By Dr. James M. Dahle, WCI Founder
Retiring early as a doctor is surprisingly difficult given the typical doctor income. There are four main reasons for this – the heavy debt load to enter the career, the very late start to earning a significant salary (most physicians leave residency at an age older than some FIRE bloggers retire at), the temptation of a high income, and the “doctor factor” I'll get into later. Despite those challenges, it is still possible if it is something you would like to do. In this post, I'm going to tell you how to become a “Doctor on FIRE” (FIRE = Financially Independent, Retire Early) in seven not-so-easy steps.
#1 Join a Community
The vast majority of doctors are never going to FIRE. They aren't even interested in FIREing. Even if they wanted to, and occasionally dream about it, most of them blew it in their first five years out of residency. They didn't take care of business (retire debt quickly, save a bunch of money up) and they got used to spending that physician income. It is so painful to cut back on spending that few will be willing, or maybe even able, to do so sufficiently enough to FIRE. So you're not going to get any encouragement at the hospital. In fact, you will likely be DISCOURAGED by your colleagues because your retirement means more work for them (or worse, they have to go out and hire someone else.) So you're going to need to “get your lovin' at home.” My suggestion? Join a community. We have three or four communities here at The White Coat Investor including this blog, the WCI Forum hosted right here on the site, the Facebook Group, and over at Reddit.
But there is a community even more focused on physicians who want to FIRE. Join the community at Physician on FIRE! This anesthesiologist on the verge of retirement in his early 40s has built an impressive community of like-minded docs at his blog and his two Facebook groups, Physicians on FIRE and FatFIRE. There you will receive not only “how-to” knowledge, but more importantly the encouragement and camaraderie to be successful.
#2 Get Rid of Your Debt
By the time they leave medical or dental school, most doctors are debt-numb after living on Monopoly money for years. Then it becomes worse. Physicians don't bother making significant payments on their student loans for 3-7 more years. Dentists borrow another half million for a practice. However, I know lots of docs that have or will FIRE. Very few of them have significant debt. The two just don't go together. Crushing your debt quickly improves your cash flow, reduces your fixed expenses, allows you to use your income to build wealth instead of service debt, and strengthens your “financial muscles” enough to allow you to do the next couple of critical steps. Is it possible to FIRE while carrying debt, or even while using debt as your ally? Sure, but I just don't see it happening very often. Almost everyone I know on the verge of FIREing or who has already done it is debt-free. You might want to think about why that is. I mean, correlation is not causation, but it's hard to argue against at least some element of causation here.
#3 Save a Bunch of Money
I'm amazed to see people advocating financial plans that don't require saving a bunch of money. These get-rich-quick, no-money-down schemes are exactly that. Within a few years, most who try them end up right back where they started, if they're lucky. The unlucky ones go bankrupt. You don't borrow your way to wealth. It takes a lot of money for a very early retirement. At a minimum a few hundred thousand. For most doctors? At least a couple of million bucks. Given that an early retiree (who also got a late start) won't have as many years for compound interest to do its thing, the majority of that nest egg is going to come from brute force saving–you're going to have to carve it out of your income. Luckily, you've got a lot more income than the typical American, much less the typical citizen of this planet, so it's not THAT hard of a task. But saving money is like being physically fit–it doesn't look that hard until you actually try it. Then you realize those habits are actually kind of tough to establish and maintain.
#4 Cut Expenses
If it sounds like I'm beating the same drum with each of these points, that's because retiring debt, saving money, and spending less are all very closely related. However, I distinguish between them to make some important points. When you spend less and save more, you're winning on both sides of the ball. You're burning the candle at both ends. When you spend less, not only do you have more, but you NEED LESS. I know of no better explanation of this point than the well-known Mr. Money Mustache post entitled The Shockingly Simple Math Behind Early Retirement. I reproduce his very reasonable data here:
[Correction: The 10% line should read 51 years, not 31.] As a general rule, a typical doctor doesn't retire early AND spend like a typical doctor, either before or after retirement. Maybe if you have a high earning spouse, are a genius investor, or had a big inheritance. But for most, you've got to be comfortable living on less than half of a typical doctor income. The higher your income during your working career, the easier this whole process is, but only if spending is held constant.
