Personally, I didn’t punch out after 10 years, but I did realize I was in a pretty darned good position to do so in my tenth year out of residency. I didn’t follow this plan exactly, but whatever I lost in silly mistakes and departures from the prescription, I made up for with extra work and income.
This post originally appeared just over a year ago on The White Coat Investor, and has been updated with some minor edits. Dr. Dahle, tell us how to punch out of medicine in 10 years.
How To Punch Out of Medicine in 10 Years
As of July 1st of this year, I was eleven years out of residency. I saw a post by a physician recently on an internet forum. She was 60 years old and had just paid off her student loans and was asking how she should start saving for retirement. I couldn’t believe how negative most of the responses were- “You’re too late,” “Don’t bother,” “You’re hosed,” etc….
I have been reflecting lately on how, in reality, almost no physician is ever more than 10-15 years away from financial independence. No, you can’t live like a typical physician and achieve that, but by virtue of their high-income, it is nevertheless true.
Many readers are familiar with the story of Mr. Money Mustache and his wife, who came out of college, squirreled away almost their entire very low six figure income, and retired at 30 or so before ever having a child. They now live on something like $30,000 a year. My 10 year plan for physicians doesn’t require anywhere near that level of sacrifice, although there will definitely be some sacrifice required.
The Value of FI: With or Without RE
Before I explain the plan, consider why you might want to follow it. The truth is, you probably don’t. I certainly didn’t, and that’s why I’m not quite yet financially independent. [PoF: With the value of the WCI business, Dr. Dahle and his family could probably be considered FI at this point]
But then they realized they owed so much in student loans that they didn’t really have any other good options. Or they realized it would be easier to practice medicine for a few years than to do whatever else they were interested in doing for 30 years. Or perhaps they just hate working at anything and want to be done as soon as possible. Who knows? Whatever your reasoning, here’s how you can do it. And for those of us who don’t necessarily want to punch out in 10 years, there are probably some lessons to pick up here too.
There are basically four things I think you need to do before punching out of medicine permanently. You need to pay off your student loans, pay off your house, save up a nest egg sufficient to last the rest of your life, and save up enough to take care of any other financial priorities you may have, such as your children’s college. We’ll address each of these in turn, but first let’s discuss some of the sacrifices that will be required.
You Can Never Live Like a Doctor
If you really want to punch out of medicine in 10 years, you can’t live like a doctor now, and you can’t do it later. What you really need is a middle-class lifestyle. And I’m not talking about the middle class where one spouse is a pharmacist and the other is an engineer. I’m talking about the middle class where the household income is $50,000.
The difference between a physician income and a middle-class lifestyle is where the money to pay for this early financial independence comes from. The more you can convince yourself this isn’t a sacrifice, the better this is going to work for you. But don’t plan on putting your kids in private elementary schools, sending them to fancy pants colleges, driving brand new cars, or vacationing in France. Your vacations are going to be hiking in national parks and visiting family, not skiing in Vail.
You Have To Live In A Small, Inexpensive House
Likewise, you don’t get to live in a big fancy doctor house. Houses are investments, but they’re not very good ones. The bigger your house, the more it costs you to finance it, pay for it, insure it, maintain it, repair it, landscape it, clean it, upgrade it, and furnish it. To make matters worse, when you live in an expensive house, your neighbors are relatively wealthy and in order to keep up with them, you’ll have to spend more than you would in a more middle class neighborhood. That’s not going to be compatible with a 10 year exit plan.
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You Need To Maximize Income
For this plan to work out, you will also need to maximize your income. No “silly” fellowships that don’t boost your income. Avoiding low-paying specialties will be important, and if you choose one you’ll need to make sure you pick the type of practice that pays the best (for example, if you go into IM, be a hospitalist or do urgent care work.) No lengthy training periods either. You don’t want to eat up the first four of your 10 years with an extended residency and fellowship.
The goal of this 10 year plan isn’t to dedicate your life to the relief of the sick and injured. It’s to make money and get out. [Don’t send me hate mail- I’m not on this ten year plan.] Forget academics, where you are paid 13% less on average than in private practice. You’re going to need that 13%.
You’ll need to work hard, take some extra call, maybe do some locums, and really spend that 10 years with an income well above average for your specialty. A second job, such as locums, also provides an additional retirement account or two, which will help.
Now that we’ve got the sacrifices out of the way, let’s move on to the four goals.
