Late Bloomer Physician Retirement Home/Nest Egg Decision ⋆ XRAYVSN

Johanna’s Take:

At what age does it make sense to say you’re too old to start a career as a doctor?

38? 40?

How about 45?

That’s right, this week’s submission is from a physician who not only started a career at age 45, but also set a goal to retire early after only 10 years in a HCOL part of the US.

Applicant rates this dream with a “10” happiness factor.

Is it possible to cheat the system and have it all without breaking yourself in the process?

I’m going to take a shot at finding out.

Dr. X is not only a late bloomer but also chose a specialty with one of medicine’s longest timelines to attending-hood.

Spouse does not work and has no retirement account, so this is all on the good doctor.

They are about to move to a HCOL state, continue renting, cut down some on an extremely brutal schedule, and live cheap while saving aggressively for the next 8 years.

I have reduced the 2019 savings amount to account for the cash outflow for the land.

The positives:

No children, which means
- Dr. X can be 100% on call
- No funds required for private school/higher education
High demand specialty
Good health, i.e. stamina
No debt
High savings rate
Except for desired location, lives a very lean lifestyle
May be willing to work 5 weeks/yr in retirement to bring in $140k/yr to help with bills

The negatives – it’s a short list, but each item is a biggie:

Late start to retirement saving
Choosing a dream house in a HCOL state/area
Cutting career short
Long retirement, necessitating higher savings

Assumptions (I will use conservative estimates wherever there is an uncertainty.)

6% average long-term returns on savings (Assuming no emotional mistakes in upcoming bear markets and corrections)
Average inflation
You retire in 8 yrs
You have plenty of appropriate LTDI in place
No divorce
No significant financial assistance for other family members
Reasonably good health

Additional commentary:

You might have noticed that I am not concerned with life insurance because:

In event of the death of Dr. X, Mrs. X would either go back to work or live on retirement accounts and SS survivor’s benefits (depending on timing) and
In event of the death of Mrs. X, Dr. X would simply continue to work
On the other hand, an untimely disability without appropriate LTDI coverage would detonate the dream.

The 42% savings rate represents the past, when Dr. X has been working his backside off to pay down debt and start saving.

I backed into a savings rate of 32% in 2020 and beyond to get to $160k/yr of living expenses and $160k/yr of savings.

This translates into lifetime savings as follows:

~$2.2M if fully retired at 58
~$3M if able to let portfolio grow 5 yrs extra (to age 63)
~$4M if able to let portfolio grow 10 yrs extra (to age 68)

My biggest fear is the HCOL area and inflation.

A $150k/yr “Fat FIRE” today will be ~$250k/yr+ in 18 years at 3% inflation (when the X’s plan to begin retirement withdrawals) and $215k/yr at 2% inflation.

A 4% annual withdrawal on $4M is $160k, barely above the Fat Fire goal.

(Readers – this should be a reminder never to overlook inflation when you are calculating projected income requirements in retirement.)

I also did not account for the cash savings of $140k down for the house in 2027, nor did we inflate the cost of the house.

A $700k house today may cost quite a bit more in 8 years, and that’s a big unknown.

Xrayvsn’s Take

Luckily for me Johanna did the heavy lifting with the financial numbers that were eloquently elaborated above.

When I initially went through this submission and before I received Johanna’s analysis data there were many factors that thought that this may just be a pipe dream for Dr. X.

The late start in the medical career was definitely a brutal hit to the overall financial plan.

Even in the best of circumstances, physicians already incur a time penalty and are behind the 8 ball when it comes to retirement savings.

Most physicians finish residency and get their first big attending paycheck in their early 30s.

Add another decade and a half of time delay in the case of Dr. X and that 8 ball morphs into a full-sized wrecking ball.

I congratulate Dr. X on still being able to pay off a sizeable amount of student loans so quickly.

By renting instead of owning, the X family did indeed help their cause as well.

However in the end, there were just too many negatives for me to endorse this financial plan:

Planning on building a home and go back into debt at a time when you want to wind down your career
Current low retirement fund values and savings for what would typically be expected for a mid/late career physician who took a more traditional route (Dr. X’s current net worth is at $445k).
Although I do like their sizeable budget overage, Johanna makes a great point that in 8 years who knows what the cost of building their home would be (I am assuming they would lock in the land prices much earlier having already gone through the steps of getting bank approval).

As an aside, it does sadden me that after practicing less than 3 years, this physician is already feeling burnout and looking to make a quick exit from medicine despite the late entrance.

The Decision:

Johanna:

All of the above leads me to a Verdict of…

Thumbs down

With the following adjustments, I could be persuaded to reconsider:

Dr. X “semi-retires” at age 55 and continues working enough to save another $100k/yr.
This would give them $5.35 million savings at age 65, enough to withdraw $214k/yr from the portfolio.
- This is just about the amount of projected Fat Fire needs at 2% inflation (we’re still cutting it close)

And/or

Cutting living expenses even more after moving to the HCOL area and investing.
This will also increase SS benefits when they decide to draw.
- The ideal year calculation is beyond the scope of this project but should be carefully considered in the future.
Also highly recommend that Dr. X seek out a position offering an HSA and maximize funding until full retirement and contribute to backdoor Roths for both spouses annually.

Some combination of these changes might allow them to squeak by or even meet/surpass all goals, depending upon investment results, inflation, and the added expenses of home ownership.

This is one situation in which careful, ongoing planning can make a big difference in the ability to achieve (and modify, if needed) future goals.

Xrayvsn:

Sadly I concur and give a thumbs down.

I hope your plan to extend your medical career by reducing your clinical hours will help you last more than the years I think you need to practice in order to achieve this dream.