop from our then current standard of living.
In 2016 I'm I was certainly independent of any need to practice medicine given the income from this site since it now makes more than my practice, but in some ways, I'm just exchanging one job for another. The retirement police would deny that's really retired. I don't really know what this site's residual income would be if I quit writing, interacting with others, going on speaking gigs, marketing, writing books, and writing for other sites and publications. I would guess I would still get at least half the income for quite some time, which we could also quite comfortably live (and save) on. But in reality, given our desired lifestyle/spending, if we had to support it just from investable assets in 2016, we would we're not have been quite financially independent and won't be for a few more years.
Guess what? I no longer care.
Over the last one to two years, I've been trying to mold my life into exactly what I want my life to be. I've cut back from 15-16 shifts a month to 12 (and now 8). I no longer work the overnight shift. I've offloaded many of the unpleasant tasks associated with WCI onto others. I've scheduled more trips. In fact, as I write originally wrote this we are were en route to Zion National Park to do some canyoneering, my fourth of nine trips/vacations in a three-month period. About half are with my family and the rest are “adventure trips” with friends. I have nearly aligned my actual life with my ideal life. If I were financially independent today, it wouldn't change my life or my happiness level one iota. As I think of ways in which my life would be even happier, I implement them.
[Update 2020: As I read these words I penned four years ago, my prediction turned out to be absolutely true. Crossing the threshold to financial independence did not make me any happier. In fact, it may have made me less happy. Mo' money, mo' problems. The more money and stuff you have, the more time and effort you have to spend taking care of it. It is certainly harder to motivate myself to work as I have to rely SOLELY on my passion to do so, rather than my passion plus the improvement of my financial situation as it was prior to FI.]
How Much Money Is Enough?
So what's the point of this rant? The point is that you need to figure out what is going to make you happy, and then work toward that goal. Maybe for you that does not include any paid work. Maybe it involves cutting back at work, changing jobs, or dropping some unpleasant duties.
4 kids, 5 days, 25 miles, all over 9000 feet. Brave or Crazy?
Who knows? But the sooner you figure out what is going to make you happier, the easier it will be to implement that. If you can figure that out, you can figure out how much “enough” is. How much income is enough? How much net worth is enough? Once you have those numbers, it will be easy to see that, most likely and for most readers of this site, that you will hit those numbers long before you actually want to stop working.
Financial Independence Enables Financial Security
I would submit that financial security comes before financial independence and that it is really financial security that adds to your happiness. Once you have maxed that out, your life is not going to get any happier from financial sources, no matter how much you make, have, or spend. If you want additional happiness, you will have to seek it outside the financial realm. As Bogle related in his book, Enough,
“There's a sign in Einstein's office that . . . says there are some things that count that can't be counted and some things that can be counted that don't count. And that really summarizes it up . . . the idea that you think you know something when you see a number is just greatly overdone. We think we can count everything that's important, and we can't do that. You can't measure character, you can't measure integrity, you can't measure moral conduct, you can't measure love, the things that are really important in our lives, in our society.
The Good News About Financial Independence
There is some good news out of all this.
- You don't have to wait until financial independence to be happy.
- You can increase your happiness by aligning your actual life with your ideal life as much as possible.
- Developing and following a financial plan that is highly likely to lead to financial independence will also make you happier, even before you hit your number.
- Remember the concepts of marginal utility and the law of diminishing returns. The rapid rate of increase in happiness you get when you first start getting your financial life in shape will gradually slow and then stop. Like the Starling Curve, going over the top may even make things worse.
What do you think? Do you think financial independence is oversold? Are you financially independent? Did hitting that point make you dramatically happier? Why or why not? Comment below!
Bored, Isolated and Retired Young
http://www.msn.com/en-us/money/retirement/bored-isolated-and-retired-young/ar-BBxv7W0?li=BBnbfcN
Good link. It’s important to retire TO something.
