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A Physician's Guide to Retiring at 45


Many physicians express an interest in retiring at age 45. Here's how to make that vision a reality.

Physician on Fire

I have met at least two physicians over the years who told me they planned on retiring at age 45. We humans seem to like to measure things in multiples of five, and 45 is probably the earliest milestone age that a physician can realistically and comfortably retire.

The first of these two physicians was a pediatric chief resident who worked with me when I was a third-year medical student. He had at least 15 years to go but already had the perfect sailboat chosen to sail the ocean blue. Another was an anesthesiologist I worked with a few years ago when I was doing locum tenens work. He only had a few years to go before reaching the milestone, but he also had an affinity for Porsche vehicles and his first baby on the way. My guess is he may need a few more years, but I hope for his sake he proves me wrong.

Retiring at 45 ain’t easy for anyone, regardless of profession. It's especially tough when you're in debt up to your eyeballs and you get your first decent paycheck sometime around age 30. But, with proper planning, it can be done. Depending on where you're at, it's probably too late to do all these things without a fully functional flux capacitor, but anyone can start to take control of his or her finances. So how do you go about retiring at 45?

Don't overspend on college.

You don't need to go to a prestigious undergraduate school to get into medical school. It's far more important to do well at your chosen school, score well on the MCAT, volunteer and/or do research, and show genuine interest in medicine. And once you're in, the slate is pretty much wiped clean. You're on the same level as your classmates, and almost all of you will go on to earn an MD.

The flagship public university in my state charges about $7,000 a year in tuition and fees. A select few private colleges now charge over $50,000 a year. Will you have a “better” experience at Tufts University compared to State U? Depends on how you define “better,” but I'll bet it won't be seven times better, and I guarantee it won't give you a sevenfold advantage on your medical school application, if any.

If your parents foot the college bill regardless, your college choice may not play a role in your ability to retire at 45. Conversely, if you actually pay full sticker price for a private college or university (few actually do) and you do it all with loans, you'll be starting medical school with debt that will continue to grow for many years.

Try not to overspend on medical school.

This can be trickier, as most matriculants have fewer options compared to undergrad. Paying in-state tuition at a public medical school may not be an option. You may want to go to a top tier medical school, or may be forced to take what you can get. But, if you have options or can obtain a scholarship, try not to overspend here. If you have no choice, take comfort in the fact that you'll be four years closer to an attending's salary when you finish racking up that massive debt.

Live like a resident (during and after residency).

A resident's salary is pretty close to the average American's salary. Hourly, it stinks, but $45,000 to $55,000 is enough for a decent life in most locales. An apartment in a decent part of town. A used car and gasoline to keep it going. Groceries, the occasional restaurant meal, happy hour on Friday, etc. You won't be saving much and that's OK. In the first few months after residency, you'll be able to set aside as much as you could from scrimping during several years of residency. If you're able to max out a Roth IRA throughout residency, that's awesome. But I wouldn't blame you if you didn't try. Dollars will be much easier to come by soon enough.

On the other hand, residency is not the time to start living like a full-fledged attending physician. I had friends in residency driving Infiniti, BMW, Mercedes, etc.; a vanity plate doesn't look half as good on a Chevy, am I right? If you want to even think about retiring at 45, you must live like a resident when you are a resident.

Once you finish, you'll be used to working hard and spending little. Keep doing that for at least a couple years. Pay off some loans. Fund that IRA/401(k)/HSA. Sure, reward yourself a little, but keep it within reason. Take a nice vacation; have a dinner at the fancy steakhouse. Buy a case of your favorite wine, double IPA, or single malt scotch. Buy the name-brand Chicken-in-a-Biskits. Upgrade your lifestyle to that of a fellow making $60,000. But hold off on the McMansion and the Humvee. Those can easily erase any hope you might have had of retiring at 45.

Say “Thank You” for the free meal, then walk away.

