As you may know, we’ve talked here before about the concept of fatFIRE – that is, a spending budget in retirement north of six figures. Using the often-quoted 4% safe withdrawal rule, you would generally want about $2.5 million before you could reasonably consider yourself a member of the fatFIRE community. And quite a community it is, if I have anything to say about it.
Of course, many professionals find themselves at a point in their journey to financial independence that some call Coast FI, which is generally where one can withdraw one’s foot from the pedal in terms of huge additional regular contributions to savings and instead let the money one has already put away do the heavy lifting from thence forward.
Today’s interviewee has reached the latter point, not counting their residence or their investment property. They’re still working, but the hard part of accumulation is behind them, and by any measure, they’re well on their way to as fat a retirement as they’d like.
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Getting to Know You
Where are you on your financial independence journey? Have you crossed the halfway point in terms of net worth and/or passive income?
We have a net worth of approximately $5.5 million which includes our property value (minus mortgage). Using our “nest egg” number, we are currently at Coast FI.
Tell us about your household. How many people and at what ages? Are you supporting anyone outside of your home? Where do you live?
My spouse and I are in our mid-40s with three school-age children living in the Midwest. We do not support anyone outside our home.
In what field are you working? How is your career going? What do you like best and least about your chosen profession?
We both work in academic medicine and have for our entire careers since completing fellowship training. The best things I like about my profession/specialty are the flexibility and the options for clinical and nonclinical work.
We are considered mid-career – about 15 years out of training. What I like least is in-house calls necessitated by our specialties.
Do you feel you’ve come to a crossroads of sorts? If so, tell us about it. What options are you contemplating?
I do feel that we are at a crossroads of sorts…we have enough saved to Coast FI, but we are continuing to contribute the max to our 403(b), 457, and Backdoor Roth IRAs (for now). I feel that we need to invest more in our taxable accounts so that we have more flexibility once in retirement.
I will likely retire earlier than my spouse who plans to work until at least age 55. We would be able to live off of my spouse’s income without needing to withdraw from our retirement accounts, but we would not be able to continue saving into a taxable account unless we stop our contributions to tax-deferred accounts.
We are planning on opening a business (franchise), which also complicates our plans, and have been putting away money into a savings account so that we do not need to take out additional loans.
Do we cut back on our tax-deferred contribution to invest more in a taxable account?
How is your nest egg invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?
What I consider our nest egg (which is about $4.4 million of the total $5.5 million mentioned) does not include our primary home or investment property, 529s, donor-advised funds, UTMA or emergency savings.
Our nest egg is held in:
- Defined contribution
- Roth IRAs
- Taxable brokerage accounts
Allocation of our nest egg is roughly 60% in total US stock, 21% in total international, 11.5% fixed income, 7.5% in real estate and alternatives – the allocation is spread across all of the accounts.
Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?
About 77% of our nest egg above are in tax-deferred accounts, 17% in after-tax accounts and 6% in taxable accounts.
Do you have investments in an HSA? How about 529 Plans?
We have an HSA that we contribute the maximum each year that is invested in mutual funds and has a balance of around $63,000.
We have 529 plans to which we have stopped making contributions, with a balance of approximately $380,000.
What has been your best investment?
One of our best investment decisions was contributing a lot of money (relative to our income) into our retirement accounts and 529 plans when the market was down during the Great Recession.
Continually contributing during that market downturn has brought such fantastic returns that we are no longer contributing to our 529s.
Although we did not max out our 457 plans from the onset, we have been contributing to the max for at least the last decade. Another great investment decision was converting our 401(k)s from residency (rollover IRA first) to a Roth IRA (since we were still under the income limits at the time).
Right around the time we finished fellowship training, we learned that the income cap for Roth conversions was going to be lifted in 2010. We took that opportunity to contribute to a nondeductible traditional IRA from 2007-2010 and converted it all in 2010 to a Roth along with our 401(k) from fellowship.
We had to pay taxes on the interest accumulated during those years with the conversion in 2010, but we felt that having more money in the Roth bucket was worth it. We continue to contribute to the backdoor Roth annually. Although our Roth accounts are a relatively small portion of our nest egg, it should be at seven-figures by the time we start drawing down from it.
Your worst investment?
I wish I had contributed to my 401(k) from the start of residency, rather than waiting until mid-residency and also maxing out our 457 when we became attendings. I made the mistake of listening to a fellow resident who told me that it was pointless to contribute as we would not be vested.
Although it was true that we would not be 100% vested, I was still leaving money on the table. Since that time, I educated myself and learned the basics of personal finance, and I continue to be a life-long learner.
As I mentioned above, doing a Roth conversion was a great investment, but unfortunately, with our first experience with a financial advisor we invested in loaded mutual funds that had a 5.75% upfront load. If I had the chance to do it again, I would have invested in low-cost index mutual funds. Fortunately, the small portion we have in those initial Roth accounts have done ok.
Finally, I wish that I paid more attention to the downturns in the stock market, such as in March 2020, so that we could have bought more funds at a significant discount!
Into the FIRE
Numerically, what is your FI goal?
I have been debating this for a while and have landed on $6 million which is more than 35X our annual expenses, but it includes an increased expense toward travel during retirement.
