As of July 1st of this year, I am ten years out of residency. I saw a post by a physician recently on an internet forum. She was 60 years old and had just paid off her student loans and was asking how she should start saving for retirement. I couldn't believe how negative most of the responses were- “You're too late,” “Don't bother,” “You're hosed,” etc. I have been reflecting lately on how, in reality, almost no physician is ever more than 10-15 years away from financial independence. No, you can't live like a typical physician and achieve that, but by virtue of their high income, it is nevertheless true. Many readers are familiar with the story of Mr. Money Mustache and his wife, who came out of college, squirreled away almost their entire very low six figure income, and retired at 30 or so before ever having a child. They now live on something like $24,000 a year. My 10 year plan for physicians doesn't require anywhere near that level of sacrifice, although there will definitely be some sacrifice required.
Before I explain the plan, consider why you might want to follow it. The truth is, you probably don't. I certainly didn't, and that's why I'm not yet financially independent. But there are some people who value financial independence very highly (they don't buy wakeboats BTW) and others who simply hate medicine. They might have realized it in med school, during residency, or perhaps even a few years out of residency. But then they realized they owed so much in student loans that they didn't really have any other good options. Or they realized it would be easier to practice medicine for a few years than to do whatever else they were interested in doing for 30 years. Or perhaps they just hate working at anything and want to be done as soon as possible. Who knows? Whatever your reasoning, here's how you can do it. And for those of us who don't necessarily want to punch out in 10 years, there are probably some lessons to pick up here too.
There are basically four things I think you need to do before punching out of medicine permanently. You need to pay off your student loans, pay off your house, save up a nest egg sufficient to last the rest of your life, and save up enough to take care of any other financial priorities you may have, such as your children's college. We'll address each of these in turn, but first let's discuss some of the sacrifices that will be required.
You Can Never Live Like a Doctor
If you really want to punch out of medicine in 10 years, you can't live like a doctor now, and you can't do it later. What you really need is a middle class lifestyle. And I'm not talking about the middle class where one spouse is a pharmacist and the other is an engineer. I'm talking about the middle class where the household income is $50,000. The difference between a physician income and a middle class lifestyle is where the money to pay for this early financial independence comes from. The more you can convince yourself this isn't a sacrifice, the better this is going to work for you. But don't plan on putting your kids in private elementary schools, sending them to fancy pants colleges, driving brand new cars, or vacationing in France. Your vacations are going to be hiking in national parks and visiting family, not skiing in Vail.
You Have To Live In A Small, Inexpensive House
Likewise, you don't get to live in a big fancy doctor house. Houses are investments, but they're not very good ones. The bigger your house, the more it costs you to finance it, pay for it, insure it, maintain it, repair it, landscape it, clean it, upgrade it, and furnish it. To make matters worse, when you live in an expensive house, your neighbors are relatively wealthy and in order to keep up with them, you'll have to spend more than you would in a more middle class neighborhood. That's not going to be compatible with a 10 year exit plan.
You Need To Maximize Income
For this plan to work out, you will also need to maximize your income. No “silly” fellowships that don't boost your income. Avoiding low-paying specialties will be important, and if you choose one you'll need to make sure you pick the type of practice that pays the best (for example, if you go into IM, be a hospitalist or do urgent care work.) No lengthy training periods either. You don't want to eat up the first four of your 10 years with an extended residency and fellowship. The goal of this 10 year plan isn't to dedicate your life to the relief of the sick and injured. It's to make money and get out. [Don't send me hate mail- I'm not on this ten year plan.] Forget academics, where you are paid 13% less on average than in private practice. You're going to need that 13%. You'll need to work hard, take some extra call, maybe do some locums, and really spend that 10 years with an income well above average for your specialty. A second job, such as locums, also provides an additional retirement account or two, which will help.
Now that we've got the sacrifices out of the way, let's move on to the four goals.
Paying Off Student Loans Rapidly
The best way to pay off student loans rapidly is to never take them out in the first place. Picking an inexpensive school in an inexpensive city, getting as much family help as possible, working when possible, and living like you're worse than broke goes a long way toward minimizing your debt. Managing it well throughout medical school and residency and refinancing when appropriate makes a minor difference. The real bang for your buck comes when you finish training and start throwing massive sums at that debt every month. When you're putting $10K a month toward your student loans, $200K in debt will melt away very quickly. If you want to punch out in 10 years, you better be rid of the student loans within 2-3 years at the latest.
A Paid Off Home
When you punch out in ten years, you won't have a massive nest egg. It's not going to be able to support both your lifestyle and mortgage payments. So you need to pay off that mortgage while you're still working. If you paid off your student loans within a couple of years, perhaps you could spend the next year saving up a down payment, then spend the final 7 of those 10 years paying off the mortgage. That means basically getting a 15 year fixed mortgage and making double payments on it. Needless to say, this is a lot easier to do when the value of the house is 1X or less of your annual income.
A Retirement Nest Egg
Your largest expense is going to be the money you'll be living off the rest of your life. Since you'll be retiring so early in life, Social Security isn't going to factor in much. You will also need to be careful about how much you withdraw from your nest egg each year. The 4-5% that would probably work fine for someone retiring in their mid to late sixties has significantly more risk when you retire at 40. You might even want to be as low as 3% depending on how big a deal it would be for you to go back to work if this early retirement thing doesn't work out.
You're also going to have to take significant risk, both before and after punching out. That means plenty of stocks and real estate in the portfolio. 80% bonds and CDs isn't going to cut it. But don't kid yourself. Very little of this initial nest egg is going to come from compound interest on your investments. Almost all of it will come from brute force saving.
You'll want to especially take advantage of tax-deferred retirement accounts. Since you'll be putting this money away at a physician's marginal tax rate, but spending it at a middle class tax rate, there will be a significant arbitrage there. Don't worry about the age 59 1/2 rule; you can avoid penalties on your withdrawals simply by taking advantage of the SEPP rule. You'll also be putting some money into a backdoor Roth IRA and a taxable account since you'll need to save such a high percentage of your income.
College and Similar Expenses
You may also want to save up some money for your children's college educations or other similar expenses. You really need to have this mostly done before punching out, although if the child is still young you can assume that the investments will grow somewhat between your retirement date and their enrollment date. Due to the very short time period, you're not going to be able to save up a lot, so you either need to limit the number of kids or limit how much each of them will get from you. Sending them to inexpensive schools and requiring them to work, get scholarships, and or take out loans will help dramatically.
