[Editor's Note: This is a post from WCI Network Partner Physician On FIRE. It originally ran here. It is a bit of a counterpoint to the article I ran last month entitled Top 5 Reasons to Retire Early. On this same subject, you may also appreciate a more pessimistic article I wrote a few years ago entitled 14 Reasons Why You Shouldn't Retire Early (which was apparently partially responsible for motivating PoF to start his own blog!) Enjoy!]
In a previous post, I shared with you the Top 5 Reasons to Retire Early. Next up in the Top 5 series, we have five reasons not to consider it.
The Top 5 Reasons NOT to Retire Early
# 1 You Love Your Job
You had a life-altering experience as a teenager. You made up your mind that you were going to help people. You studied your butt off for the next seven years and got into medical school. After three to six years of residency and perhaps another year or three in fellowship, you’re finally doing it! You’re a real doctor and you’re making a difference one patient at a time.
This is what it’s all about. Truthfully, there are moments nearly every workday that remind me that I made the right choice and make me feel good about being a physician. When I do decide to move on, there are aspects of the career I will miss dearly.
A big part of my job as an anesthesiologist is to ease the fears and anxieties of my patients and their loved ones. We sometimes employ feel-good drugs to accelerate the process, but it’s often nothing more than a confident smile and a handshake, or connecting with a child at her level.
If you love what you do, and don’t mind the nonsense and ever-shrinking hoops you’re asked to jump through, that’s a great reason to keep working. If you don’t love it, but mostly like it and enjoy the steady paycheck, that’s a good enough reason to keep working too. I’d put myself in the latter category for the time being.
Once you’ve reached all of your financial goals, ask yourself a simple question: If your job transitioned to being a volunteer position (no compensation whatsoever), would you keep working? Would you scale back? The answers will help you decide if you truly love your job. If the answer is yes, you can keep right on working, because you love your job!
# 2 You Can’t Afford It!
That private college was expensive. So was medical school. Sure, you lived like a resident… in medical school.
In residency, you leased a luxury SUV. You bought your dream house when you got your first dream job, and put it on the market two years later when it was time to look for your next dream job.
I’m not blaming you, I’ve made some unwise choices too. We make many financial decisions that will have consequences, good or bad. Some we will never regret. Other choices will have our older self wondering what on earth the younger self was thinking.
It’s tough to save money. Two car payments, a mortgage, and property taxes on a million dollar home in a high cost of living area, private school. These things cost serious $$$!
Never mind what the studies say about spending and happiness (they say having more than $50,000 to $75,000 per year doesn’t significantly increase happiness)? They didn’t study you, did they? You’re not keeping up the the Dr. Joneses, you are Dr. Jones. They all wish they could keep up with you.
You worked hard for this. And you will continue to work hard for a very, very long time, because once you and your family become accustomed to living a certain high-cost way, it’s really hard to scale back.
And what about college? 529s??? You can barely afford to max out your 401(k). You’re going to want to work until the kids have finished college. Then work some more to pay for a lavish wedding or two. And have you seen the price of arugula at Whole Foods? You don’t want to follow me down that rabbit hole! Don’t retire early; you can’t afford too!
# 3 You’re Walking Away From Millions!
Let’s keep the math simple. If you can expect to make an average of $250,000 a year and retire at 45 instead of 65, you’re walking away from $5 MILLION in gross earnings. That’s a huge pile of cash. Of course, in the real world where we pay taxes and such, it’s not so simple, but an early retirement can be costly.
All these homes could be yours
The only way I could justify walking away from millions is by having millions when I walk away. Sure, I could have more millions, but at what cost? I don’t need them, won’t spend them, and at some point, I will no longer be interested in trading time for money in the prime of my life.
Those additional millions will lock me into a higher tax bracket in retirement. It’s a good problem to have, but if I can save up 30x to 40x expenses, another 30x is simply unnecessary. I do feel a tinge of guilt when I think about the good I could do with additional money by donating it to causes better than my retirement living. I plan to eliminate that guilt by building up my Donor Advised Funds to about 10% of my nest egg before I leave clinical medicine for good.
“The only way I could justify walking away from millions is by having millions when I walk away.”
Gordon Gekko wouldn’t walk away from millions, and neither should you, so keep on working, for more millions!
# 4 You Don’t Know What Else You Would Do
After 20 years of 60-hour workweeks, you haven’t really had time for hobbies. The last time you had a week off and didn’t go anywhere, you felt lost and couldn’t decide what to do with yourself.
I hear this affliction is actually rather common. I’ve heard of plenty of physicians failing retirement. They stop working but not working simply doesn’t work for them. I think this is especially true if a spouse is still working.
It is said that it’s best to retire to something, not just from something. Part time work or a sabbatical can help people find out what that thing or things might be.
