FIRE Starter 008: Maxing Out Absolutely Everything

Our featured FIRE Starter is a neurologist, part of a dual-income, no-kids power couple that is making all the right moves towards eventual financial independence.

While they may currently be in debt, they are able to easily live on one of their salaries (or less), and they invest as much as they legally can into a whole slew of tax-advantaged retirement accounts.

He’d like to reach FI when he’s in his fifties, but I’ll be surprised if it takes that long. When you combine their relative frugality with two solid incomes and a generous helping of financial knowledge, you have a recipe for rapid success.

If you’re interested in participating in one of three interview series, please download the most appropriate form for your life situation: FIRE Starter, FIRE Crossroads, or Post-FI Notes. To see other posts in the series, visit our Q&A archive.

 

 

Getting to Know You

 

Where are you on your financial independence journey? Have you reached a positive net worth? It’s OK if you haven’t! Most of us started out in the red.

We are early on in our financial journey.  I am in the second year of practice as an attending at a large academic institution with an appointment at the VA as well.

Our net worth is still in the red but I feel we have made significant progress.  After fellowship, with moving, a new mortgage, etc…, our net worth was negative $420,000.  In one year, we are now at negative $241,000 which I feel is good progress.

I will note that when calculating our net worth, I include the balance left on our mortgage as a debt but do not include the equity in our home as an asset, so the numbers may be slightly skewed from other ways to interpret the data.

The reason I do this is I do not really consider our house the same as our other assets, as we need somewhere to live. Otherwise, by the way others calculate net worth, we are probably at a slightly positive net worth.

I know net worth is assets minus debts, so you could also say that when we use net worth, we are really saying our FIRE number. [PoF: A “fix” is to calculate two numbers. Net worth, which includes things like primary home equity, 529 Plans, etc… and a second number that is your retirement nest egg and leaves those out.]

 

Tell us about your household. How many people? Are you supporting anyone outside of your home? Where do you live?

 Our household consists of myself and my wife.  We are not supporting anyone outside of our home, although our parents may not make the most sound financial decisions.  We live in a mid-sized Midwestern city (~250,000 population).

 

In what field are you working? How is your career going? What do you like best and least about your chosen profession?

I work as a subspecialist neurologist.  I am obviously early in my career and overall happy with my first job.  I have experienced burnout in the past as a resident and to be honest, starting a new job (and career) in the middle of a pandemic has been trying at times.

I think a top career goal of mine is to avoid burnout and I do see financial independence as one of the strategies to protect myself against burnout.

I cannot see how I would be happier at another job at this point, as most of the stressors/negatives I see are rather universal to the career and medicine in general.

I do think one of the major downsides of our profession is the difficulty of taking time off.  It is incredibly hard to disengage and I feel with time off, I am working twice as hard when I come back to work.

I also feel guilt signing out patients to other members of my division which I acknowledge is something I need to better deal with.

 

What is the most challenging obstacle to making progress towards financial independence?

I think for our situation, the most challenging aspect is time.  Our plan depends on PSLF for my student loans being forgiven. We are already 6 years in out of 10 years of required payments.

In the long term, with my career goals, I do think this is the best path for our financial situation.  However, I do feel stress with the lack of control of the situation.

We are a bit at the whims of politicians, my employment, and the student loan servicers (Fedloan is ending its contract and I have convinced myself that will cause some issues out of my control).

I do envy those who are in the private sector and living like residents to pay off their loans efficiently.  Even though that is probably not the best plan for us, I am jealous of the control they have of the situation.

Overall, we are well-built for financial success.  We both had relatively modest upbringings.  Neither of us is into fancy cars, expensive clothing, etc…

We also plan our expenses with redundancy. Our mortgage and other fixed expenses are able to be covered with either one of our salaries without difficulty, so we would not be in significant trouble if one of us lost a job (although it certainly would slow down our savings rate).

 

Investing

 

How is your money invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?

