Considering an early retirement?

[PhysicianOnFIRE]

Over the last year, I have started to contemplate / plan an early retirement.  Like the Good Dr. Dahle, I am 40 years old.  My best guess is that I'll retire in the next 5 to 10 years.

Financially, I'm in pretty good shape right now, but I'd like to give myself a large cushion, as well as build up my donor advised fund once I've hit some target numbers.

Is anyone else here contemplating an early retirement?  How early is early for you?  Any particular financial strategies you'd like to share?

[nyu04]

Great topic!  I am 39, married with 2 little ones.  Graduated almost 9 years ago (wow, time flies) with about 500k in student loans.

Although the thought of retiring early sounds appealing, I don't see myself doing so until the kids are out of college (I will be around 53 then).  Mainly because 1. I would like to build up a good cushion and 2. Not sure what exactly I would do if I retire.  My ideal retirement age would be around 55 but that is probably pretty late for most of the FIRE folks.  By then, I will probably sell my offices and relocate to another warmer/tax-friendlier state and maybe work 1-2 days a week for corporate?   Or maybe live in different parts of the world 6 months at a time.  Who knows.  That's the dream for now, at least.

After paying off all student loans a few years ago, our current financial strategy is enjoying a balance between frugality and enjoying life.  I find myself very similar to Dr. Dahle in the aspect that while we do enjoy nice vacations/toys, we focus/limit our spending on our specific interests.  We are not super frugal people (like MMM crowd) but we spend well under our means.

I think if we didn't have any kids, we would be more open to the idea of retiring in 5-10 years.

[PhysicianOnFIRE]

Wow, nyu04, those are some massive student loans.  Congratulations on being able to retire those!

Like you, I have 2 young children and will be 53 when they leave the nest.  That does leave us tied down to a school schedule, assuming we stay with the traditional K-12 public schools, which I am very happy doing.

Nevertheless, I could find plenty to keep me busy if I didn't have a full time job.  Retiring with kids at home might actually ease the transition to retired life.  Their lives will keep us fairly busy, and I would have plenty of freedom during the day for exercise, reading, hobbies, etc...

I generally like my job, but I can't say I ever enjoy a workday more than a day off, or a long workday better than a short one.

[nyu04]

PhysicianOnFIRE wrote:

Wow, nyu04, those are some massive student loans.  Congratulations on being able to retire those!

Like you, I have 2 young children and will be 53 when they leave the nest.  That does leave us tied down to a school schedule, assuming we stay with the traditional K-12 public schools, which I am very happy doing.

Nevertheless, I could find plenty to keep me busy if I didn’t have a full time job.  Retiring with kids at home might actually ease the transition to retired life.  Their lives will keep us fairly busy, and I would have plenty of freedom during the day for exercise, reading, hobbies, etc…

I generally like my job, but I can’t say I ever enjoy a workday more than a day off, or a long workday better than a short one.

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Thanks!  I should have picked an in-state dental school but I was young/inexperienced and student loans/future finances were the last thing on my mind at that time.  I have wondered in the past if my current financial situation would be even better today if I attended in-state (with lower tuition) instead.  However, knowing the current market in CA and seeing how much some of my peers struggle there - I know I made the right decision to relocate.

On another note, I never considered retiring when my kids are still home but now that you mention it - I think it would actually be pretty awesome.  And yes - I generally enjoy my job but not running the business and dealing with the staff/difficult patients.  I'm sure you know what I mean.

Are you planning to pay 100% for your kids' college ?  I am still unsure about this.  We have 529s and do plan to help out but unsure if we want to pay for everything though, just so they have some skin in the game.  Hopefully this will keep them motivated to do well.

[PhysicianOnFIRE]

nyu04 wrote:

Are you planning to pay 100% for your kids’ college ? I am still unsure about this. We have 529s and do plan to help out but unsure if we want to pay for everything though, just so they have some skin in the game. Hopefully this will keep them motivated to do well.

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College is 11.5 and 13.5 years away, but I'm pretty sure I'll have enough in their accounts to cover undergrad and grad / professional school if they choose an in-state public school.  Plus, if you are retired and your income is low (under about $130k), you can qualify for a $2000 tax credit when you spend $2000 of your own $ towards their tuition (or a $2500 credit when you spend $4000) via the American Opportunity Tax Credit.  If the credit remains, I will contribute at least the $2000 before tapping the 529s.

As far as skin in the game, the amount of $ in the account will be finite.  It will go farther at a less expensive school, and they will be less likely to graduate with debt.  Whatever they don't spend can be left to grow for 2 to 3 decades and be used for their own children someday.