Kids are funny. They change your perspective. Like many here, I guess I have assets that would allow me to stop working tomorrow at a reduced standard of living. I’m not even talking MMM levels. But I am talking about moving out of the HCOL east coast suburb and downsizing the house and the expenses. If I were single, and childless, it might even have happened already. I could be pretty comfortable with a paid off house and 6-8k a month… But, I have three kids, and my wife and I enjoy taking them to nice places and want to pay for their educations. Possibly help with their first houses. Possibly help with the grandkids. You get the idea. Improve the quality of life for those that follow us. I am fortunate that I enjoy my job, mostly, and that it pays pretty well. My wife has been able to have a very part time schedule since the kids were born, and It seems to work pretty well for us. I also have night work 2-3 times a month, which is admittedly unpleasant, but I have pre and post call days off which lets me get into the kids schools and participate more actively than may have otherwise been possible. I have no idea when I will retire. And I have no idea when I will have enough. I’m not there yet, and likely won’t be there for some time, but I do think about the day my youngest graduates from high school as being the earliest I would retire. She’s 4, so I have some time to think…
Fantastic post – you are spot-on! Just made the decision to delay retirement when I got offered a chance to continue teaching in a residency program (which I love almost as much as patient-care) in Hawaii. Got me out of DC which was getting old. I feel like “retirement” will not be much of a change – I am really happy already, financially secure already, and I will still want to teach and care for sick people after “retirement”. You are able to put into words the ideas that were rolling around in my head…
That’s awesome, JC. I’m contemplating doing some locums in Hawaii when I leave my full time job. If Hawaii can provide a more relaxed setting (surroundings and workload), I might be able to better assess how long I want to continue working. New Zealand and Australia are high on the list as well, but would require a bigger commitment.
Kids, spouses, and mortgages are funny (the big 3). From what I can tell most doctors on this site have at least 2 of the above. As mentioned “its important to retire TO something.” That something varies widely, and if early retirement meant more kid related chores and a longer Honey-due list then continuing to work might not seem so bad. Personally I have no experience, I’m just going by the post and comments.
If you had none of the big 3 and were set to FIRE after a decade of full time work would that change your views? Would you rush toward the exits with a renewed sense of purpose? or would it make little difference?
Dumping the mortgage definitely makes the cash flow easier. I don’t know that the spouse is a huge factor. But the kids are. When we had our fourth (6 year gap) we essentially committed to another 18 years of raising kids, 6 more than previously. Seemed silly to have any kind of a “full retirement” with a 6th grader to me. So yea, I think kids are huge, not just for expense, but due to time requirements.
Spot on! Being 2 years and 6 days from my last official day at the office I can provide a bit of perspective that this is a great article and way to think about things. I spent 17 years building a business with partners who didn’t share the same work ethic or understand the business, when the opportunity came to exit at an all time high valuation, it was a no-brainer. Honestly I thought I’d ride out my consulting contract long enough to assure my stock was redeemed in full then start a new project and dive back with both feet seeing how I was only 44. During my second month of being off and traveling the world I found myself in China looking at businesses to purchase or partner with, after returning from a quick getaway to snowboard in Japan with friends who lived over there, I was in the line at customs going back to Shanghai to do some further due diligence and noticed something. Of the 200 middle age dudes in line there was not 1 smile (other than mine), they were all disheveled/overweight/generally looked unhealthy…and I thought to myself “wtf am I doing this for”? I had already done the years on end of 80-100 hour work weeks when building a company, no thanks, at least not right now.
I had for years planned my retirement thinking I’d need $300k a year to live the lifestyle I wanted. Again, wtf was I thinking…I had never spent this amount once in my life despite having the income where that would be no big deal. Actually I saved every bonus and distribution along the way and invested diligently. After 2 years of traveling a ton and not changing a thing in my life I found that I spend less than 1/3 of what I thought my target amount needed to be. I’m actually wanted to further simplify my life and I can easily see living very extravagantly on $6k month (with a paid for home).
Fast forward to today and I’m fully recharged from the rigors of the professional world, and look at life completely differently. My ideal future involves a series of mini-retirements and or projects (paid or charitable in nature) that will keep me involved and sharp, while still allowing me as much free time as desired. Hopefully I’ll leave this world having given much more than I consumed, like everything in life balance is a good thing!
Thanks for sharing your experience.
Mini-retirements; that’s the ticket. I took a year between college and med school to perform for a municipal jazz company, and most of the best times I had over the next ten years were directly or indirectly related to that experience.
I took a year to travel, surf, ski, and dive after selling my half of a physician staffing company at 34, and then “retired” (burned out) at 41 to manage my investments and teach myself finance and accounting.
I took advantage of a surprise opportunity to become a healthcare equity analyst at 43, but the work in financial services seemed like a permanent vacation relative to the stress of practicing medicine.