The Nuts and Bolts
So what does this really look like where the rubber meets the road? Well, you've heard me advise young docs to live like a resident for 2-5 years after residency. In this situation, however, you have to live like a resident not for 2-5 years, but for 10, and really, indefinitely even after that. If that doesn't sound appealing to you, then you'd better look into some alternative plans. Here is a sample attending budget for someone with two kids under this plan:
Not compatible with the 10 Year Plan
Annual Budget for A Doctor in the First Two Years
- Gross Income: $300,000
- Taxes: $70,000
- Student Loan Payments: $100,000
- Housing expenses: $15,000
- Retirement Accounts: $40,000
- Taxable Accounts: $15,000
- College: $10,000
- Everything else: $50,000
- Total Spending: $300,000
Annual Budget for a Doctor in the Later Years
- Gross Income: $300,000
- Taxes: $70,000
- Mortgage payments: $50,000
- Retirement accounts: $50,000
- Taxable accounts: $70,000
- College: $10,000
- Everything else: $50,000
- Total spending: $300,000
Total at Retirement
Assuming 5% real returns on your investments, here's what you have after your 10 years:
- Zero student loans
- A paid off house
- A $1.38M nest egg (at a 3% withdrawal rate= $41,400 per year, at 4%= $55,200 per year)
- A college savings account of $66K for each kid, which if they have another 10 years before going to school, should grow to $108K each.
Not too bad, right? But wait, there's more. This could get even better in one of three situations:
- You have a spouse who doesn't hate their job.
- You open up an entrepreneurial business on the side besides medicine, further boosting income both before and after retirement.
- You retire to another career.
Each of these options will allow you to spend much more than a resident salary and still punch out of medicine in 10 years.
Does it sound a little extreme? Yes, it's a little extreme. But it will provide a lifestyle twice as nice as Mr. Money Mustache's. If it's too extreme for you, put yourself on a 15 year plan or get yourself into one of the three situations at the end (working spouse, side business, second career.) Personally, my plan was always to front load my savings, then cut back a bit at work to get a nice balanced life, and then enjoy the “good life,” working until fifty (a 19 year plan for me) or sixty (a 29 year plan.) The “good life” allows for a big fancy doctor house, a wakeboat, a few nice cars (eventually), plenty of fun vacations, donating to charities I support, and telling my children “no” to avoid spoiling them, not because I have to. But I like practicing medicine. If you don't, consider the merits of the “10 year plan.”
What do you think? Would this work? Why or why not? Are you one of those who would like to get out of medicine ASAP? What are you doing to facilitate that? When do you plan to retire? Comment below!
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Great post
Enjoyed the post. I think your point of view alters the article unintentionally. The people that might be interested in this plan have a house and student loan payments. Attendings cannot compare this to their residency years (considering the salarys are pretty close), because 55k with no house payment, no student loan payment, and time to cook at home probably adds another 20k of value. The average US family is living off that income with house and student loan payments.
You allude to the tax arbitrage, but in reality the income is pretty much tax free. Taxes depend on how much is Capital gains vs normal income. 55k as normal income would be .0*20k+ .1*20k+ .15*15k for a total of $4,250. 55k as capital gains would be 0% with current tax law. Most people would probably be a mix and pay no more than 2k a year. 50k tax free goes a long way and would be a pretty good life, way better than living like a resident.
I believe all money taken out of a tax deferred account (IRA, 401k, etc) is taxed as regular income even if it would qualify as capital gains if it were in an after-tax account. The author is correct about the tax arbitrage from an income standpoint (lower income tax bracket in retirement for the scenario he is describing). Unfortunately, the money taken out is not taxed as capital gains when it comes out of a tax deferred account. Correct me if I’m wrong.
You’re not wrong. Regular ordinary marginal income tax rates for all money coming out of tax-deferred accounts. You can use that money to “fill up the brackets” though, which might be at an overall rate even lower than capital gains rates.
I just like the fact that you use 5% instead of some of the much higher numbers other use to estimate returns.
Interesting post. Did you change any behavior due to the thought process of writing it? Specifically, are you still messing around with your house payoff scheme or are you just paying off the mortgage?
I’m actually saving up for something else, so I haven’t done squat toward the house payoff scheme in the last 6 months other than make my payments.
What are you saving for? I fell for it, I actually bought a wake boat as well. It’s great fun, doing surfing.
An investment. There is a non-disclosure agreement for now. You’ll hear about it eventually.
Ohhhh … That response is a lot more interesting than I would have thought… Can’t wait to hear about the shiny new investment .
Great post. I think a poll to see how many WCI readers are trying to punch out at 40-45 would be interesting.
Not me…also I don’t think the point of FI is to retire early… I think the goal is to give you options like retireing early (or reduce hours or change jobs, careers etc.)
Yes exactly. Financial independence is much more important than actually retiring early. I am just curious. The nest egg is too small at 40 to support yourself for 50-60 years.
Your nest egg might be too small. That doesn’t mean everyone’s is. If your expenses are low enough, you don’t need a huge nest egg, even for 60 years.
Right, but as you get close to FI, at some point you’ve got to start thinking about what you want out of life. If your FI number is $2M, there’s no need to be hard core right up until you hit that number. When you get to $1-1.5M and realize that you’re just fine with working 10 more years, perhaps it’s time to do something a little different- spend a little more, work a little less etc.
That’s certainly the goal for me. I think I’ve done a poll before about when people plan to retire. Let’s see if I can find it.
Here it is. I’ll insert it at the end of the post. Only 14% plan to retire before 50.
What do you do as cost of living rises but you are still at 3-4%?
That rate is inflation adjusted – so it’s already built in.
Same thing you’d do if you retired at 70 and cost of living rises-adjust upward.
Sadly I fit your description of the disenchanted physician as I begin my practice and have made it my goal to be in a financial position to retire in 10 years. Can you comment on taking a loan from your corporation to pay cash for the home instead of a traditional mortgage? At least you would be paying your own corp the interest even though interest income is taxed a the highest rate. Would this help diversify one’s corporate investment portfolio by balancing interest-bearing investment with equities?
Why does your corporation have a portfolio? I mean, I guess I’d take a look at it, but mortgages are so cheap right now and generally fully deductible for docs, I’d probably just get a traditional mortgage than a loan from my corporation.
In Canada mortgages are not deductable on personal property unless it is a rental (being Canadian a number of your topics aren’t applicable but the core of your message is very much so). Incorporating as a physician means any excess billings I don’t need to fund living expenses remain in the corp where it is taxed at a lower rate (30%!!!) than if I took it all out personally @45.67% (whether as salary, dividend or combo). Given that I can comfortably live on ~60K a year (single, no kids), most of my after tax funds will remain in the corp which is allowed to invest in anything. I know I will have to enter the market to not lose my money to inflation but the markets are so inflated! I really only came up with this idea as a form of diversification of assets so that not EVERYTHING is in equities despite the unfavorable tax treatment of interest income (50% vs ~30% on capital gains). Why let a bank make 2 to 2.5% off me instead of my corp? Or Is this faulty logic??? I mean if lenders are keen to lend money at such low rates, why not make my corp a lender too?
