By Anthony Ellis, WCI Columnist
After I finished my psychiatry residency in 1994, my wife and I and our 9-month-old daughter moved from Charleston, S.C. into our 1900-square-foot starter home in Michigan. We bought the house for $102,500 with a 9% mortgage. Our house payment was $900 with property taxes and insurance included. Our joint student loan debt would soon reach $120,000 with my wife’s graduate school debt. We had a negative net worth of about $250,000 that included $20,000 of credit card debt from living beyond our means during my psychiatry residency. We had not paid a penny toward my student loans. I was 30 years old.
Despite my weekend moonlighting that had doubled the household income in my third and fourth year of training, we were already spending future money that would come with my first real job. At the starting line at age 30, I had no investments and a mountain of debt, and we were already a family of three.
But the early 1990’s recession had ended, and we had a house. The grandparents were nearby. And I was making $178,000—real money. Things were looking up.
How I Began My Financial Education
Because of our consumer debt, I asked my first employer to front-load my salary by taking $1,200 off months 3 to 12 of the contract and putting it on months 1 and 2, making my first two monthly attending paychecks about $17,000 each. I quickly got a lesson in how the government assesses taxes due per paycheck resulting in a large amount of “extra” taxes taken out. I will never forget going to the accounting department to have them look at the clearly mistake-ridden check. The lady behind the desk in accounts payable looked at my paycheck deductions (about 35%) and told me it was correct. Yes, my after-tax paycheck was really supposed to be for $11,000.
I was surprised.
We quickly paid off the consumer debt, and I bought a book that appeared written specifically for me called, “Personal Finance for Dummies.”
Having gotten no financial education from my parents, who were both nurses, and none in public school, college, or medical school, I was certainly a financial “dummy” and needed help. I ended up getting a basic financial education for $16.95. I found out while writing this column that a used circa 1994 copy of the book is still available for a penny plus shipping. The foreword is by Charles Schwab.
After reading this book, I maximized my 401(k), bought a 20-year level-premium term life insurance policy, and paid off student loan debt across seven years instead of 10. We did that because the cost of living in Flint, Michigan was low and because we bought an inexpensive starter home and drove reasonably priced cars. We also didn’t take many vacations, so we could throw plenty of extra money at those loans. I also bought an “own occupation, flat premium forever” disability policy when I was 35. I was learning.
I eventually rolled the last $20,000 of our student loan debt into a refinanced mortgage at a lower rate to get more deductible interest. Back then, student loan interest rates were high, and the interest was not deductible. I was beginning to see the rules of the game. I would need an ever-improving offense (more income) and an even better defense (tax planning, tax-deferred accounts, and appropriate insurance products) if I ever wanted to retire before I hit 60.
More information here:
Retired from Medicine at 43: Why, How, and What Now?
Finally Back to Broke—and My Next Steps
Fast forward to 2001. I’m 37 years old, and we have a net worth greater than zero and about $132,000 in our rollover IRA, all invested in mutual funds. Having paid little attention to earlier economic cycles, I became aware of the effects of recessions, being the primary wage earner for a family of four following our second child’s birth in 2000. There was an eight-month economic downturn that began in March 2001 that lasted through that November. This coincided with my first pay cut after seven years of dutiful service and raises. The proposed cut was due to an economic contraction that I had nothing to do with. It was my first physician experience with job dissatisfaction as a salaried employee with ever-expanding duties. After securing a new Medical Director position, my first job that started as a “staff physician” and ended as Medical Director and Department Chairman came to an unceremonious end.
But the most recent recession was ending, and still, things were looking up.
In a lucky twist of fate, I landed the Medical Director position at the new job, as they could not find a fellowship-trained geriatric psychiatrist to open a geriatric unit. This position came with a “physician executive” defined benefit pension plan that I knew nothing about, a 50-mile commute, and two hours a day in the car to listen to books on tape. With renewed vigor and focus, I reopened and staffed a wonderful unit for the treatment of late-life mental health issues, primarily Alzheimer’s, Parkinson’s and related dementias, and late-life depression and psychoses. The professional and personal development the job and commute allowed made up for the 227,0000 miles I drove in my 2006 Toyota Avalon, my first luxury car purchase as an attending (it’s still the most expensive car I ever purchased and it was a big step up from my 2003 Toyota Camry).
