I think about physician finances … a lot. I listen to multiple pod coasts, read financial books, and talk with people to learn new things. This exposes me to different points of view. One popular area that people love to focus on is retirement.
Milestones of Physician Retirement
Many physicians grind through their training, get out to a career as a physician, and retire at age 65. Physician retirement seems to be completely binary; you are either working or retired. One way to think of physician retirement is through five milestones. Some physicians will stumble these milestones and make it to retirement. The sad thing is many physicians (and others for that matter) never really take advantage of all these milestones.
These milestones do not have stages attached to them. That’s because physicians go through these milestones at different times in their lives. Continue reading to learn about the 5 milestones of physician retirement and how you can put them to use in your life.
Financial Organization
The first milestone to achieve physician retirement is to get financially organized. This is when you start paying attention. If you are like most of us, your financial structure has been built over the years through an “add on model”. You added on accounts, investments, and financial planning as you needed it. You stumbled into your finances without a master plan of how you will organize it all.
How to arrive at Financial Organization
You need to get financially organized. Some physicians can stumble their way to retirement without being completely organized, but it makes it much harder. Perhaps you need to organize your banking structure or even figure out your student loans. You will be able to do more financially with the money you have. I wrote a good primer on how to get financially organized here.
In reality, there are physicians who stop here. (Some physicians do not even get to this point in their lives, unfortunately.) You will need to optimize your finances to really get headed in the right direction.
Financial Optimization
Optimize your personal finances after your are organized. The model I like to use is from my book, Physician Life Management, which was inspired by the Four Hour Work Week by Timothy Ferriss. The model is this: organization, elimination, automation, anticipation.
How to arrive at Financial Optimization
Organization – You did some of this in the first stage, but you are going to fully figure this one out. You are going to go to a deeper level of organization and build out financial goals. You are also going to learn what does and does not fit into your overall plans.
Elimination – You are going to eliminate those parts of your financial life that do not fit. You will be getting out of debt, consolidating bank accounts, and getting rid of processes that slow down your cash flow.
Automation – Next you are going to automate parts of your financial life so you do not have to think about the,. This is where you will “force” yourself to make good financial decisions. You will automate retirement planning, saving for investing, and saving for your kids’ 529 plan to name a few.
Anticipation – You will anticipate and plan for upcoming expenses. This eliminates many of the financial “surprises” that physicians have. Your medical license renewal is due every two years. Your annual disability insurance is due annually.
Once you are optimized, you will be headed towards your financial goals. As you continue to optimize, then eventually you will reach financial freedom.
Financial Freedom
This milestone is perhaps the most underutilized stage. I knew this stage was around for years, but Jimmy Turner and Ryan Inman solidified the concept by talking about it on the Money Meets Medicine podcast. Unfortunately, this milestone tends to be completely ignored by most physicians because we are competitive … we want to finish the race and just get to retirement.
I speak to plenty of physicians who tell me they like their job but they don’t want to work with the same intensity until they retire. This is the stage for them.
In Financial Freedom, you are still dependent on your job to provide money for your expenses, but you don’t have to earn as much money from you day job to meet your financial needs/wants.
The Financial Freedom Milestone is actually a great goal to achieve. You can work fewer hours, perhaps less call, maybe even reduce your work schedule to that of a 60% employee and still have employee benefits.
How to arrive at Financial Freedom
Everyone’s level of Financial Freedom will be different, but there are principles that will get you closer to your personal Financial Freedom. The easiest way to get you here is to live on less than you make. Usually, this looks like getting out of consumer, paying off school loans, maybe even paying off your house. Decreasing your expenses, plus increasing your income at your day job, increasing returns from investments, or perhaps through a running a side hustle (** link to side hustle article **).
Financial Freedom will eventually lead to Financial Independence when you have enough income to support your wants/needs without your day job.
Financial Independence
This stage is where you do not have to work to pay for your living expenses, including your wants and needs. Historically, this would occur at the same time as retirement. It was assumed that you would finish your training, work for 30+ years to save up enough to maintain your lifestyle, and then retire.
Now with the Financial Independence / Retire Early (FIRE) movement, Financial Independence and Retirement have been decoupled into two separate events. The FIRE movement has also many have sped up the timeline so that they can achieve financial independence well before the “traditional” retirement age.
How to arrive at Financial Independence
This is the largest hurdle of the stages. Historically, physician practice owners would grow their practice. They would then sell it as a large asset to have investment money to live on. Most physicians currently will have to
1. save, invest, and position yourself to live off the investments.
2. Have a side hustle will replaces your day job money.
3. Have a combination of both.
There is no one way to reach Financial Independence. You may choose to use pure “brutane” and have a large savings rate to invest in. Or you may choose to buy real estate or build a side hustle to provide the cash flow you need.
Now that you have your Financial Independence, you can either continue to work your day job, or you can officially retire.
Financial Retirement
This stage is where you stop trading your hours for dollars and live off the income from your Financial Independence. Most physicians still think of Financial Retirement as a set age. You may think the same way. “I will retire at age 65.” Or “I will retire at age 55.” It seems that the younger the physician, the younger their planned “age of retirement”. I don’t know if this is a generation trend or part of the FIRE surge, but it seems to be more common for younger physicians to want to retire at a younger age.
This might seem to be the easiest milestone, but I have known some physicians who have absolutely failed at it.
How to arrive at Financial Retirement
You have two goals to achieve:
1. enough money to support your retirement lifestyle
2. Something to do with your retirement time
I have met a handful of physicians who “failed” retirement and went back to work. Every “failed retiree” I talked to said they were happy with their job. They retired because they reached retirement age. They did not have anything of significance to do after retirement.
You will need something more significant to do than just sitting around in retirement. Find a rewarding hobby, volunteer work, or another cause to engage in to be successful in retirement.
You became a physician to help people and make society better. That does not have to stop in retirement.