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When a Doctor Retires Without Becoming Financially Independent


What happens when someone retires before obtaining the requisite 25 years of living expenses saved to be considered financially independent?

It’s time to revisit the spendthrift Dr. Dahlgren again. In our last round of puppeteering,Dr. D had a wakeup call and saw the error of his ways. By curbing his lifestyle to a spending level that remained decidedly upper-middle class, Dr. D found it was possible to retire in his late fifties, despite having spent $200,000 a year for the first 11 years of his career, while saving very little.

A $120,000 budget put him on a reasonable track to FI, whereas it seemed he would never be able to retire on the path he was on.

Today, we revisit Dr. D on a good day. He just finished an awesome round at country club, scoring as many birdies as bogies, a round that would go down as one hisTop 5of all time. His family was excited to spend a long weekend at the beach home. If it weren’t for the pesky PoF’s Excel sheets, Dr. D would be on cloud nine!

About those Excel sheets. From the initial4 physicians post, we believe that Dr. D would have a tough time retiring and maintaining his current lifestyle. As you can see in the schedule below, with 4% returns after inflation, Dr. D was looking at a 60-year-careerto have 25x his expenses saved. Starting in his early-to-mid thirties, a career of that length seemed pretty unlikely.


Dr. D challenged PoF

to come up with a plan to allow him to retire at normal retirement age without altering the lifestyle that he and his wife enjoy. “What about thekids?” the PoF inquired. “Those spoiled brats? I mean, I love them dearly, but between the private school, the horse stable, and the ever-growing college funds, I’m not in love with the way we’ve handed them the good life on a silver platter,” replied Dr. Dahlgren. “Matches the spoon in their mouth, anyway,” quipped the PoF.

Challenge accepted.

Dr. D didn’t much care about Financial Independence, or having exactly $5 million dollars. He just wanted to retire when normal people stop working, in his sixties. Looking at his expenses and budget, we can see that $5 million is actually an overestimate of his required nest egg for several small reasons, and one big one.


Even if that hefty mortgage payment was on a 30-year mortgage, it would be gone by the time Dr. D reaches a normal retirement age in his early-to-mid sixties. With the click of the delete button, we just lowered his retirement spending to $140,000.

Let’s also assume that Dr. D’s two kids were transfer from private school to enroll in a quality public school for their remaining years, saving Dr. D an additional $10,000 a year (a conservative estimate), and that the 529 funds were allowed to grow, but additional contributions ceased. As we have done in our other revisits, we’ll make these changes 11 years after we first met the four physicians, enough time for Dr. A to have become financially independent.

Dr. D isn’t going to make any changes to his own standard of living, and we’ll assume that the mortgage payment doesn’t go away until he retires.

During his working years, we’re only going to lower the family’s annual budget by $14,000, the cost of the private school tuition, but we’ll be lowering his nest egg requirement to match his retirement spending level of $126,000without the $60,000 mortgage payment. The new target is 25x $126,000 = $3.15 million.

But wait!

We’ve ignored social security as we often do when looking at early retirement scenarios. Dr. D won’t be retiring early, and would like to start collecting about the time he retires. He’s conservatively expecting $28,000 a year and his wife can collect half that, a $14,000 spousal benefit, so there’s $42,000 of their $126,000 spending needs. To come up with the remaining $84,000, at a 4% withdrawal rate, the new and improveddrops to 25x $84,000 = $2.1 million.


Dr. D saw his taxes drop once he maxed out the 401(k), 457(b), and HSA. His savings rates about tripled when he stopped contributing to the 529 funds (which we didn’t factor into the savings rate). The contribution to his nest egg increased from $20,000 a year to $62,000 a year.

The time to achieve the smaller nest egg decreased to a reasonable 15 to 22 years,depending on returns. The only sacrifice made was a $14,000 reduction in annual spending, in this case attributed to the cost of the private school, but it could come from any discretionary spending category. It could easily represent lower auto payments, less luxurious vacations, or the pony’s stable fees.

The 4 physicians were introduced at a point early in their careers, with a net worth of zero. Zero debts, zero assets. In real life, most physicians will hit a net worth of zero sometime in the first few years out of residency, but will have a mix of debts and assets that balance each other out.

The revisits start from a point 11 years later. Assuming the docs had a net worth of zero in their mid-thirties, a reasonable assumption for many physicians, the revisits occur when they are near their mid-forties. Adding 16 to 23 years to the career puts Dr. D in his sixties at the point where he can afford to retire and maintain his relatively high standard of living.

Positano Italy

Dr. D enjoys the Amalfi coast.

Most of the improvement in Dr. D’s situation came from a change in the assumptions that more closely reflect reality when retiring at a normal retirement age. The house should be paid off, and the mortgage gone. Also, retiring in his sixties allows Dr. D to be able to count on social security.

Is social security a guarantee? Some would say no, but our nation’s retirees would be in big trouble if it were to disappear, and there are ways to shore it up pretty easily, however unpopular they might be.

One more way in which this revisit more closely reflects reality is the retirement time horizon. The 4% safe withdrawal rule assumes a 30-year retirement. Dr. D should be pretty safe retiring in his sixties, but there is more uncertainty for a doc likeDr. Anderson, who had amassed her 25 years of expenses in her forties and could live another 50 years or more.

Additionally, by retiring after age 59.5, Dr. D has full access to all his saved monies with no hassle or penalty. This is good, since Dr. D never got around to starting a taxable account. The downside is that some taxes will be due as he withdraws his funds, so another year or two of work might be worthwhile to put him in a position to cover the small but not insignificant tax burden a retiree with a high proportion of tax deferred savings will have.

The take-home message is that having 25x expenses saved isn't necessarily required to retire comfortably, particularly at full retirement age. Private pensions and social security can lower the required nest egg. Having the ability to cut back on expenses or downsize the home also creates some flexibility. Although Dr. D hadn’t technically met the oft-cited definition offinancial independence, he was in pretty good shape to enjoy a comfortable retirement at a traditional retirement age.

What is the take-home message for you? Would you rather live like Dr. A and strive for financial independence early, or take Dr. D’s route, which seems to have a reasonable chance or working out just fine with a 30-some year career?

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