Savvy insurance salesman have aligned themselves with medical schools and residency programs. You will probably have several opportunities to enjoy some good tapas or strip steak on their dime. By all means, go for it. Free steak is about as frugal it gets, and I've found most of the advice at these gatherings to be pretty good. Of course, the free advice comes with a side of sales pitch. It may be subtle, but the goal is to obtain you as a client. Initially, they may help you with products you should have anyway, like disability insurance and term life. If you need those and have the ability to comparison shop, then the host may be a good resource for you. But don't invest in anything costly that you don't understand (whole life insurance, variable life, etc.).

Choose wisely.

When Indiana Jones chose the Holy Grail, it was important to choose wisely. Things did not end well for the man who did drinketh of the shiny cup.

I'm not saying you should fall in love based on the relative frugality of your date, but if you really want to retire at 45, you’d best marry someone with a similar money mindset. Financial disagreements are a huge source of marital discontent, so it's best to marry someone who shares at least some of your financial ideals and goals and understands the importance of setting a chunk of that paycheck aside for your glorious future together. Many a physician's retirement plans have been foiled by a spendthrift spouse. If you don't see eye to eye, opt for counseling. You may find a happy medium and get back on the same blissful page, and well, divorce will completely derail any hopes of retiring at 45.

The “choose wisely” mantra also applies to location. In medicine, there seems to be an inverse relationship between cost of living and potential income that doesn't exist in other fields. Physicians in middle and rural America, where housing and other costs tend to be lower, typically have higher salaries than physicians in population centers along the coasts. If you can take advantage of this geographic arbitrage, you will have a much better chance of retiring at 45.

The same is true for housing. It's really tough to resist buying or building your dream home when you land a job out of residency, but it's a really good idea to rent for a while. You may not be satisfied with your job, your colleagues, or administration. They may not be satisfied with you and the promised “partnership track” is never realized. You probably don't know all the neighborhoods, where the best schools are, are where it might be most convenient for you to live. When you have been around a couple years, buy yourself a nice home with a low-interest 15-year mortgage. It's not unreasonable to spend a couple years’ salary, just don’t go for the most home the lenders will allow.

Learn about Personal Finance.

Financial decisions can seem daunting and it can be as complicated as you want it to be. You don't want it to be complicated, so keep it simple and educate yourself. You're a physician; you are intelligent and you've proven to be a good learner.

To help you, I've written a 20 Step Guide to Effective DIY Investing. Step 1 is to start with a good book.

My introduction to personal finance was Andrew Tobias’ The Only Investment Guide You'll Ever Need. A physician would be well served by Dr. James Dahle’s The White Coat Investor: A Doctor's Guide To Personal Finance and Investing.

For great general investing knowledge, turn to The Bogleheads' Guide to Investing. For retirement-specific issues, check out The Bogleheads' Guide to Retirement Planning. Once you have a fairly good general understanding, and you have specific questions, look to the Bogleheads wiki or ask a question on the Bogleheads forum.

Investing a little time to understand personal finance will save you a lot of money in the long run. Odds are you'll be better off handling your money on your own compared to deferring all those confusing financial decisions to your colleague's money guy.

It is astounding how much of your nest egg can end up in someone else's hands if you let them make decisions for you. According to Personal Capital, the range is $500,000 to over $900,000 over 30 years for someone with a $500,000 portfolio with overall fees ranging from just over 1% to just under 2% per year (full white paper here). I've also shown how high fees can result in millions lost over a lifetime. You can easily construct your own simple portfolio with a low-cost fund family such as Vanguard with total fees under 0.1% per year.

Act like the smart person you are and learn a little something about personal finance.

Develop a plan and stick to it.

If you want to retire at 45, you can't afford to make too many mistakes. I've made a couple, but thanks to a long-running bull market and a well-compensated chosen specialty, I'm easily on track. If I had listened to someone like the current me 10 years ago, I'd be in even better shape.

The specifics of your plan will vary depending upon your personal situation, but there are some general ideas that should be included. Try to pay down debts, particularly those with high interest. Fund your available retirement plans to the max, taking advantage of any available employer match.