Personally, I can think of at least 50 things I’d like to do with more free time. But you’ve got to do what works for you, so keep working, what else could you possibly do?
# 5 You Need The Health Insurance
This is a big one for the early retiree. Unless you have a working spouse with health benefits, have retiree benefits from a previous employer, or expect to have Tricare after serving in the military, you’ll need to figure out how to bridge the gap from your early retirement age to the magical Medicare age of 65.
The Affordable Care Act (if it survives) can come into play here. If your MAGI (modified adjusted gross income) is reasonably low, which it should be in an early retirement, you can qualify for a subsidy. For a family of 4 in 2017, MAGI needs to be below $97,200 to qualify for the lowest subsidy in the lower 48 states. For a couple, it’s $64,100, and $47,550 for an individual.
Lacking a good crystal ball, I’m not going to pretend to know what the health insurance landscape might look like in five or ten years. What I can do in the meantime is max out my HSA and plan on carrying a high deductible health plan. After all, if you are concerned about a $5,000 or $10,000 deductible making retirement difficult, you don’t really have enough to retire.
You need to be protected from the $500,000 bill that can come from having a medical catastrophe with no health insurance. As long as you’ve got that full time doctor job, you don’t need to worry about any of this, so keep working, for the health insurance!
What do you think? What’s your #6? Why would you choose not to retire early? Comment below!
These are definitely important points to consider. It’s nice to have some points and counter-points to help analyze big decisions like early retirement before pulling the trigger.
“The only way I could justify walking away from millions is by having millions when I walk away. ”
To retire early you’ll likely need savings measured in millions anyway. I wouldn’t suggest someone stay with a job JUST because it was high-paying and they could continue to build beyond what was calculated they need.
These are good points. The only thing stopping me from early retirement is that I can’t afford it yet. 😉 But if I had all of the financial capabilities, I would retire early in a heartbeat. It’s different for folks who love their 9-to-5, but I don’t.
That would be reason #2 — you can’t afford it — yet. But I know you are making good progress.
Cheers!
-PoF
Those are all good reasons to keep working. Our issue is #3. It is based on my wife’s pension. If she retires at age 57 she gets $57k. If she retires at 60, she gets $64k. If she retires at 62, she gets $82k. Over the course of 20 or30 years, the difference adds up to a great sum of money between retiring at 57 and 62.
We call those golden handcuffs, Dave.
When they’re well-defined in a pension, the effect of retiring early is plain as day. But even for other high income professionals without a pension, the effect is real.
I’ve discussed the impact of one more year at length (http://www.physicianonfire.com/omy/). In summary, if my after-tax compensation is $200,000, working an extra year gives me an extra $8,000 per year in the retirement budget based on a 4% withdrawalr rate.
If your comp is $300,000 after taxes, five more years at that earning level gives you an extra $60,000 per year every year in retirement. There are very real consequences to an early retirement. But if you have enough already, and prefer to have more free time while you have your health (and perhaps kids at home), continuing to work for that extra money can have serious consequences, too.
Of course, it doesn’t have to be all or none for some of us. I’m slowing down to part-time this fall.
Cheers!
-PoF
Hmmm 5 more years yields an additional 60K per year. Thanks for laying out that math. I hadn’t seen it that way, but it is helpful to think that way.
I believe there are other options besides working full-time that may preserve the pension benefit. In my situation, the state pension plan requires that an employee work at least 50% FTE to accrue credit for the defined benefit formula. My eventual plan is to cut back to about 60% time in the next several years. More time to go flyfishing and pursue different business opportunities.
All great points, very good summary.
#5 – The health care expenses have just become like the center of existence for some. No easy way. I am self employed and I know the pain. I think of it like a tax – on money or time or both.
I know we will be paying a lot for healthcare, but it’s difficult to budget for it with so many unknowns at the moment. I hope we will have at least some of those questions answered in the next couple years.
I will be giving the healthcare sharing ministries a closer look as we get closer to making the transition to paying our own way in retirement. Currently, I am employed and only pay for a portion of my health insurance.
Best,
-PoF
Related to the need for health insurance (#5), remember that medical tourism and simply moving to another country where health insurance is affordable are definite possibilities. But in reality, #5 is just a more specific and narrow version of #2. If you can truly afford retirement (at any age), you can afford health insurance or its alternatives.
Excellent point, William.
Even Mr. Money Mustache himself saw his spending increase by ~25% last year due to healthcare costs. Of course, he can easily afford it, but I would be hesitant to retire on a budget that doesn’t allow for healthcare costs rising faster than inflation.
Best,
-PoF
Yes they were paying virtually nothing when their boy broke his arm. They are still fortunate to not have many medical issues (no prescriptions, etc.). Many of us who are older and with lesser bodies/genes have huge annual expenses for testing, surgery, and medicines. They are growing in cost with no end in sight.
I have said many times that the unknown of health insurance keeps me working.
