[Editor's Note: This is a guest post I'm really excited about. Andy Walker, MD, FAAEM is a recently retired emergency physician. Like many of the best guest posts on this site, I solicited this one after learning of the writer's expertise on a particular subject matter. The post runs a little longer than most, but I thought it would be less inspirational if I split it into two posts, and I think you'll find it worth your time to read the whole thing. I really enjoy hearing about and publishing the stories of financially successful physicians and in order to further encourage these types of guest post submissions, I'm going to ask readers to be particularly polite in the comments section today. By way of disclosure, Dr. Walker and I have no financial relationship.]
Early Retirement Is Still Possible
I recently retired from the practice of emergency medicine at the age of 53, and I was asked to write about how I managed that. A bit of it was luck (bad luck, actually), most of it was common sense, and most of it can be found in The 10 Commandments Of The White Coat Investor. I also want to tell you why I did it, but first things first.
Frugal, Frugal, Frugal
I learned responsibility and the basic philosophy of safe, conservative financial management from my father, who was president of one of the few banks in my small hometown. One obvious example of his frugality is that the man never bought a new car – and neither have I. I guarantee you this: if those who run the small and regional banks in this country were running the big national and international banks, there would not have been a mortgage bubble or financial meltdown! My other guide has been John Bogle, founder of Vanguard, whose investment advice I follow. More about that below.
Live Below Your Means And Minimize Debt
First of all, live beneath your means. If you don't commit to this first difficult step, nothing else will matter. As soon as I graduated from medical school, while still an intern, I started paying off my educational loans. Even then I never failed to pay off my one credit card in full every month. Now that I have more than one, I still pay them off each month. If you find yourself using credit cards for credit rather than convenience, you should get rid of them and pay for everything in cash. It is much more painful to hand over cash than a credit card. By the time I was 30, I was out of debt except for a mortgage. That didn't last long, however, because I got married that year – but I paid off my wife's educational debt even more quickly since I was then making an attending's salary instead of a resident's.
Don't Buy Too Much House
My wife and I continued to live beneath our means, which is another way of saying we never spent all the money that came in. Although simple, that is not as easy as it sounds – especially when you are shopping for a house in a real estate market that seems to have no ceiling, with a wife who has very specific house-related dreams she wants to live out. Nevertheless, it must be done. My father always told me that your mortgage should not exceed twice your annual income, and we lived by that advice. I am sure that many people who are now upside down on their mortgages wish they had followed that guideline. Living beneath your means, while saving and investing the difference, is the foundation on which all else rests. Don't be a slave to your mortgage, or to any other debt.
Have An Emergency Fund
After paying off debt, the next task is to save at least three months worth of income in case of unexpected emergencies – and there is always something unexpected coming up. I think emergency physicians should save at least six months worth, because our jobs are inherently unstable. An ED contract can change hands anytime, causing the loss of a job.
Maximize Income and Save For Retirement
Next comes saving for retirement. As you can see, this is a lot of saving – meaning 20% or more of your monthly income, not including any contributions to a retirement fund from your employer. One thing that helped me, and here is where bad luck came into play, is that my wife and I were unable to have children. That freed up a lot of money for saving and investing. Our task was also made easier when I went from an academic job to a democratic, independent group at a community hospital. Although the job change came with a roughly $70,000/yr raise, including benefits, we didn't buy a new house or make any other dramatic lifestyle changes. We loosened up the purse strings a bit, but mainly we saved and invested. And, by working for a democratic group rather than a corporate contract management group, I was able to reap more of the fruits of my own labor. Are you working to enrich yourself or someone else?
Use Index Funds
From my father, John Bogle, and Dirty Harry Callahan (Magnum Force) I learned that “A man's got to know his limitations.” Actively managed mutual funds lag index funds 75% of the time. Although some professional investment managers are arrogant enough to think they can beat the market, they are usually wrong. Those who try to time the market are usually wrong. Investing is a long-term game. Speculating for recreation is one thing, investing is another.