Now I’m back after a 13 year break and too old to ever again qualify for early retirement, but still glad I took the forks in the road.
I agree with the underlying message. You have to live your life and enjoy the journey both pre and post Fi. Retiring won’t make you happy on its own. However being Fi or near fi has increased my happiness beyond normal levels. This is not because I’m retiring as frankly I’m not. I have enough to do so today with a Spartan existence, but that existence is not my goal and I enjoy my job. That being said Fi or near fi has removed stress and fear of job loss from my life. The value is in the options it provides imho.
Bottom line – find what makes you happy and try to get to that state every day. If work makes you happy, work. If traveling makes you happy, travel. Of course, one of those will make you money and the other won’t. To me, financial independence isn’t necessarily a stage in your net worth, rather it’s a state of mind.
My wife and I share a mutual goal to make the world a tiny bit better for having let us live here. My wife and I have been married 53 years and share many similar interests. Just getting into the car and driving long distances is lots of fun. I am 78 and still work part time, but I am not a doctor. Sooo yes the minor (and I mean minor) income is nice for doing small thing things my wife and I like to do. We like to travel to Asia. We try to make each trip one month long and can afford it every other year. But we like being at home too. I love being a “paid” part time business manager of my church most of the time, and still enjoy designing small automotive electric motors for automated manufacture when the need comes along. I have been in that field for most of my working life.
For kicks, my wife and I take courses together, currently learning TV production first hand in order to try to make our own video blogs. If I were not working for money, I would volunteer… my wife is retired and already does a lot of volunteering. I am sure I will retire, but will probably work until either of our health issues create a new path for us to follow.
I agree that financial independence is not the ultimate goal. However, it can be an important milestone towards the ultimate goal, which is living a life filled with security, purpose, contentment, and contribution.
You may like this related post: http://trappedinwork.com/2016/11/financial-independenceearly-retirement-comes-in-many-flavors/
Cute (tongue in cheek) advice… I’m saying because now WCI imposes his opinion on his readers. If he wouldn’t be happy dropping out of workforce as of this minute it means everyone shouldn’t be, but if they’re content not working then those people had a regrettable way of life to begin with. So, WCI with boatloads of money (ER and blog, books, speaking gigs, etc.) says we’d be unhappy if we quit with 25x living expenses whereas MMM argues that such people who continue working after reaching that number are suckers, stupid not to enjoy freedom, etc. and etc. I resent both opinions. It’s all individual. Why not let people figure that out by themselves?
I think that’s a great idea. But I think you missed the point of that line. The point is that it is better to find something you enjoy that pays you than to do something you don’t enjoy that pays you and to spend as much of your life doing something you enjoy as possible.
I do not like my job, but I like getting paid. I like accumulating assets, investing them, living frugally, and having more this year than I did last year. Accumulation works best when I live on my ongoing earned income, save a lot of it and direct those savings to investments. I hope to work as long as I am able and there is demand for my services. I do not have as a goal minimizing the lifetime total amount of work I do, while retiring at the earliest possible moment. Because I get paid more and the kids are out of the house, I work more now than I did years ago. At that time there were family commitments competing for my time, and working was less lucrative.
Not a FIRE issue, but I have long wondered why some physicians enter lower paying fields, then for the rest of their careers complain about their low incomes. Everyone knows spine surgeons make more money that primary care pediatricians. I can understand deciding one would rather practice pediatrics than orthopedics and accepting the lower income. I don’t understand choosing a lower paying field and not accepting the lower pay.
Keep in mind not everyone is able to get into orthopedics, anesthesia, radiology if they want
As Dr. PK states, the classic “ROAD” specialties can be competitive. And not to bash ER docs in any way, even though ER medicine isn’t quite as difficult to get in not everyone is willing to tolerate the evening shifts or high acuity situations.
Many other physicians actually chose their fields without income as a top priority (some should, but others may also have family wealth to supplement). A rare few of my colleagues actually truly had little idea the wide range of physician incomes possible among the fields.
RE competitiveness of the higher income fields. Yes. It is called capitalism. The same could be said for getting a job at a Big Law firm. Because the money is good, lots of people want those jobs and most don’t get them. It would be crazy for people to go to law school, build successful careers, but spend the rest of their lives complaining that they make less than partners in Big Law.
