Every now and then people email me and ask me for advice. Many of them are physicians who relate to my story and have thoughts of early retirement or some alternative plan other than “work until 65 and either die or golf every day”. I don’t really have time to give a complete and thoughtful answer to everyone, but I try. I thought I would experiment with something a little different today – a case study.
I know, I know, every blogger is doing case studies these days. I like them though. Everyone’s situation is unique, but often there are commonalities, and perhaps we can all learn from them.
My very first case study is from John, a radiologist (like myself) who finds himself looking at the end of his military career in the next year. He wonders what his next step will be and how he should approach the decision making. I will let his words do much of the speaking.
*The italics are my comments on his situation.
Disclaimer: I am not a coach, financial planner or guru of any kind. I’m just some random dude on the internet spewing my opinion. I look at these cases through Happy Philosopher Glasses (patent pending), and my advice is what I would do myself in this situation. What I would do may not be what John or you should do because we all have different goals, beliefs and priorities. Alright, here we go.
Dear Happy Philosopher,
I’m a Physician (Radiologist) in my late 40s and I will retire from the military next year. My career has been atypical compared to most physicians, but for me it has been great. Like most of my residency class, I didn’t plan to stay in the military, but my wife and I enjoy traveling and living abroad which the military offered us. There have been deployments and other ups and downs, but we have decided that we didn’t have to live our lives according to “the script”.
I’m certain that my peers in the civilian world have out earned me by a long shot, but even with a lower income, we have been able to assemble a respectable amount of money. About 4 years ago I stumbled upon JL Collins blog and the concept of F-you money which got me reading about financial independence. I had always been a saver and investor, but I never had any specific goals or a coherent plan. I made a spread sheet of all our assets and discovered that when I factored in my pension we would probably be financially independent when I retired from the military. I came up with a set of basic goals:
- Retire by age 50 and fund expenses using pension and passive income
- Fund children’s educational expenses
- Be able to travel and be generally happy
- Work occasionally if I want to
*writing out goals a great idea, but it is the systems put in place that make the goals happen. I have found that just the simple act of writing them down subconsciously leads you to create these systems. Even if you never look at them again you will be surprised at how many of them just kind of happen to come true. Even though the salary of a radiologist is probably lower in the military, it is still massive, and most, if not all physicians should be able to be in a position of financial independence in their late 40’s or early 50’s if this is their priority.
Four years later as I get ready to retire, here are the numbers.
Income and assets:
My military pension will be approximately 70K annually starting next year when I retire and is cost of living adjusted annually. This is after deduction of the survivor benefit plan option which will continue to give my wife 55% of my pension if I predecease her.
Our current assets are mostly invested in low cost index funds with an overall stock: bond/fixed ratio of 75:25 as follows:
- Taxable accounts $2,200,000
- Tax Deferred (IRA, Thrift Savings Plan) $440,000
- Roth: $235,000
- Total: $2,875,000
*social security will kick in at some point giving you another level of safety.
We have no debt.
We currently do not own a home or any other real estate.
Using an ultraconservative 3% annual withdrawal rate .03 x 2,875,000 = $86,250 per year. After subtracting 15-20K in taxes, this leaves about 135,000 available for spending when added to the $70,000 pension.
*staying in the 15% tax bracket will allow tax free cap gains. In 2017 this is $75,900/yr of earned income. Using the Roth and taxable account strategically will be important for maximum efficiency. Be sure to factor in state taxes as well. I’m guessing you can get below 15k/yr in taxes if you live in a low tax state. This is a good article to read. A 3% withdrawal rate is incredibly robust. Many would be comfortable with a 4% withdrawal rate which would provide about 115k/yr in addition to your pension.
We have 529’s for our 2 children with a total of $268,000 between them. My parents have put $80,000 in 529 accounts for each child as well. So as of now each child has over $200,000 available for college.
In addition, I am eligible for the Post 911 GI Bill which I transferred to my children. This provides additional money (I’m estimating 20K per year) for 4 years.
*This seems extremely solid. Unless you are planning to pay for 8 years of education at a very expensive school it seems like education is covered. This is probably more than my kids are going to get.
Since 2009 I have been tracking our total annual expenses which include the time from 2009 to 2014 when we owned an expensive home and lived in a high cost of living city. Annual expenses ranged from a high of 114K in 2012 which included the cost of our bathroom renovation. The low was 91 K in 2015. We’re tracking to be about 100K this year.
These numbers include numerous trips around Asia and Europe while we were stationed in those areas and we traveled quite a lot while we lived in the states as well.