#5 Lose Your Identity as a Doctor
This one might be the most difficult for many docs. Certainly, it is hard for me. A typical doctor decides she is going to be a doctor sometime around 8th grade. For two decades, from middle school until the completion of fellowship, this has been her dream. Her family has referred to her as “the doctor” in the family for as long as she can remember. The neighbors bring their kids over to be checked out. She likes being the expert. She likes saving lives and stamping out disease. It's even flattering when the emergency doctor calls needing her expertise, at least when it's before 10 pm. Doctoring isn't just what she does, it's who she is. In order to FIRE, that has to be turned off. This is harder than those in other careers can possibly understand.
In my case, we've got enough money to not doctor anymore. In fact, we would probably have a higher income if I would quit practicing and spend more time on this crazy “side hustle.” But it turns out I actually like doctoring after all. I have dreams of volunteering internationally. I'm curious to see what else I can accomplish in medicine. Not to mention that it probably makes WCI a little more authentic if I'm actually still a practicing physician. Certainly, it keeps me in touch with my readers.
So how do you step away from medicine? I think it helps to do so gradually. It's just easier to go from 1/4 or 1/2 time to not practicing at all than to go from 60 mph to a dead stop in 2.3 seconds. It also helps if you don't actually like practicing or if there are a lot of things about it that you dislike. But mostly, there just needs to be something else you'd rather spend your time doing. Speaking of which….
#6 Find Something to Retire To
The unhappiest retirees I know, of any age, are those who retired FROM something rather than TO something. We all know someone who was vibrant and healthy, retired, and then became depressed, sick, and maybe even dead within just a few years. I'm convinced that this isn't just a matter of health and good luck. In order to be happy, we need purpose. That purpose is often related to our paid work but doesn't have to be. Exhibit A? Look at all those happy stay-at-home parents.
If you want to retire early, you'd darn well better find a new purpose either before retiring or shortly afterward. I think it's easier to retire at retirement age because there are many others your age doing the same thing (not to mention your remaining life is much shorter.) The earlier you retire, the more lonely the experience is likely to be. What will your purpose be? I think it's different for every early retiree, but here are some suggestions:
- Paid work (a career change to another profession or an encore/passion career – as a rafting guide or artist)
- Volunteer work (perhaps even as a physician)
- Raising kids
- Caring for elderly parents
- Recreational pursuits
#7 Slow Your Roll
As physicians, we start charging hard at least by the time we're sophomores in college, perhaps earlier. We endlessly seek to become more and more productive each year. Wasting time is a major sin. Guess what? The rest of the world doesn't roll like that. They're perfectly fine with spending two hours on breakfast and the newspaper. I know a successful businessman who watches a half hour of TV with his wife each night. I had no idea that such things were possible. I cut sitting down for breakfast out of my life a long time ago! I mean, you can eat, listen to a podcast, and commute all at the same time, no?
Many docs haven't even seen a 40 hour work week during their entire career. So retiring early is probably going to involve cutting back a bit on how much time we spend being productive. Yup, waste some time. It'll be good for you. Interestingly, I'm amazed at how much more I can accomplish in less time when I waste some time each week. Imagine if I wasted some each day!
There you go. Seven key steps to not only becoming financially independent, but actually retiring early.
What do you think? What traits do you think a successful physician early retiree needs to have? Could you retire early? Why or why not? What would you retire to? Comment below!
#1 is especially important. online communities are a nice place to start. It would be nice if that transitioned to real life community
All great points. I think uncoupling wealth and income is one of the biggest keys. As you said, if you use that high-income and live on half (or less), these goals are attainable. But, only if we actually use that high-income to catch up to those who started saving ten years before we ever could.
I will say that I’ve heard it time and time again from people are interested in retiring FROM medicine, that when they simply went part-time they found out that they loved the job again. They were just doing too much of it and didn’t have enough time to recharge.
In the end, what really gets people to early financial independence is almost all behavioral finance. Like working out, consistent and determined discipline is required. If people will just sit down, determine the life that they want to live, how much money would be required to live it, and then save enough money each month to get there while sticking to the plan… they would all reach their goals.
And I completely agree about the community aspect of all of this. I’ve got a post coming up about how we mirror the habits of those around us. Really interesting stuff.
I did not know about FIRE and TWCI until about age 50.
I have ramped up my savings (401A with a match, 457, SEP)
and purchased a “downsizing” home.
I still have a couple of years left to go on my plan. Unfortunately, my MIL had a stroke and that has added a wrinkle.