If you can't predict the market, you certainly can't control it, and you can't control inflation either. What you can control are the costs associated with investing, especially fees. That is why I favor index funds – very low fees and low taxes. Read any book by John Bogle to learn about this, as well as asset allocation – the spreading out of your eggs into many baskets. Again, you can't predict the market, and broad asset allocation (diversification) is the way to ride out the inevitable ups and downs. That reminds me: never panic and sell after the market crashes. That just locks in your losses. Once the market has crashed, it is too late and there is no point in getting out unless you are doing it for the tax deductions. If you needed that money in the near future you shouldn't have had it in stocks anyway, so don't forget to rebalance your portfolio once a year if a professional isn't doing that for you.
Rebalance The Portfolio
Failing to rebalance my portfolio as I aged is one of the two investing mistakes I made. I always planned to switch to half-time work in my fifties, but my asset allocation was that of someone who was going to retire at a more typical age. So, when the market crashed in 2007-2008 my portfolio lost about 40% of its value. I should have had more money than I did in bonds rather than stocks. Fortunately those losses have been reclaimed, and now that I am actually retired my asset allocation is much more conservative. Nevertheless, there is a good actuarial chance that either my wife or I will be alive in 30 years, so even now the percentage of my portfolio in stocks hovers at 30-40%.
Don't Buy Cash-Value Life Insurance
The other mistake is that I violated Commandment V: Thou Shalt Not Mix Insurance and Investing. I had exhausted the other available tax shelters, wanted to make sure my wife was taken care of if she outlived me, and wanted to leave gifts behind for family and the handful of charities that are important to me; so I let an insurance salesman talk me into buying a “variable universal” life insurance policy. This not only provides life insurance, it provides tax-free income if you put enough money into it in advance. Sounds good, doesn't it? It isn't. The fees are more than double what I would have been willing to pay had I understood them, and the investments have underperformed the market – hard to do considering how poorly the market has done over the last decade. You are far better off buying term life insurance and investing separately.
Give To Charity
Fortunately, the excellent estate planning of my father and mother allowed me to overcome those two errors, and inspired me to do my own estate planning – something I always meant to do but never found time for (just like rebalancing my portfolio). Just as you plan for life, you should plan for death. This is critical if you have children. Even if you don't, it will give you a sense of comfort and relieve your family of a painful burden, while leaving a legacy of ongoing good work if you leave some of your estate to charity. In fact, I urge you to donate consistently to charity now. It not only does good for others, over time it makes you a more responsible money manager.
You May Want To Quit Your Job Sooner Than You Think
Every January, as I start to gather data for filing my taxes, I review my financial position. Last January I suddenly realized that I could not only go part-time, I could retire completely if I wanted (meaning I had enough saved/invested that I could live well for a year on 5% of it). That was important, because over the last year or so I had become increasingly unhappy at work. For most of my life I have looked forward to going in to work, and thought I would never retire completely until I was physically or mentally unfit for emergency medicine. Over the last couple of years, however, my work environment has deteriorated badly. The company that owns my hospital was taken private, and the owners took on so much debt that they went on a cost cutting binge. It went so far beyond cutting waste that our ED no longer had adequate nurse staffing and lacked essential supplies and equipment, with quality and even safety being affected.
The final straw was the electronic medical record (EMR) and computerized physician order entry (CPOE) software that the hospital inflicted on the ED, over our objections. Even after we got over the learning curve, these still drastically reduced patient flow – increasing waiting times, keeping patients angry, and making the ED an extremely unpleasant place to be. What's more, the EMR produced a nearly incoherent medical record – leaving us at risk legally and causing complaints from the in-patient physicians (who were also ignored by hospital administration). Even worse, the CPOE software was downright dangerous. It was as though it was deliberately designed to generate errors. I saw more drug errors and near-misses in the year or so I suffered with CPOE than in my previous 26 years of practice. I no longer had to work, no longer enjoyed work, and saw my ED as a lawsuit waiting to happen – so I quit.