[M]

PhysicianOnFIRE, I'm in my early 40s and contemplating an early retirement.  I wrote a post about this last summer on WCI:

Super Saving for an Early Retirement

As far as how things have changed since that post, my group is about to be bought, which means I will get a payout, and that certainly advances the timeline.  I exist in a state of perpetual borderline burnout, and what I've realized is that I may be able to extend the duration of my career by cutting back to part-time.  So I have been negotiating with my group to make that dream a reality.  Like you, I am stuck in town for at least the next 10 years, while I wait for my child to graduate high school and go off to college.  So even if I retire now, it's not like I can take off for that 6-week driving trip down the length of New Zealand (well, maybe during school summer-break I could...).

While I could probably find all kinds of things to do if I retired fully within the next few years, I have to admit to myself that I enjoy being a sought-after resource among my patients and colleagues.  I also feel like I've trained for so long and devoted so much of my life to my field, that it might be a "waste" to fully retire in a few years.  Even though the practice of medicine can drive me crazy, it also makes me feel productive each day, like I've accomplished something worthwhile.  It's also nice to think that I could continue to earn enough (as part-time) for a few more years such that I wouldn't have to worry about drawing down my portfolio and still making it last almost 50 years.

All that being said, my wife (also a doc) and I are preparing for the possibility of early retirement by using our upcoming windfall to obliterate our mortgage and student loans, and we will invest the rest.  We will continue to save at least 50% of our gross income.  We will use the money that used to go towards our mortgage and loans every month to invest.  We have figured out how much we spend on a yearly basis, added a cushion for extra travel in retirement, figured in taxes during retirement, and used that number in the cfiresim calculator to figure out how we would fare if we retired in 3 years, 5 years, 8 years, etc.

[The White Coat Investor]

I fully expect to retire early, if early is defined as before 65. But my plan for now is that rather than retire early, I plan to cut back dramatically. That plan starts this summer as I drop 20% of my shifts (the overnights.) So I'm thinking 12 shifts a month from 40 to 45 or 50, then 6 or 8 shifts until 60, then punch out completely. But who knows what the future holds. I'm 40, but have a 6 month old. So that puts me at 58 at high school graduation, and well into my 60s by college graduation. I've got to have them all launched by then.

[Don]

For those contemplating "punching out completely" early, what about the problem of sudden serious setbacks in the market? In the last financial crisis I watched my portfolio get cut in half. I felt reasonably sanguine about it because I had an income and could afford to just sit tight and let things come back like they eventually did, but the psychic trauma of such a setback would have been far worse had I been retired pre-Social Security and been depending on that stash to be funding my wife and I for the next 30-40 years.

I'm 59, the kids are educated (3 in-state university tuitions + 2 masters degrees paid for) and all will be out of the house two weeks from now. I think I have enough put away to be comfortable if I quit, but given the state of the economy (especially the past week) I'm a bit concerned about the possibility of a severe drop in the immediate/near future. I'm sure that's a possibility at any time, but it kind of feels like the market is beyond 2SDs high risk at this point. I worry about this now; I don't know how my gastric mucosa could handle 30 or 40 years of this.

[G]

I'm 42 and already working so little that some of my non-doctor friends consider me "part-time" (12-14 8-hr shifts/month).  I could likely pull the trigger now, based upon my current spending/saving habits...however, one little wrinkle is that I spend more when I'm not working (a la the pricey vacation to the beach that we just took).  Although balanced by diminished costs (disability, mortgage, 401k), I worry that I would be spending a lot more if I'm always on vacation!

One factor that is hard to wrap my mind around is that the nest egg will (probably) double every 10 years.  Hence my plan to drop down even more, similar to what Jim describes above, although much more rapidly.

One other thing that I worry about, however, is keeping procedural skills sharp if I'm only working 60-70 days a year.  Consider relatively low-frequency things like chest tubes or pediatric code resuscitations.  Yes, on the one hand, it's like riding a bike...on the other, it's like your first time on a bike in 5 years while at the top of a double black downhill course.

[czeckers]

I'm 42, 8 years out from training.  For the most part I really enjoy my work but the long hours definitely get to me.  I also have a large brood including young ones so will be 59 1/2 when last one leaves the nest.  Thus, I'm not looking to retire any time soon, but will be cutting back to a 4 day work week this July.  I've already been selling some of my weekend call to my partners.  I'm certainly on track to punch out at 59 1/2 which I guess is still early retirement (though not what the OP is contemplating).

[M]

Don Peven wrote:

For those contemplating “punching out completely” early, what about the problem of sudden serious setbacks in the market? In the last financial crisis I watched my portfolio get cut in half. I felt reasonably sanguine about it because I had an income and could afford to just sit tight and let things come back like they eventually did, but the psychic trauma of such a setback would have been far worse had I been retired pre-Social Security and been depending on that stash to be funding my wife and I for the next 30-40 years.