I did not factor in the commute costs when I took the job, but the 200 books on tape that I listened to did include a dozen financial titles, and I certainly had time to collect my thoughts before and after work. I even wrote and self-published a running book in 2005. It made no money, but I learned and stayed in shape.
Over the next 11 years. I made more financial errors, nonetheless. For example, I did not take advantage of the 457 plan the hospital made available, and for four years, I believed I could not be in the defined benefit pension plan and the 401(k) at the same time. My 401(k) plan retirement account tripled anyway from 2001-2009. The bear market of 2007-09 and the worst economic downturn since the 1930s reduced my accounts by half. I was 45 years old and looking at another 20 years of full-time work. I stayed the course and sold nothing.
It turns out that riding out the 2007-2009 downturn in equities was one of the best decisions I ever made. I also used that recession to refinance our house at 2.5% on a 15-year mortgage with minimal impact on the payment, cutting off nine years of interest.
I was no longer flabbergasted about the money I was making and where it was going. I, dare I say it, had become more tax-savvy and more sophisticated about money.
More information here:
Going from Broke to Financially Fit in Just 5 Years
The Best Strategy to Build Wealth Is Offense-Defense-Offense
Accelerating My Journey to Early Retirement
I had not heard of the FIRE movement, and I had not yet seen friends and fellow physicians die at a similar age or become disabled, as I did years later.
But I was accumulating more and more income, taking my first side job during the 2008 recession as my wages were stagnant. Later, I ramped this up after more pay cuts showed me that it was a bad idea to have all your eggs in one basket.
By 2011, the economy was recovering again, and I was looking for something new closer to home. There had been no new treatment options for dementia in a decade. The hour-long commutes each way—especially in Michigan winters—and a new “not-so-friendly” boss solidified my decision. This, along with, you guessed it . . . further pay cuts after years of dutiful service related to an economic downturn that I had nothing to do with. By now, the family had expanded to include four children, and I had become even more aware of economic cycles, the foibles of being an employed physician, and how life could “turn on a dime.” I knew I needed to get an even better offense with my side gigs.
Because of the market scare of 2008-09, I gave my retirement accounts in 2012 to a professional firm that managed them for me for a fee. Having sold nothing during the downturn, I was back up to where I had been in 2008. It was an interesting waypoint with $500,000 saved (remember, this was only a decade ago). I had earned and vested in the defined benefit pension from 2001-2011 that was worth about $25,000 a year from age 60 onward, making me feel a bit better about the future with that retirement money out of the market.
I ramped up my side gig, working weekends and holidays after moving to the new job in public sector psychiatry, treating the most severely ill patients in the city. I was no longer a Medical Director and was on the front lines in a tiny office. I was providing direct outpatient care to the least fortunate, and it was an eye-opening experience. The prior psychiatrist at the site had committed suicide. I have stayed in the public psychiatry sector since, except for a year as an assistant professor in a residency start-up in a Consultation/Liaison psychiatry role.
By 2016, I was not satisfied with the results provided by the large commercial firm that had been managing my accounts using a risk tolerance-based proprietary mix of mutual funds for a fee on top of the mutual fund fees and the yearly planner fee. I had found The White Coat Investor and read his book. I also read Dr. Jim Dahle’s blog posts each week, and my financial education kicked into a higher gear. The FIRE movement was well underway, and I wanted to see if I could accelerate my exit from full-time work, targeting my mid-50s as a potential jump-off point.
By this time, I had known five physicians or friends my age who had died or who had become disabled between the ages of 46 and 55. I also watched my healthy father-in-law contract a rare cancer, ending his 20 years of leisure and excellent grandparenting that had started when he was 58. My mind cracked open by how fickle life can be and how little we control.
After a year or more of thinking about it, I took my accounts back from the management firm, let my financial planner go, and decided to go all in with the main ideas of The White Coat Investor. Primarily these included writing a financial plan, choosing an asset allocation, maximizing all available tax-deferred accounts, increasing my side gig income (at times, I was making half my salary in side gigs just working weekends and holidays), and investing in Roth IRAs for my children from their summer jobs. It also included avoiding variable annuities and other life insurance investment products, making sure I kept my “own occupation” disability insurance, and re-purchasing a level term life insurance to last until I did not need to replace my income. I remember getting half the benefit for twice the premium on that policy at age 55. I also took advantage of geographic arbitrage by buying a smaller retirement home in a state with lower property taxes, a lower cost of living, and less expensive auto insurance. The mountain home came with a trail that was perfect for morning hikes.