PS can you remove my name and just put initials or something…Didn’t realize that my name was actually going to be posted!
We’ll forgive the Canadians because they have Banff, and Banff is awesome. Just got back yesterday.
Obviously, your situation is a little unique and I can see where it might make sense to borrow from your corporation instead of a bank. But run the numbers.
FYI, you can only have a shareholder loan on your corp books over one year end… Otherwise you are in trouble with the CRA. So this means, if you took out the loan shortly after your year end, you’d have just under 2 years to pay it back. And it has to be at fair market interest rates… So you’d only have 2 yrs to pay off your house!
Come join the Canadian Physician Financial Independence fb group! Lots of great helpful people there.
While some may actually be interested in truly “retiring” after 10 years in practice, many more of us are interested in acquiring financial independence (F-you money, freedom, whatever you want to call it). You needn’t have the entire nest egg squirreled away to reach the point where you can tell your employer to buzz off; just enough money to last for a few months (or years) and the ability to continue working elsewhere when you so choose. I think my “F-U” number is quite a bit lower than my ultimate retirement number but I think will be just as satisfying to hit.
I think reaching your F-U number could happen with 1-2 years of being an attending, particularly if you follow the lifestyle WCI mentions in the post. Basically what you’re talking about is a really large emergency fund.
yes, I agree 1-2 years if you have no/low med school debt. More like 3-5 years for most folks I’d bet.
But I think it is more than just a large emergency fund–its that combined with developing good “financial defense.” Spend less. take on less recurring monthly bills. Keep overall outflows low, or at least see things like house cleaning, lawn service, dry cleaning as the luxuries they are and be ready to cut them off when needed. You can certainly accomplish that mental component in the first 1-2 years and I’d encourage you to do it
Yes, I received a guest post this week the differentiated between financial independence (25X expenses) and financial freedom (debt-free with 1 year of expenses in the bank.) I think that’s what you’re referring to with FU money.
We now have the question of whether to keep paying several thousand a year for disability insurance. It’s a huge chunk of our annual budget and I’m so close to being able to switch careers or quit entirely. And after I quit, should I keep paying to keep up my board certification, DEA, etc. just in case I change my mind or we have a massive family emergency? That’s also a large percentage of a $50k budget.
You probably already know what my answer would be, but if you are truly FI with 25x expected future expenses, you can decrease or drop disability (and life) insurance.
I plan to keep up with licensure and certifications for at least a year or two. After that, it would be tough to transition back into medicine without some remedial training, and I should have a good idea if I am happy calling it a career after 12-24 months away.
There is also an argument to be made for trying part-time work or a sabbatical as a trial run at an early retirement. Because… what if you miss the work? Don’t burn the bridges until they’re far, far behind you.
I would also suggest planning for potential lifestyle inflation down the road. If you have 25x $50k = $1.25 million, with an EM salary and obviously tremendous savings rate, you could have 33x or even 40x in a few more years. The cushion can do wonders for your future and your psyche if you’re not desperate to get out.
Best,
-PoF
The usual rule of thumb is 33X expenses if retiring prior to 65. $1.65 mill if expenses are 50k. I think you would agree that 50X expenses for extreme early retirement is reasonable (2.5 mill in this case.) I think POF that 50X is your goal. A cushion is very nice so you do not have to contemplate returning to work every time the market crashes. If you keep your expenses low then the number is much less of a challenge.
I’m not sure I agree that the rule of thumb is 33X and you need to be MORE conservative with an early retirement. I think 33X is pretty darn conservative already. If there is a rule of thumb, it’s 25X. Remember that on average with a 4% withdrawal rate, after 30 years you have 2.9X what you started with.
I have read the 33X number on several blogs. It is based on 3 % SWR.
https://www.whitecoatinvestor.com/six-reasons-i-dont-care-that-3-is-the-new-4/
For a large group of 65 yo men, the average man might expect to live another 19 years. For the subgroup with metastatic lung cancer, the average man can expect a much shorter life.
Investment returns depend greatly on valuation. Stock market and bond market valuations today are analogous to metastatic cancer above. Relying on the Trinity study and similar research today is analogous to making plans based on the survival of an average 65 yo man, when you are actually in the subgroup with metastatic lung cancer.
https://www.whitecoatinvestor.com/making-different-choices-due-to-low-expected-returns/
If you think your returns are really going to be terrible going forward, then I would suggest changing your investing strategy. I’ve been hearing “returns will be lower, returns will be lower” every year for the 12 years I’ve been investing. But yet, reasonable returns keep showing up. If I really expected terrible returns over my investing horizon, I’d go buy rental properties. It isn’t that hard to find rental properties with cap rates of 5-6. Even without leverage or appreciation, those returns are adequate to meet my needs.
So for those who think your future returns will be terrible, what are you doing about it? Are you buying stocks and bonds anyway and just saving more? Are you planning to work 10 years longer? Are you taking on more market, small, and value risk?
Also, it’s a bit odd that this 5% return figure and 4% withdrawal rate I used in the illustration are what have so many people fired up when the reality is that your returns really don’t matter all that much if your plan is to punch out in 10 years. Almost all of your nest egg will come from brute force savings.
Recommended: https://www.gmo.com/docs/default-source/public-commentary/gmo-quarterly-letter.pdf?sfvrsn=30
(Not for the part about alternative investments, but for the main theme of a one-off shift in discount rates, changing future returns from here)
Personally, I hold a great deal more cash, because I think it is extremely unlikely that the shift in valuation is permanent. I put the rest in a house (no mortgage) and long-term treasury bonds. The latter are unlikely to provide attractive long-term real returns, but will probably provide better returns between now and the aftermath of the next recession than almost any other asset.
Rental properties (or any other entrepreneurial venture) might be better, but I already have a full-time job that leaves me on the edge of burnout.
That decision to hold cash instead of stocks and bonds cost you something like 3-4% in the last month. At least your LT bonds are doing great this year. It sounds smart to be in cash waiting for things to change, but what seems to matter most over the years is time in the market rather than timing the market.
Yes, I wish stock dividend yields and bond yields were much higher and that P/E ratios were lower, but you only get what the market gives. Control what you can (asset allocation, fees, taxes etc) and adjust as you go.
So the 4% withdrawal rate rule (assuming one has saved 25x annual expenses) implies that after 30 years one will have ~2.9x their initial savings left over? That’s a huge margin over running out of money completely.