It is even harder to understand someone who invests the time, effort and money in becoming a doctor and never looks into the finanicial implications of their decisions. If someone says that they never considered the consequences of their career choice it is hard to take them seriously when they complain about their incomes. After all, medicine is a calling, but it is also a job. Some parts of it pay better than others. That is no secret and everyone is able to attempt to get into the higher paying fields if they want.
I think the “do what you love” advice sends a lot of people down a dead end. What if you don’t love it? You are a good or excellent doc, competent, honest and all that, but you don’t love your job? The “do what you love” crowd would have people believe that something is wrong if they don’t love their jobs. Why isn’t being good at it and getting paid a good income enough?
It is enough for me.
The pay disparity between specialties in medicine is not the result of “capitalism.” Physician ‘reimbursement’ (pay) is determined overwhelmingly through political processes (backroom RVU negotiations by AMA physician representatives, and centralized determination of the value of services by the federal government). Market forces do play a lesser part (hospitals and private payers bidding up services, etc) but this is limited in relation to the predetermined parameters set by the highly regulated, centralized, and anti-competitive forces described above. Likewise, the rates paid by hospitals and payers are largely detached from capitalistic or free market forces.
“It’s called oligarchy” or “it’s called rent-seeking” or “it’s called a guild” would be more accurate.
I’m a very high paid physician, but I can own the fact that the situation (overpaying specialists relative to generalists) is unfair and generally detrimental to the public.
Enjoyable read! I’ll be following your site.
I agree that one should certainly enjoy life while they’re working toward Financial independence. But If my 1 year sabbatical taught me anything, it’s that not having to work is great!
I call everything between big trips the “slow time”. The slow times made up most of my routine. It was these times that really changed for the better. I walked nearly every day. I walked with determination for 40 minutes for the exercise value. I walked another 20 minutes just to soak in the lovely scenery around me and even to enjoy exchanging pleasantries with others. I did weight lifting as well. It all paid off, I felt great.
I never had to squeeze anything into a busy schedule, no stress there.
Nuts and bolts of living were easier. A casual morning trip to the supermarket while most others were working, is enjoyable compared to rushing through a crowed store at 5:30 PM.
Always had time to dine out for lunch. There are enjoyable perks of having a job but also loads of stress. Stress that melts away when you’re free. Plenty of time to keep up with housekeeping. While the bigger trips were much the same as vacations while I was employed, even they were less stressful as a result of not having ridged start and end times.
My favorite art was going to bed at night, knowing that an alarm would not jar me awake at too early an hour.
I think you are spot on in the article. Very good insight. One thing I would add is we all need a sense of purpose. When we wake up in the morning we need a sense of purpose for the day and beyond. I think after you achieve financial independence, you may still like to practice medicine for a sense of purpose. And the real reason we went into medicine: To help patients and feel good about the fact we can do that well and make a difference.
Have you read the original “Your Money or Your Life” book by Joe Dominguez and Vicki Robin?
The FIRE crowd loves to wave it around like a bible while ignoring 90% of the advice. It was always about life satisfaction, personal fulfillment and focusing deeply on the things that make life worthwhile. The entire focus is on developing a balanced relationship with money to create a better life and a better world. The authors used their additional decades of non-income generating time to volunteer for causes meaningful to both of them along with starting a foundation to teach the same principles outlined in the book.
The original FI meant three things: Financial Intelligence, Financial Integrity and Financial Independence. Whoever added the extra letters ‘RE’ came up with a clever acronym that twisted it into another All American competition to see who finishes “first”. Whatever the hell that’s supposed to mean anyway. There’s always someone younger with a bigger house, faster car and heftier portfolio than you’ll ever have.
WCI seems to be the only popular blogger that even talks about making charitable contributions. Obviously, that takes you in the *opposite* direction of FIRE. Maybe there are FIRE personalities espousing their volunteerism and efforts to improve the world outside of their personal bank account, but I haven’t met any.
More typical is someone like Financial Samarai who writes about waiting in long lines at 4am to register his four year old for the “best” pre-school in the universe while pining after pricey beachfront property in Hawaii. Perhaps he did indeed “RE” with millions in the bank, but that means little to me compared with enjoying life and understanding what “enough” means.
Yes, I’ve read it and I agree with you about its point.
I disagree with you about FIRE bloggers and charitable contributions. I know several who regularly contribute, and in fact The Physician on FIRE contributes half of his blog profits to his DAF each year, which is now a substantial sum.