Our assets are ~85% stocks, ~10% bonds and ~5% other at this time. We are mainly invested in target funds, although I know this is not ideal.

Overall, these were easy ways for us to be quickly diversified, especially when we were first investing at low amounts.  We have several different retirement accounts and in general, these were some of the better options to invest in from a fee standpoint.

Long term, I think we will seek ~80% stocks (60%US, 20% International), 10-15% real estate, up to 5% bonds and up to 5% of individual stock in the company my wife works for.  I want to be entirely passive and have no interest in becoming a landlord.

My wife is able to buy stock at a discounted rate as well as get stock as part of her salary. It is an up and coming healthcare company with a very large growth potential. I am not a huge fan of investing in an individual company and do not plan to have more than 5% of our assets tied up in this. It is certainly our most risky investment.

I prefer an aggressive portfolio as I want to grow our net worth as much as possible in the next couple of decades.

 

Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?

Right now everything is in a tax-deferred or Roth account. We have ~$450,ooo in investments and about $100,ooo of that is in Roth IRAs. I inherited some money in residency and used it to max out my 403(b) and Roth IRA for most of residency and fellowship.

This is unfortunately spread out in many different accounts. I currently have three 403(b)s (1 residency, 1 attending for the university and 1 VA TSP), as well as a Roth IRA, and a 401(a). My wife has a 403(b) and 401(a) from a prior employer, and a 401(k) and brokerage account for stock options, as well as a Roth IRA.

We also both have traditional IRAs used for backdoor Roth purposes. Most of this is invested in target date funds, but I am hoping to simplify the investments/accounts and optimize asset allocations in the next couple of years. [PoF: Rolling in the old 403(b)s into your current one could help, if that’s an option. If the backdoor Roth is legislated away, you could also consider rolling them into a rollover IRA.]

We should have room in the 24% tax bracket, which I have read is a good measure on when to convert tax-deferred retirement accounts to Roth, but since we are on an income-based payment plan for our student loans, I consider that we have a 10% additional tax on our income until those are dispatched.

In hindsight, we could have done something during the last year but there were enough unknowns that I did not go through with it.

 

Do you have investments in an HSA? How about 529 Plans?

 We have an HSA with ~$30,000 in it, invested aggressively. We save receipts and will either use those or use it as an IRA. We do not have 529 plans and do not plan to have kids.

 

What has been your best investment?

Like many others have said, my wife is the best investment. We are a great team and are on the same page about the important things.

We also have so far survived the pandemic together which I think has been a good test for our early marriage. She is hardworking and frugal (if anything, I have to ask her to spend more).

In a more literal sense of the question, in 2019 I invested my yearly Roth contribution into the fidelity zero-fee extended market index fund (FZIPX). It is up around 90% in that short time, although we all know it has been hard to have a bad investment in that same time period.

 

Your worst investment?

I played around in a taxable account after inheriting some money and not having a place to put it right away. I ended up investing in a target date fund and overall made ~10% returns over 2 years but in hindsight there were so many better options.

It did earn dividends and I learned the tax implications of that, which I guess is not a total waste.

 

 

FIRE Kindling

 

What attracts you to the FIRE movement? Do you think you’ll retire early when you’re in a position to do so?

I think freedom of choice is the most attractive aspect. I hope that I want to continue to work, but I also want the freedom to walk away or work on my terms. I am fairly confident I will retire early (50s at the latest) by some accounts but want the option to hang it up earlier if I need to.

The community online is great and although I am mostly a lurker, I do appreciate the conversations both in blogs and forums. I have learned so much in the last few years.

 

How do you anticipate your life changing post-FI?

Probably not that much. I certainly hope there is less stress but who knows. I do think I will be someone who has trouble transitioning out of an accumulation phase.

I would like to volunteer more.

 

What steps have you taken to hasten your time to FI?

We have a high savings rate, around 40-50% of pretax total salary. We max out every available account with my 403(b) ($19,500), 457 (b) ($19,500), 401(a) (~$35,000 due to salary limitations), HSA ($7,200), and backdoor Roth ($6,000), and her 401(k) ($19,500) and backdoor Roth ($6,000). She also has an employee stock purchase plan that we fully utilize and stock given as part of her salary.