Paying Off Student Loans Rapidly
The best way to pay off student loans rapidly is to never take them out in the first place. Picking an inexpensive school in an inexpensive city, getting as much family help as possible, working when possible, and living like you’re worse than broke goes a long way toward minimizing your debt. Managing it well throughout medical school and residency and refinancing when appropriate makes a minor difference. The real bang for your buck comes when you finish training and start throwing massive sums at that debt every month. When you’re putting $10K a month toward your student loans, $200K in debt will melt away very quickly. If you want to punch out in 10 years, you better be rid of the student loans within 2-3 years at the latest.
A Paid Off Home
When you punch out in ten years, you won’t have a massive nest egg. It’s not going to be able to support both your lifestyle and mortgage payments. So you need to pay off that mortgage while you’re still working. If you paid off your student loans within a couple of years, perhaps you could spend the next year saving up a down payment, then spend the final 7 of those 10 years paying off the mortgage. That means basically getting a 15 year fixed mortgage and making double payments on it. Needless to say, this is a lot easier to do when the value of the house is 1X or less of your annual income.
A Retirement Nest Egg
Your largest expense is going to be the money you’ll be living off the rest of your life. Since you’ll be retiring so early in life, Social Security isn’t going to factor in much. You will also need to be careful about how much you withdraw from your nest egg each year. The 4-5% that would probably work fine for someone retiring in their mid to late sixties has significantly more risk when you retire at 40. You might even want to be as low as 3% depending on how big a deal it would be for you to go back to work if this early retirement thing doesn’t work out.
You’re also going to have to take significant risk, both before and after punching out. That means plenty of stocks and real estate in the portfolio. 80% bonds and CDs isn’t going to cut it. But don’t kid yourself. Very little of this initial nest egg is going to come from compound interest on your investments. Almost all of it will come from brute force saving.
You’ll want to especially take advantage of tax-deferred retirement accounts. Since you’ll be putting this money away at a physician’s marginal tax rate, but spending it at a middle class tax rate, there will be a significant arbitrage there. Don’t worry about the age 59 1/2 rule; you can avoid penalties on your withdrawals simply by taking advantage of the SEPP rule. You’ll also be putting some money into a backdoor Roth IRA and a taxable account since you’ll need to save such a high percentage of your income.
College and Similar Expenses
You may also want to save up some money for your children’s college educations or other similar expenses. You really need to have this mostly done before punching out, although if the child is still young you can assume that the investments will grow somewhat between your retirement date and their enrollment date. Due to the very short time period, you’re not going to be able to save up a lot, so you either need to limit the number of kids or limit how much each of them will get from you. Sending them to inexpensive schools and requiring them to work, get scholarships, and or take out loans will help dramatically.
The Nuts and Bolts
So what does this really look like where the rubber meets the road? Well, you’ve heard me advise young docs to live like a resident for 2-5 years after residency. In this situation, however, you have to live like a resident not for 2-5 years, but for 10, and really, indefinitely even after that. If that doesn’t sound appealing to you, then you’d better look into some alternative plans. Here is a sample attending budget for someone with two kids under this plan:
Annual Budget for A Doctor in the First Two Years
- Gross Income: $300,000
- Taxes: $70,000
- Student Loan Payments: $100,000
- Housing expenses: $15,000
- Retirement Accounts: $40,000
- Taxable Accounts: $15,000
- College: $10,000
- Everything else: $50,000
- Total Spending: $300,000
Annual Budget for a Doctor in the Later Years
- Gross Income: $300,000
- Taxes: $70,000
- Mortgage payments: $50,000
- Retirement accounts: $50,000
- Taxable accounts: $70,000
- College: $10,000
- Everything else: $50,000
- Total spending: $300,000
Total at Retirement
Assuming 5% real returns on your investments, here’s what you have after your 10 years:
- Zero student loans
- A paid off house
- A $1.38M nest egg (at a 3% withdrawal rate= $41,400 per year, at 4%= $55,200 per year)
- A college savings account of $66K for each kid, which if they have another 10 years before going to school, should grow to $108K each.
Not too bad, right? But wait, there’s more. This could get even better in one of three situations:
- You have a spouse who doesn’t hate their job.
- You open up an entrepreneurial business on the side besides medicine, further boosting income both before and after retirement.
- You retire to another career.
Each of these options will allow you to spend much more than a resident salary and still punch out of medicine in 10 years.
