Smart Money MD

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.

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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.

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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.

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.

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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.

No, this isn’t an interview question, but I’m sure that all of us who are doctors, lawyers, or engineers have been asked this very question at least once in our lives. I do think that this is a valid question that we should all reassess at certain points in our careers.

Because the moment that we can’t honestly tell ourselves why we continue our daily 9-5 jobs (or 11pm – 8am shifts) is the moment that we should consider what we can do to change our situation. It’s also not wrong to tell ourselves that we’re doing it for the money either.

We’ve got to live and get to retirement somehow, right?

I would add that doing our jobs for the money is okay until we truly decide that it’s no longer fun.

I took a poll of my colleagues and acquaintances regarding why gets them out of bed every day. It’s interesting how much variation there is in their responses.

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One dermatologist told me that she wanted to eradicate all frown lines, wrinkles, and skin cancers from the world. Fair enough. She does see over 70 patients a day, so by virtue of numbers alone, she is probably fulfilling her end of the bargain. Sure, the money is good, but she’d continue doing it until she couldn’t anymore. She definitely had a strong affinity to her profession. But the money allows her to wear those $1200 heels and that $10,000 clutch.

One engineer I spoke to was not so convincing. He had an advanced degree in physics and electrical engineering so he spent a considerable number of his younger years studying these topics. He worked for a research facility conducting various tests for both private industry and the government. Even though I had a science background, I really had a tough time following what he really did. He did take advantage of his employer’s arrangements with the local university and took continuing education classes in his free time. He probably didn’t love his job, but he probably didn’t hate it either. I guess it paid the bills. I actually think that he would have wanted to become a lifelong student if he had the option. His primary job allowed him to do just that.

One of my lawyer friends who graduated from a top tier private law school actually spends her time working for both the local public radio, taking care of her kids, and writing scripts for various broadcast programs. I could tell that she loves her current occupations. I’m sure that given her capabilities, she could have also been working at a high-profile law firm. More power to her. The law degree probably cost around $150,000 at the time, as did her private university degree. That’s a $300,000 investment plus seven years of your life. Now her income has been essentially zero except for whatever scripts get accepted. I do wonder how she lives in a $2 million home, though. 😉

In contrast, another one of my lawyer colleagues works at a corporate firm. He works over 100-hrs a week on certain weeks where deadlines loom, and about 50 hours a week at other times. He lives like he has a serious income (he probably has a serious income). I’ve wondered whether he’d have any ability to retire before age 70, but it’s not clear that he does unless he has a huge inheritance at some point (he actually might).

How does this apply to me?

Hearing from the four colleagues above, I am even more convinced that money does buy happiness. The dermatologist appears to enjoy her role in helping people, and also enjoys her healthy income. The engineer probably hasn’t found his calling yet, but his current situation appears to allow him to pursue his version of happiness. Lawyer #1 clearly has lined up her priorities to her liking. I suspect that she has been able to pursue her passion only because she has a bank account to back up her standard of living. Lawyer #2 may or may not be happy. I think he has allowed his success define his occupation and lifestyle. I guess it’s probably not a situation I’d want to be in long term, but I have seen plenty of doctors get consumed by their jobs.

What I’ve concluded from this thought exercise is what I’ve pushed along on this website—we really should consider molding our lifestyle to what makes us happy. Wealth is a source of our happiness and potentially our misery. The sooner that we can free ourselves from working towards getting wealth (and have that wealth work for us), the happier we can be.

Have you asked yourself why you continue your career or what your daily activities are (if you’ve reached FIRE)?

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