By Dr. Jim Dahle, WCI FounderWe occasionally get requests for more posts about doctors who are on the cusp of retirement or already retired, so I thought I would highlight the situation of a doctor who posted on the Bogleheads Forum looking for advice. The relevant material in the post was as follows:
“I am a 74-year-old retired, divorced physician with two sons and a partner who lives separately on a similar amount of assets. I currently have $2 million in investments with an advisor charging 0.7%, and I'm afraid to do this on my own. I have two homes, each worth about $1.8 million. The summer home has many expenses but no mortgage and is adored by my children. The winter house has a $360,000 mortgage at 3.1% and I want to keep both houses for now. I choose to give my kids big extras now, so they don't have to wait until I die. One son is in the arts, and I've said I would pay for childcare if he has children. My two sons are getting married, and I would like to give one $100,000 for a home purchase in the next 2-3 years.
I had expected to follow the 4% rule but am finding I need 5.5% to cover my expenses. I was in 60% equities before COVID. I sold 90% of my equities in mid-2022 because I could not afford to hold and make it in retirement. Now I'm back in stocks with 20% of my portfolio (all big American companies including LLY, NVDA, Google, Meta, V, MSFt, Cost, ADBE, AMZN, AAPL) with the rest in bonds, including Treasuries, munis, and corporates. I am thinking about switching to Bogle Vanguard index funds—e.g. [a] three- or four-fund plan. But since I am actually retired, will this give me the 5.5% return?
I know I will save some on management fees, but what would Bogleheads recommend as I find I need to go into my capital? Are there other recommendations for people actually in retirement, not just saving for retirement? I would need to get a Vanguard personal advisor, but will they send me cash each month? Are they reachable if I need to make a change? Sometimes I feel the Bogle plan is one-size-fits-all, and with this state of the world, I feel I need help financially adjusting to pandemics, wars, and now a good economy which could go bad depending on the state of the world! I don't want to run out of money!”
I think there are nine things to learn from this example—some for this doctor and others for those who are not yet at this stage.
#1 Doctors Can and Should Retire with Great Wealth
It does not appear that this doctor is particularly knowledgeable about personal finance or investing, and it doesn't seem she's been doing a particularly good job managing her assets so far. Yet despite doing that AND probably cutting her assets in half in a divorce, this doc still has a net worth of about $5 million. Imagine how much more that could have been when combined with a dose of financial literacy administered early in her career.
#2 It's Pretty Easy to Be ‘House Poor'
House poor is when you have a lot of wealth but it is all tied up in your house. In the case of this doctor, there is $3.6 million tied up in her two houses, but the remainder of the assets total up to just $1.64 million ($2 million in investments minus a $360,000 mortgage). Two million dollars is a big portfolio but not when it is being asked to support a lifestyle that includes twice that much in housing. Selling one of those two houses changes the assets-to-housing ratio from $1.64 million/$3.6 million to $3.4 million/$1.8 million. Dramatically different. Robert Kiyosaki might not have gotten everything right, but he sure was right about the house you live in being a consumption item, not an investment.
More information here:
How to Buy a House the Right Way
#3 You Can Do Anything You Want But Not Everything
This doc has lots of financial goals. She wants to pull 5.5% out of her portfolio. She wants to give her son $100,000 and cover childcare. She wants to maintain both houses. She doesn't want to marry her current partner and combine assets and housing. She wants someone else to manage her investments. She doesn't want to run out of money. She could do any one of those things. She could do most of them. But she probably can't quite do all of them. She's going to have to decide what her priorities are.
#4 Get Rid of Your Debt Before You Retire
Making mortgage payments in your 70s is a drag. It's a drag on your cash flow. I don't know what the monthly payment on that $360,000 mortgage at 3.1% is, but let's say it was originally a $700,000 30-year mortgage. The principal and interest payments on that would be $36,177 a year. While the return on paying off the mortgage would be 3.1% (or perhaps even less after tax), the cash flow that would be freed up would be more like 10% ($36,177/$360,000 = 10%). That beats the socks off of 5.5%, much less 4%.
