How soon should doctors be able to retire?

The financial blogging world seems to be obsessed with who can retire at the youngest age. We’ve got thirty-year-olds hanging up their hats and traveling the world proclaiming that they are done with the regular workforce.  Obviously there really isn’t much of a standardized amount of money that one should have when they retire, other than a fixed multiplier of annual expenses on the oft-bastardized Trinity Study results.

25x? 35x? 36x? 40x?

Having a multiplier on your annual expenses instead of a fixed number like $10 million allows people to reach an achievable number based on individual needs.  And boy is there a wide range of net worths out there. I recall seeing that Pete of Money Mustache fame hung up his hat after accumulating around $700,000 in his early 30’s. Not bad. Pete, however, is one handy guy who has the right attitude of living like a king spending only $25,000 a year for a family of three. The math might not work if you like driving a Hummer H2 to commute 60 miles roundtrip to work each day.

Jacob Fisker of Early Retirement Extreme fame became financially independent at age 30, and “retired” at age 33. Mind you, he has a doctorate degree in physics. I have a friend who got his physics Phd at age 32 still has a negative net worth.  I don’t recall exactly what Jacob’s “magic number” was, but I do recall that he probably holds the record in spending what I consider to be almost no money. Bravo.

On the other end of the spectrum is my fellow physician blogger, Physician On Fire, whose exceptional level of fitness is matched by an exceptionally impressive net worth of around $3 million at age 41 despite only started on a real job after training in his late 20’s.  By his meticulous calculations, he is indeed financially independent and can start cutting back on his work soon enough.

Even higher up on the absolute bank account value spectrum is Sam from Financial Samurai, who truly is one hard worker living in a high cost of living area. After leaving the financial sector, Sam built up an impressive array of passive income streams that continue to fund his net worth.

In fact, many of the early retirement folks, by virtue of discussing their financial journey online, are able to generate ancillary income that supplements or even replaces income from their prior careers. Interesting world we live in, eh?

The doctor dilemma and early retirement

I finished my training in my early thirties. I had a solid negative six-figure net worth to my name then. I actually came across Money Mustache before it became a cult following, and promptly forgot about it because I didn’t think that this sort of hogwash applied to doctors. Why?

It seemed foolish to go through such a traumatic, challenging, and life-changing decade only to hang up your hat prematurely. Society has invested in your education, you’ve invested in your education, and your family has also sacrificed for your education. Are you really going to throw it away because you don’t like the way healthcare policy has transgressed?

The Smart Money MD Solution to Early Retirement

 

I like practicing medicine. There aren’t that many jobs out there that directly compensate you so well for clinical skills.  I also hate dealing with hospital politics. I am also currently not financially independent, so I still have to continue working in the meantime.  However, the goal is not to quit a soon as you can. You just need to build up enough of your net worth that your primary job as a doctor isn’t a necessity for survival.

Work at least as many years as you put into becoming a doctor.

 

If you spent four years in medical school, and three years in a family medicine residency, you need to work a minimum of seven years as an attending earning a six-figure salary.

If you spent five years in medical school, one pre-residency year of research, five years of residency, and three years of fellowship, you need to work at least 14 years.

I think that this is a reasonable number of years to help out society with your unique skills. Sure, some specialties are going to have more money in the end than others: an ER doctor spent the same number of years as a family medicine (FM) doctor training, but can earn more than twice as much as the FM doc.

You might also like: How much do doctors earn?  

For example, let’s take a look at a hypothetical simplified situation in which a doctor earning $250,000 annually will end up with after 10 years. Suppose he is in the 25% effective tax bracket and spends $75,000 annually.

You might have even less if you started with student loan debt!

After 10 years with a conservative 5% growth, he will only have slightly south of $1.5 million. This translates to a safe withdrawal of 4% at less than $60,000 annually. Not bad, but there is not much buffer.  Obviously, there is a wide range of what you can earn and save as a physician, but not every doctor will have amazing income potential.

Afterward, go into part-time practice.

The beauty of getting close to your magic number is that you become less dependent on the B$ that is involved with work.  If you don’t like dealing with some of the politics, you cut back your hours to reduce exposure. You earn less, but you also might be happier.  In contrast, if you still need to keep that Hummer in the garage for your grocery shopping, you might need to figure out another way to fund your habit. There’s nothing wrong with staying happy. Just be aware that there is no free lunch. Your net worth simply needs to fund your expenses. Easy peasy.

 

Transition to a lifestyle existence.

You might also like: Why every doctor needs a side hustle.

 

If you plan to bail out of clinical medicine because you have enough money for eternity, you still have to figure out how to occupy your time. Sitting around the house vacuuming the carpets every day gets boring. If you made it through medical school, you probably have enough ambition to do something more with your life. It doesn’t have to be as admirable as providing healthcare to refugees either.

Do you spend your time brewing beer? Perfecting your photography skills? Volunteering for youth groups? Who knows, you might actually have a hobby that can generate additional income.

What is the Smart Money MD plan? It is still in development. I am mapping out my career roadmap, finances, and savings rate. Whatever the future brings, it will be awesome.