Does it sound a little extreme? Yes, it’s a little extreme. But it will provide a lifestyle twice as nice as Mr. Money Mustache’s. If it’s too extreme for you, put yourself on a 15 year plan or get yourself into one of the three situations at the end (working spouse, side business, second career).
Personally, my plan was always to front load my savings, then cut back a bit at work to get a nice balanced life, and then enjoy the “good life,” working until fifty (a 19 year plan for me) or sixty (a 29 year plan).
The “good life” allows for a big fancy doctor house, a wakeboat, a few nice cars (eventually), plenty of fun vacations, donating to charities I support, and telling my children “no” to avoid spoiling them, not because I have to.
But I like practicing medicine.
If you don’t, consider the merits of the “10 year plan.”
[PoF: Currently, I appear to be on a roughly 12 to 13 year plan. I’ve managed to squirrel away nearly double the amount of money the example doc did. We’ve got two relatively modest but paid off homes and 529 plans approaching our six-figure goals.
I’ve also got the entrepreneurial side business (you’re looking at it) and with the amount of time I put into this effort, you could say I’ve got an encore career. I like practicing medicine alright, but there are so many things I enjoy more that are less stressful.]
What do you think? Would this work? Why or why not? Are you one of those who would like to get out of medicine ASAP? What are you doing to facilitate that? When do you plan to retire? Comment below!
Numbers look pretty reasonable as far what to expect in 10 years. I’m currently at 7 years out of residency in July this year, got the paid off student loan and house. All debt for that matter. $1.16M in retirement accounts and $100k in 529s (among 2 kids). I should meet, maybe exceed the numbers you’ve estimated over the next 3 years.
It’s good to be ahead of the curve, and riding the wave instead of paddling to get on top of it, but I think as my kids get older I will decide to ‘waste’ a bunch of money on traveling or maybe even getting a boat one day instead of quitting work super early as a physician.
I never had anything as a kid, not even shoes that weren’t hand-me-downs. It was always hard for me to understand why we couldn’t afford to go to the circus when half the tickets were free. Collecting aluminum cans from the trash to go the community pool or sonic wasn’t necessarily horrible, but that’s not the life I want my kids to have to endure.
On the other hand, I do not regret avoiding the ‘doctor lifestyle’ of luxury cars, expensive clothes, country clubs, private schools,season tickets to professional teams, etc. Every $100 I spend, I ask if it’s worth an hour of my life. Every $4,000 is it worth a week of my life.
P.S. I seem to pay way more in taxes than you do.
Superb, well written and timely post. I’m on the 15 year track. If I never married and had 3 kids, I could live an über thrifty lifestyle that would put the biggest savers to shame. Alas, I love my wife and kids and want to give them the life I never had growing up in a low to middle class second generation immigrant home, where I learned to be industrial strength quantum thrifty. Still, we are fiscally responsible and only really splurge on family vacations. Otherwise it’s Walmart, public schools, etc. I’m outta radiology at 50.
I am not a doctor but own a business, cant really tell what income level I have since it goes up and down, but lets just say that I could make 200k+ and still pay a meager on taxes compared to people working for someone else. I truly believe that everyone should have their future set as fast as they can because we live in a place that things change fast! I know my line of business will probably be extinct soon or later…. but, I am still counting on 10 more years.
I am 29 yr old, I have a rental that is almost paid off ( probably two or three more years) depending if I get another couple of rentals. Plus, my plan is to accelerate our mortgage We spend at the moment around 70-80k a year now, so our plan is to have a passive income of 100k when I reach 40. I rarely work now so , I could be called semi-retired ( but always on calls from employees so wouldnt call my self that) to be more exact some weeks I work 0 hrs some I work 60 hrs.
my take from the post, I think if you invest in properties, dont spend money on non sense and have a high-income ( higher than 150k ) in most places in US you could live normal making 50k let alone those folks making 50k have to still pay taxes on that money. I live on 70-80k and trust me I dont complain or look at prices when buying groceries.
Let just assume a doctor making 200k he would probably get finance at least 3 properties to start off plus a modest home 350k to 450k ( where I live 2200 – 2600 sq ft) I know this probably dont even buy an apt in other places. You could certainly get good rentals with steady returns in south florida, Atlanta, Memphis to name a few… plus, live on 50k ( which is still good, i know people living on less ) by the time you reach 10 yrs, you can have over 2 million of debt in properties still but tremendous income, your own mortgage paid off, you student loans paid off, and probably 3 million in total wealth…and on top of that bringing in 150k a year from these properties.