I missed my target mid-50s retirement age by a bit, and I will be 58 when I finish my full-time work this year and we move to the mountains in North Carolina. These past four years, I have been the Chief Medical Officer for a community mental health center which has been a privilege. I took full advantage of the matching 401(a) and a 457(b), and I continued to stoke my SEP IRA with 25% of my after-expense side gig earnings.
At this point, it’s almost surprising that I’ve learned so much.
Having gone to North Carolina quarterly since 2016 to see our daughter and vacation there, we also worked on the retirement home. My eldest daughter now lives in North Carolina in her own home. Another daughter is finishing undergraduate college in the state and is looking toward graduate school. We will still have the youngest two at home with us. I have fully funded my children’s 529 accounts for years and no longer need to put more funds in them. For 20 years, these accounts and private or college school tuition were one of our largest expenses. Now, I don't have to worry about them anymore.
Luckily, I have benefited from the advice from WCI, the blog, and contributing columnists. I have also learned from the mistakes and small victories posted by others on the blog by those who do not always get it right but “get it right enough for it to work out.” I plan to work a long weekend now and again to delay fully funding our new smaller budget solely from retirement accounts.
Selling the large house in Michigan will supply enough funds to make up the difference between the budget and my very part-time wages, our planned 4% drawdown, and my pension. With a much weaker offense, I will up the ante on defense (tax planning and insurance), and I can spend more time on the end game: maintaining my health (and not dying) while helping our children establish themselves and avoid my mistakes.
Despite the recessions, the mistakes, and the pandemic, things are most certainly looking up.
What do you think? Is it possible for you to go from beyond broke to early retirement in less than 30 years? What other strategies could you use? Comment below!
Great post! Thanks for sharing
This should be required reading for finishing any graduate school. A detailed playbook on how to grow your wealth. Excellent article
Thank you. I’m glad you enjoyed it.
Thank you for sharing your story!
NC is a beautiful place to land in retirement.
May I ask what defense with tax planning and insurance you are considering?
Regards,
Psy-FI MD
Examples of insurance planning:
I’ll need to update my NC homeowner’s insurance with an added umbrella policy. I won’t need the ones in MI anymore.
I’ll need adequate car insurance limits for the whole family – luckily the premiums are much lower in NC.
I was able to get my former full time and side gig employers to keep me on their occurrence group policies for continued part-time work. Individual malpractice insurance is expensive, goes up with time, and requires a tail policy that can equal 1-2 year’s premiums. By negotiating this benefit, I can keep my part-time practice costs low.
I will keep my ten year level term policy and continue to avoid “insurance products that are an investment”. There are other posts on WCI about whole life insurance and the various complicated annuity products.
I will also keep paying for my “own occupation, level premium” disability policy as long as I have a decent income to protect from my part-time work.
Tax planning…that is for another column. Suffice to say that the overall goal will be to minimize taxes in all legal ways possible. I will still use the deferred accounts I qualify for and may have to get a new accountant in 2023. I’ll be in a lower tax bracket and may qualify for some new breaks that I never did as a full time attending with a side gig.
Excellent article.
Very very informative! & educational.
I’ll be applying some of those notions this week!!
How does one follow so one might be alerted to the next article in this series?
Is there a financial newsletter?
I’d like to subscribe if there is …
Tx!
Scotty
🙂
In my new part time work scenario, I’m considering a variety of venues to help folks with financial wellness and functional longevity. I really do want what “Spock” wished for all, that is to help them “Live long and prosper.”
Having run a geriatric psychiatry unit for over a decade, I learned a lot about brain health and the connection to vascular health. I have enjoyed providing community lectures and disseminating articles on nutrition, exercise, dementia prevention, and functional longevity. I have written articles for the staff and my patients focused on health, nutrition, and wellness. I have also provided lectures to residents and medical students focused on wellness, brain health, functional longevity, prevention of burnout, and have inspired resident physicians and staff to create personal wellness programs of their own. I really enjoy that “work”.
