[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.
I’m not a doc tho’ my father was – he died of heart attack/stroke when he was 49, so I didn’t want to follow that model
given half the world lives on less than $2 a day, people saying they can’t live on less than $x00,000 a year are in denial
in response to Barry about ‘never run out of money’ – as another pointed out, with inflation what appears a huge fixed sum now will shrink relatively over time as expenses rise. As a student, my dad lived on 10c a week, I lived on $10 a week, now people would say $100 a week is not enough.
My accumulation and depletion spreadsheet, using 3% inflation and 5% investment returns in the formulae, starting with $1.7m with drawdowns of $40kpa, shows it running out in 42 years time when annual spend (after inflation) becomes $140k
put another way, a lump sum that started out looking like 40 years worth, after 10 years becomes 20yrs worth, after 40 years becomes about 3 years spending left.
no cause for alarm – just ain’t lasting forever.
I’m not a doc tho’ my father was – he died of heart attack/stroke when he was 49, so I didn’t want to follow that model
given half the world lives on less than $2 a day, people saying they can’t live on less than $x00,000 a year are in denial
in response to Barry about ‘never run out of money’ – as another pointed out, with inflation what appears a huge fixed sum now will shrink relatively over time as expenses rise. As a student, my dad lived on 10c a week, I lived on $10 a week, now people would say $100 a week is not enough.
My accumulation and depletion spreadsheet, using 3% inflation and 5% investment returns in the formulae, starting with $1.7m with drawdowns of $40kpa, shows it running out in 42 years time when annual spend (after inflation) becomes $140k
put another way, a lump sum that started out looking like 40 years worth, after 10 years becomes 20yrs worth, after 40 years becomes about 3 years spending left.
no cause for alarm – just ain’t lasting forever.
Retired for same reasons as OP from VA primary care, for 12 blessed days now, at age 50. Married, 2 kids. My secret? I married well/ lived frugally (but better than Dr. Cheap). Husband retired at 46 from Army medicine with a pension (and VA disability) which gets us our healthcare (potentially more valuable than the pension). We always spent even less with two docs in the house than most of our one doc/homemaker coworkers did. But we have socked away one spouse’s pay every year we both worked and used some of that the years I was home with babies or unable to work overseas, and if his pension is not enough that savings (we aimed for $1 mill and surpassed that) will either last us the next 50 years or get me to my next job (part of my safety net is to be able to resume work again at least until 70 or so). Also marrying a doc our kids did not revert too far back to the mean and we got 50% scholarship to State for kid 1, and will use VA GI bill for kid 2 if she doesn’t get a scholarship.
Thanks for sharing your success story! It’s good to see this stuff works.
To elaborate: we maxed out IRA and work/self-employed 401 type funds, and bought additional nonsheltered mostly index Vanguard funds at a big monthly amount I calculated long ago would let us retire at 55 with pay we were living on when we got married (plus monthly amount/kid from birth to send kids Ivy League prn). Inflation and growth made everything bigger and we did not bet on the military pension.
For several years my brother (a money guy) convinced us to ‘rent’ as I put it our stocks out by selling call options but we quit this this past year- taxes took a lot longer and in a rising market we were just ransoming back good stocks we wanted to own. Those stocks did pretty well but I think it was more the stocks picked (thanks Bro) not the options part. He assured me we could make more if we also sold puts but after loaning him a lot of money to avoid collapse when his margins got called, and the fact I have to google calls and puts every time I do the taxes or try to write about them like now, left me convinced it was not for us.
Best thing we did: plan to retire and don’t expect to get increasing pay forever. I was sure we’d have socialized medicine by 2000 so we had expected to be making only teacher’s pay as MDs by then.
Yes, what did you do with your VUL? I have been on the boarder on purchasing a EIUL. Still not sure if it is the best way to go.
I’m not a big fan of EIUL or VUL, although I’ve recently learned of a VUL product that at least had decent investments- DFA funds.
An update from the original author:
After six months of pure leisure and emotional recovery, a friend of mine invited me back to work after taking over a new ER contract. I now work 72 hrs per month (three 24 hr shifts) in a very slow ER – about 15 pts/day. The EMR and CPOE software is MUCH better than the crap HCA forced on my old ER, and the volume is low enough that pts don’t get backed up while I deal with the software. I actually enjoy work again, and the income covers our expenses and preserves our savings for later. Semi-retirement is great; spending nearly two weeks in London next month!
I wonder if I could really step away completely in my early 50s. I love the idea, however, of being able to decide exactly how much I WANT to work though.