Hopefully, I’m still out by age 58. I’m still in good health at ~ 55 and continue to save as much as I can and retire debt.
According to the table it’s better to save 10% than 15%, 20, or 25%. I assume that’s a typo?
Yep, from Mr. Money Mustache’s original article it takes 51 years (not 31) to save enough for retirement with a 10% savings rate. That said, this assumes a 4% spend rate, not spending down the corpus, excludes Social Security, etc. Those folks with a savings rate below 20% probably are going to depend on Social Security for a sizeable chunk of their income in retirement.
Shoot. Good catch. I’ll have to fix that.
Nice summary of some of the financial and non-financial aspects of RE. I kept reading the byline to make sure this was WCI and not PoF!
We tend to focus on the money part, but the meaning, structure, time management, and purpose part are huge. Retiring as a physician can be traumatic at any age. It is a culture shock. RE can be even more dramatic since your peers are likely still working. Suddenly you are at home when you never used to be. It can confuse everyone.
I think WCI traditionally recommends saving 20% of gross income. Everyone is different. Personal finance is personal. But as a general rule, I recommend a higher savings rate. More like 30-40% of gross. I once picked the 38% level as the ideal, but that was too odd to become popular.
At any rate, that all works out similar to the 50% net rate listed above. MMM popularized it, but it is actually from NetWorthIfy.com
Starting at age 31 and a savings rate that high will result in FI before age 50. Personally, I feel the years of work, stress, change, and demands of this difficult career. 17-20 years of clinical practice is a long time. FI gives you options. You can cut back, semi-retire, change career, or stop working for money completely.
Having the knowledge and getting your finances in order will give you the power to live the life you want. Keep reading WCI, PoF, PIMD and the other physician finance writers and bloggers and you will control your own destiny!
I’m an early career pediatrician and was lucky enough to find the “live like a resident mantra” while still a resident. It helped shape or lives. We avoided some of the big financial mistakes and are being somewhat aggressive with savings and debt payoff.
And then finding FI was a game changer. I like medicine but I love my family and am glad that we have chosen a lifestyle that allows us to take jobs that are family friendly while we pursue FI.
How to retire early or not. Reaching for financial independence at a young age gives you the option to keep working on your own terms. I agree that the doctor-ID is hard to give up. I love that financially prudent doctors have an online community. In real life these are delicate matters. To me the best decision was to invest until it hurt in my 30s.
I think #6 is my biggest hangup at the moment. I’m on track to be ready to retire just about the time my last kid is finishing college (55ish). With them all being super young at the moment, all I can see is retiring to hang out with them/be stay at home dad, but that’s not realistic for where they’ll be at that point.
May wind up doing the titrate off described above. Work half time in a few years so I can spend time with them, but keep the half time up for longer after they’re gone.
Great post Jim to wrap up 2018.
You are correct that being surrounded by like-minded people can certainly help achieve your goals and I was very fortunate to have found Physician on FIRE’s website at the very beginning and become a part of a great community there.
For me I never had being a doctor play a major part in my life. It helps that I am a radiologist where most patients don’t even realize that we are doctors. I wear casual clothes to work which is a huge bonus for me (I have worn my white coat less than 20x in my current practice of 12 years, and likely 3-5 x for official purpose).
A word of caution on Mr Money Mustaches chart. It assumes that you will continue to live on the balance of cash given the savings rate to get there. If I save 100% of my income for 1 year does not mean I can retire the very next day unless I have an unrealistic expectation of living on the 0% of money I needed to get to that savings rate. For me a whole year of 100% net income would buy me probably 10 years of living and thus I would definitely run out of money if that was my only source.
The 100% is weird the way it seams, but the way the chart works is that if you save 100% that means you spend 0% every year and that 100% will last forever. Same as if you save 60% that means you are living on 40% of your income. To put it in an example.
If you make $100k/yr after taxes and you save $60k and live off of $40k. According to that chart in 12.5 years you will have enough money invested to live on $40k/yr indefinitely including inflation. This is based on a 5% growth after inflation for those 12.5 years. Thereafter one will spend 4% of their wealth in their first year retirement and adjust annually based only on inflation.
The key is prolific saving and passive investing
Read wci book as well as bogle and Malkiel
“If you can. How millennials can get rich slowly”
A pdf online by William Bernstein sums it all up in 14 pages
Read it and pass it around
thanks Len–I always like to get my younger doctors to read Bernstein. This one’s even more pithy than his books!