More To Life Than Medicine
I have been retired for only three months, and I may eventually go back to work part-time, but I have been surprised at how little I miss emergency medicine – especially since I used to love it. Money may not bring happiness but it does bring freedom, and freedom is pretty damn good. So I encourage you to live frugally, save aggressively, invest wisely, give charitably, minimize debt, and be free.
good post, but could’ve been summarized in about 3 sentences actually:
Had a great job, lived below means, NO CHILDREN (not by his own choice, i realize)
2 kids and I’d say a conservative 8-10 years are added to his career with college expenses, life expenses, paying for weddings, etc… that’s hundreds of thousands of dollars.
It’s a nice story, but won’t apply to 90% of the readership.
About 80-90% of the stories i read about someone who retired before 60 involve people who didn’t have children.
I want to read about the guy who DID have kids and still pulled off the early retirement… because i want to be that guy!
Hi,
I do have two kids and a stay-at-home wife (she has an MD but did not do residency because I was already about to retire when she got her MD); and I did retire at age 35 (and 9 months). I finished my Diagnostic Radiology residency at age 29, and worked for 6.75 years as a solo guy at a small hospital (exurb of a big metro). My student loan debt out of med school was $45k (went to a state school in the 90’s). Main factors why I could do this: I took less than 10 weeks of vacation in 6.75 years combined (vs 13-17 weeks per year norm in my specialty); being solo, I had better control over billing/practice management; we (my wife and I) live and are satisfied with a middle class life style and think it would be better for kids to be used to that lifestyle than a more upscale living; I was lucky that my peak earning years coincided with the market downturn of 2002-2004; I invested only in Vanguard index funds (after learning the lesson the hard way, losing over $150k during the 2000 market crash). Why I did it: I became more and more fed up by increasing government regulations, unrelenting cuts in reimbursement and overhanging threats of potential lawsuits that led to this horrible practice environment of defensive medicine, the fact that I enjoy my life outside of medicine/radiology, and most of all, the freedom I have with my time.
Now that’s a Mustachian (See the Mr. Money Mustache blog) story. 7 years from residency graduation to retirement. Very impressive. Enjoy your financial freedom.
Where do you get your health insurance now that you are retired? I have some family members who are financially ready but not old enough for Medicare and so are continuing to work.
Which EMR are you referring to? I’m hoping to avoid it.
I’m also curious to know how much student loans you had to take out. It seems like most people 20+ years ago didn’t have to take out very large educational loans.
How I retired from EMR at 36:
1) I did a 6-year Medical Program in the midwest. I finished up at age 23. I did my residency for Emergency Med and finished that at 26.
2) I worked 10 solid years. I averaged about 200,000 a year. Admittedly this adventure was made easier by the fact that I was fully scholarship’d. I had a huge percentage from actual scholarship and was fortunate enough to have my parents pay the remaining about 30% of what was not gifted to me.
During those 10 years i did the following:
I made the commitment that the only way to retire early was to stay single. I could have no children, nor a spouse unless she was absolutely committed to the meager lifestyle I was about to lead. Very few women are comfortable with this, so I didn’t pursue relationships. After all dating was pretty costly.
I always lived as if I were impoverished. Small crappy apartment, beater cars. I bought generic everything and clipped coupons religiously.
The only thing I would spend decent money on was an internet connection, computer, and healthy food because i could not afford illness that i couldn’t treat myself.
I made sure to set up in an apartment within walking distance of a grocery store, and target/wal-mart type of store, and library.
I participate in no costly hobbies, or really anything that costs money. My entertainment is derived from things on the internet, or the library (a wonderful resource), and i do own a tent and fishing pole and derive a lot of entertainment from campouts and fishing (both nearly free hobbies). I do a lot of exercise in my apartment… so many people do gyms and stuff… I laugh at this.. it’s free to run or do pushups at home.
I’ve committed myself to a combination of passive low-cost investing and also spend hours of my now free time making intelligent active investments to supplement my income.