Tx for your reply!
What is functional longevity??
Is there a link to your article?
Sounds interesting!
👍
Scotty
Future post. Stay tuned.
What is your asset allocation?
It has changed quite a bit across time:
In my 30’s: essentially all equity mutual funds and ten or twenty individual stocks
In my 40’s: slowly became about an 80/20 split of equities to bonds, still mostly mutual funds in 401 plans and rollover IRA’s.
In my 50’s: More bonds…70/30…then 60/40. There was a general move towards lower cost index funds and bond ETF’s.
In 3/2020 when COVID hit, the market dropped 34%. My accounts dropped 24%.
In 2022, I have sold many rallies and built up my cash allocation as bonds looked horrible with the Fed planning increased rates. I hear this is the worst year for bonds since the Civil War…and yes, I’m aware that this is “market timing” and generally dumb.
The main reason my portfolio is only down 5% YTD is a fairly high cash allocation that I have been building the past year as I approach “retirement”. The pandemic flash bear scared me in 2020 and with retirement coming up, it pushed me to a more conservative mix.
I still like a few individual stocks in the mix despite the uncompensated risk. My largest holding is BRK.B. I do like Warren Buffett. But really BRK.B feels like a mutual fund to me.
Creating wealth as such is quite simple and easy by having TIME on your side
Invest HEAVILY in equities from DAY 1 and hope stocks return historical averages and doubles every 7.2YRS
OF COURSE you must save 20-25% of income, invest only in index funds, and live below your means
and lastly seek advice from others here in this excellent website
AVOIDING mistakes is PARAMOUNT
Ken, I wish I knew what my nest egg would have been had I done what your post mentions.
I made a lot of mistakes along the way, but I made up for some of them with “extra work” since 2010.
Not the best part of my story…
Dominating work man especially before WCI even existed, way before it existed. Your hard work has paid off for not only your financial plan but those of your family. Must be very difficult without having WCI as a resource and you seem to have minimized mistakes and maximized as much as you knew how tax advantaged savings and frugality. Enjoy your hard work dude I hope to be joining you in financial Nirvana and optimized retirement in the future.
Thank you. May you live long, and prosper.
$178k in 1992 would be $370k, so on the high side of physician incomes today. Why did you have to do all this extra weekend work and holiday on top of it? Did the base pay psychiatry fall or just high spending? Great to retire before 60 but having to do all that extra weekend work doesn’t sound too appealing.
Good point Greg.
It was 1994 when I made $178K. My base starting salary was $135K. The other $43K was a “boy did you work hard and see a lot of patients bonus.” Back then I had only one child. Then came another and another…and another.
My weekend work really picked up in about 2010 during that deep recession when most of had a 45-50% draw down in our portfolios. At that time, I was already doing some weekends and they have always been part of my jobs in psychiatry. If you do inpatient work, you do weekends. I figured out in 2011 that I would rather have a full time outpatient psychiatry position and then “sell” my weekends to the highest bidder. I usually only did one a month, although at times, I did two a month. Heck, at one point, I rounded at two hospitals on some weekends and they were an hour apart.
Why did I need to make so much? Private school for the kids was pricey as were the contributions to their 529 plans. Just those two items cost about $30-40K a year for over a decade. That’s a choice we made.
We also took a lot of family vacations. Those were also a bit expensive as there were six of us. That added a van and usually a rental house.
Part of the answer is we spent too much money on vacations and schooling choices. We didn’t have to give the kids a four year degree with no loans, but we did. Others I know do even more and pay for graduate school also.
You are right Greg. It was not fun at times. The weekends were a choice that paid for vacations, schooling choices, and finishing earlier, but the 25% after expenses that went in my SEP-IRA from the weekends is now about one sixth of my retirement nest egg. I tended to do more of them in the winter and less in the summer. Michigan is great in the summer…but in the winter, not so much.
By the way, I’m 58, not 60.
As a hospitalist working 2 weekends / month I can sympathize with the weekend work. Once a month isn’t too bad. Education is maybe worth it but for sure is expensive. My co-worker in her 50s sent her 3 children to the most expensive school in town k-12 (current tuition about $35k/year elementary $40k/year high school) and is always asking to pick up extra night shifts in her late 50s . I’ve been sucked into private school too but at a more affordable $12k / year tuition. It is a nice education but it costs a lot.
