Hey everyone, it’s Finance Fridays again. Today is going to be a short post about “The 20 Year Career“.

The 20 Year Career?

Yea.

I’ve kind of alluded to it before in a bunch of prior posts. However, I think that maybe we should reconsider the “conventional” 30 year career of a physician. In general, residents/fellows graduate in their early or mid 30s. This can also be your late 30s or early 40s if you got a slightly late start. So basically, if you assume a 30 year career, you’re looking at retiring around 65+ years — which is kind of expected and consider normal.

Then of course, there is kind of the opposite extreme which is the group of physicians that want to accumulate as much money as possible, achieve FIRE, and retire as soon as possible.

Somewhere in the middle are people like White Coat Investor and Physician on Fire who did a combination of accumulating wealth and also have passive income from something else, like their blogs. There may be others who have other passive income from rental properties or the like. These people in the middle basically “fall into early retirement” because they realize they don’t really need to work anymore — and well, life is short.

I have noticed a slight paradigm shift in the new residents/fellows coming out. While probably not a majority, there is a growing minority which have a desire to not “do this doctor thing forever”. However, I think it is difficult to grasp the idea of retiring early when you start your first job because the finish line seems so far away. Then, Dr. Yoloswag makes his appearance and they fall into the trap of “Keeping Up With the Joneses“.

Why?

Well, the most common reason is something along the lines of “I went through my whole life to attain the education and training to be a doctor, it would be a waste to work less than 30 years.”

This may sound a bit harsh, but please bear with me. You went to medical school and completed residency +/- a fellowship. The likelihood is that you have accumulated some degree of debt because of the ever-increasing costs of education with commensurate increase in student loans.

Let me be frank:

You don’t owe anyone anything.

Obviously, it would be ideal for you to utilize your training and education for as long as possible to help as many people as possible. If you choose to do that, that’s great. However, you don’t have to.

Really?

Yes.

I believe the profession of being a physician is an honorable one. However, you are not a slave to the system. While some may think of you as a widget to be plugged into fulfill the needs of the healthcare system.

You’re not.

You are a living, breathing human being and you can do whatever you want.

It’s your life.

For that reason, I think that every resident/fellow graduating this year and thereafter should approach retirement as if they will retire in 20 years. For example, if you started your first “real job” at 35, then you should aim to retire at 55. When you boil it all down, retirement is just a numbers game.

If retirement was a program it would be one line of code:

if [money] > X; then [retire] = true and [work] = end

You make it sound so easy…

Well, it’s not easy, but it’s probably not very hard either – at least not to plan for it. I think it’s a financial exercise that every resident/fellow graduating should do. It doesn’t even have to be that complex. The act of doing the financial exercise is much more important than any degree of complexity that you add in later.

Let’s say Dr. Smith just finished fellowship. He just found his first job and will make $250,000 a year. Now, it may not be the ideal job, but it’s his first one. Now then, Dr. Smith is 35 and he also has $250,000 in student loan debt.

He believes that he can live on about $80,000 a year if he retires in 20 years, even when accounting for inflation. This could be more or less depending on cost of living and other factors like marriage and number of children. But like I said, let’s keep it simple.

If he retires at 55, let’s assume he lives till 95. This is a pretty conservative estimate, but I think it’s reasonable. So he needs to cover for 40 years of retirement.

I found this withdrawal calculator at Financial Mentor which I like.

So go ahead and plug in the values:

Current age (#): 35
Age you plan to retire at (#): 55
Amount you would like to withdraw each month ($): 6667
Annual Interest Rate you expect to earn (%): 6
Number of years you would like to make the monthly withdrawals (#): 40
Expected average annual rate of inflation (%): 3
Amount of your current retirement savings ($): 0

You can tinker with the numbers yourself, but I used pretty conservative numbers with 6% interest and 3% inflation. $6667/month is $80000 a year.

Obviously, if you have year where interest is less than 6% or inflation is more than 3% then you’d have to tinker with the numbers more.

However, overall, the number of $3,363,650.16 seems within reason.

And there is a pretty simplified number for Dr. Smith to try to attain before the age of 55. So basically, for this “Dr. Smith”, his “number” is about $3.5 million. Obviously, your number may be different, but I think it’s important to use 20 years as a starting point.

Why 20 years?

I chose 20 years because I think it is doable for many doctors. It’s a good starting point for “how long to work”. It gives doctors who want to work longer the ability to continue to work afterwards into a 25 year or 30 year career if they want to, while allowing the ability to go part-time. However, for other doctors who may want to retire earlier, they will have a good foundation from which to accelerate their savings and reach their goal of retiring earlier.

This may also be a psychological thing. It’s hard for people to understand to “save 30%” of their gross salary without an end goal in sight. I think it’s much easier for them to visualize a finish line which is what the 20 Year Career gives them.

Wait a second… how much is Dr. Smith saving a month?

Dr. Smith, to reach his $3.5 million number, would need to save $7,279.98 a month in order to reach his goal. In other words, he would need to save $87,564 a year. If you do the math, that’s right around 35% of his gross salary ($250,000).

Aren’t numbers wonderful?

The amount you need to save a month will depend on your salary and your desired “number”. However, 30% is a pretty reasonable savings rate to start off with for most physicians. Of course, 35% like Dr. Smith, would be better.

What about my loans?

That’s also part of the plan. You’ll need to get rid of those student loans as soon as possible after residency/fellowship. The ideal solution would be to continue to live like a resident for 3-5 years and pay off your loans, while still maximizing your 401k, Backdoor Roth IRA, and try to save as close to what you need as possible (30% or so).

After the loans are paid off, you can reassess and see where you need to be to stay on target for your “number” and 20 year career.

What about you?

Well… I’m trying.

If you couldn’t tell, “The 20 Year Career” is how I have approached my own medical career. Like I’ve said before, I like my job, and I’m pretty sure I’ll do it for 25 or 30 years. However, I would like the option to retire at 20 years in — and the same goes for my wife too.

Unfortunately, I haven’t been able to save as much money as I’ve liked nor have I been able to pay off all our student loans yet. This mostly stems from our decision to live in Hawaii. Also, buying a house has really put a dent in our savings, but it is something we felt was necessary. That said, it’s been a few years now, and things have become more stable again financially. So I think we are back on track with our savings which will ramp up even more once the loans are gone and both kids are in public school.

Wait, what about your pension?

Well, I’m not counting on it quite yet. It’s always in the back of mind, but for now, until I have all the years in, I don’t consider that money as mine yet. As such, I can’t (and don’t) rely on it.

I may begin including it in my calculations (conservatively) once I have 10+ years in. The same goes for my wife as well. At that point, I may revisit the possibility of us retiring earlier. Time will tell.

TL;DR

The 20 Year Career is a good financial exercise for graduating residents/fellows.

It provides good flexibility, but more importantly it provides a finish line.

I’m trying to do it… but we’ll see if I make it. Life comes at your fast.

-Sensei

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

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