So why do people often pick that strategy as a way to not run out of money if on average you end up with 3 times of your initial savings after 30 years? It seem way too conservative, unless one is trying to avoid a black swan/worst case scenario.
Could you please clarify that the 4% withdrawal rate on average results in ~3x initial savings after 30 years? Or is the initial sum often spent down to zero? What’s the AA that this is based on? 60/40? In addition, does this take into account inflation adjusted withdrawals?
Bottom line: Assuming one has 25X expense saved (and house paid off) by age 50, early retirement would seem easy, since an ever bigger nest egg (~3x) would most likely be there in 30 years. Then deferred SSI would also add a bit of extra insurance to insure that even in the worse case, one wouldn’t run out of money prematurely.
It does take into account the black swan scenario. If the market tanks the day after you retire, it may get tight, but if it does that, I’ll go work a few days a week and live off that. I don’t know many that want to switch from full time to nothing anyways. Most of us, not all, seem to gradually cut back anyways.
On AVERAGE they end up with 2.9X after 30 years. The reason you use 4% is in case your scenario isn’t average but is much worse than average. That’s why it is called a SAFE withdrawal rate. The probable thing is that you could spend more, significantly more. A 50/50 portfolio has a 50% chance of surviving 30 years at a 6% withdrawal rate (again adjusted for inflation) historically. But how much shortfall risk do you want to take?
The reason it works like this because your portfolio in general earns more than 4% a year. So if you’re only spending 4% a year on average and it’s earning 7-8% a year, on average, then unless you get a terrible sequence of returns, you’ll die with more than you started with.
Lots of dilemmas with early retirement, isn’t there. Far easier to just sculpt your life into your desired lifestyle that happens to include at least some work.
I’m in my third year as an attending. My oldest kid is 3.5. My goal is to be able to declare 0 earned income when she fills out her first FAFSA, so it’s a (now sub-)15 year plan, if you will. If it weren’t for my stay at home wife’s pesky student loans from her unused Masters then it’d be a slam dunk, and I think it’s still possible given any reasonable sequence of returns.
same exact family scenario here. so if you have zero earned income but $1-2M in a taxable account you’d still qualify for aid?
Maybe it’s time to do a post on the FAFSA. Lots of confusion on this topic and the CSS makes it even trickier.
Would really enjoy reading that post!
Depending on where your child wants to go you could have to fill out the College Board’s CSS Profile and not just the FAFSA. It takes more of your assets into account. Also, some states like mine (AL) offer full tuition merit scholarships based solely on grades and test scores. We never even filled out a FAFSA.
I’m hoping for something similar – not purely for receiving tuition benefit for the kids, but also because by the time they start college, we hope to have reached (and hopefully exceeded) our FI number and to be retired and free to travel extensively without being constricted by kid(s)’ school vacations.
It would be worthwhile to assess how parental assets are evaluated by FAFSA and CSS closer to the college age for the child. Currently they look at earned income, also withdrawals from and contributions to the retirement accounts (I think both Roth and Traditional), and balance in the non-retirement accounts (529s are considered non-retirement accounts that are a parental asset; grandparent 529s are not included); also child’s assets (ex: UGMA/ UTMA, but not child’s retirement accounts). Value of the primary residence is excluded from parental “assets”. The formula can be found online somewhere, I think I’ve seen it – somewhere it allows you to input your data to estimate parental contribution. If I find it again, I’ll add a link. I only glanced at it briefly, as rules could change by the time they would apply to me.
In 15-18 years there may be changes to how the parental contribution formulas are calculated, so it may be worthwhile to do some arithmetic closer (within 2-3 years) to kid(s) starting college to give better idea of what parental contribution may be owed, and also if there would be a way to modify it.
Keep in mind that most “aid” is loans. That’s the last thing I want my kids to have. I expect my kids to get some scholarships from academics and similar. I certainly am not going to bend over backwards to try to qualify them for a Pell Grant or something, much less loans.
This is a link to check your estimated family contribution for FAFSA (not CSS):
http://www.finaid.org/calculators/finaidestimate.phtml
Anyone who wants to punch out “early” will likely end up with a significant amount in a taxable account +/- kids’ 529 plan(s), on top of backdoor Roths, 401k/403b/457 plans, and HSAs. These taxable and 529 assets will be counted as parental assets, subject to 5.6% being made available for education – a 1mil taxable account means 56k is available for kid’s education, not even looking at anything else that is parental income-related. So this would seem to exclude one from getting any meaningful college aid, even if one has no earned income.
However, currently according to the following link there is a way to exclude parental assets from the calculation (only for FAFSA, not CSS) through simplified needs test: http://www.finaid.org/educators/needs.phtml
The criteria are listed in the table. For someone who does not have very complex portfolio of assets/ investments, but let’s just say just a w-2 job (or not), and qualified plans/IRAs and a taxable account (no rent, no S corp, no partnership income, no farm income, no business income), they would have to make sure that they are eligible to file 1040A by:
(1) not have any taxable state tax refunds
(2) AGI less than 50k
(3) not to file schedule D for taxable investments – can accomplish this by not having capital losses to report (only capital gains reportable on 1099 DIV – those are ok, don’t need to file Schedule D) – see here, page 25, line 13 instructions who needs to file schedule D: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf also they want boxes 2b, 2c, 2d on 1099-DIV to be blank (not sure how to get those boxes not blank, mine were blank last year…) so probably also research if carry over losses cause you to need to file Schedule D, and if so, quit generating those at an appropriate time.
(4) no HSA deduction (don’t contribute to HSA, or don’t take deduction for it)
(5) no self employment tax deduction (hence not to have self employment income, or do not take deduction for it)
(6) no self employed health insurance deduction (don’t have this type of insurance or don’t take deduction for it)
(7) no self employed SEP SIMPLE or qualified plans (or don’t take deduction for them, or do a Roth contribution)
(8) no moving expenses (or don’t take deduction for them)
(9) no itemized deductions (choose to do standard deduction even if eligible for itemized)
(10) no tax on IRAs (don’t take IRA distributions; not sure how conversions would count here, but maybe don’t do those either – do them in earlier or later years).
I am making an assumption that one can forego taking a deduction on tax return, if it suits them, without being required to report it (unlike income).
If one benefits less from having all these deductions but more from significantly lowering their family contribution, it may make sense to forego the deductions. Each would have to go through their own arithmetic exercise, reviewing assets, income, and recent tax returns, as well as looking at the greater financial picture with Roth conversions and RMD strategies, also with having health insurance (and how to pay for it) in early retirement. One dumb thing that I highly likely won’t do is to deplete the taxable account by purchasing a very expensive primary residence (home equity is currently excluded from parental assets on FAFSA). The cost of doing is not likely to justify the benefit. But maybe someone will disagree with this, and decide that it could work for them. I also won’t falsify information on FAFSA or CSS.
