I’m excited to bring you the first of many FIRE interviews with regular readers of Physician on FIRE. This Post-FI Notes Q&A comes complements of an early retired physician in his mid-forties who is living his dream.
I dare say he’s living my dream, and it sounds like it’s going quite well for him as he and his family embark upon several years of global slow travel with three teenagers. While we’ve put a portion of our travel plans on hold, they’ve made the most of the time they have together.
We’ll dive into the history that led them to this enviable position and learn how they fund their lifestyle and where their money is invested. You’ll also learn his clever 529 hack to maximize his annual state income tax deduction. He also requests your feedback if you’d be so kind as to weigh in.
Getting to Know You
You’re financially independent. About how much does your household spend in a typical year? How much could you spend while still abiding by the 4% rule?
Hey, PoF! Thanks for allowing me to participate in this interview series! I can’t answer this question with a specific amount because there has been a dearth of stability in my family’s lifestyle and expenses over the past year, but I’ll approach this question by listing my spending over the past academic year and then over the past three months.
This past year, July 2020 to June 2021, my family lived in an RV while continuing to work part time. We traveled all over the US, having a great time, and ended up spending slightly over $44,000. After I fully retired at the end of June 2021, I set a budget of $5000 per month and then subtracted 15% for giving, giving us a budget of $4250 / month.
We’ve kept pretty close to this budget so far. One additional expense that has been added to our budget since retiring is insurance, which was covered by my employer. I am currently using Cigna Global to cover my family overseas and the Healthcare.gov marketplace to cover us when we are in the US.
According to the 4% rule, if I value my real estate investments as their purchase price and include them in my net worth, I could spend up to $112,000 / year, but I feel much more secure living off my real estate dividends and letting my stock portfolio grow unmolested.
Tell us about your household. How many people and at what ages? Are you supporting anyone outside of your home? Where do you live?
I have five in my household, myself, my wife and three teens. My children are the impetus for my early retirement because I realized that my time with them at home is short and I wanted to maximize my opportunity to enjoy them. We homeschool, so I’ve been able to play a much larger role in teaching now that I’m retired.
As far as where we live? That tends to be a moving target by design. We are slow traveling around the world as a family, having become worldschoolers. We are currently living in Mexico with plans to move to Europe, Africa and Asia over the next few years.
Are you still working? In what career? Did your work schedule or attitude towards work change once you knew you were FI?
I have fully retired for now. I’m not ruling out future work when my kids have left for college and careers, but at the moment I meet the retirement police definition of being retired with no income aside from investments.
I was a physician until a few short months ago and I don’t see myself working in the medical field again for pay, but I would definitely consider volunteering my time if I find the right opportunity. If I go back to full-time work in the future, I’ll look for an alternate career that I enjoy.
My attitude towards work definitely changed as I approached FI. As has happened with almost all modern physicians, work became more and more focused on generating RVUs (a way of measuring physicians’ work) and stress continued to build.
Once I was confident that work had become optional, I was able to worry less about hospital politics and work stress and was free to take care of my patients the way that I felt best.
I knew that I was only working because I chose to and not because I was trapped by medical school debt or the need to support my family. It made the work more enjoyable, and I would have probably continued working part-time if it wasn’t for my desire to travel and to spend more time with my children.
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Was financial independence a long-term goal of yours? Did you think you might retire early or be able to do so when you first got started in your career?
Financial independence was always a long-term goal for me, but I didn’t really know it by that name or understand the concept when I first started my career. I always knew that I wanted the freedom to travel and to be able to give my time to my family and to charity.
I had the crazy idea that if I could just pay off my debt and save $500,000 that I’d be set and could then live life on my terms. That seemed like a huge amount of money to a resident who was used to making less than $15/hour!
The day that I started my job as an attending physician, I asked myself what I would do if I was fired. I had six figures of medical school debt and a young family to support. I knew that I wouldn’t last more than a month if I lost my job.
I immediately built up a cash emergency fund and started pouring my excess funds into paying down my student loans. I continued to live like a resident with a few extra luxuries like going out to eat more often and buying some premium treats at the grocery store, but otherwise kept to a tight budget.
It wasn’t long before I had paid off my student loans and paid off my home. I was finally able to relax and know that I had the ability to take care of my family no matter what happened at work. This was the point that I started to read blogs like White Coat Investor, Millennial Revolution and Mr. Money Mustache (This was when I knew Physician on Fire as a frequent participant on the White Coat Investor forums and before he started a blog).
I began developing my FI plan at this point and began experimenting with everything from dividend investing to index investing. I finally settled on index investing and started building assets and making progress towards financial independence with a vengeance.
