Post FI Notes 004: $5.5 Million at 55

This Midwest physician finished residency in the 1990s with a net worth of negative $140,000 (that was a lot back then). Over the ensuing 25 years, he has steadily grown his net worth to $5.5 million with a typical emergency medicine doc’s salary.

This didn’t happen by accident. He’s had a very intentional goal to reach FI ever since finishing residency, and he’s tracked his progress in detail in the same spreadsheet for decades. He didn’t have any investing home runs. His story is a shining example of “slow and steady wins the race,” the #1 way to retire with $5 Million by age 55.

He shares his story as he winds down his career while looking forward to spending more time doing some of the many other things he enjoys in life.

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

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?

I hit what most would consider FI a couple of years ago (25x my expected annual expenses), but I wanted some extra resources, so I’ve continued to work a couple more years.

Therefore, my exact expenses are estimates, such as my actual health care costs and actual taxes, but if all goes as planned, I will be spending 3.34% of my nest egg per year, which is about $182,000 per year.

I have estimated my health care costs at $36,000 per year.  We completely spend our “max out of pocket” every year due to some chronic medical problems in the family.  I plan to use the 4% rule as a guideline and modify my annual spending as needed.

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 live in a medium-sized Midwest city with my wife. We are 55 and 53, respectively.

We have two children; one is in graduate school and the other’s in college.  We support them mainly through their 529s, but I also cover their health insurance, car insurance and some other expenses, such as family vacations and gas money.

I have $70,000 put aside to help with our parents.  Sometimes they need help with an unexpected expense. I live in the same medium size house that we bought after residency.  We buy new cars, but we drive them for 15-20 years.

Are you still working? In what career? Did your work schedule or attitude towards work change once you knew you were FI?

I am in the process of retiring, currently handing over the baton to the next person, but sticking around for a year to two to ensure a smooth transition, but will be very part-time, working 10 hours per week as needed.

I was in Emergency Medicine and moved into medical administration for the last part of my career.  I always had a plan where I wanted to end up financially and career-wise.

I found that as I neared FI, I was very impatient to achieve that goal and once it was achieved, I was much less stressed.

As for work, I have always enjoyed it, but there are many things that I enjoy, and I want to make sure that I get the opportunity to do many other things with some of the same intensity that I have devoted to my career.

But I also enjoy my career and hope to stay engaged about 10 hours per week on average.  We’ll see how that works out.

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?

FI was a long-term goal from the time I finished residency.  My parents provided me with a very poor example of financial health, so I vowed to achieve FI early.

Unfortunately, the dot com bust and the Great Recession delayed the date of that achievement.  My portfolio dropped over 40% with each of those setbacks.

But I stayed invested and investing, eventually achieving my goal.  Each year I put in the max I could into 401(k) and an extra $40,000 into post-tax. I never invested in 403(b) or Roth accounts.

I’m using the same spreadsheet that I created after residency that calculated how much I had to save every year to achieve the target dollar amount with future inflation and predicted investment growth.

Some years that growth has been more than expected, and sometimes less.  On average, over the years, I have averaged 6.3% growth with the below asset allocation.

I have also kept my personal “inflation” rate to 2.2%.  It was a little higher early on with the addition of kids, but as the kids have moved out, the rate has turned negative, so it averages out to 2.2%.

Investing

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

I don’t have any real estate other than my primary residence, which I don’t include in my net worth (you have to live somewhere).  I kept a 70% stocks, 30% bonds split for most of my investing timeline, until the last few years where I moved into a more conservative allocation with 50% stocks, 45% bonds, and 5% REITs to avoid sequence of return risks.

The vast majority is in mutual funds, and the majority of those are low-cost index funds.  I count my cash holdings as part of the bonds, which I have made sure is 3-4 years of expenses so I can ride out any drop in the market.

I know many will say that I’m missing out on the opportunity to grow that cash, but I sleep better when I know I have that sort of cushion.  A 40% drop now would not be comfortable.

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

At one point, early in my career, I created a SEP IRA and a rollover IRA which prevented me from doing a backdoor Roth due to the pro rata rule, and my income was too high to contribute to a Roth IRA directly, so consequently, I have no Roth investments.

About half of my investments are in tax-deferred accounts and half are in post-tax accounts.  I use an advisor.  I don’t pay an annual fee.  As I have learned more and more over the years, I may transition to a simple 3 or 4 fund portfolio as my test 3 fund portfolio account has performed better than the advisor account for a few years.

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

I have an HSA which I have been fully funding for many years and never taking anything out of it. I figure the first few years of retirement I will draw from it for medical expenses and use old receipts to draw more.