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  • Thanks for the mention, SMMD. I’m wrapping up year 11, and I plan to put in a minimum of 12 years, which will equal the time I spent preparing for the job (if you include 4 years of undergrad).

    As you suggest, I plan to give part time work a try to see how that goes. I’m not the least bit worried about spending too much time vacuuming carpets. We’ve got hardwood floors. 😉

    Cheers!
    -PoF

  • PICU MD

    I feel bad for the folks who leave early due to dissatisfaction with the field. For me, I love what I do and couldn’t imagine stopping yet. I’m in my 11th year as an attending after 3 years of residency + another 3 of fellowship. Surprisingly, I still love getting out of bed to resuscitate a sick kid at 2am.

    I do question your notion of a “debt to society”. I would argue that our debt to society is paid while in training providing high level medical skill at burger flipping wages.

    I will admit though after reading you, WCI, PoF I have actually crunched the numbers to see if retiring early is possible. My biggest fear would be what if something came up where I needed to pile up some cash. Say I retired at 50 and then at 55 needed to make money. I’m not sure I’d have marketable skills after not practicing for 5 years.

    Keep up the good work. I found your blog through WCI’s “the other guys” post and I’ve added you to my reading list.

    • Smart Money MD

      I appreciate your follow!

      I’ve wondered about about owing anything to society too. Our residencies are funded in part through governmental grants for trainees, so without this funding, we wouldn’t even be trained. Additionally, most PGY-1’s aren’t quite fully competent in their fields, so does that justify the low salary? There was a three month period during residency where I calculated that I was earning about $2/hr annualized pretax! A lot of that was scutwork.

      That’s true. I spend a bit more than PoF, although I still have a mortgage and will have increasing costs at least temporarily as I build a family. You could also cut back to a 0.75 FTE once you are getting close to maintain your medical insurance coverage until you finally retire.

  • 1wintergreen

    The 4% a year withdrawal rate, sadly, is not current thinking. More like 3 or 2%. And get maximum top shelf disability insurance, paying the premiums with aftertax dollars so any future disability income is not taxable. And hope for the best. And don’t buy mansions and vacation homes and big boats.

    Regarding retirement, the great unknown is health, which involves luck (genetics) to a certain extent as well as taking care of yourself. Quality of life while working and in retirement is more valuable than quantity. If you love your work, don’t quit. If you have had enough, and you will, quit, once you have enough dough (at least $2 million in the “bank”). Do not include SS payments or house value or practice value in your calculations and get rid of the mortgage and other debt.

    God speed!

    Oral and Maxillofacial Surgeon, Ret.

    • Smart Money MD

      Thanks for stopping by!

      Great tips in planning process. I agree that happiness and health are the most important (as well as luck in genetics). I have known a few doctors who ended up dying in the early 60’s from MI’s. Unfortunate to have worked so hard without a break.

      How many years did you work as an OMFS, and when did you first start planning for retirement?

      • 1wintergreen

        This is a great blog. Worked until only 50 (20 yrs) due to disability. Started planning day one. Put $$ aside monthly first for daughter’s college. She finished UPenn in 4 yrs with no debt and no aid. Bought a great disability plan right away. Came in handy (suddenly could not stand for any length of time in the OR or in the office anymore) at age 50 with inoperable spinal stenosis, spondylolis., degen. disc disease and radiculopathy plus pudendal neuralgia (miserable situation). Surgeon after surgeon could not get rid of me fast enough because I was too risky (FBSS likely) for them. Saved like hell from early on with professional help. “Plan for the worst and expect the best” is my second most favorite motto after “follow the golden rule.” Keep up the great work as this blog’s potential is unlimited. Should be a must read for residents and young practitioners medical or dental, etc..

        • Smart Money MD

          Smart move on contributing to your daughter’s education. Typically with a high income household, children won’t qualify for need-based financial aid anyway. Most doctors I know who foot the bill for their children’s college education don’t really get much of a return on investment, but I would say that situations like yours is definitely worth it. I funded my own Ivy league education through loans, and I am happy that I did.

          I could probably increase my disability coverage more, but have been complacent in making any changes. Your story is a reminder that we need to insure ourselves for the unexpected, no matter how uncommon these situations are.

  • Live Free MD

    I agree with this philosophy. As your net worth increases, you can gradually take more vacation, cut down hours, and remove those aspects of practice that you don’t find rewarding. I probably won’t ever completely retire from clinical practice, but I don’t plan to work 60 hours per week 51 weeks per year forever.

    • Smart Money MD

      I’d imagine that you’d have to be in the right medical specialty and medical group that would allow you to cut back. I’ve seen older docs renounce their partnership status and go back to an employed situation in order to cut back. What about pathology? I’d imagine that if you are hospital employed, they could just fire you if you wanted to work part-time (and hire a younger full-time replacement).

      On the other extreme side, I know a surgeon who still works at age 74. He still seems to get great results, but that is probably an outlier in the surgical specialties.

      • Live Free MD

        Good point. Not all practice situations will be amenable to part time work. In such a case, you could potentially just find a different practice, or gun for financial independence and retire early. Plenty of options once you have some financial security.

        • Smart Money MD

          It’s ironic that I never knew any of this when I was choosing a specialty or even when I decided to go into medicine!