#5 Lots of ‘Financial Advisors' Suck
This “financial advisor” is charging $14,000 a year, and they allowed this investor to sell low and are now encouraging her to buy high. That's terrible stock market behavior. What's the point of an advisor who can't keep their client from doing that? And why hire an advisor at all if you're going to control the investments yourself? What's up with the individual stock picking and performance chasing, too? It's one thing to pay too much for good advice. It's entirely different to pay too much for bad advice—not that there is any price low enough for advice and service like this doc is getting. If this doc had been using index funds for the last 20 years and had, with the assistance of a good advisor, managed to curb bad investor behavior, her nest egg could easily be two or even three times as large.
More information here:
How Do You Know If You Are Getting Good Advice at a Fair Price?
#6 Too Many Older People Don't Understand the 4% Rule
The 4% guideline basically says you can withdraw 4% of your portfolio a year, adjusted upward for inflation each year, and expect it to last at least 30 years with a high degree of confidence. How do you apply that in the life of a 93-year-old client? You don't. It doesn't apply. That 93-year-old is not going to live 30 more years. They probably won't live five more years. Let's go back to that Trinity Chart and see what it says about shorter time horizons.
Note that the study didn't even bother looking at five- and 10-year periods. The shortest period on the chart is 15 years. There's nothing useful here for 93-year-olds. But I'm willing to go way out on a limb here and say a 10% withdrawal rate is completely reasonable for a 93-year-old. That's probably going to last 8-15 more years, and that's going to be plenty.
What about a 74-year-old? What's the life expectancy of a 74-year-old female? It's 13 years. It's not bonkers to use the 15-year line in the Trinity study. You can be conservative and use the 20-year line or be ultra-conservative and use the 25-year line. If she has a 50/50 portfolio, she can withdraw 7% a year and expect it to last 15 years 84% of the time. Bump it down to 6%, and it's surely going to make it. So, 5.5% isn't going to be a problem. Even if she lives 25 years, 6% would work 70% of the time (and 5% would work 87% of the time), and it isn't like she can't adjust as she goes (i.e., sell one or even both of the houses).
#7 It's OK to Spend Your Capital
I'm not sure where the old maxim “Never spend your capital” came from, but I suspect it was from a bunch of immortal vampires or something. The rest of us are going to die at some point, and may we all be lucky enough to be heirs of someone who thought they weren't supposed to spend their capital. If you have a $2 million portfolio and never spend your capital, you're going to leave at least $2 million behind that you could have spent yourself or given away to charity with warm hands. Probably more like $4 million. Plan to spend some of your capital in a reasonable way during retirement. It's OK; you won't live forever.
#8 One-Size-Fits-All Is Actually Probably a Fine Way to Manage Money
This investor feels like she needs an individualized portfolio—a portfolio that can be adjusted for pandemics and wars and good economies—and an advisor that can be reachable in the event she needs to make a change. None of that is likely true. The honest truth about asset management is that we could all probably be dumped into the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) (or maybe the Conservative Growth Fund if we're 74) and be just fine. Seriously. Something reasonable, anything reasonable, is going to work when combined with adequate funding and a reasonable withdrawal rate. Thinking we need something special probably just costs us more in advisory fees and hassle.