Currently, there is about $180,000 in the HSA.

I also have two 529 plans, one for each kid. They are each around $200,000 each.

The first kid went to an inexpensive school, so even though he is near the end of school he has a lot in the account.  When the kids were born, I began contributing and did so for 10 years, funding each one as if the child was going to go an ivy league school.

I will use the remaining funds in the 529 for any future education for the kids, or let it sit there for grandkids, or fund my own educational endeavors in retirement.

I don’t consider the 529s to be part of my net worth.  I also saved separately for some known expenses. I specifically put aside money and saved for Bar/Bat Mitzvahs ($20,ooo each) and weddings ($40,000 each).

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What has been your best investment?

I have never had a “home run”.  I guess my best investment has been “always investing”.  Every year.  Whether the market is down or up, just keep swimming investing.

Early in my career, I would get bonuses every 6 months and that is what I would invest.  I would live off my monthly income and invest my bonus.  At the end of the year, if there was anything left over, I would invest that too.

Your worst investment?

When I have purchased individual stocks I have usually had an epic failure.

I purchased XM radio just before it crashed. I purchased P&G right before it crashed, but it eventually came back and split.  I purchased a startup that a friend was involved in, and it crashed.

I no longer purchase individual stocks.  I’m tempted, thinking I know what I’m doing, but time has shown that I don’t.  Therefore, I don’t own any individual stocks anymore.

Post-FI Life

What do you like to do with your free time? How much free time do you have these days?

I have always said that I have way more hobbies than I have time.

I cook, I play strategy games, I woodwork, I volunteer with lots of organizations, I read, I watch science fiction movies, I travel, I exercise. Most importantly, I make sure my wife is happy.

In residency I worked as much as 120 hours per week.

Mid-career, I was working 50-70 hours per week and now, as I’m transitioning out of work, I’m down to 30 hours per week, but by the end of this year, I should be down to 10 hours per week on average.

At each of those phases of work, I have made sure to carve out time to do things at least once per week that are my hobbies.  I enjoy work, but I also enjoy my hobbies.

Do you enjoy travel? Tell us about a favorite trip you’ve taken.

I cannot choose just one trip as my favorite.  I like cruising on big ships and small catamarans. I like seeing shows in New York and spending time on the beach.

I like getting to know different cultures abroad and spending time connecting to nature in a local forest.

When I travel, I try to do it intentionally. Whether that goal is to explore or to spend a week vegging on the beach, I try to make sure I am feeling fulfilled.

Do you incorporate giving (money or time) into your post-FI life?

I have always given of both my time and money.  I give about 5% ($15,000 to $20,000) of my pre-tax income to charity.

In preparation for retirement and for tax purposes, over the last few years, I have given a lot more to a Donor Advised Fund (DAF) that I intend to use to continue giving the same dollar amount for years to come.

The DAF has $250,000 in it, so I hope to give about 5-7% of that each year to various organizations.

Once that has run dry, I’ll potentially refill it from my RMD’s or donate directly to charities as part of my RMD.

As for my time, I have volunteered a lot with my synagogue, habitat for humanity, food shelters, the American Red Cross, local schools and more.  I hope to continue that in the future.

• Related: A  Quarter Million in DAFs: A Retirement Goal Achieved

If retired, do you miss work? Do you get bored?

I’m not yet retired; I’m currently passing the baton and decreasing hours.  When I am bored, I give myself permission to be non-productive for a while.

This lets me recharge my batteries, so I can then go out and have a positive impact on the world.  There is so much I want to do/contribute/experience that I don’t stay bored for long.

What advice do you have for others hoping to achieve the financial success you’ve found?

Slow and steady wins the race.  My father always tried to have a fast big win, and he never did.

I do play the lottery when it reaches $300 million, but the real way to achieve financial success is to maximize income, maximize savings, and have a reasonable spend rate.

When I finished residency in the 90’s, I did not change my lifestyle and paid off my student debt in 3 years. Then I turned those extra resources towards savings.

I did eventually change my lifestyle a little, but adding two children will do that.

We went on vacations and we have a nice house, but it is not the most expensive house around and the vacations have been good experiences, but not over the top.  The basic advice is to live well within your means and don’t keep up with anyone but yourself.

Has your spouse been on board with your FI journey?

Yes.  Although it has taken her a long time to understand the details of our investments (it is just not an interest of hers), she has always been on board with living below our means.

Even when she was earning more than me when I was a resident, we lived within our means.  Both of us have tried to be very appreciative of the financial position we are in and try to be good stewards.

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