I feel that someday I will pursue an early retirement, but unless if it’s forced on me, I believe I would feel much better about it in my 50s rather than 40s, despite my goal to reach complete financial independence by age 40.
My biggest reasons are possibly feeling a lack of purpose and loss of a revenue stream. There are many ways I could see myself spending time if no longer working (family time, exercise, reading, sports, classes, travel), but after a few years I do wonder if I would get bored. I do want more time for that stuff, but I do recognize that I will never be better at anything in this life than medicine, and I’m not sure how soon I can give it up.
I also recognize that although I can comfortably live on 80 to 100k per year, it may be hard to always restrict myself to this level of spending. There will always be large unexpected expenses or the occasional home remodels, etc that we will want to pursue. Not having any earned income stream can make these difficult, and feeling dependent on the market for returns may not always seem fun.
My plan is to cut to part time hopefully 5 to 10 years prior to retirement. It seems like that would bring the best of all worlds
Sounds like a great goal and a great plan, MD.
It would be nice not to have to worry about money. When you retire with just enough to cover your basic needs or even a current somewhat luxurious lifestyle, you may not have the wiggle room that someone who worked a few extra years to accumulate a significant surplus will have.
I’ll end up putting in at least a few extra years of full-time work after FI, and probably a couple years at a part-time, as well. I also anticipate having some active and passive income streams even after I’m retired from clinical medicine.
Congrats on winning my book giveaway, by the way.
Cheers!
-PoF
At what net worth does health insirance consideration become a non issue?
I figure this number is a function of age, and whether or not you have employer sponsored insurance or benefits.
Well, at age 65, it’s pretty much a non-issue, since Medicare kicks in, although you will still have health care costs.
If you want to assign a number to it and be really safe, you could plan on health care to average $20,000 to $40,000 a year until age 65. If you want to retire at 45, you’ll need to cover that cost. To be extra conservative, we’ll assume flat returns on invested money. To cover that cost straight up would cost $4000,000 to $800,000 over 20 years.
Add a number in that range on to the 25x or 33x your anticipated non-healthcare annual expenses, and you’ve got a rough idea of how much you’ll need.
If your employer is going to cover healthcare after retirement, it’s a lot easier to compute.
Best,
-PoF
The health care auestion has my physician wife paralyzed. It is not just the cost, which as has been noted, could be substantial. The question is whether insurance companies will be allowed to return to the pre ACA practices of denying coverage altogether or dropping people when they get sick. This was a real problem before ACA. Fifty year olds could not buy a policy at any price in some states. High risk pools did not work. And insurance companies could decide that you were too sickly to continue covering and just kick you off their ledgers.
With repeal of ACA a real pissibility those “good ole days” could be back.
I suspect (and hope) that any new iteration of the ACA will keep that feature. It’s an awfully popular one no matter your political party and just good policy.
Health care is the giant scary unknown with retirement expenses. It would be great if state medical societies could offer individual insurance plans like they did prior to ACA.
I didn’t retire very early because I loved my job. I suppose I hung around that one last year just because I didn’t want to walk away from half a million that year. Then when I realized I had more than enough invested and the work had stopped being fun enough I did walk away from millions because once you’ve got enough millions why would that be a reason to keep working? I’m not a doc, just an engineer. And at 60 I left work to go straight into two days a week of side gigs that still make six figures of play money that keep me intellectually challenged. I don’t need the money but it is still fun to feel useful and the side gigs don’t carry the stress my old career had. They are pretty much all fun.
My kids are my golden handcuff. A desire to help them pay for higher education is the most likely thing to keep me in the work force longer than otherwise necessary, and my current workplace has a great dependent tuition benefit. Two of them aren’t even into elementary school yet, and once all 3 are in school they will be busy and have activities etc. and I can only do so much with them even if I was retired.
So my goal is not FIRE in my 40’s, but a flexible schedule while working full-time (which is what I have now). When the first one hits college in a decade I’ll see where things stand. At our current savings rate we’ll be into 7-figures for our retirement accounts in 5-7 years (barring a Depression type market), and we’ll be increasing our savings rate in 5 years when our massive daycare bill should be completely gone. Or at a min we’ll have way more financial flexibility.
My #6 would be a role model for my kids- seeing a productive, respected and successful dad-doctor ( although I’m not so sure if I’m truly all that :)) is better than dad that’s “retired” – not a huge inspiration or confidence-builder for young minds.
That’s a good one, S.
I wrote a more personal piece detailing why I didn’t retire when I first hit FI at 39 (http://www.physicianonfire.com/top-5-reasons-didnt-retire-39/), and that was one of my reasons. Although, it’s probably better to be a retired Dad that’s very involved and present in their lives than a respected physician who is not.
If you can be a respected physician with plenty of time and energy for your kids and their activities, that’s the best of both worlds.
-PoF