More information here:
Retirement Spending Is Ridiculously Tax Advantaged
A Framework for Thinking About Retirement Income
#9 SPIAs Are Great for Those Worried About Running Out of Money
A big fear for this doc is running out of money. She won't ever actually run out of money because of Social Security. But she doesn't have to set the floor on her spending that low. She can raise it with a Single Premium Immediate Annuity (SPIA). A SPIA purchased by a 74-year-old female pays 9.2%. Let's say she's getting $40,000 a year in Social Security. She can take $500,000 of that nest egg, buy a SPIA with it, and raise that floor from $40,000 to $86,000. No, that SPIA isn't adjusted for inflation like Social Security (that's why delaying Social Security to 70 is the best SPIA you can buy), but she's also 74. There aren't that many more years ahead of her for inflation to rear its ugly head. Using some of the nest egg to pay off the mortgage and some of the nest egg to buy a SPIA dramatically improves her cash flow, especially when she realizes she can easily take 6%-7% of the rest each year and spend it without much fear.
The decumulation phase can certainly be more complicated than the accumulation phase, but this stuff isn't rocket science, much less nephrology. You can figure it out, and even if you need a little help, you can find someone who can provide that help at a fair price.
What do you think? What takeaways do you have from this real-life example? What advice would you give this doc?
This doc’s scenario is a textbook case for using a risk-based guardrails (RBG) withdrawal strategy. X% rules are ham-fisted at best – rough approximations of how much money one might need in the kitty to retire with, but terrible for using as a withdrawal strategy. And if she’s doing it that way, why in the heck is she paying an investment advisor 0.7%??
Any variable-percentage withdrawal (VPW) strategy would be better for her. An RBG strategy would be even better, providing her with a maximum spending level based on her current portfolio’s actual value coupled with an adjustment trigger – up or down – based on when her portfolio value hits an upper or lower guardrail. If she could find an advisor who uses that approach it might be worth paying for rather than a ‘roll your own’ BH simple portfolio approach.
As for your other suggestions, I can’t add anything else. I especially love the “you can have anything you want; just not everything you want” observation.
Yes, spend it down – portfolio and all. Yes, investigate a SPIA (maybe wait until 80, though?). Yes, get out of individual stocks and into index trackers (hopefully without taking too big of a LTCG tax hit).
Until I was confident that my finances were secure, I wouldn’t 1) give $100K for a house down payment or 2) agree to pay for childcare. Also, I think she should consider selling one of the houses.
I am only 62 and probably have as much with my spouse as she and her ex had before their divorce if it was in the past decade. I was unable to convince myself to give with warm hands until my mother-in-law died leaving money she should have spent on herself or given to her grandkids. Now I am willing and able to distribute to our kids good portions of what she left my husband and let him trade in his old boat for a new one so long as he names it after her. Likely we could have afforded to do it without the inheritance but since we had not counted on it I am pushing myself to technically remove it from our retirement plan. However I also find myself more willing to go out to eat or tip well now that our coffers are a little fatter.
This is so true. Hit my retirement savings goal a few years ago, but still enjoy surgery a lot and clinic sometimes, so just plugging along..
I love how you say “giving with warm hands”Mom passed last year.
I kept telling the folks – I know you were saving for the future, but the future is NOW! Your kids are all financially fine! Spend with abandon! They just were not spenders (1st gen immigrants). Don’t get me wrong – they traveled a lot and she had a fabulous jewelry and clothing collection, but would take a $10k cruise but not order a beverage with a meal bc beverages are overpriced. They funded scholarships at their respective alma maters to the tune of about $1M but agonized over how expensive the cheesecake was at Cheesecake Factory. Sigh.
Now my net worth is doubled by my share of her retirement funds (if I don’t include my real estate holdings). Dad still alive. Majority of their net worth still with him. Her non Roth retirement funds must disburse to me before 10 yrs is up. Ugh. I’m in a high high tax bracket.
When dad passes (probably 10 years hence at 100) the whole taxable RMD thing starts again. It’s not a bad thing, but not what I expected.
I always used to hear about seniors who had to eat Alpo (dog food for you younguns) in the 1970s, but I’m realizing I might make as much in retirement as I did working. They pulled more in retirement than I do as an orthopedic surgeon. Incredible!
Some folks are spenders and some are savers. I don’t have kids, have 5 paid off SFH as rentals and without those, have 3x net worth of the example doc.