What will happen to expenses when we start traveling? I don’t know for sure. Travel doesn’t have to be too expensive if you have time. We are much more likely to slow travel, staying for 1 to 3 months in different locations depending on whether we like it. In many of the areas we plan to travel to you can rent short term furnished apartments inexpensively.
As military retirees we can also take advantage of US military facilities around the world for low cost food/supplies, healthcare and lodging and we frequently use military space available flights.
135K/year = $11,250/month or $369/day. For much of the world that is a fortune and it is solidly upper middle class in most parts of the developed world. I figure that we will see how the first 6 months to a year goes and readjust.
As a military retiree I am eligible for TRICARE (health insurance) at very low cost. (Currently $300/year for a family)
*135k/yr after taxes using a 3% SWR rate with a cola adjusted 70k/yr pension is about as close to bulletproof as you can get, especially when your highest spending year ever was 114k and your health care expenses are hedged about as well as can be done in the United States. All factors at this point are non-financial. You are financially independent at this point.
As outlined above, I think we can sustain our current lifestyle without work, but as many who have faced this situation know, it’s hard to let go. There are several factors to consider.
From a professional standpoint my biggest concern is that as each day goes by that I don’t work, my skills degrade and I become less and less marketable. You would think that having a lot of experience would be a plus, but the reality is that most places would rather hire a young person right out of training rather that a 50+ year old. In addition there are the issues of maintaining licensing credentialing etc.
*It is hard to imagine a scenario where you will have to go back to radiology if you choose to retire. This is a legitimate concern to physician early retirees though. Unlike many other professions it is rather cumbersome to get back into medicine after a long hiatus, and groups may be very reluctant to hire you unless there is a severe shortage in your specialty.
Despite practicing for many years now, the reality is that Radiology can be boring a lot of the time and frequently very stressful. No matter how much knowledge and experience you have the amount of information required to do a good job is overwhelming. The number of important decisions required daily is exhausting. The thought of leaving it behind and never having to be worried about being second guessed is very exciting.
From a personal standpoint, I am proud that I became a doctor and radiologist, but it has always been a job for me, not a calling as it is for some. That is not to say that I don’t get a large part of my identity from those titles. In many ways it has been a crutch because it gives me instant credibility which would otherwise have to be earned. However, I have never been the type to emphasize being a doctor or bring any attention to myself. As an introvert it always made me uncomfortable. Frankly I get more status from my military rank these days than from being a doctor. I will always be able to present myself as a doctor and radiologist whether I’m practicing or not.
*Identity is always the toughest part in my opinion and that is the big question here. Will you miss identifying with being a doctor and radiologist? It sounds like you do not identify too strongly with it, but this is a question worth drilling into and exploring further.
What am I going to do with my time if I don’t work for money? Good question. This is something that I need to figure out. I have never been the type to have a lot of hobbies. Most of my time has been focused on spending time with family and work. I am looking forward to having more time to exercise and get more into fitness. There was a time a few years back when I was running a lot and I really enjoyed that. I also like reading. My wife has been homeschooling the kids for the last few years and I’m sure I will be more involved in that if she wants me to be.
*It’s always an advantage to have something to retire to, rather than just retiring from the job. This will be the biggest challenge aside from the issue with ego and identity.
Most likely I will work a few months doing locums during our first year of retirement and see how it goes. I am also looking at short term overseas assignments which would satisfy both the desire to work and to travel and live overseas.
*I like this approach, although if it were me I would modify it a bit. Instead of jumping out of full time work into another job, why not take a sabbatical or mini-retirement to see what it feels like? If you take 6 months off, by the end you will know what to do. If you miss radiology go back and find some part-time work you love. If you find yourself waking up happier and happier each day, dreading going back then walk away.
After the first year I’m not sure. I’m sure we will settle down somewhere, but I get concerned about getting bored and feeling like I’m stagnating. I think my wife will have an even harder time settling down. I really see us continuing to take advantage of opportunities as they come up. I’m not a big fan of bucket lists, but there are so many things to see and do in this world and we can’t take advantage of them if I’m working full time and tied to a suburban life.
One of the conflicts that I am having when I think leaving the military next year is that it’s actually been very interesting and a lot of fun. It seems silly when I think about all the exciting things we have to look forward to, but sometimes I’m afraid the best times are behind me. I have to be satisfied that this is the extent of my professional accomplishments.
Why do we always tend to look back even when the future seems so bright? Why do we have mid-life crises even when we are successful?
*At this point retiring seems to be mostly about fear. The problem with this framing is that there will always be something to be afraid of. When we are financially free it is time to start doing things for joy and love. Time is limited, and unless one gets joy out of working it is time to walk away.
