Q.

Lately my wife and I have been looking at future budgets and the possibilities of getting a plane later (I know your post about boats/planes).  We wanted to know if you thought this was reasonable.

We will either live in a small town (50K population) in Oklahoma or Texas.  On our $400K gross income, we’ll be able to put about $11k per month in after tax dollars into investments.  We’re considering saving only $7-8K per month and getting a boat and/or plane. At what point do you reach a saturation on investing for retirement?

After running the calculations we reasoned that we’d have less money in retirement, but figured what’s the real benefit of retiring with $10 Million instead of $5 Million?

A.

What a difference between your lifestyle and that of the physician last week considering the purchase of a starter home costing $1.25 Million!  You guys can probably buy a mansion on a couple of acres for $300,000 in your small town.  Your question is a good one (and one that I struggle with at times too.)  At what point do you say enough is enough and go spend some money?


My rule of thumb for retirement saving is that you should save 20% of your gross income toward retirement.  With your $400K income, that’s $80K, or less than $7K per month.  Once you are saving that much, I don’t think you should have a lick of guilt about spending or giving away every dollar you make above and beyond that.  I do think you should consider a few things first though.

First, airplanes and boats are exceedingly poor “investments.”  They say a boat is a hole in the water into which you throw money, and after owning a boat for a couple of years, I can testify that’s correct.  Ownership of these expensive toys is usually far more expensive than you at first realize, so budget very conservatively for these items. Planes in particular have high fixed expenses including storage costs and annual inspections.

Second, young physicians (and I include myself 6+ years out of residency) often have other (non-retirement) financial needs and goals they need to save for.  We often have inadequate emergency funds (especially given our new spending habits), some high-interest debt, and little to no college savings for our kids.  These things are all above and beyond the “20% retirement savings rule.”  So you should ensure your plan covers these items as well before committing to an expensive hobby.


Last, keep in mind that your income isn’t static.  While we may hope our real, after-inflation, income will rise throughout our career, the trends in physician reimbursement are not reassuring in this regard.  Physicians in many specialties are working harder and making less than they were 10 years ago, and between Obamacare, the growth in ACOs, bundling of payments, and the very real concerns about the cost of Medicaid/Medicare, I suspect the trend may continue or even accelerate.  There’s something to be said for “making hay while the sun shines.”  Saving $50-100K a year now for retirement may be far easier than it will be ten years from now.  It isn’t like you couldn’t sell the plane in a few years if your income drops, but you ought to at least consider the possibility of a decreasing income in your plans.

What say you readers?  How do you decide when enough is enough?