I’m doing the opposite of example doc. Have always done everything myself – taxes, investing in RE, picking stock but now ready to turn it over to my parents’ advisors whom I’ve known for years but haven’t used since I was a poor student. Time to start paying fees and spending with abandon to make sure I don’t have too much left over. Time to start “giving with warm hands” but wow, if I were worried about giving $$$ to my kids at 74, I would really reassess if I were just enabling folks who need to stand on their own.
Die with Zero would be a good book for you to read.
Interesting that “afraid to do this on my own” is coupled with several outsized wants. She appears to be alone notwithstanding an advisor whose services has produced this inquiry and should be fired on the spot. It isn’t clear whether the investments are in an IRA or similar retirement account or a regular taxable brokerage account. I suggest starting with some accounting help with budgeting to get on a sound financial footing with no debt and appropriate liquid cash equivalents. Also possibly counseling as I read this. The investment part will then take care of itself. Not sure if WCICON replays would help, the Bogleheads University videos might, and reading The White Coat Investor and The Little Book of Common Sense Investing are musts.
Dr Dahle, I think you did a great job analyzing this Doctor’s question and situation, so I don’t have much to add. Regarding the advisor, if she overrode the Advisor’s advice and made the decisions to sell out of equities initially, then I would give a bit of a pass to the advisor. It’s not clear from her statements whether that is the case but I do recognize it as a possibility. My other thought is that maybe she should watch a bit less news and thereby not worry so much about economic calamity.
Love your work. Thanks.
It’s also interesting that this post was written long before the election, much less the market events of April 2025.
I agree about the advisor. She really needs someone to guide her better. Or at least align her goals closer to reality.
I would personally be uncomfortable with her overall plans.
Regarding the houses, it is a pure luxury in this day and age to have a second house. Especially if unused half the year or more. I don’t know what a proper calculation would be, but I wouldn’t want a second home unless I were worth twice what she has. Maybe not even then. I would consider turning one into a rental and if the kids love it enough they can rent it a few weeks out of the year.
Otherwise if it were me, I would sell it. If not, I would personally downgrade the other priorities. Childcare alone in the California Bay area can hit 30k a year. Per child.
I agree with renting out the vacation home if she wants to keep it. She could rent it out for the academic year and use it during the summer months, or even rent it out for part of the summer; doing this would likely cover the expenses of maintaining the house, so it wouldn’t be a drain on her finances.
Red flags abound in this situation. Age 74 and $360,000 mortgage don’t belong in the same sentence. Unless you can enjoy this place for just a couple more years of snowbirding and then sell it for more than what you paid for it, it would be wise to consider selling it now. I think renting a winter place for 2 to 3 months out of the year would still save you a lot of money. And if you gift your son $100,000 to help pay for a home, remember that you will be withdrawing more than that because you will have to cover your taxes from that large withdrawal (unless it’s from a Roth). And taking out that much money at once will likely move you into a higher tax bracket. It’s noble of you to want to help your adult children but you may need to reevaluate the size of your gifts to ensure that you stay financially solvent. We always hear to pay yourself first when saving money while we are working. You need to pay yourself first when in retirement as well!
My one hose is 1/2 of what hers cost’s and I have 2.5 times what she has invested. I agree with much of what you have said. Does her partner pay anything on the mortgage? The summer house could be a rental if you don’t use it frequently, but you would also need to plan early on when you want to use it to schedule the rentals. Everything comes with a price. One way to decrease the likelihood of moving into a higher tax bracket would be to give your child the money for healthcare or a house in 2 different years. you could give half in Dec. and the other half in Jan.
Interesting read. Why is it that the withdrawal portfolios often are a mix of only stocks and bonds? Seems other assets mixed in there can give a higher withdrawal when back tested. I think you should get Frank Vasquez from risk parity radio on the show. The Trinity study only included two asset classes (stocks and bonds) likely for simplicity. The concept of the study is excellent that there are sequence of returns risk and therefore you can’t take out say 8% per year even if your overall average return is 8%. However the 4% number is conservative over a 30 year drawdown.