But if I can hack my way through FAFSA when the time comes for it, I will. It seems that the way things are structured presently that it would be doable (future may change – if laws change, or my personal situation changes). As long as laws are not violated, I see no reason not to do this. I view this no different than the backdoor Roth, and no different than proactive tax or estate planning. This is definitely a scaled-down version of what someone else may do for tax or estate planning, but a person punching out in 10 years would be voluntarily electing a middle class type of living, and not a “doctor” lifestyle for them and their family. It may seem not a worthwhile thing to do for those earning 500k+ and working 20+ years, but may be worthwhile for another with lower earnings and/or shorter working years.
At the same time my personal plan is to invest enough in 529 plan(s) to have around 250k by age of 18 per kid, and Coverdell (likely through grandparents) as well. All the better if that money is not used – I believe it can be withdrawn without penalties equivalent to amount of scholarship a student receives. Grandparental 529s also warrant further research – mostly how those assets would be counted if there are no surviving grandparents by the time child starts college. Currently with living grandparents, grandparental 529s are useful for last 1 or 2 years of college, and do not count as parental assets.
Also, a subsidized Stafford loan that could be repaid with parental assets years later is not that bad of a thing.
If someone sees any difficulties with getting parental assets excluded from FAFSA in a way I described above – please let me know, I would be curious to find out what’s overlooked and if a work-around can be devised. I have not gone through similar exercise for CSS, but I think that one would be more difficult if not impossible.
You’re saving $250K+ per kid for college and you’re wanting to hack the FAFSA? Who do you think should be in the situation where EFC = COA if not you?
Well, FAFSA “ignores” $250k in 529 if the family is eligible to use the “simplified” needs test. The congress is the body that passed the law and this formula, so the taxpayer family shouldn’t be penalized for arranging its affairs that would be most beneficial to the family. So, EFC won’t be COA in this situation, at least per the current FAFSA.
And then what…loans? I’m surprised someone who can save up $250K for a kid to go to school is interested in qualifying them for loans. Or are you hoping for a Pell grant?
Theoretically, she can have an EFC of zero on FAFSA and yes, that would make one eligible for Pell grant and other need based grants, among others. Although CSS Profile schools are not an option, many well respected schools such as all undergraduate campuses of the University of California (including Berkeley and LA), U of Texas at Austin, U of Illinois at Urbana, U of Iowa, U of Wisconsin Madison, U of Minnesota Twin Cities will be a choice. Granted these are public schools with tight budgets and aid packages won’t be as good as at CSS Profile schools, yet for an EFC of low to zero, significant portion of it would still be grants. Whether or not this is fair is a different subject. If the public doesn’t think this FAFSA formula is fair, then the congress should amend it.
Seems odd to impoverish yourself to get a $5K Pell grant to me, but I’m not saying it is either immoral or illegal. I hope to never have an income under $50K again.
One would not need to impoverish oneself to get an AGI of 50k, it would just involve having no earned income (or little of it) – which will come naturally if one has kids in their mid-30s to early 40s, then one is in their early to late 50s when the kids enter college, and not unreasonable for that person to not be working anymore – like Toshi’s sub-15 year plan. Having low earned income at that age is not about stopping to work in order to have low earned income, it’s about stopping to work because one is naturally ready to retire. This won’t work for anyone who is younger and has less retirement savings by the time their children are entering college, or who loves their job and still wants to work despite having “enough”.
Selling off taxable savings with high basis (or using Roth savings) during early retirement years should give a very low AGI while having sufficient money to cover expenses. AGI of 50k does not mean living expenses of 50k. Even living expenses of 50k does not mean impoverishing oneself, if one is living a middle class lifestyle (described in the original post) without aspiring to live a more typical doctor lifestyle.
The reasons that I can end up with 250k in a 529 is because I can frontload it with 70k over 3-4 years, and because I would do this INSTEAD of living in high cost of living area, instead of purchasing boat or SUV, instead of paying a mortgage on an expensive home, instead of wanting to hoard money to spend it on space travel, or somesuch. I have no interest in any of the above, and my income would not allow me to do the above things while saving in a 529, and for retirement. That’s a priority that I’ve chosen within my means, and not an indication of my means, or whatever else I may be able to afford. This is about coming up with 60-70k during my late 30s to early 40s, instead of coming up with 250k in my mid to late 50s, and needing to work in order to do so. I can afford the former, but have no interest in doing the latter.
And yes, zero EFC qualifies a child for a Pell grant, that’s 5.7k that I won’t need to come up with. 5.7k is better than nothing, and can be a significant percent of tuition in a public university.
Subsidized Stafford loans in child’s name with deferred payments that won’t need repaying till after college (and likely not till after graduate school) will give parental invested savings up to 8 years of further growth, and can be repaid after graduate school is finished with the parental savings. This may not be something everyone would be interested in, but I am. So yes, even such a loan would not be a bad thing.
If you have a sizable portfolio in a taxable account, it would still be a challenge to keep your AGI under 50k because of the dividends. A typical Vanguard large cap index fund has about 2% dividend rate. So, if you have 2.5M there, that would do it. One alternative I can think of would be to own assets that do not produce dividends or regular income, e.g., land.
More than earned income goes toward AGI. Tax-deferred retirement withdrawals, capital gains, interest, and dividends all go toward AGI. Sure, it’s not poverty level, but it would be quite a change in my lifestyle. I plan to have more than $50K in taxable income every year for the rest of my life.
Good luck with your plan. I’ll be surprised if you go all the way through with this and actually qualify your kids for Pell grants.
At this point the 529 is what I would call a plan. Trying to get zero EFC is about staying flexible and keeping my mind open to all and any options. It may not be an option that I would choose in the end if getting qualified for it becomes more detrimental to the greater financial picture. I think I just wanted to show that it is something that is presently possible and how it was possible, since Toshi brought up qualifying a child for financial aid as an early retiree.
It reminds me of LiveSoft’s Bogleheads thread on paying $0 in taxes on an income of $200K. While possible, it’s generally not something most with that sort of income really want to try to achieve. https://www.bogleheads.org/forum/viewtopic.php?t=87471
Very interesting and I think it’s very doable if you plan it ahead of time. I agree that this is no different than estate planning. One caveat is that CSS would not use the same formula so all bets are off with that. Accordingly, those CSS schools (which include most highly ranked privates and publics) would not be an option if you want to go through this route.