I never used any of the 401k type of accounts because I wanted to have full control of my money immediately.. so i only invested in cash management accounts.
I have over 1.5 million in my cash management accounts, and my living expenses are only about 15,000 a year so i easily generate that safely with my cash account without dipping into principal.
My biggest expense is health insurance.
If I do ever run out of money at any point I am committed to being “done” with my life at that point, although I don’t suspect that’s going to be an issue given my conservative investing ability and commitment to poverty.
I have total freedom, and it is glorious… there’s not a day I’d change. I’m healthy, happy, and loving life. Working is for suckers.
You too, can retire at 36 with this plan!
So how is it going for you nearly 5 years later? Would love to hear an update!
As has been pointed out, there are a variety of things that make it such that this likely wont apply to most of us and there are some timing and good luck/bad luck things most of us cant count on. The core lessons do apply and i think many of us could retire early (not necessarily 53) if we followed the above advice.
If the OP is willing, id like to know how big of a nest egg did he create to accomplish this goal at age 53. Does he plan to live frugal in retirement as well? Some of us dont want to live that frugal. Im not saying buy expensive cars but for example in my life, we eat out a lot. At one time i decided i was gonna change that bc of course its expensive and seemed like a waste of money. Given we have 3 kids and are always on the go, cooking dinner started to become a little tougher than i thought and there were consequences in the house to now cooking in addition to the other things we were doing. I dont worry about take out costs so much any more.
Id also be curious with what he did with his VUL. As he knows, it was a mistake to purchase but how to handle this poor decision isnt always straight forward for many folks.
Finally, i feel bad that someone got out of medicine bc they didnt enjoy it any more. I understand the frustration but im hoping i never get to that point.
Z, I plan to be that guy. I have three kids and plan to retire around 55 yrs old without making the extreme sacrifices that Dr. cheap pointed out. I am a physician at a state medical school and have access to great benefits because of the way I am employed (both a state employee and employee of a physician group). Currently, I max out a 401k and a 457. I also have 401a that is maxed by my employer. Lastly, I am eligible for the state pension plan, which rewards longevity. So, after working a minimum of 23 years (I will be 54 when this happens) I can retire with a full state pension. With this I will also be eligible for the state health insurance plan for both me and my wife (I think this is covered for me by the state and I can buy a discounted insurance plan for my wife). Lastly, I plan to be completely out of debt by my mid to late forties.
I definitely live well below my means and could live more lavishly if I wanted to work for a longer period of time. However, I still live off of a salary > 90% of americans and have some money left over for vacations, toys, hobbies, etc. We as physicians can definitely retire early if we want to. We make more money than the vast majority of americans, but many physicians feel the need to spend too much money for whatever reason. If retiring early is what you want to do, it just takes living life a certain way. And I do not believe most doctors will have to go to extremes to accomplish it.
First of all, I usually hate being edited but WhiteCoatInvestor did a great job. In answer to the questions above, our EMR was the electronic T-System while the CPOE was Meditech. The two systems didn’t talk to each other so we had to do many things twice — redundant and stupid — and again, forced on the ED by administrators completely ignorant of emergency medicine. I cam out of school in 1985 with just over $20,000 in debt, all from private loans. Of course that is trivial compared to today’s average medical student debt of well over $150,000. While I was in medical school my parents paid the interest on my loans so the debt would balloon, and I took over the payments as soon as I graduated. Finally, we aren’t living too frugally. We eat out a lot, go to concerts, and travel. I plan on living on $100,000 per year (a bit less than 5% of my savings). “Savings” means just that; I don’t count hard assets like the house, cars, etc.
I agree that 53 is quite reasonable and I’m surprised so many of you object and say “it’s only possible if you don’t have kids” or “you have to be ultra-cheap to do it.” That’s just not true.
My plan is to be able to retire at about that age. I am now 9 years into that plan and still on track to achieve it. I am a sole earner with multiple children. We live in a huge house, go on lots of vacations, and honestly don’t think twice about 98% of our purchases. I’m still a bit of a cheapskate, but not because I have to be. Like Rex, I hope I still enjoy medicine at 53. But if I don’t, I want the option to punch out.