Hopefully you’re right. I’ve included real estate in my portfolio hoping for some of those benefits.
I haven’t heard mention of the most appreciating asset in history.. Bitcoin
Even Larry Fink CEO of Blackrock(#1 asset manager in the world with around $12 Trlllion assets under management) recommends adding it to your portfolio.
You’ve never heard mention of Bitcoin in the WCI community? Really? Here are a few articles:
https://www.whitecoatinvestor.com/reasons-to-invest-in-bitcoin/
https://www.whitecoatinvestor.com/top-7-uses-for-bitcoin/
https://www.whitecoatinvestor.com/cryptocurrencies-like-bitcoin-are-not-investments/
https://www.whitecoatinvestor.com/bitcoin-maximalist/
My general recommendation is if you want it in your portfolio, limit it to 5% of your portfolio. I don’t own any.
This was good. I think you should do more of these analysis.
There usually isn’t as much detail or as much to discuss as there was in this case.
Understood.
I know that her advisor may bear some blame, but I doubt he advised her to sell when stocks were down and then buy back in when they were up. I also wonder if he may have at least brought up the fact that she doesn’t appear financially able to give all that money for child care and a house down payment. And I hope he at least brought up the possibility that she can’t afford to keep both houses especially one with a lot of expenses and the other with a mortgage. I suspect there was some “client override” component at play. There are several options here but the first needs to be a realistic budget, especially if she’s that concerned about running out of money. Just like you can’t outwork a bad diet, you can’t outplan too much/unrealistic spending.
For sure, we’re only getting one person’s view of what was discussed.
No mention of how to cover long term care
But the search function on the blog still works as well as ever.
https://www.whitecoatinvestor.com/long-term-care-insurance/
I think that more than anything this doc need a financial advisor. Not because the spectrum of options as presented by Dr. Dahle won’t work, they will. But because navigating those options requires making critical decisions based on the doc’s priorities and expectations in the context of her finances as presented and the inevitable vicissitudes of financial markets. While it seems that this doc has sufficient wealth to live a good life in retirement it only takes a few bad decisions to screw it all up. The surest thing that I noticed in this case as presented was the propensity to make bad decisions. Whether it’s because of bad advice or inadequate diligence on the part of the doc in this case is difficult to discern. Navigating this very common situation is not rocket science and certainly not as complicated as the subleties of nephrology. But intelligence alone, without the proper effort and diligence leads to bad decisions. And bad decisions in retirement (or close to it) can be cruelly unforgiving. Dr. Dahle has devoted much effort and diligence to the art of personal finance and mastered the art more than most personal finance professionals. He understands that the hardest challenge here is not so much which investment funds to choose, but how to avoid making the bad decisions that can be devastating to older docs. Lastly, bad advice is rampant in many disciplines that touch our lives, in my view certainly much more so in financial services than in medicine. However, knowing when you need advice, and then putting in the effort to diligently choose those who advise you can be very rewarding. This especially true as you get older.
1) Definitely a consultation with a financial planner/retirement planner would be helpful in giving you a direction.
2) Start with creating a budget/balance sheet. Determine your income vs. expenses and how much is needed to cover the expenses. 2 million invested should provide 5% income ($100,000).
3) Cover the childcare and house down payment with tax free gift of 1583/mo to each child. $100,000 gift would result in income tax payment/loss of $25,000 and your son only gets $75,000.
4) Consider researching and obtaining long term care insurance. You don’t want to become a burden to your children.
5) Convert IRA funds to a ROTH. Convert as much as you can without going into a higher tax bracket. ROTH funds transfer to children upon death, tax free and the interest made in the account accumulates tax free.