In my experience, people who don’t contribute much to charity before FI don’t contribute much afterward, other than possibly at death.
It seems like part time work is easy for MDs (once they have paid off student loans, perhaps, and assuming they aren’t otherwise underwater). For me I want FI so that I have more flexibility in modifying my consulting job to be part time… as it is, if I went part time I’d be in danger of losing work altogether. This is something I wouldn’t worry about if I had sufficient funds, obviously. I also don’t hate my current job… I’d just deeply prefer to do less than the hours that seem to be required based on asking around.
I see the point that if you hate your work so much you’re desperately trying to escape, you are doing something wrong.
But I think that FI will open up potential for a more flexible life than seems to be available at present – or at least for risk-averse me would provide a safety net that would enable me to forge my own path. So in this sense having the security would enable me to have a better experience. I grew up relatively poor and have been accumulating and have been very conscious of the change in my mental health as the money accumulates to enable me to… just stop worrying.
It’s easy for some specialties, but not others who have the same issues you do. Consider a general surgeon who owns his own practice. Very tough to do that part-time. But you could go be a hospital employee, do locums, hire some employee docs etc.
Great post. My perspective is that financial independence and well being should be pursued to enhance overall personal happiness and well being. It should be aligned to your life goals. Chasing it for its own sake feels a bit empty for me. I understand my perspective may be skewed as I enjoy my work, but if I didn’t, I understand how that can be a strong “why” for those pursuing FIRE. My goal is to cut back 1.5 days in 5 years. Sharing my journey here: http://www.prudentplasticsurgeon.com
Welcome to the physician financial blogosphere!
What’s your thoughts on America’s advisor??
He is advertising himself as someone who has done an amazing job in the past and probably exceeds that of even the so-called experts? Do you think an investment fee of 5G could have altered his thinking?
Not sure what you’re referring to.
I find this sad. Considering the time and effort one puts in to become a physician, it is depressing to think that people are eager to end their careers as quickly as they can.
It is also depressing that people who have the ability to have productive careers would prefer a life of idle indulgence.
For me, seeking “happiness” is not the goal. It would be closer to say I am after “accomplishment” I don’t want to travel, not to expensive resorts and not to exciting wilderness venues. I tend to spend my vacations in the gym and the library. Much of the time is spent doing the same things I do when not on vacation.
I don’t want to do things that deactivate my brain. That is why I don’t drink.
I want to learn more. About medicine and science, about personal finance, about literature and history, about other things. By far the most effective way to learn is to read about these subjects. With online sources, libraries and used books, reading is cheap. I have a nice library nearby and can have used books delivered for minimal cost.
I am not saving up towards a day when I can afford to read. I can do that now.
To the extent that I have a defined financial goal, it is to be on average a net saver throughout retirement. That requires accumulating enough assets that the after tax returns on Investments exceeds my spending. I am at that point now based on current level of spending and quite conservative assumptions about Investment returns.
However, major increases in necessary spending would still lead to reductions in assets. The most likely cause of such increases would be health problems. Those could force expensive home care and remodeling. They could force years in long term care.
I will not consider myself as having “enough” until I could fund private room nursing home for both of us for many decades while assuming a zero real return on investments.
If I keep working until I die, then I will be a net saver from now on. Expenses will be lower for the surviving spouse and net saving will be easier.
I feel sorry for people who desperately want to be “happy” and who cannot get there while working. I feel particularly sorry for physicians in that situation. They had the ambition and academic ability to do other things but evidently made a bad call when picking careers.
The quality of your posts and the variety of them have been extremely valuable as I approach retirement. This post is very helpful as well. I know you get thanked a lot for what you’ve done (and paid nicely, as you noted), but thanks again for the time and effort that you’ve put into this site.
Thanks for your kind words.
When I reached FI, I felt somewhat lost because I had not planned on what to do once this was actually accomplished. I couldn’t share it with my family/friends because most of them don’t make my income. In any case, I quit my blood-sucking W2 employed position, took some time off and travelled. It turns out I like working, not just ALL THE TIME. I took a more laid back job with the state. Very reduced call, no night shifts, off 3 weekends out of 4. I now have more time to spend with my daughter and I feel GREAT! I am now more intentional about carving time to do the things that matter to me, and all the happier for it. I wish I had given myself permission earlier to be more intentional about my choices.
Thank you for this post