I think the bottom line is that despite making good money as a physician it’s easy to spend lots on a family without having a tv version of a luxurious life with private jets, etc. Paying for an education and even some relatively modest family trips can cost a lot.
Anyway thanks for all your hard work covering psychiatry emergencies on weekends — there’s seemingly endless need for it and glad you can enjoy your retirement.
Wow. $35-40K. x 4 is $150K or so. I’m getting a real bargain for something like $6K in property taxes, and I suppose if I bought a smaller house I’d be paying half of that!
I think $35-40K per child is a little odd. As I say below, we never paid more than $20K for three at a time.
The youngest two did survive when the pandemic closed their private school permanently and they both went to public high school. My 17 year old did her last two years there and graduated summa cum laude and was in the NHS. My 15 year old son also did fine at the same public high school.
Yes. Private school is expensive.
Family vacations can be. Some of the best ones my kids have had were two weeks with the grandparents in their fifth wheel on a lake, camping. But Florida beach vacations and trips to Cape Cod…they were wonderful and cost a bit.
The private school the kids went to gave us a discount for two or three at the same time. It was never more than $20K for three. They all got to play on the sports teams and had a chance to be captains.
I’ll tell you this Greg. I don’t regret the vacations. They were awesome. In the school my kids all went to, none of them were bullied and they have all done well with honors in high school and college. It was worth the weekends.
Private school is expensive, but worth every penny. It is a choice. I would do it again.
I enjoyed your post.
There are entire posts here about private school decision and costs.
I was VP of the board of my kid’s secular private school for about a decade. I was also their auctioneer and M.C for fundraising events.
They provided an excellent product and my kids loved that school. Unfortunately, it was killed by the economic fallout from COVID-19 and the last two kids did not get to finish there.
The teachers there had all their own kids in the school…that’s an endorsement. They all became friends of mine.
Anyway, it was about $8000 each but we got a “volume discount” when we had two or three there at a time.
My eldest two played on the same sports teams for a while and then my youngest girl played on the team when her big sister was the captain.
Those games with two of ours on the field at once were magical, especially when they were the team leaders. They all loved it. They have all done well academically. The eldest two have graduated college with honors.
Was it worth it? Yes, it was. That’s why I was on the board. That’s why I volunteered as their M.C. and auctioneer. I enjoyed it all thoroughly and so did my children.
Highly variable and dependent on the non-private alternatives.
I agree.
The school was the only secular choice within 50 miles and survived for almost 50 years.
The local public schools have improved and many are very good. We drove the youngest kids across town all of 2021-2 to get the best one we could. They did well there, but of course they missed the school there they spent over a decade.
The school was tiny with 5 kids per year and they doubled up many years to get 10 kids per class. In its best years they had ten students per class.
Everyone knew everyone and that was a good thing as they were all excellent people. My kids loved all their teachers.
It was a coddling, safe environment with minimal risk of any trouble. Kids could not “fall through the cracks”. However, the fact that my kids did well at the local huge public school suggests they were not emotionally or socially “behind”.
I sat the bench in high school except in swimming and track. All my kids got to play all the sports and several were “stars” in the small private school leagues. That was quite a personal pump up for the two oldest.
It is quite variable as you say. Sometimes I ponder that money, invested instead in the market or college tuition, or as a down payment on their first home. Choices have consequences.
Superb. I had huge loans in medical school. This is very helpful and effective thinking.
I borrowed $60,000. It ballooned to $83,000 by the end of residency. The government signed the notes saying they would pay the interest during residency and then they changed the law and did not do this.
Clearly, I should have been paying the interest with the extra money I made moonlighting in residency. That was a missed opportunity. Instead, we rented a townhouse on a lake for $650 a month and spent the extra money…
My wife borrowed $40,000 for her MSW. We paid extra on them as we chose a modest starter home. The payment was higher than our mortgage. I think they were at 8% interest, similar to the mortgage.
Your story is familiar. I’m 10 years younger. Do you wish you pulled back earlier?
The money I made moonlighting weekends and holidays, and the 401A (with match) and 457 availability as CMO where I am finishing up helped my timeline.
Do I wish I could have finished full time earlier? Yes. Who wouldn’t? I’m lucky my health held up. The fact that I do sprint triathlons and open water swimming may have helped there.