How is your nest egg invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?
As stated above, I am primarily an index fund investor. I have approximately $2.1 million invested in the following index ETFs:
I also have a portfolio of real estate syndication investments that total $705,000 based on initial investments with a mix of class A and class B investments.
In addition to a small severance package that will continue through the time that I have children at home, my real estate portfolio yields $5,300 / month to cover my living expenses. I also currently have $65,000 in a cash emergency fund for unexpected expenses and to allow flexibility to take special trips and/or enjoy occasional extra luxuries without worrying too much about exceeding my budget.
While traveling internationally, I transfer my monthly living expenses into my Schwab High-Yield Investor Checking account, which allows for ATM withdrawal worldwide and charges no fee for international currency exchange. Schwab also refunds all ATM fees, even overseas. This provides an easy source of cash while living abroad and limits the amount of cash available in my account should my ATM card be compromised.
Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?
Due to the nature of my job as a physician and my relatively short ramp-up to FIRE, the majority of my funds are in post tax accounts.
I hold my VTI and VXUS ETFs in my taxable brokerage account, which totals 57.4 percent of my stock portfolio. The remainder of the ETFs are spread between traditional and Roth IRAs.
Now that I have retired, I plan to start converting my traditional IRAs to Roth IRAs over the next decade or so until everything is transferred into Roth IRAs. This will significantly decrease taxes during retirement and eliminate required minimum distributions (RMDs) later in retirement.
Do you have investments in an HSA? How about 529 Plans?
I have an HSA at Fidelity, which allows investment of my contributions. I currently have $35,000 in my HSA invested in the same ETFs as my retirement accounts. I keep all of my medical receipts and scan them in for future reimbursement. I don’t plan to reimburse myself from my HSA until I reach a more traditional retirement age, keeping it as a “stealth IRA”.
I also have several 529 accounts that are invested in Vanguard mutual funds on a sliding scale depending on my children’s age. When I was initially funding the 529 plans, I realized that my state would allow a state income tax deduction up to a certain amount per year per plan.
I then proceeded to open an account for each of my children as well as myself and my wife. My wife did the same, which allowed us to open ten 529 Plan accounts. This maximized our state income tax deduction and, since 529 accounts are fungible between family members in our home state, I can later transfer the funds to whichever child needs it.
I currently have approximately $260,000 in 529 funds, which will likely be over-funded for my children given their potential scholarship opportunities due to their propensity to score well on standardized exams, but my wife and I are also considering returning to school again in the future, so the money will be put to good use.
What has been your best investment? Your worst investment?
My best investment has been my index funds when I act appropriately and leave them alone. They have provided the majority of my investment returns. I do have one apartment syndication that has completed and returned 15.6% annually over three years when accounting for all returns.
My worst returns were due to my attempts to time the market. There were two times in my investing career that I sold my shares because I felt like the market was way too high only to dollar-cost average back into the market after months of watching the index continue to go slowly up. I would have been able to retire a year or two sooner if I had just left my investments alone…
What do you like to do with your free time? How much free time do you have these days?
Lately, I’ve been spending most of my free time learning Spanish and a little Mandarin as well as learning to code in C. I also enjoy reading books for fun and spending time exploring the city where I live.
I don’t have as much free time as you would think given that I’m newly unemployed. I spend the majority of my day teaching Pre-Calculus, Computer Science and other classes to my children as well as checking and grading homework, tests and quizzes.
My wife and I also purposefully structured our lives to live without a vehicle, so we spend quite a bit of time running errands around town. You have to go to the grocery store a lot more frequently when you bring all of the groceries home in a backpack instead of the trunk of your car.
I have also started doing the P90X workout program with my wife in the living room of our apartment. This works well for us and requires minimal equipment, which is important when you’ve downsized as much as we have. We currently have one hiking backpack and one carry-on per family member. We sold everything else before heading out on our journey!
Do you enjoy travel? Tell us about a favorite trip you’ve taken.
We absolutely love to travel, which is why we have chosen travel as a lifestyle. I especially want to provide my children with the opportunity to experience the varied cultures and environments that the world has to offer.
I think our favorite trip as a family has been to Southeast Asia. We visited Vietnam, Thailand, Cambodia and Malaysia. It was our first time to travel places that were so different from our home culture.
We were surrounded by people who did not speak our language and the chaos of the markets, motorbikes and traffic were amazing and overwhelming. The food and ancient temples were amazing. We had fun riding the trains with Buddhist monks and feeding crocodiles from a boat enclosed with a chain-link fence.
My oldest daughter and I obtained our open-water license to SCUBA dive on a beautiful tropical island in Thailand. Most of all, we enjoyed the people that we met.