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Sudden setbacks in the market would be nerve-racking, to be sure.  One thing that may help (somewhat) alleviate fears is to use the cfiresim calculator, and pay attention to how your portfolio would have fared had you retired just before one of our major stock market crashes.  If your portfolio could have survived that, then you will probably survive it when it happens in the future.  When using cfiresim, you have the option to use "historical data" or a "monte carlo simulation."  Using the historical data is what you want for this particular purpose of seeing how your portfolio would have fared in the past.

Another consideration for early retirees would be to have a four-year buffer of CDs/low-risk bonds to draw from in periods of a major market downturn.  This will allow your equities time to recover.  When they do, you can sell equities to build the emergency buffer back up.

[docnews]

This question gets at the root of one's financial philosophy. I like WCI's slow down method to retiring, since things gradually but continually getting better leads to greater happiness. In general I believe life is more enjoyable "balanced" with spending nearly even over a career but I do recognize that is natural for one to work harder while younger and ease off during one's later years. I remember a recent study pointing out that one's happiness increased until about a salary of $75k/yr and then leveled off. Now it seems $50k/yr is sufficient for greater happiness. Basically I plan on trying to live at that level of spending consistently but just with the joy of less work as I age since I am so blessed be in a high income field.

[RetiredERdoc]

I retired at 60. Looking back, I had always planned on retiring at 59.5 (the Magic Number of when you can start w/d from retirement accounts). After the last 2 bear markets, I was concerned that I might not make it, so I increased my savings rate and miraculously I managed to reach Critical Mass when I was 60. I thought long and hard about backing off to say half time in the ER, and tried cutting back but my burnout didn't improve so I called it after an especially trying patient. 14 mos so far and no regrets. So far I am just a layabout, we will see when boredom sets in and I decide I need to do something worthwhile (volunteer work, etc.) Right now I am at about 55/45 stocks/bonds, I was planning on dropping to 50/50 by 65 but looks like the market is doing that for me.

[PhysicianOnFIRE]

RetiredERdoc, congrats on retirement!  Happy to hear it's going well for you.  I find it interesting that scaling back on hours didn't improve your burnout situation.  I sometimes contemplate whether or not I will consider part time work in my last few years if that is an option.  The more I think about it, the more I think I would just be prolonging my working years and the stress that goes along with them.  I think I'd rather work 1 year full time and be done than work 2 years part time and be done a year later.  Financially, it's not exactly the same thing, but pretty close.

M, I remember your orginal guest post.  I went back and re-read it along with the comments.  Lots of good food for thought there, and a variety of opinions in the comments.  Glad to see that you will be receiving a windfall; that will help you retire some debt and make part time work feasible.  As many had commented before, you've got enough to retire comfortably.  I don't blame you though for continuing to build a cushion and work towards being debt free.  Like you, I'm investing at least 50% of gross income, which is tough to do in a high tax state.  But we're debt free and live a comfortable middle-to-upper-middle class lifestyle.

With at least 25 years of expenses saved up, we consider ourselves financially independent, but I'm not going to consider an early retirement until we have at least 50 x expenses in the nest egg.  That seems like a good way to guard against Don Peven's concern of a 50% drop in portfolio value.  I think when I get to that point (potentially in 4-6 years @ about age 45), I will struggle with the idea of walking away while still young, productive, and reasonably good at what I do.

Docnews, the link didn't work for me, but I found a number of articles referencing the same study.  Here is one from Time.  I think we've all seen many examples of increased spending not correlating to increased happiness.  Now that my wife and I have retired our student loans and mortgage, our spending is right in that range (probably closer to $75k)  Once I've saved up 50 x that (and accounted for inflation), I think having more free time for myself, my wife, and my boys will bring me more happiness than more work and more $ ever will.

White Coast Investor, Thanks for chiming in!  I'm happy to know that you'll be dropping your overnights; that will be a welcome relief, no doubt.  It seems you've got 2 great full time jobs, some supercool hobbies, and a great big family.  I don't know how you do it all, but I'd say you've got this life thing pretty well figured out.

 

[jfoxcpacfp]

@RetiredERdoc, @M, and others: For those of you sitting partly in bonds because of a concern about market drops, I strongly recommend you read Simple Wealth, Inevitable Wealth (v. 2013) and consider how this could affect your long-term standard of living. You can just ignore Nick's advice to use a financial advisor, but the case he makes for a balanced equity mutual fund/ETF portfolio throughout life is pretty hard to ignore. SWIW is a fairly quick read, costs only $30, and will give you a new perspective on long-term investing. @M - you are doing what I would recommend except that we stipulate no money that you need in the next 5 years goes into the stock market and that 2 years of living expenses required to supplement other resources in the event of a bear market be kept liquid at retirement. Bonds are used only to meet specific 5-year goals timed to mature at date of need.

Note that I have no financial incentive to recommend SWIW but we do buy it by the case to hand out to new clients.