Run the numbers. If a typical doc comes out of residency at 30, needs 40% of his working income in retirement, saves 20% of his income each year, manages a 5% real return on his investments, and uses a 4% withdrawal rate in retirement, he should be able to retire in under 25 years. (You’d have to save 23% to retire in 23 years.) Which of those assumptions seems so unreasonable?
Depends on how much you make.
If you are in peds or something like that then harder unless you want a frugal retirement.
Obviously the more you make the larger the sums of money that can be saved, but I think to discount this concept as only available to higher paid specialists is folly for several reasons. A lower paid specialist is likely to live on less during his career and thus need less during retirement. He also pays lower tax rates. Social Security will also provide a higher percentage of his retirement income needs. Having had a salary very similar to a poorly paid pediatrician while I was in the military, and having a more average physician salary now, I found it equally difficult to save 20% of my income.
The reasons many docs can’t retire early are they don’t save enough, they don’t get adequate returns (usually due to high expenses and a poorly thought out asset allocation), and they don’t start early enough. It’s okay not to want to retire early (and spending more as you go along), but to pretend you couldn’t do it if you wanted to is just making excuses IMHO.
Hi, I am new to White Coat. I am an early 50s physician (pathologist) in small group private practice in Illinois. I never really liked or trusted the hospital system I worked in since starting (same job over 20 yrs) so saved and invested the majority of my income since starting. Turns out my gut feeling about them was totally on target. Now with about 5.2 M in mixed qualified and non-qualified accounts and 60K in a health savings account. Planning on either half time or full retirement in coming months, but still a little afraid of complete retirement, financially, given the fresh memories of our recent recession. Probably will start with about 3 to 3.5 percent withdrawal and ramp that up as we age. Interested in the thoughts of those in similar situation pre or post retirement. BTW no debts or other obligations. Thanks, Charley.
Congratulations on your success! 3-3.5% sounds safe. Even safer would be to find a part-time practice you love and work for a few more years. Wonderful to be free, isn’t it?
The other thing to consider is that if you’re willing to use a variable withdrawal strategy that you can probably spend more. Check out Pfau’s latest paper:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2579123
i cant agree that a lower paid specialist needs less in retirement. Both groups need the same amount. If you are thinking that they will be just as happy with a lower retirement, then i cant say thats impossible but i think that is pushing it. It doesnt matter what percent of their income comes from ss, the total dollars is all that counts and what you need to do and want to do with those dollars.
Hi Dr Cheap,
Just curious what return are you getting on your cash management accounts? Unless you are able to generate enough income to overcome inflation and meet your current needs you may not have enough money in 30 years to sustain your current standard of living without draining your principle.
It is impressive that you currently only need 1% return to maintain your current lifestyle but a very conservative yearly inflation estimate of 3% (average 3.43%) would require you to have a yield of 4% to maintain your current lifestyle (most cash accounts are yielding <1%). With all the money printing in the past few years I would not be surprised if we once again saw double digit inflation levels in the next 5-10 years. You might have to get re-certified for your boards sooner than you would like.
On a positive note you could reverse the current work/vacation ratio that the rest of us follow and work 4 weeks with 48 weeks off!!! The idea of spending 48 weeks fishing instead of 1-2 is very appealing.
Oh, don't give up on the dating I bet there is a girl out there who is doing exactly what you are doing you only have to find her.
The write retired at 53; based on what he has written, it looks like the plan is to live off 5% of his portfolio per year. For a 73 yo, that would be fine. For a 63 yo, it might/might not work. For a 53 yo, that’s rolling the dice. At 63, I think a maximum would be 4%. At 53, a maximum would be 3%. At 53, if you wanted to be on the conservative side, 2.5% would be reasonable; 2% would be very conservative.