I also have a state and federal pension plan and although they are not based on my full salary, they will be a stable source of some income in retirement.

We spent more money over the last year than we probably will in the long term, but I do fear lifestyle creep. We had a lot of home improvements or necessary projects depending on how you look at it.

We also have been slowly replacing our very old, hand-me-down furniture with nice furniture, spending about $10,000/month for all expenses. This is much higher than we were used to prior to my attending job (when we spent maybe $3,000/month) and I hope once we knock out most of the one-time purchases, we will drift back down. I would like to start saving in a standard brokerage account this year in addition to the above savings.

I think that we are going for more of a fatFIRE style of retirement spending in the $100,000-$150,000 range. I suspect we will have a better idea in the next few years as it is hard to estimate after only 1 year of a certain income.

If we retire early, we will probably have a low withdrawal rate of 3 or 3.5%. I like the idea of planning for a lower withdrawal rate and then using a DAF for surplus later in retirement as well as given a significant portion to charity in our estate.

 

Are your friends, family, or coworkers aware of your interest in financial independence?

They are to a degree, but overall I have to hold back talking about it. I really enjoy the topic and most people really hate talking about money.

I do give a lecture to the residents every year about basic finance, retirement, etc… as I think it is a very underrepresented topic in medical education. I also serve on our retirement committee (and I am probably the youngest doc on there by far).

 

What advice do you have for others beginning their own FIRE journey?

I think one thing that is helpful that is mentioned a lot is that it is personal finance. Every situation is different and in the same way keeping up with the Joneses lifestyle-wise can be harmful, so can comparing yourself to some of the supersavers in the community.

Most people who read PoF or WCI even a little bit will be lightyears ahead of most of their colleagues.

 

Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.

I am open to any and all advice. One thing is that we both have student loans, mine in PAYE and hers in REPAYE. I consider it an additional 10% tax as that is the income-based payments we will (eventually) make.

Mine are the vast majority and should be forgiven through PSLF, but I calculated that her interest is about the amount we would pay in proportion of the 10% of our collective loan payment.

In other words, our loan payment amount will be the same if she has her loan balance or not, so we might as well use some of that payment to pay for her loans which will not be forgiven. My plan was to keep her loans until the last year we certify our income (the year mine should be should be forgiven) and then pay hers off in a lump sum.  

 

PoF: Catch all the future interviews from those just getting started, at a crossroads, or at the end of their FI journey with a free subscription to Physician on FIRE.

 

 



 

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!

Again, if you’d like to partake in a future Q&A, please download a FIRE Starter, FIRE Crossroads, or Post-FI Notes interview form.

 

3 thoughts on “FIRE Starter 008: Maxing Out Absolutely Everything”

  1. I think the correlation between age at one’s FI # and whether they maxed 403b AND Roth IRAs in residency is extremely high. Not sure of the OPs age but this couple easily should reach FI I think before age 45.
    Maxing a 403b and a Roth IRA in residency not just makes sense mathematically, but the fact that the OP knew back then to live off the inheritance so he could put as much of his resident salary to retirement, even while admitting he pissed some away in a taxable account (really just due to tax inefficiencies, not poor investment choices), shows he knows how to win sooner rather than later. Money is fungible and he did the right thing

    Reply
    • My husband and I are both internists. When we were residents in 2003, in New Jersey, our program never offered a 401 K. We were not savvy enough to educate ourselves about Roth ira’s. I feel all residency programs should have mandatory financial workshops for residents and should offer 401k’s.

      Reply
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  3. Wow, they’re doing quite well and their accounts are definitely ‘maxed out’ as your title suggests. Also, the fact that they’re not planning to have kids makes me feel like they’ll reach FIRE a lot sooner than the 50s’ goal just because the lifetime expenses will just be a significantly lower.

    Reply

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