I think it’s great Andy that you found a great place to pick up some extra shifts at. Like you said, you probably don’t need it but it’s nice having the option. Hope you continue enjoying it. I loved reading all these various posts by people. I’m 36 myself and have a 5 year plan and that’s when I’ll be hopefully financially independent. I love what I do (family medicine) but it will be great not “having” to do it. I will try to do more volunteer work and pick up work in clinics with better missions/goals for patient.s
I like that you have found a slow paced place to work, and are able to preserve your retirement fund. I am 58 and think after 30 years in a busy ED that I would miss being a doctor. However, I don’t really want to be crazy busy and have a harder time every day dealing with all the ED “frustrations”. Working just enough to keep an income stream coming in just to preserve savings – even if I don’t save any more – that sounds great. More important – just enough work to make those days off seem even sweeter!
I semi-retired two months ago at 57 and used a similar strategy to the poster. (I was a professor PhD Dr., not a doctor). We bought a house in 1990 at about 2 times our annual salary when I was hired full-time and paid it off in 2010. (With the payoff in sight, we also bought a vacation home in 2008 in Colorado which we sold along with the Houston home when we retired to Reno. We used the equity to buy the Reno house, but the mortgage is only 15% of the equity, so we might pay it off in a few years, depending on the market.)
We saved in 401k and 403bs for the full match from 1990-2003, then increased the 401k and 403b contributions, to the point from 2007-2015 I and my wife were putting away 20% of salary into 401k/403bs. My wife’s bonuses went to save for college and fairly modest vacations (the vacations changed to Italy and England after the boys finished college.) We kept cars about 7-8 years. For the first 15 years, until 2005, I was invested 80-90% in stocks, but I changed to a 63% stock/25% bonds/12% cash at the end of 2005, since I could see age 50 approaching and I was worried about housing debt and a nation-wide boom. (It helped that I moved from undergrad Texas right before its housing crash to California and moved to Texas right before the California crash at the end of the ’80’s). I rebalance every year, although I haven’t had to rebalance the last two years. In the 2008-9 crash, I rebalanced into stocks and moved monthly contributions mostly to stocks, then reversed into bonds as the stock recovery accelerated.
The portfolio recovered in about 9 months in 2009 due to contributions and the allocation and is now 2.5 times the prior peak.
I’m teaching half-time online to ease into retirement (not fly fishing as much as I planned due to impact of the drought on the Truckee River) and my wife, while currently working online at her Houston job, is looking for a job in Reno at about 60% of her Houston salary. Next year, I’ll start withdrawing about 5.5% of my 403b and leave my wife’s 401 to sit until she is 59, in about 6 years. In a few years, she can go to half-time or less, although right now she prefers to work full-time.
I will consider taking SS early after 62, if the portfolio suffers a large impact or if she decides to retire completely, but otherwise will take it at regular full SS age. And if interest rates go up, I’ll consider a few immediate and deferred annuities, although with the mortgage paid off, our monthly costs should be covered or close to covered by dividends and capital gains.
It’s do-able, using the strategies the original poster indicates, especially the modest mortgage, 20% savings, and rebalancing a low-cost portfolio; I would say diversified but finding undiversified assets has become increasingly difficult.
An update from the original author:
After six months without working at all, a friend and colleague acquired the contract to staff the ER at a small, rural, critical access hospital just over an hour northeast of Nashville and he asked me for help. I went back to work part-time and found that when I had time to talk to patients, see them as human beings, and wrestle with the EMR without the department getting backed up, I still loved practicing emergency medicine. He eventually lost that contract, and since 2014 I have been working half-time doing locum tenens emergency medicine. I also do a little expert witness work, which I find fascinating. This allows me to cover all our expenses without dipping into savings, and to keep adding to our SEP-IRA.
Since I can live anywhere and do locum tenens, we moved to Signal Mountain (a suburb of Chattanooga) two years ago. This was both for the geographic beauty of the area and to be close to family and old college friends – and because Nashville was getting too big and crowded. Although the cost of living here is noticeably lower than Nashville, we have a mortgage that won’t be paid off for another five years or so. Our annual expenses are between $150,000 and $200,000, which is more than I expected. I now plan to keep working part-time at least until 65.
Most importantly, I have fully recovered from burn-out and enjoy work again. Not being a partner in a physician-owned, democratic group anymore, I no longer feel responsible for the quality of the emergency departments in which I work and feel no obligation to correct problems or maximize efficiency. If the ER has little problems, I just ignore them. If the ER has big problems – and I’ve now seen several that have horrendous problems – I just tell my locum tenens company that I don’t want to go back there. Is that the best possible arrangement for patients? No, of course not. But it is better for me than being in a hospital where the CEO holds the emergency medicine group responsible for the quality of the ER, but doesn’t give the emergency physicians any authority to make decisions about what happens there. That is a recipe for burn-out.