So you think someone who is perfectly happy to live on say $80K a year throughout his career, while paying a mortgage and paying child-related expenses, somehow now needs $100K a year to be happy as a retiree? Not sure I buy it. I think there’s a middle ground here somewhere between our arguments, and that’s probably where the truth lies.
Park- I agree with your reasoning on SWRs. Keep in mind the author didn’t actually say he was spending 5%, only that he used that to decide he could retire. He also states that 5% is “living well”, which seems to indicate he could live okay on less. The truth is many people probably can withdraw 5% a year. That’s not the definition of a safe withdrawal rate. The SWR is the rate at which nearly everyone can withdraw without having to worry about running out of money. If you’re willing to make adjustments as you go along (live on less in bad years), you can certainly take out more than the SWR in the good years.
If you are invested in things that generate about 4% income then you can live on 4% and never touch the principal. If you live simply and pay cash you can also pay very little in income taxes as well. If you can get health insurance cheaply, as I suspect doctors can since they can get treatment from their associates for little to nothing. This makes for an early retirement and never run out of money. So say a 1.7 mill investment portfilio allows you to live forever on the earnings.
Barry that isnt true for retired physicians at all. First off they typically are on medicare anyway and second there is no way to pay the other doctor back with free services. I personally have never found my position to get me discounted care. Ive never asked for discounted care. Finally if its some managed care or hospital then they definitely dont want their doctors giving away stuff.
i dont know if you have talked to too many primary care people lately but i have yet to find any who are on the low end financially who are perfectly happy financially. I think if one pointed out that they will have less now and less in retirement and that they should be happy about it that one should be prepared to duck. Thus i dont agree with your primary statement.
Barry-
You need to take into consideration inflation. Sure, if you can find a nice safe investment that returns 4% plus inflation (such as 4% TIPS), you’re set. Unfortunately, I don’t know of any of those right now and TIPS haven’t offered 4% for something like 12 years.
I agree with Rex that even if docs treat you for free, hospitals, equipment manufacturers, and pharmacies won’t, and that’s a far higher percentage of health care costs than the physician bills.
Rex-
I think we may have to agree to disagree on this one. I’m not sure why you think someone who makes $150K a year would expect to have the same retirement lifestyle as someone who makes $800K a year. I realize very well that I won’t retire in the same manner as Donald Trump . That doesn’t mean I’m not going to have a great retirement.
I agree we arent going to see eye to eye on this… I dont think comparing yourself to donald is the same thing as one doc comparing himself to another doc.
@lg
thanks for the comments.
I am generating about 5-6% on the account, so even though i’m not contributing any more to it, it’s generating more than i need to sustain my extremely meager lifestyle whilst actually growing the account.
I’m going this primarily through preferred stocks, CEF’s, and ETF’s… I’m a big fan of http://www.dividendyieldhunter.com and I really think everyone on here should familiarize themselves with income investing strategies.
I have thought that high inflation could ruin my plan.
But i have ideas in mind:
1) move to a cheaper area – lots of small midwestern towns have even lower costs of living
2) look for some type of part time work that wouldn’t pay much but that i’d enjoy – like white water rafting instructor or fishing guide.
but if inflation strikes like you suggest i also would expect interest rates to rise thus making it easier to make money on my cash account.
Also.. as stated before, it may sound a little creepy or morbid, but if i can’t make i’m fully ok with the plan of: “when the money’s gone, it’s time to move on” but i don’t expect to have to take that path.
I vote for fishing guide.
Good luck!!!
Great post and comments which has given me a similar idea over here!
I like the rule of mortgage/ income ratio.
Similar is ‘ mortgage repayments should be no more that 25% of income’.
Regards
Great post and comments which has given me a similar idea over here!
I like the rule of mortgage/ income ratio.
Similar is ‘ mortgage repayments should be no more that 25% of income’.
Regards
Nice post… It is a little disheartening that the original poster wanted to get out of medicine altogether (???). It would be nice to retire and still do medicine on the side (think medical missions to disadvantaged countries where you can focus on taking care of patients and not worry about getting sued) without having to worry about getting reimbursed.