Yeah, CSS is much more difficult (probably impossible, but I haven’t applied myself to that yet), hence the reason to have enough in 529 plan to not exclude those schools. And yes, if the federal government is dissatisfied with someone qualifying for zero EFC, then they should change their formula – and I have a high suspicion that they will by the time my kid/s enter college. I am not opposed to anyone else benefiting from it for now.
Yes, your 529 would come in handy for CSS schools. If I were the student and can get into a UC Berkeley or UCLA, I wouldn’t miss most CSS schools. I tried playing around with the net price calculator at UC Berkeley. For an in-state student with zero EFC, they give grants of almost $25k, requiring the loans of only about $8k to cover the entire budget. That’s a great deal if you can take advantage of it.
Interesting goal for a physician. Why not just pay for the schooling?
I do not expect financial aid given our large nonretirement savings (and running the numbers at my alma mater we do not qualify for their “10% of family income if income <$100K" financial assistance.
Note that, if your children go to college after you retire, you may qualify for need-based student aid. (Basic summary – colleges require parents to spend up to 5.6% of their assets on college expenses, but generally assets held in retirement accounts are exempt from this requirement. And, of course, colleges also consider the parents income in determining the “expected family contribution”, but if the income is low post-retirement the expected contribution may be modest). Bottom line – depending on the specific family situation, expensive private colleges funded largely by scholarships and need-based aid may be an option.)
if you live in the northeast or I guess the west coast you will need around 3-4 million in assets plus ss when you retire
most will need at least 30yrs to be financially independent
Ken- how’s that? If you have $3M at a 4% SWR, then that would be $120k, plus another $30k or so from SS, totaling $150k. With no need to save more for retirement, and no housing payments because it’s paid off (better be if you are saving $4M), then what in the world do you “need” $150k a year for? Sure, you may choose to have a lifestyle that requires that, but that is a lot of traveling and eating out and payments on nice cars. This post speaks to the variable nature of “need”- you can decide you are ok with a more moderate lifestyle, and that’s your perogative. But no one truly needs $3-4M in invested assets to retire, regardless of where they choose to live.
Needs are so diverse. Some NEED the security so they use a 2% SWR, which without any growth would last 50 years, others NEED to spend 200k a year in retirement, others NEED to FIRE. I guess everyone has to find out their NEED and plan around it, realizing that your’s is different than everyone else’s.
My plan is to be financially independent 10 years out from residency, which will be age 45. I am an anesthesiologist in a private group practice in a moderately sized Midwest city.
At just over 2 years out I paid off my student loans. A year later I have now paid off my mortgage, which was relatively small (1/3 annual income). During that time I have also contributed to my roth IRA, 401(k), VUL (no need to debate pros and cons here),g and my daughter’s 529. We live close to work so I can walk and we only need one car. Our vacations are mostly to see family or go camping, though occasional bigger ones occur.
At 10 years out I plan on having a net worth of just over $2.5 Million. With about $1 Million in taxable and HSA accounts, and the rest in various retirement accounts and my house. I’ll live off of that $1 Million for 15 years till age 60, at which point I will begin tapping my roth IRA (the 401(k) will have slowly been converted over to a roth IRA to lessen taxes). At age 66 I will begin tapping my VUL, and at age 70 social security. My wife’s will kick in a few years after mine.
I don’t plan on doing nothing during retirement and will likely do occasional money making endeavors. I might add on 1-2 more years of work, or switch jobs to fewer hours. I might become an Uber driver. Who knows? I’ll have options.
The actual retirement date is a moving target, but I was able to afford retirement within 10 years, hitting the FI number about 9 months after I learned of the concept.
Keys to success were living like a resident for a couple years (see Lessons from Locums guest post here on WCI), working like a resident quite a bit longer, and not overspending on anything but our primary home.
We spend nearly triple MMM’s family, but do like his message. But I do have luxuries like a second home, a boat that could pull a wakeboarder with its 90 hp, and we drive our non-luxury cars quite a lot. I do bike to work half the year, though.
Geographic arbitrage has also been on our side, earning a higher than average salary, while living in low cost of living areas has been a boon to our balances.
Thanks for the article A nice ying to the yang of the 14 Reasons Not to Retire Early post.
-Physician on FIRE
Great post and comments! This topic is something most of us consider but don’t discuss much. Becoming FI in 15-20 years is easily achievable for most physicians who can control their spending. I’m glad to see the references to “3%, 30 years, 33x” etc. I think that is closer to a SWR for an early retiree with decades to go rather than the oft quoted “4% rule.” Jim Otar’s book and excel models convinced me of this.
Great post except for stating that a house is an investment. It’s not.
https://www.whitecoatinvestor.com/a-home-is-an-investment/
http://www.nytimes.com/2016/07/17/upshot/why-land-may-not-be-the-smartest-place-to-put-your-nest-egg.html?_r=0
For your own property-Add the increase in value (maybe 1% real on the land, probably negative on the building itself) to the value of the dividend (i.e. free rent) and it’s still a decent investment.
For an investment property, add the increase in value to the rents plus a little tax benefit and amortization of the loan if leveraged. It’s still a good investment.
http://www.mymoneyblog.com/imputed-rent-early-retirement.html
Here we go, rich dad poor dad….
I just want to comment about the 3% vs 4% rule.
Historically speaking, 4% has worked almost all the time except for a few key time periods in history. Basically, a person retires and shortly afterwards they hit a significant down market of which they can’t recover. Therefor the best way to protect yourself from this event is to have options. Let me explain in this example:
Let’s assume a physician who want to live on $100k/yr holding a 50/50 portfolio of stocks and bonds who has $2.5 million. Now lets assume the day after this physician puts in their notice the stock market tumbles into a 5 year recession. What should this physician do? And how can they protect their nest egg allowing the market time to rebound.
First off, $100k a year is a pretty luxurious lifestyle. I am sure that this family can accept a few years of cutting it down to $80k/yr All it means is take one less fancy vacation, hold off on some big purchases and maybe eat out a little less. All in all, not that big of a deal.
Bonds currently are paying about 2% in interest, therefor the 1.25 Million in bonds will through off $25k/yr
Also stocks pay about 2% dividends. Lets assume the market gets hit really hard and dividends are cut by 50%. Those stocks will be paying out another $12.5k a year. So, we have already got about $37.5K out of the $80k we need to survive. Therefor we will need to make up the difference of $42.5k So why not just save 5 years of $42.5k in a 5 year CD ladder. Basically instead of saving $2.5 million for retirement you save $2.712k. In reality you created a 3.69% withdrawal rate.
I think this is a reasonable hedge if you are very concerned that 4% is just not enough.