If you buy a home, look for one of the nicer homes in a decent neighborhood. Anecdotally, you might be happier in a $400,000 home surrounded by $300,000 homes than you would be in a $500,000 home surrounded by $600,000 homes. And the neighborhood full of $600,000 will have a lot more of the pesky Joneses with fancy toys in the driveway tempting you to get your own Yetti ice house.

Use new money to accelerate your retirement savings. You receive a raise, new money! You pay off your school loans, new money! You made partner, new money! Don't use the new money to increase your lifestyle, use it to increase your savings.

Before your upgrade, you were putting $3,000 into a taxable account each month, now you can afford $5,000. When you pay off the 15-year mortgage early, you can do $8,000 a month. Now you're getting somewhere!

Know your expenses. I've written about this elsewhere, but your retirement nest egg needs to be a multiple of your anticipated retirement expenses. Keeping those expenses low is a double win. You'll be saving more quickly to reach your goal, and your magic goal number (let's say expenses x 33) will be lower. That, my friends, is a win-win.

Track your progress.

Are you on track to retire at 45? Or ever? I use two websites and two spreadsheets to help me figure this out. The sites are Mint and Personal Capital. One spreadsheet shows my mutual fund holdings, real estate, brewery investment, etc. The websites can do this (in fact I use Personal Capital to update my spreadsheet), but my own sheet is infinitely flexible, unlike the two sites. My other spreadsheet is full of projections. I use a compound savings calculator to project where my balances will be in two-year increments based on different interest rates. It's a little bit of work, but I find it fun, just like writing these articles. Speaking of fun...

Don't forget to have fun!

My prescription of state schools, reading, and not spending might sound super-lame. It’s easy to get caught up in the dollars and cents and forget that it’s OK to let loose and have a little fun sometimes. I believe that having fun doesn’t require massive spending. Some fun things are really expensive, but there are a million ways to have fun that don’t cost much. Mr. Money Mustache seems to have a lot of fun spending about $25,000 on his family of three annually.

My spending on a family of four seems to be nearly triple his, but I'm still spending a lot less than my physician (and some non-physician) friends. I just don't want to walk away thinking you have to live like a loser to retire at 45. I feel I've had a ridiculously fun time throughout the years, and I haven't sacrificed my future one bit to do so.

When you do loosen up the purse strings to spend a little extra, spend it on experiences, not things. My wife and I take this message to heart, having traveled to places like the Galapagos Islands, Japan, Alaska, Hawaii, Europe, the Caribbean, and around our own great nation. Yes, I'm showing off a little, but in an attempt to illustrate that a life of relative frugality does not have to be boring.

You don't have to do it all.

It may be too late to avoid school debt; you might have no clue what your annual expenses are. One of the reasons I chose age 45 is that it gives you about a several year cushion to absorb the blows of a less than perfect plan, assuming you became an attending physician in your early 30's. In “A Tale of 4 Physicians,” Dr. A was on track to retire in about 10 years.

Personally, I could have retired before my 40th birthday with a 4% safe withdrawal rate, despite making some costly mistakes and having a fairly rudimentary understanding of personal finance until quite recently. A high-paying specialty and a quick recovery from a down market early in my career helped make up for a few missteps.

It's best not to go overboard on cars, boats, and hobbies that might erode your ability to save. But you don't have to live like a pauper, either. Do most of what I said, and a couple things differently, and you'll likely be in great shape. If not, you might have to wait until you're 50 or 55 to retire early. It's not too late to change course (well… perhaps it is if you're already in your 60s).

I could easily write a dozen more paragraphs telling you not to spend frivolously in the myriad of ways that other physicians have, but that advice seems fairly obvious. In fact, everything I've put on the screen in front of you is pretty straightforward, but if you polled 100 400-year-old physicians, I'll bet more than 95 of them would have no hope (and perhaps no desire) of retiring in five years. If you do have the desire, and are at an age where you can make it a reality, you've got yourself a roadmap. Godspeed.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice