Doctors: Ready, Aim, …Retire Early?
You may have come across articles about the FIRE movement, which refers to “Financial Independence, Retire Early.” These articles often display photos of a not-yet-retirement-age couple (mid-40s? Maybe even late-30s?) on a white sand beach, in a majestic mountain range, or engaged in some other leisure activity. The big smiles on their faces make you start thinking about your next vacation. But they’re not on vacation—they’re financially independent. The acronym FIRE was created in 1992 by authors Vicki Robin and Joe Dominguez in their book “Your Money or Your Life.” They proposed that by reducing living expenses and learning to be satisfied with less, people can more quickly accumulate enough wealth so that working can be optional long before social security benefits kick in. By figuring out how much money you would need to fund a comfortable lifestyle – however you define that, which is a big part – eliminating unnecessary expenses and maximizing the investment opportunity could help achieve an earlier-than-anticipated retirement. Assuming you exercise the same intentional planning in retirement, the nest egg required to claim financial independence is smaller as well.
FIRE and Physicians
The FIRE concept has had a renaissance over the last decade, becoming more about financial independence and less about retirement. For physicians experiencing burnout, the concept is enticing.
It can be challenging for doctors to pursue a FIRE goal, but it can also be more feasible than it might be for most people. Doctors often carry a heavy medical school debt that could make reaching a FIRE target by age 50 or so difficult. Paying off that debt early could get in the way of saving enough to reach the wealth target needed to retire early. On the other hand, eliminating debt can free cash flows to pursue various wealth-building endeavors. Of course, doctors with a high-end lifestyle (large homes and big mortgages, nice cars, maybe children in private schools) may have to make bold changes to shift those cash flows today to reach a FIRE wealth target.
Before deciding that FIRE is the right response to burnout or to feeling a lack of fulfillment at work, physicians (and others considering retiring voluntarily) should take a hard look at their motivations. Are they thinking of retiring early to get away from work stressors or to move toward something – to pursue other aspirations, such as climbing mountains on every continent, devoting time to a charitable organization, writing a novel, obtaining a private pilot's license, living in a foreign country … the possibilities are endless and specific to YOU.
The answer might be, “it’s some of both.” If there are things about being a doctor that you still enjoy (perhaps doing procedures, mentoring residents, spending time in a clinic, and the respect and prestige the profession offers), it may be worth looking for a way to do more of those things. If you want more control over your work life, joining a private practice might be a better choice than retiring early. While it is not impossible to return to the medical profession once you leave it if you decide that retiring early was a mistake, it is typically not easy to jump back in. If you are suffering from burnout, taking a few months' sabbatical could be a way to test out whether you are truly ready to leave and to identify what you would move toward (even if you think golfing every day sounds fabulous, that can get old too).
Aim Before You FIRE
If you decide FIRE is right for you, how do you take aim? In other words, what goals should you have, and how much can you leave open-ended? How much lead time do you need before making your exit? What does a FIRE plan look like? Some online worksheets can take you through a simple calculation based on how old you are, how much you have already saved, and how much money you think you need to live, but that only provides a rough estimate. Doctors, and other highly skilled professionals, usually have fairly complex financial lives, and these are major financial decisions that will affect decades of your life. Working with a qualified financial advisor can be the difference between a successful, realistic plan for FIRE and one that doesn’t allow you to pursue the goals you have in mind for your long retirement.
As with most financial plans, the more lead time, the better. Is day one of your medical residency too soon?! In all seriousness, if the idea of retiring early sounds appealing, talk with a qualified advisor that is financial planning (not investment) focused right away. You may discover you have unrealistic expectations about what it takes; it may be easier or harder than you think. You may decide you are not willing to make the changes that would be necessary to retire more than a few years before age 65, and that’s important to know. Perhaps your advisor may project that your “exit” date could be much sooner than you think.
It is likely to be some years before you can retire, and you might assume that the best approach is to live like a pauper starting now and save as much as possible. We disagree. Sacrificing most of the things you enjoy today for years (or decades) to reach a FIRE target date is not realistic or desirable for most people. A healthy balance must be struck between planning for tomorrow and living for today. The best financial plans are based on your biggest and most important goals, what we call signature aspirations. Is that feasible if you assuredly want to spend $25,000 traveling every year for 15-20 years? What are the tradeoffs you could make to make it happen if not?
A quality financial planning process involves defining the desired outcomes with specificity and prioritizing them precisely. For example, let’s assume a physician and his wife want to enter retirement together by the time he turns 62. They have two young children, and the mom stepped away from her career to stay home with the kids. Do they want to save enough to pay for most or all of their children’s college educations? Does it make sense for mom to return to work for a few years to help pay down the mortgage and/or her husband’s medical school loans? Wait, is buying rental property to produce income a better solution? There are many trade-offs like this to consider when considering a FIRE plan or any retirement plan.
Retire to Something
As we noted above, retirement is most successful when looking forward to something instead of escaping a stressful or unpleasant work situation. That means giving serious thought to what you want to do. Some who pursue a FIRE path “fail” at retiring, meaning they run out of money and have to go back to work, but that risk is fairly low for a physician who plans far enough in advance. You are more likely to “fail” in terms of not having enough stimulation to keep you meaningfully occupied. If planning for FIRE makes you realize you are not ready to retire, but you want to change the way you practice medicine, it’s good to recognize that now, instead of leaping into retirement and then discovering you miss work, despite its drawbacks.
Sometimes it’s helpful to start by thinking more deeply about your hobbies and other passions to identify what you want to retire to. It is best to have a whole list of things you want out of this life, not just one. Discuss the FIRE idea with your financial advisor and work together on the mathematical projections to determine the desired outcomes feasible for you and your individual situation.
Physicians are well-educated and can withstand rigorous learning curves. However, they have more important disciplines to focus on than numbers and money. Working with a dedicated financial advisor eliminates the stress of being a financial expert. Let’s reverse roles for context; if a financial adviser were given a scalpel, they would have no problem making an incision, but their ability to perform meaningful surgery with flawless success would be unlikely.
Another serious consideration is the discipline required to stay on a decades-long course. Think of this as deciding you want to do a triathlon. You can create your own training plan, but if you don’t follow through on the execution, you won’t finish the race. Lastly, trust your financial advisor to push you when necessary to follow through on the steps required to make your retirement plan, FIRE or otherwise, work for you.