6) Invest money into 529 plan. Funds accumulate tax free and are used to pay for education of any of your descendents.
7) Increase your withdrawal percentage to 7-8%. You have a 75% chance that it will last 20 years. That should easily get you around $200,000/year income and if that is not enough consider consulting work or reviewing cases for malpractice attorneys. Easy on the side money.
These are my suggestions. Take them for what they are worth.
Going back to work is a nice move the first few years of retirement, but maybe not the last few.
I’m seventy working half time as an anesthesiologist. I see maybe another year and that’s it for me. I managed a decent retirement despite some impressive bad investments. I managed our IRA’s up until several years ago and chose to go with an advisor (with a known tract record) for one main reason. If I die first, my wife is just not adept at managing money, and is far too trusting of others. My current advisor is restricted to only managing our Fidelity accounts, pulls 0.07% per year and sends monthly our distribution as well as sends off our federal and state taxes. So if I die, her life goes on without a skip. Could I manage it better, yes. But the peace of mind for me is just a life cost.
0.07% is an impressively low AUM fee. So low I fear you may be mistaken about it.
Agree completely John. I’m same age and working part time too. Funds managed by empower. They send monthly distribution after removing the taxes. Peace of mind is worth the cost.
Always amazed at how poorly doctors manage money. No insight, no discipline. No wonder Dahle has made a fortune at telling them how
The truth is doctors really aren’t much worse at it than most Americans. It’s just so much more tragic to mismanage such a high income (plus they get targeted by the financial services industry and so are a little more likely to get bad advice.
I would suggest sell the vacation home and put all the proceeds into index linked funds such as S and P, NASDAQ. Reality check for the children. Rent a vacation house for a month in the summer and gather the family once a year.
20/80 stocks/bonds? Not going to give a high enough yield. Without knowing this individual’s expenditures and income it is not possible to go further. I have never had more than 10% of my assets in bonds, and have had averaged returns of 11% on my investment and retirement funds. But you have to put in time and effort in research yourself, or spend resources on an advisor. And have the stomach to ride out vacillations in the market. If you cannot do that, purchase an annuity to secure your own income. Stop pretending to the children that you are wealthy.
The other big thing missing is the cars, the two things that kill people are expensive cars and homes. Easy to acquire but will take a bite out of the wealth. Discretionary spending on wants related to expensive vacations that need to be managed appropriately when retired.
To be fair, most docs can own most cars and still build wealth reasonably well.
The management fee at Vanguard Wealth Services starts at 0.3% and goes down with greater investments so that is a saving right off the bat. Others may offer competitive rates.
One can have an advisor at Vanguard dedicated to you with $500k and up. They can model withdrawals, etc with sophisticated software and use some of the lowest cost funds and emphasizes tax efficiency and can guide your decumulation. Accounts over $5 million get more sophisticated planning and even trust services.
An important point is one cannot borrow for retirement. Financially assisting children is my goal too. But I told them the education is on me, but your career choice is yours and hence your lifestyle. I fund education and emergencies, but not lifestyle. I too intend to leave little in the way of inheritance, but assist along the way, but not to the extent that I jeopardize my ability to be financially independent.
FYI: Vanguard plans on a lifespan of 100 unless otherwise directed.
At least at Vanguard you know you’ll get reasonable asset management. I wouldn’t expect any physician specific financial planning help though.
The world is overfull of self appointed experts
Ding, ding, ding…agree with your assessments. Financial literacy in this country is abysmal.
She may even be worse than it seems. Depending on where the homes are, she may have just gotten lucky. People on the coasts have seen their homes quadruple or quintuple in value. Thus, she may have only saved 2 million over her life and gotten very lucky on spending on two homes. Holmes in the midwest have only doubled over the last 30 years. Thus, people on the coasts feel real estate is a much better investment than those of us in the Midwest. That may not be true of the future. It’s getting to the point where there aren’t as many people to buy homes at that price level.