Adjusting as you go is clearly the key.
if you retire early health ins premiums for husband/wife is quite significant
In Nj its 25k plus
what % of physicians retire at their current lifestyle
PS-you can do better than 1-2% in bonds easily
I actually like Ken’s point here, people who have, or are planning to retire early, how do you budget for health insurance?
Same way I do now. I pay 100% of the cost now and deduct it and fund an HSA. I’d do the same if I was retired.
if you want out b/c you hate your job why on earth would you continue doing it for 10 more years? Pay off your loans and get out! You’ll be doing yourself (and probably your patients) a favor. Are you really going to be at your best at something you hate doing? Life is too short to spend an additional 7 or 8 years after loan repayment doing something you hate.
You would be young enough that you could have a whole different career ahead of you and while it might not pay as well, the money isn’t the issue anyway if you are willing to make the financial sacrifices required with this scheme.
For many physicians it is not the choice of medicine but the change in medicine. I signed up to take care of patients not enter useless data in a computer so I can bill at higher levels. I won’t retire but I will pull out of mainstream medicine. Way too frustrating anymore.
What if you were assigned an ma or someone to enter that data for you?
Would you stay in mainstream Medicine then?
I don’t think so. It is more than data entry but that is just a symptom to of all that is wrong with medicine today. That along with emphasis on billing, physician extenders, rules that do not add to patient care but only to patient waiting times, etc. I thought I would work until I was n my 70s. I am getting out in my 50s and will volunteer in other countries where you can still do medicine the way we should be doing it.
“how to punch out of medicine in 10 years”
I have been practicing medicine for many decades, and hope to keep doing it as long as I am effective. I have cut back some, but still work close to 40 h/week.
I hope that most of you are satisfied and happy with your choice to be a physician and to take care of patient.
If not, then adios. Many and I mean many folks will be happy and feel fortunate to take over for you
I would hope that most would be happy with their choice, but sad experience has shown me that is not the case. I think I saw a survey a while back that more than half of docs would retire today if they could.
I think that survey question is not the same as “are you happy with your job?” My answer would be yes to because, to me, “would you retire today if you could?” implies that you would have enough money saved to do the things you enjoy in retirement (travel, hobbies, pay for kids’ college, etc). Doesn’t mean I don’t enjoy my work, just means I’d rather be golfing.
I agree it’s not the same question, but I think it is the more important question. For instance, I could walk away from medicine today without a significant change in my standard of living. So now the only question I have to answer is whether I like it enough to keep doing it when I don’t have to do it. My answer is yes, I do. But the answer for many docs is an outright no.
Agree 100%. I mostly enjoy my job on balance. However, given a reasonable amount of money there are things I enjoy more, not mutually exclusive. This is the problem with surveys/polls, so much depends on how its worded.
I think you’re missing one important point: most industrialized nations, the US included, have or will soon be facing doctor shortages. There’s obvious geographic variation, but overall this is indisputably true.
I wonder often if the administrators and bureaucrats who keep making our jobs more burdensome and annoying have taken the time to consider the global affects they have on the workforce when people (like many you read here) keep feeling compelled to say “screw it”.
So: No, “many folks” will not be able to “take over” if docs increasingly decide they’d rather not keep at it.
. The dr shortages in first world nations are in the rural areas where salaries are highest but where the least amount of people want to live. Those are the ideal places to be FI in 10 years. And yes when a dr leaves there there may not be someone who can take over but in the cities and suburbs they will be fine
Not only does it take a decade for a new person to take over, but those new people are likely to be about the same, attitude-wise, as the ones currently in the physician workforce. And increasing the overall numbers (the bottleneck right now is residency positions) is surprisingly difficult for various reasons.
I think this will be alleviated by NPs and PAs for most lower level and primary care things.
I always thought it was strange when med schools increased their enrollment due to pressure from the government but there wasnt an increase in residency positions to match. How does this help solve the problem? Makes little sense.
For some things there may indeed be a shortage, and others possibly not so much. The projections have gone from one extreme to the other depending on when you look.
If I took the cynical/pragmatic view of things I’d say a shortage is coming, obvious and avoidable…but seen as an expense the country cant bear longer term. Let it happen, build urgency then use the long/costly training to insert mid-levels to take up the slack and decrease the aggregate cost to the system. Maybe even say its a temporary thing, but once people do well enough and get used to it, its there forever.
What the increase in med school positions without an increase in residency positions will do is simply increase the percentage of practicing docs in the US who went to US med schools. Fewer FMGs will match and the match overall will be more competitive for all specialties.
That makes sense. I looked at the 2016 data and it appears there were 27k ish total pgy1 positions, and only 18k ish US allo seniors with 3k osteo. That leaves a pretty good chunk for fmgs still.
Issue seems to be US students dont want to go into certain specialties, only 60% of primary care matches were US seniors, 45% fam med, and 68% peds. Not sure if just increasing enrollment will change things materially but of course cannot say when there is such a significant supply issue. Interesting problems.
*numbers rounded for simplicity
not that I can predict stock market returns, but you put up a real rate of return of 5%. the market has returned about a nominal 5% over the last 16 years now which would equate to about 2% real, and this is with an accommodating federal reserve who is ready to go to negative interest rates. I think we are all stuck working 80 hours a week until we drop to be honest.
I just got a similar email. I’ll tell you the same thing I told him. If you don’t like my assumptions, do the calculations using your own.
I use 5% real for calculations like this because my 75/25 portfolio over the last 12 years has earned 6% real. So 5% real seems very reasonable for me to use long-term.
I dispute your assertion that the stock market has had a return of 5% nominal over the last 16 years. The actual figure, using the S&P 500 as proxy (from Jan 1 2000 to Jan 1 2016) is 4% annualized as can readily be seen here: http://www.moneychimp.com/features/market_cagr.htm. Adjusted for inflation, that falls to 1.83%.
However, if you look at the last 30 years instead of 16, you get 7.61% real. If you use 13 years instead of 16 years, you get 6.65% real. If you use Jan 1 2000 to Jan 1 2009, you get -6.05% real. The figure is obviously heavily dependent on the period you look at and you have cherry picked a relatively bad period.
If you can tell me what the returns will be over my investing career, I will gladly use that figure in my calculations. But until then, I’ll use what seems reasonable to me and you’ll have to adjust the calculations to your own needs as you see fit. I think projecting 1.83% real returns forward for your entire investing career is likely to result in you oversaving and underspending. But it’s your life and your money so use whatever you like for your calculations.
5% real, after-tax, might be reasonable, though a bit aggressive. This requires 130k investments in each year, all in equities. Psychologically, this is extremely difficult for most people, and many would find it devastating when a situation like 2008 occurs. For comparison sake, why not compute a scenario using safe investments, and retirement spending at a minimally reasonable rate for doctors.