We look back to the past and worry about the future because we evolved in a time of scarcity. We constantly worry because if we didn’t we would likely not survive. Most of the things in your mind that make you unhappy were actually survival strategies that helped in the past. In this time of massive abundance though, where you are in the top 0.1% of global wealth, it does not serve you. I like mindfulness meditation and gratitude as the two major weapons against this toxic thinking.
A midlife crisis is a bit different. In this case we bump up against the existential crisis of our own mortality and insignificance. We face our greatest fears head on, and many of us do not fare well.
I asked John some follow-up questions:
Would you do radiology if it paid nothing?
Yes, there are many volunteer opportunities with humanitarian groups and that is something I have looked into.
When I was deployed the first time I was on a team that was tasked with assisting the government to develop and improve their healthcare system. It was more at the macro level, but I would be interested in doing similar work to help develop radiology capacity somewhere in the world if the opportunity arose.
What projects or work would make your life meaningful and bring you joy?
I’m not sure yet. I think it will change over time. I don’t think I’m in a unique position. Most people who transition from full time work have an adjustment period. Right now I spend a lot of time with the kids but as they get older and move out that will change.
As a family we have tried to instill a sense of responsibility and respect in our children. The hope is that they see themselves as global citizens. We are currently participating in local beach cleanup efforts and are part of a Coral Watch team that tracks the health of local reefs. Depending on where we live I see getting involved in local causes to improve the community.
I have studied Spanish for several years, but I never got to the point where I feel fluent. One of the things my wife and I would like to do is get fluent in Spanish. If we had enough time (which we will) we would like to take an immersion class in Mexico for a few months. This would set us up for extended travel to central and South America.
What would you do if you were diagnosed with terminal illness the day you retired and had 1 year/5 years/10 years left to live? These are the interesting questions that get the mind spinning.
I think if I set things up the right way, I wouldn’t do anything differently. We are all terminal it’s just a matter of how long you have left.
*So first things first. John, you are financially free. Let’s just get that out of the way. Any decision you make about work should be done only for non-financial reasons. Unless you can internalize this and really believe it, your decisions will not be optimal. On the one hand you admit your job is often boring and stressful and the thought of leaving it is exciting, yet you also say you would do it for free. You admit to worrying that your best days are behind you and you have accomplished all that you are going to professionally. For these things to be true your identity is probably tied more to being a radiologist that you would like to admit. This may be subconscious, but it is real.
Maybe there are some things about radiology you love, and if you continue to work I would find a job that maximizes these things. Perhaps it is a sense of duty, not wanting to waste your talents or something else. Figure this out and your path will become clear. Maybe work part-time while you explore other interests. I’ve never worked in the military, so I can’t really comment on how it differs from a typical private practice job. It may be worth exploring options to stay in the military doing locums or part-time work if this is an option.
You list things you would do after retiring, but I’m not hearing passion through those words. I don’t get the sense there is really anything drawing you towards retirement other than the fact that your military career is ending and you are financially free. These are good reasons to retire, but I get the sense that you will become restless. These things are sometimes tough to get a sense of through email with a person I have never met, so I’m kind reading tea leaves here.
The one “bad thing” about financial freedom is that your life goes from pre-determined to self-determined. You are now responsible for the decision to work or not. Most people don’t have to make this decision in their 40’s. It is much more difficult than many realize. Todd Tresidder wrote a great article about this I would recommend reading.
Really give some thought to the 1/5/10 year question. You gave a non-answer. If you truly would not change anything about your life then I have little to offer. You are already doing everything right. If you really only had 5 years left to live though, how much of it would you spend working when you are already financially free? These are the type of questions that cut to the heart of things. Do what makes you happy and follow your heart.
John is in a great place financially. There are very few people before age 50 who have this kind of financial freedom, but I’ve seen this time and time again in emails and in-person discussions – physicians are afraid to walk away from their careers, even when they are sub-optimal and they are financially free. Our ego and identity are entangled with our career as a physician. I’ve talked with many non-physician early retirees and people aspiring to financial freedom, and have found identity to be less of an issue for most. I don’t think John is ready to completely quit. If I were in his shoes I would take a 6 month sabbatical and then do some locums work. I would explore other hobbies and interests and see if I ‘need’ work to keep me happy. I would certainly never take call or work a night/weekend if I were in his financial situation.
What do you think of my advice to John? What would you do in his situation? Please be respectful in the comments, as there is a real person behind this case study, and he was kind enough to provide us with the details of his life.