In my previous two posts, Retiring Early and How To Retire Early, I went through my approach to retiring early.

However, this is a case of “Do as I say, not as I do”. While I advise/advocate for planning to retire early, I am not necessarily doing it.

In the comments of Retiring Early, TheHappyPhilosopher states:

“I contend it is stupidly easy for a physician to retire at age 55, and the only reason one shouldn’t be able to retire is due to some unforeseen life disaster or multiple bad decisions. Sure, if you are a pediatrician, the sole income earner and you live in San Fransisco you are probably never retiring, but on average it is easy. I would say for a high income specialist 45 should be relatively easy, even easier if the spouse works.. At age 40 things start getting difficult and you need to be either frugal, lucky or both.

If you go straight through training and school you will probably be out of residency/fellowship by age 32. This gives you 23 years to earn to get to 55. Back of the napkin calculations: Save 8k/mo at 5% real returns (8% nominal) you have $3.2 mil in today’s purchasing power. At a 3.5% SWR this is $112,000/yr which is a ridiculous amount on money. This does not even account for social security or and inherited money which add higher margins of safety, in fact a 4% SWR is probably even too conservative. You could most likely spend 150k/yr and be just fine.

Also if you are in a high earning specialty like radiology you should be able to easily save more than 8k/mo unless you have specifically designed your life to be expensive.

I also disagree that you need to rent and have no kids. Rent vs. buy is market specific and it is just bad advice to tell someone to do one of the other without running the numbers in their local market.

Kids are not expensive unless you make it that way. They want your time and love and require little else. It is not mandatory to put them in private school, 5 club sports, executive violin lessons or pay for 8 years of the most expensive college and graduate program you can find.

I agree with you that divorce is a financial hand grenade.

Retiring at 40 is kind of hard. Retiring at 55 is easy for a physician. All you have to do is not make multiple mistakes, have a slightly above average financial intelligence and live a life only slightly less ridiculous than the average doc. If you are content with an average middle class lifestyle (most docs are not) you can get out in 10 years no problem.”

Thanks for your comment TheHappyPhilosopher.

I was somewhat exaggerating when I stated that retiring early at 55 for a physician is difficult. The idea of saving this much, this early for retirement is a foreign concept to most young physicians coming out. Except for the resident physicians with finance blogs 🙂 . As a young physician, you have years and years of delayed gratification. You keep chasing this goal of being a doctor. Then you chase getting residency, finishing residency, and being a physician. You do all this with the idea that there is a payoff at the end.

This payoff, for many, is a comfortable lifestyle.

I would agree that many physicians could retire relatively easily at 55 if they were to put away $100,000 a year (I’m rounding up from the $8,000 a month).

However, I consider that to be very difficult because it is a fundamental change in how young physicians think.

Many might think to themselves, “That’s just an excuse, why do physicians think they deserve a comfortable lifestyle.”

You are correct. We don’t deserve anything. However, let me counter with this question:

“If you sacrificed your life from 18 to 33ish (roughly 15 years), do you think you would deserve something?”

Wait second, what do you mean 18? You guys had the same college experience everyone else did… didn’t you?

Well, yes and no. Yes, there were the same amount of hours in the day, but the classes were probably much longer and probably required much more in class time. Biology, Chemistry, Physics, Organic Chemistry, and any upper division science classes all had labs in addition to lecture which ate into your week. Then you pile on homework and studying and tests on top of that. Then you throw on trying to do work in a research lab and shadowing a physician and anything else we could do to get into medical school. Add on to that studying for the MCAT and taking review classes and other stuff.

Choosing to go to medical school is a decision that occurs very early in life. Medical school is a priority that stands above everything else and consumes you.

The carrot hanging in front of you for ten years is that there is a payoff at the end.

For what it’s worth, that used to be true.

However, the cost of medical school has significantly outpaced the raise in physician salaries. This means physicians are coming out with significantly more debt and probably relatively less money. So it used to be true that you could go to medical school and do residency and still have a comfortable upper-middle class living and save enough money to retire without too much problem.

This is not necessarily true anymore. $300,000 or $400,000 or even $500,000 in debt by the time you finish your residency is a higher order of magnitude of weight on your shoulders than those who came before you, and probably 2 orders of magnitude more than those who came before them.

The problem is, the current generation of young physicians do not understand this yet.

As for me, although I do understand this…. I would contend it’s not as easy as you may think.

(I will respond to the individual sections of the comment here)

Yes, if you live in an area with a reasonable cost of living area then you could potentially pay off all of your debt in a few years. However, that still cuts into the amount of money you can put away those first few years out. If you come out with $300,000+ in debt and make $200,000 a year, it is difficult to save $100,000 a year and pay down your debt in an accelerated time frame (5 years).

Let’s make some assumptions to get a better idea of the calculations: (single, no allowances, 5% interest)

For completeness’s sake, making $200,000 in Hawaii as a single filer without any allowances is net salary of $125,488.93. 

Paying off a $300,000 debt with 5% interest in 5 years is a monthly payment of $5,661.37 x 12 months is $67,936.44.

So after loan payments you are left with $57,552.49.

I will go ahead and assume that the 200k salary includes a free 18k to your 401k (pretax). So that is $18,000 toward retirement.