I did make a difference these past five years as CMO of a community mental health system during the pandemic. My goal was to not lose any employees from at work transmission and to minimize patient deaths. We accomplished both. Of course, seeing inpatients and ER patients across the entire pandemic could have ended me, but I was at fairly low risk (No HTN, age 58, not obese, no major health issues). I was certainly a bit scared across 2020 before the vaccines.
There is a balance to strike. Making an impact this past five years allowed me to leave on a high point. I found and cross trained my own replacement, gave my boss two years notice and will hopefully be missed.
“When do you finish?” could be another column and several blog posts here address this hopefully once in a lifetime decision.
As a young employed physician your article and comments were invaluable. I particularly appreciated your discussion of your various career transitions and the rationale there. I think for many of us (at least for me) it’s hard to switch jobs even when things aren’t great. I really appreciated you sharing your critical thinking about career and personal finance over a lifetime. For those of us in early career there’s a lot of useful points here about the need to adapt to changes with how we earn a consistent living on the physician side while staying the course on the investment side. For my part I’ve realized recently with a somewhat difficult employment situation and some likely upcoming economic fluctuations that I’ll be essentially forced to start shopping for jobs to protect my current income. I feel that it’s more or less inevitable at my current organization that if the system decides they are losing money the first thing they’ll cut will be my salary.
Yes James,
I chose to switch jobs many times due to financial issues related to economic cycles.
I always had “a job in hand” before giving my 30-60 day notice.
Occasionally, I changed jobs for other reasons if the job changed in a very negative way or to pursue different interests.
In psychiatry, there are many jobs, offering a lot of flexibility.
Best of luck to you and yours.
The verdict over the last 30 years is that it was cheaper to overpay for a huge home in an excellent public school district than pay private; the homes appreciated well, the capital gains were protected to 500k and the interest was mostly deductible.
It’s impossible to predict going forward, and in the cities there are no good public schools regardless of what you pay for your penthouse; what there has been in terms of magnet schools is being deconstructed I’ve read.
I followed the advice of my Uncle, whom sent his kids private until high school. They kill it academically, but get the social acclimatization of less wealthy peers, as well as the athletics, theatre, etc that are better at bigger schools. As a side benefit, it somewhat cloaks their affluent origins from Universities that otherwise would shun them.
Schooling options vary so much that one person’s plan works in one locale, but not in another.
My youngest will be going to the nearby
public school in NC that we have read good things about. I hope it works out for him. He is a good student and fairly resilient. If not, we will look into other options.
Always a pleasure to read from a psychiatrist’s perspective. I’m currently a 4th year medical student applying to psychiatry residencies. Single, no kids, and planning to do at least a forensic psychiatry fellowship (and possibly a very niche other fellowship for the love of knowledge).
Very interesting to hear that if you do inpatient psych, one can expect to work weekends. Really makes me reconsider my career plans because initially, I thought I wanted to do inpatient correctional psychiatry as my main gig with a cash private practice catering to the wealthy on the side. That way I get to help the underserved while still having the autonomy and freedom of being my own boss.
I also like the sound of “selling my weekends” at a premium…perhaps outpatient work at a community mental health center to get my fix of working with the underserved with severe, persistent mental illness.
Will be graduating with about $220,000 in loans, planning on moonlighting in residency ASAP. I’m not looking forward to calculating quarterly taxes and all that other business though. Also planning on taking advantage of PSLF because my loans are are federal.
When it comes to investing, I’m just thinking index funds for now, at least until I learn more about personal investing. Maybe some REIT for commercial real estate one of these days. The idea of personally managing properties, I find droll.
Thank you for your perspective and your post!
I checked back on this post and just found your reply today.
I’m glad you found it helpful.
I considered forensics because of the possibility of getting paid more per hour, and my interest in the interface between psychiatry in the law.
I discarded this idea based on worries that my expert witness testimony could possibly be risky, with people who had committed felonious assault or murder, were also potentially psychotic at the time.
Once I had a family and children, I lost my interest in working in Forensic Psychiatry.
Personally, the best work finance decision I made seems to have been working full-time outpatient with the chronically and persistently mentally ill, while selling my inpatient weekends to another employer.
Best of luck to you.