If I was on your shoes I would shoot to work at least 15 years, and there will be no doubt that any doctor could retire and still get 100k from investments. And still then I probably work part time, you lose a lot by retiring completely. ( not talking about money though)
Why does the sample budget have only $40,000 going to retirement accounts? I would max out 401k and backdoor Roth before paying more than the minimum on low interest student loans.
It’s just one example. A 401(k) gets you $18,000. Backdoor Roth $5,500. You might have any combination of 457(b), HSA, employer match and / or profit sharing, spousal Roth IRA, spousal 401(k), etc… that’s why personal finance is personal.
Cheers!
-PoF
I’ m 63,foreign medical graduate anesthesiologist,and i been retired(early) for 4 days.Early at 63?Many financial advisors consider anything below FRA early,since the mean and median for retirement for anesthesiologists is 63 i think the contention is ridiculous.Now consider that at 38,39 years old my salary was around 3 to 4 dollars per month in my native country(sorry is no a typo or a lie) that’s a remarkable feat that i owned to this country and my family in the first place.It took me 15 years out of residency to complete FI:i made a fews mistakes,but in general i followed the right path .Now our wealth is around the 95% percentile for my age,which is around 50% wealth of a physician as a group.Ten years is probable too tight for a doctor,but 15 years is enough to reach F I and “live like a doctor”,as long as you are not too far away of social security(count on SS,it will be there for you).I would love to share my journey with whoever is interested.
Sounds like a great guest post. Not sure if POF is interested, but you could send it to me.
Thanks,i’ll be back to you.
I’d be happy to host that story, as well. As a teenageer, I made three to four dollars an hours. As an attending anesthesiologist, I started earning three to four dollars a minute!
I cannot imagine earning three to four dollars a month. Congratulations on your accomplishments, Luis.
Cheers!
-PoF
Thanks,i’ll be back to you.
I agree that less than 10 years is totally doable. I may disagree on the original comment of specialty choice. My spouse and I both did research fellowships and switched from part time academic primary care jobs (more research, less clinical) in a high cost of living area to private practice jobs in a low cost of living area. We have very low interest rate student loans and so hadn’t paid them all off. As part of the move, we were able to get loan repayment bonuses- geographic arbitrage I guess. We should be financially independent in about 2 years and can decide if we want to continue practicing medicine. Given our initial part-time careers, the total time line for us will be about 10 years after residency. I think if we skipped academics and went directly into private practice, it would have taken us 7-8 years. We always lived modestly, so never felt like we were missing out on anything and just kept putting money away. Just another perspective I wanted to throw out there!
Marrying another doc certainly speeds things up, even if that doc is relatively poorly paid.
We did it in ten years on one good income. The math would have been about the same or better for two docs working in the lowest paying medical specialties, as your experience demonstrates.
Congrats on your successes and enjoy your future beyond FI.
Cheers!
-PoF
I’m two years into practice and have saved enough to pay off my loans, as well as saved about 15% of what I would need to be financially independent. I’d like to be financially independent in about 7 years, although my hope is to want to continue working much longer than that. I’m trying not to work too excessively even at this early stage (I take 4-6 weeks vacation per year) so that I hopefully won’t burn out. I’m focused more on living frugally than maximizing my income, which is made easier by the fact that I have a frugal partner, live in a relatively low cost of living area, and have no kids. We do still put money towards overseas travel, which is a high priority for us.
Thanks for posting. I agree that 10 years is completely doable.
I achieved FI last year about 13 years from completing my residency, despite not really knowing about or understanding the term until about 6 months prior to that.
I do still however enjoy my work and the challenges that come along with it. I have not really found anything more compelling to retire to. With a well paying job, adequate time off ( 6 weeks off in the last 6 months – this is easy to do in Emergency Medicine), and kids in middle school and high school, I am planning on working another 4-8 years. And beyond that likely a few shifts a month.
Having achieved FI and still working, we have really loosened the purse strings with a large donor advised fund (thanks for the idea PoF), new sports car, and a major kitchen remodel.
The best part is being comfortable we can walk away anytime without worry.
There is beauty in being done saving for retirement and college, and still working a job you enjoy. Everything from this point on is pure gravy.
Cheers!