We currently have around $4.4 million in our nest egg. We have an additional $200,000 in savings that we plan to use for our franchise.
We have $325,000 left on a mortgage for our primary residence and have an out-of-state investment property with no mortgage that nets about $18,000 per year.
I suppose that if we subtracted our passive income from our annual expenses, then our FI goal would decrease to $5 million.
When do you suspect you will achieve financial independence? Will you retire from your career once you’re comfortably FI?
Conservatively, I think we will hit our Fat FI goal in the next 3-4 years if we continue investing like we have been doing. If we stop investing and just let our nest egg grow, we should reach our FI number in 5-6 years.
I’m not sure that anything will necessarily change once we reach our goal. I have already been trying to cut back on things at work that I don’t enjoy doing.
I have certainly had a change in mentality knowing that we are Coast FI and that working is now optional (at least for me, as my spouse will continue to work longer by choice).
Having FU money has significantly lowered my stress levels and has allowed me to realize what aspects of my work I’d like to continue doing and what I could do without. However, given my personality type, I will most likely be working longer than I need!
My spouse has not been very interested in personal finance, but fortunately is frugal by nature and enjoys taking care of patients and plans to work for another ten years or so. Despite the lack of interest, we do discuss our finances and my spouse is periodically updated on where we are on our FI journey.
What are your post-FI plans? How will your life change? What do you look forward to the most?
As I mentioned above, we plan to open a franchise in the near future. Although we don’t intend to run the business (even during retirement from our careers), we will be managing the financial and bookkeeping aspect.
FI will allow me to design my life around the people and things that matter most – family, friends, health, certain aspects of my work, hobbies, and service. We plan on a lot of travel when possible and have allotted about 20% of our retirement expenses to travel.
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Have you made any major changes in your lifestyle or investments to accelerate your FI path?
We spend intentionally on things that matter to our family – experiences, food, health and exercise, and hobbies. I don’t feel that we have been deprived in any way.
We have never been the type of people to keep up with the Joneses. We’re not interested in driving the nicest cars, having the biggest house in the neighborhood, or buying the newest tech gadget. We don’t eat out regularly, mostly due to the fact that it’s healthier to cook at home, but we order take-out a few times a month.
Before the pandemic, we would take four weeks off per year for vacations, generally spending $15,000 to $25,000 per year. Of course, we did little traveling since the pandemic and we have been able to save quite a bit more due to lower travel expenses.
We did refinance our home mortgage this past year. I had the mindset that we would accelerate our mortgage payments and pay it off in the next 5-7 years (we had 10 years left of our 15-year mortgage); however, we ended up refinancing to a 15-year mortgage at a rate of 1.875%. Given the very low interest rates, we are no longer paying additional principal.
Did you receive any inheritance or financial help to accelerate your FI path? Are you facing any unique challenges making FI or RE more difficult?
I am tremendously grateful that we have not hit any significant challenges or roadblocks to FI. We also have not received any inheritance that has contributed to our FI path. However, we have been extremely fortunate in many aspects since the start of our investing timeline.
Although our parents helped pay for our undergraduate education (we both attended in-state universities), we both had to take out student loans to pay for medical school. We were lucky to be able to consolidate our loans at the time of very low rates at sub-2% and eventually my loans were paid off due to a loan repayment program. The remainder of my spouse’s loans will hopefully be forgiven through PSLF with the COVID waiver.
Our careers also began during the Great Recession when we were throwing money into the stock market and not really paying attention to the value of our investments. We didn’t realize how much we had until around seven years later when our investments had grown to seven figures!
Although we could be making a lot more money in private practice, the benefits of being able to contribute to multiple buckets such as 403(b) and 457 plans, as well as generous employer contributions to our retirement have allowed us to accumulate a significant amount in a relatively short amount of time. Our frugal nature and intentional spending are also important contributory factors to our overall success.
What advice do you have for others who are seeking financial independence?
1) As the WCI always says, “Live like a resident!” and save the rest. We did this as new attendings long before it was even a saying. Although we did upgrade our lifestyle from fellowship, our spending was still well below our income level.
We chose to live in a much cheaper home than during fellowship, despite being larger in square footage, in an area that had lower property taxes until our oldest was school-aged. This allowed us to save a significant amount towards a down payment for our “forever” home.
We did buy two new cars after fellowship, several years apart, but we are still driving those vehicles today! Save the rest of your income – whether it’s for emergency funds, down payment, car fund, vacations or retirement.
2) Spend money with intentionality. Spend money on what’s most important to you…don’t spend money to impress other people.
3) Invest your money and monitor your fees – even if it’s in low-cost target date funds that you set and forget – buy into the market and stay for the long haul.
Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.
1) Regarding our mortgage, the math is obvious and we probably should not pay off our mortgage given the low interest rate, but would it make sense to pay it off before we fully retire – which would likely be by age 55?
2) Are we invested too aggressively with 81% in equities with retirement ~10 years away?
3) At what point should we stop contributing to tax-deferred accounts to increase our taxable savings – when I retire from medicine and my spouse is the sole income-earner? Or should we always be contributing to tax-deferred accounts to lower our AGI?
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I thank today’s interviewee for sharing their story, and I’ve shared my feedback privately with them. I wouldn’t want my opinions to influence yours. Please give your take and answer any questions they have had in the space below!