I love #7. At 46, hubby and I are FI, but only he is retired. The past few years, I’ve been enjoying relaxing and having down time. It’s pretty amazing. Not going to retire yet, because I’m a pediatrician. I get to talk about poop and snot and tickle kiddos for a living.
Agree #6 (and #7) are difficult for some of us, in part because the need for raison d’etre is what got is into medicine. But it’s a good exercise to look hard at what you want the rest of your life to look like and what meaning for your family.
I reduced by one half day last year, now at 80% time, including one day telemedicine from home, and already feeling ants in my pants. My company likes us to go to pasture at age 60, no part time allowed then. We enjoy a self-contained Mayo-like ecosystem (it’s not Mayo) so it’s not appealing just to jump to another practice at that point. If you have good resources on the process for finding the next career ( or even how to choose a good career coach) this would benefit people like me. Or perhaps on on-line community focused on #6.
honestly, if you personally asked me, I would say that the best way to retire early is to get started on your side hustle with a part-time or full-time job and here’s why. working on your side hustle while gainfully employed allows you to have a plan B intact. More so, it also puts you in the mindset of turning your side hustle into your full-time gig, thus relying less when the traditional form of employment for your biweekly income. Believing in yourself and starting a business early also helps you to have less financial dependency on employers, credit cards, mortgages, and not being at the mercy of gold diggers. LOL
3 reasons why I have yet to retire:
1) Over the last few years I have been slowly titrating down work with a huge off load this year. I started at 60-70 hours a week and now down to about 20-30. And you are correct that I now enjoy medicine so much more. Taking this slower path has increased my time frame for FIRE by a few years. Not a big deal though.
2) Working less is better. Because I work fewer hours, I am much less stressed at work. The few things that used to bother me don’t seam to affect me anymore. I don’t mind needing to stay a little late and finish something up or to chat with a patient and family just a little bit longer. Actually the extra time with my patients helps me enjoy my work so much more. I am now thinking that maybe retiring is not something I want.
3) Structure. It appears that I need some structure in my life. I notice that if I have too many days off in a row, I start going to bed later and later every night. Eventually I am in bed by 4 or 5am and sleeping easily past noon. By having work intermingled with my days off, I am forced to get back on a schedule and this 5am business doesn’t creep on me.
4) The cash. Once you reach FI, every additional year working adds a lot to your wealth. It becomes hard to stop even if you don’t really need the money. Maybe one more year and I can afford a wake boat, and that classic car I have been dreaming of. We make so much that it is very hard to turn the money away. This is especially true when the work is so much easier when working part time.
Whoops, thats 4 reasons. Looks like I forgot how to count.
See?—going part-time made you lose your mental edge—jk
I actually with all of those points, well said!
The increased cash flow is nice, even if you’re just using it to give to charity.
I’m a 55 year old physician contemplating retirement in a couple years. I’ve probably been financially independent for a while now with 3 paid off mortgages (home, summer resort home, winter resort home), a defined benefit pension, and about $800,000 in tax sheltered savings.
My reasons for considering retirement are several fold:
1) My wife is retired and would like to travel more and spend more time at the winter home in the sun belt
2) My wife had a recent health scare and that’s made us realize we need to get working on the bucket list
3) I’m starting to get fed up with hospital administrations and constantly fighting for every little thing my patients need to optimize their health
4) The workload has been getting progressively greater as the administration keeps doctor numbers down and pushes more work for the same wages
5) Being super-specialized and the only such specialist in the region for 22 years has meant I’m never really free from someone’s beck and call. Time to let someone else shoulder the load.
6) I have so many hobbies I’d like to have more time to enjoy while I still have health (golf, tennis, cycling, travel, gaming, reading). The concept of getting bored in retirement baffles me.
I’ve looked at my retirement income that I’ll have available to me provided I sell the summer place we rarely use anymore and as a childless couple my wife and I will earn $220000 as a household yearly until we both die. If I can’t survive on that kind of wage for not working, something’s gone terribly wrong. I think the key for my wife and I was never really getting too swayed by lifestyle creep. Saving money and investing and purchasing real estate rather than fancy cars really helped our portfolio.
Anyways kudos to doctors looking beyond the now and thinking of the future. There is nothing so freeing as knowing you can retire at anytime.