-PoF
I think a 15 year time frame is really doable and allows for an early mistake or two. Once you achieve FI then look around and reassess if you really want to retire.
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I really love Jim Dahle’s perspective, especially the kindness towards “late-to-the-gamers” at the beginning. He is direct, intelligent and gracious.
Thanks for your kind words!
I should be technically FI by 10 years (at 6 years now and am about 80% there). But when I look around at what else I would do, I still like practicing medicine best of all. It’s the BS that comes on the side of practicing medicine (and slowly seems to be advancing to make up the main course) that I want to get away from. Realizing that I am almost FI has actually made me less tolerant of said BS, but I’ve been trying to change my perspective to thinking of ways that being FI will allow me to increase what I like about working and decrease the factors that I don’t like.
You are in a great position, Ann. Congrats!
It’s comforting to hear someone else say FI (or near-FI) makes the BS less tolerable. I used to roll with the punches, but now I just feel like punching back.
I always hear how people enjoy their careers so much more when they realize working it is optional, but I just wonder more and more why I continue to make this choice. The more you can do to engineer a more tolerable job, the better.
Cheers!
-PoF
I am torn. There are days I want out and there are others where I think I could do this for another 15 years.
I have myself on a 10 year plan. If in that time I burn out I can either got part time or retire. Both may require downsizing the house, but if that is my goal then it would be worth the change.
I know what you mean DadsDollarsDebts. Some days I’m ready to do something else. Other days I want to do this for as long as I live. Most of the time I’m thinking about and easier schedule: Part-time or semi-retirement and prolonged career longevity. I think this is why achieving FI is so important. It gives you options as your mind or circumstances change.
My interest in continuing waxes and wanes, too. Most days, it’s a pretty good job and I feel lucky to have it.
Then I have a weekend like this one (in the hospital for more than half of the 72 hours with some true surgical and airway emergencies) and I could walk away the next day.
I’m ready and willing to give half-time a shot, though.
Best,
-PoF
Currently on the 15 year plan and halfway there. Not as aggressive and affords a bit more wiggle room with spending and time off at home. I enjoy medicine still and after the 15 years plan to cut back (paid)work time and more volunteer mission work. It is a plan that can work….if you can “not live like a doctor” : )
I didn’t have a specific plan but made FI easily within 15 years. Good luck!
Sounds like good advice for any high paying career. The unique aspect of doctors is they have such a long time in school. However most people who get into medicine probably get into it because they like helping people. It’s hard to help others if they retire after only 10 years.
I agree. Most docs aren’t interested in this plan. More than I would have expected though, and the number seems to grow all the time.
One extra “strategy” which is somewhat common is to marry someone in your med school class…I’ve seen this lead to punch out in zero years instead of 10. On the flip side, after ten years, this couple could have the equivalent of 20 years of physician income.
Of course, make sure you love the person and don’t marry just for the money?
True — that does happen regularly. I’ve also known physicians who meet in residency, with one spouse finishing residency never to work in medicine again.
The difference for the non-working spouse is that they are not financially independent, but rather 100% financially dependent on their partner.
My wife hasn’t worked outside of the house much — she is not a physician but has a masters degree and would have been working in healthcare — but her FI moment came at the same time as mine since our finances are combined.
Cheers!
-PoF
I tried this and it did not work. I am 69 years old and working 1 day per week. By the way, I never made those big bucks either as raising my daughter was no. 1.
I’m curious to know MD, MBA what part of this plan didn’t work?
That’s an interesting but somewhat vague comment. It could mean any of a dozen different things, but without more info, it’s hard to know what to say.
Are you saying:
I tried retirement, but didn’t like it so I work a day a week.
I wanted to punch out of medicine in 10 years, but actually didn’t like being retired.
I tried to save enough to get out in 10 years, but ended up not saving up enough.
My investments didn’t return enough for me to be able to live off 4% of my stash.
My investments didn’t return enough for my stash to grow to be large enough to support my lifestyle.
I couldn’t save enough because I HAD to spend more on my daughter.
I couldn’t save enough because I wanted to spend more on my daughter.
I didn’t make much as a doc so couldn’t save enough to get a $50K income after only 10 years.
Okay, I can see all of those things. But what I can’t see is if you’re arguing that putting 50% of a typical physician’s gross income toward building wealth doesn’t lead to FI in 10-15 years because that’s just simple math, and arguing against simple math is a bad idea.