So now, you need to put away an additional $82,000 a year toward a retirement account to get to the $100,000 a year.

So after all that you have NEGATIVE $24,447.51 to live off of.

…Ok Sensei, that was dumb. Why did you even calculate all that… it’s impossible.

Simple. It was to illustrate that for many of the new physicians coming out they need to choose a priority right after beginning their first job – saving for an early retirement or paying off loans early. It is very difficult to do an accelerated version of both unless you make very high salary. You need to prepare yourself for that. Unless of course, you don’t have loans, or have significantly lower loans, but even then you will still need to prioritize. I am a proponent of paying back your loans as soon as possible (while still at least maximizing your 401k).

But Sensei, $200,000 isn’t very high. The average physician salary is higher than that! Look at Medscape!

Well, yes and no. For young physicians coming out, your first year out you will almost certainly make significantly less than your older colleagues. Even for the higher paid specialties, you may make an order of magnitude less than the partners. Until you hit your stride and make partner, or find a job that suits you and compensates you well, you may not be making the “median salary” or the “average salary” for your specialty. There is wide variation here, but I was just using $200,000 to illustrate a point. If you prefer $250,000, then:

Net (post-tax) pay is $153,863.93

Subtract $67,936.44 (for loans) and you get: $85,927.49

Subtract $82,000 to save toward retirement your $100,000 a year toward retirement and you get:

$3,927.49 to live off of, for the year. Seems… rough.

Like I said, you will need to choose priorities… maybe split the difference into a 10 year repayment plan instead? and only $50,000 a year toward retirement? That’s a decision for you to make.

I think that physicians in general tend to be very conservative.

If you decide to retire early, you had better be 110% sure that you have the money to retire… and not need to come back. After just a few years of not practicing, all of your licenses will have expired, your Maintenance of Certification (MOC) will be out of date, and you would not have the Continuing Medical Education (CME) necessary to obtain them again. More so than that, you would be out-of-date with regards to the practice of medicine in general. It would be very difficult, if not impossible, for you to go back to work as a physician.

One more thing to consider is that physicians don’t do a decade of post-graduate training with the idea that they will “only work 20 years”. This is a fundamental change in thinking for pretty much every resident/fellow I have ever talked with. The act of prioritizing retirement above all else is pretty much a foreign concept.

If all the physicians coming out only worked 20 years, we would have an even larger doctor shortage on our hands.

I talk about inflation and some napkin calculations in my follow-up post How To Retire Early. Based on inflation calculations, I don’t consider $112,000/yr to be a ridiculous amount. Maybe it seems ridiculous today, but in 20 years, probably not so much. Also, as I stated above, you had better be sure that your retirement money will last you because you probably won’t be able to go back to being a physician after being retired for even a few years.

For myself, I probably could save $8000 a month without too much trouble… and I plan to pretty soon. Unfortunately, I live in a high cost of living area, and that is my own fault. However, I have other priorities to take care of right now, which are daycare ($3000 a month) and student loans ($5000/month). Even with those costs, I still put away my $18,000 a year in my 401k. Additonally, I am lucky to have a ~$16,000 employer match, putting away a total of ~$34,000 a year. My wife puts away $18,000 in her 403b and an additional $18,000 in her 457 for a total of $36,000 a year. So overall, we put away $70,000 a year.

Now, that isn’t the $100,000 which would be preferred. However, once my kids are in public school and I no longer have to pay for daycare, we will start putting more money toward student loans, their 529s and retirement. In addition to that, my job does have a pension associated with it. While I am not relying on it, it’s a nice thing to have. Having a large home mortgage of course does not help, but I made the decision to buy a house in an area with a good public school system and I do not regret that decision.

Do I wish I could put away more money?

Of course. However, this is just how our priorities worked out.

All things considered, I probably could still retire at 55… if I wanted to. However, I chose this job in Hawaii (despite the high cost of living and relatively lower pay) because I like it, and can do it well into my 60s, if not my 70s. Like I said before, having the ability to retire early but working because you want to is a nice problem to have.

I could have taken a higher paying job in a lower cost of living area, like in Texas or Nevada for example. However, I don’t think I could have done those jobs until 60… probably not even until 55.

The job you take and the area it is in matter. This is another thing that many young physicians coming out don’t seem to grasp. They like to chase the “highest salary”. I caution against this in my post Choosing Your First Job because your first job usually isn’t your last and moving isn’t cheap.

Renting and having no kids I kind of just threw out as “helpful” things to consider. It’s not really so much about the money, it’s about the flexibility to leave and go somewhere else for a better job.

I apologize, I think I rambled a bit here, this probably should have been two separate posts. (2276 words, Sigh)

TL;DR

Retiring Early for Physicians is Easy… Kind of.

However, it requires a fundamental change in thinking.

The debt doesn’t just disappear. Of course, having very little or no debt certainly helps.

However, the combination of an accelerated debt repayment schedule and an accelerated retirement schedule is difficult.

If you retire early, be certain you have a large enough nest egg. Going back to work after a few years off is difficult, if not impossible.

Having the ability to retire early but working because you want to is a nice problem to have, and one I advocate.

Do as I say, not as I do. (see my numbers above)

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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