We stayed at AirBnbs and were usually able to meet our hosts. Our host in Siem Reap, Cambodia treated us to dinner at a Khmer restaurant and we learned that Thai food is not the only overwhelmingly spicy cuisine in Southeast Asia!
My kids became friends with a young man in Thailand who sold crepes. We enjoyed chatting with him every day and watching one of his special talents: after cooking the crepe, he would take a small wooden skewer and throw it through the crepe and into the plate with a quick flick of his wrist. We all tried many times to copy him, but only lost our eating utensil in the process! Altogether, this trip opened my kids’ eyes to the world more than any other that we have taken and really stoked our desire to see as much of the world as we can.
Do you incorporate giving (money or time) into your post-FI life?
Giving has always been an important part of my and my family’s Christian faith and continues to be important post-FI. We realized pretty early on that it was easy to say that we would increase our giving once I had my “real” job, but knew that a true commitment to giving starts when you have very little to give.
Therefore, while I was still in residency, my wife and I made a commitment to start giving at least 15% of our gross income. We have kept this commitment through our accumulation phase and into our retirement.
Somewhere around the middle of my career as a physician, I learned about Donor Advised Funds (DAFs). I then changed from giving primarily cash to giving appreciated ETFs to my DAF. I then repurchase the ETF with the cash that I normally would have given immediately afterwards.
This resets my basis on my ETFs that have significant capital gains while still preserving the benefit to the recipient organizations and the end of year tax deduction. I then direct my DAF to send grants to organizations that I want to support.
We also keep about $25k in cash so that we can help meet many of the needs that we see around us quickly without having to worry about 501(c)(3) status and tax deductibility. I also plan on giving my time during retirement and plan on participating in service missions projects in the future.
If retired, do you miss work? Do you get bored?
So far, I don’t miss work at all. It helped that I allowed myself a gradual transition by working part-time locums for a year while traveling the US with my family in an RV.
When I first started working part-time, I was glad to finally get a prolonged break and have time to relax. After several multi-week breaks, I started to feel anxious and felt the need to start searching for my next career or for additional locums opportunities.
I felt a little out of place in the rhythm at home. I tried to help some with homeschooling the children and with chores, but it felt awkward. As time went on and I started to find my place in the daily routine at home, I started feeling like having to go back to work was beginning to interrupt my life.
I knew that my family was continuing with their daily routine while I had to leave to work. By the time my formal retirement came, I was much less dependent on my social life at work and the sense of purpose that work gave me.
I began to develop my own work routine and home and developed a network of local and expat friends that we meet one or two times as week to get together as families. Overall, I prefer retired life to working at this point, but things will likely change as my children go off to college.
At that point, my wife and I will probably reinvent ourselves again and start a new career. The nice thing is that we can choose lower stress careers that we enjoy with the knowledge that we’ll be fine financially whether or not we are employed.
What advice do you have for others hoping to achieve the financial success you’ve found?
I think that the best advice that I can offer is to develop a detailed financial plan and stick to it. Most of the mistakes that I have made with investing are because I threw my plan out the window and did something based on emotions or what I was reading in the news.
I’ve found the most success when I just controlled my expenses, invested consistently and periodically and otherwise left my investments alone. I was blessed with a career as a physician, which provided plenty of fuel for stoking the FIRE. One of my biggest superpowers as an investor is the ability to truly enjoy life on an “average” amount of money, which left a big gap between earning and spending.
The other important advice that I have is to not let the focus on finances and achieving FIRE control you and poison your life or marriage. While money has been instrumental in achieving my goals, I try to hold it lightly.
That’s why giving along the way was always an important part of my financial plan. I didn’t want to find myself loving money more that my life with my family. That’s also the main reason that I have retired at this point (around the same age as PoF) even though I could have had a very plump FatFIRE if I had kept working for four or five more years. I would have been extra super financially secure, but would have missed this wonderful opportunity to travel with, mentor, and enjoy my children.
Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.
I’m just curious about what everyone thinks of my financial plan. I recognize that I have no bonds and that a 100% stock allocation is definitely high volatility, but I plan on living solely on my real estate portfolio, small continuing income and emergency cash funds until my children are off to university.
After that, I plan to continue to live on my real estate portfolio and work as needed/desired until I get close to my full retirement age. At that point, I plan to start withdrawing from my stock portfolio and will likely shift towards a high bond allocation. I just want to maximize growth in my portfolio for the next 20-ish years. Thanks!
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PoF: I’ve shared my feedback privately with today’s guest. I wouldn’t want my opinions to influence yours. Please give your take in the space below!