Compare your approach to setting up safe investments ala Bill Bernstein’s Liability Matching Portfolio. At the same time assume that the retirement income needed is at Daniel Kahneman’s 75k happiness level. Investments would be in either a TIPS ladder or inflation adjusted annuities. I’m not actually suggesting this approach, but wouldn’t it be a good idea to see what a safe investment approach at a minimally acceptable spending level looks like?
I think I remember reading that WCI’s portfolio is only 75% equities and has done 6% real. I don’t think you have to have 100% stocks to do 5%, in fact, the studies show that some bonds can be very beneficial. However, if someone can’t take a market drop like 2008, then they should have more in bonds and plan on working a few more years to make up for the difference in risk.
However, as WCI has mentioned, most of this is moot as the vast majority of the money is coming from the savings rate, not the returns rate on a short investment timeline.
You don’t know that 5% requires all equities unless your crystal ball is much clearer than mine.
Sure, take a look at what a safe investment approach provides. Then decide if you’d rather take a little risk with the probable reward of more money to spend in retirement.
Of course everyone is entitled to change any assumptions made. My point is that I believe that your base case assumptions seem overly optimistic. My suggestion would be that those who want to retire early do all they can to rapidly pay off loans and mortgage, as you suggest. Invest as much as you can in a portfolio that meets your level of risk aversion, considering the realistic possibility of a negative sequence of returns or possible deep risk. Live frugally, but be realistic about the amount of spending you can live with now and in retirement; my guess is that few would want to live with an annual income much less than 75k. Set no dates for retirement; see how it all plays out, year by year. Maybe you will get lucky and be able to retire in 10 years. More likely it will turn into 15-20 years.
Of course you should see how it goes and make adjustments. But at a certain savings/spending rate, being able to retire in 10 years has very little to do with luck.
Thanks for the money chimp website. I used something else.
Thank you for the great blog and information.
I just think its important to be realistic about real world events and adjust one’s plan depending on what that real rate of return is. I just used 2000 because that’s when I started investing.
But the truth of the matter is if the federal reserve were not accommodating and left the fed funds rate in the 4 or 5% range, I can guarantee there would have been no real growth in the stock market. The whole thing is fog and mirrors so I believe its important to constantly evaluate one’s portfolio and adjust accordingly.
This is a terrible retort. Why on earth would the fed do that? It is literally their job to respond to the economy. If aliens came down and wiped out our accounts it also wouldnt matter what asset allocation we had.
In what world does a 4-5% ffr make any sense for right now, it just doesnt. We cant go based on what should or couldve or might be if “every one else woke up” kind of scenarios. Those are things usually touted by the Hussmans and other permabears of the world who prey on people with severe anchor and psychological bias to the last couple crashes.
No, we do not know what the future will bring. However, even given it being lower growth, that does not mean a lower rate of return will result in less purchasing power and everyone eating alpo. This has an effect on all prices to where a lower realized return will likely have the same purchasing power after taking into account the greatly reduced frictions we have today.
No one knows exactly what the future brings. People keep telling me that stocks must go down and oil is obviously going up…but that aint been happening either. I prefer to let the prices tell me whats happening.
2000 was a great year to start investing but a lousy time to stop!
I find guarantees very difficult to make.
If you feel the public markets are “fog and mirrors” there are other places you can invest, such as real estate investing in your home town.
The actual retirement date is a moving target, but I was able to afford retirement within 10 years, hitting the FI number about 9 months after I learned of the concept.
Keys to success were living like a resident for a couple years (see Lessons from Locums guest post here on WCI), working like a resident quite a bit longer, and not overspending on anything but our primary home.
We spend nearly triple MMM’s family, but do like his message. But I do have luxuries like a second home, a boat that could pull a wakeboarder with its 90 hp, and we drive our non-luxury cars quite a lot. I do bike to work half the year, though.
Geographic arbitrage has also been on our side, earning a higher than average salary, while living in low cost of living areas has been a boon to our balances.
Thanks for the article. A nice ying to the yang of the 14 Reasons Not to Retire Early post.
Cheers!
-Physician on FIRE
Funny that you write on this topic because I am on this train already. Not that I hate what I do but that I am not sure if my job will be there 20 years from now with mid level encroachment in my field. Already paid off ~ 180, 000 student loans and save up ~ 140 000 while still in residency. Wife also works which helps with saving and she is on board with the plan as well. Hope to finish training with ~ 250 000 in saving and save ~ 200 000 a year for 10 years straight. I will probably continue working after FI but I will have a parachute if things go south.
The numbers in your post are bizarre. What kind of training program would exist where paying off 180K in loans and saving 250K is possible? As a resident my highest aspiration is to fund a Roth IRA, and even that is requiring a lot of sacrifice.
I’m with you, but see two possibilities. The first is a high income spouse. The second involves moonlighting like a fiend.
We struggled to max out Roth IRAs on my resident income of $40K.
It’s possible and there are ways… most of it rely on income optimizations and being very frugal. I traded a lot during medical schools and in residency which helped pay down the debt. Also made some monies off a foreclosed house I bought with student loans. Wife’s income is same as mine. This was a goal I planned since medical school though … .
@Whitecoat: Interesting post! What asset allocation would you suggest for the hypothetical 1.38M nest egg portfolio to sustain a 3% withdrawal rate for more than 50-60 years?
My wife is a stay-at-home mom. If I die tomorrow, she would receive 3 millions term life insurance. I sometimes wonder what would be the optimal asset allocation portfolio in this situation to sustain a long term 3% withdrawal rate…
Asset allocation is a very personal subject. What’s right for one may not be right for another. But most reasonable allocations (read this post to see some: https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/) should be able to support a 3% withdrawal rate in my opinion.
Why would you expect to know the optimal asset allocation for a given time period in advance? If your wife has no interest in investing, the optimal thing may be a simple life strategy or target retirement fund. It may also be sending her to a competent, low-cost advisor to design, implement, and maintain the investing plan. It could also be a simple SPIA, especially if indexed to inflation, for a large chunk of it.
Great post. It can be psychologically devastating to get through a decade or more of grueling training and a mountain of debt only to discover you don’t really like being a physician. Sadly I think this is more common than we may think. I wonder how many of those physician suicides are due to this feeling of being trapped, unable to escape. I think any physician should be able to walk away before 45 (assuming finishing residency around 30) and still live a pretty luxurious lifestyle. It requires a lot of discipline and not doing many of the typical ‘doctor things’ but is doable. It doesn’t take 6 figures of spending to feel rich and live a life of obscene abundance.
For more info, see The Happy Philospher’s post on How to Retire by 40
http://thehappyphilosopher.com/how-to-retire-by-40/