Is early retirement a possibility?

[E5797]

With a recent hospital buyout, my hospital based contracted group is facing the real possibility of not having our contract renewed. At that time, I see three possibilities.  1) Join the hospital physicians' group as an employed physician at a significantly decreased salary and more work, 2) Not join the current system but look for a new job elsewhere, possibly having a significant gap between jobs if I can't find a job, 3) Call it quits and retire early or maybe do part time locums work.    With all changes in health care these days, I've never felt confident about salaries remaining high, so have been saving diligently and hoped to be able to have the ability to retire at 40 if I no longer enjoyed working.  I'm 39 now but wondering how feasible it could be to call it quits, particularly if my group aren't offered positions or I cannot find another decent job. I'll have to see how restrictive any non-compete would be if I joined the physician's group.  How much could I safely withdraw  to live on each year realistically?

Single. No children. No plans for children.  Confirmed bachelor.

Current financial situation:

Roth IRA: 70,000

401k: 400,000

Taxable Brokerage Account: 1,600,000

Emergency Fund (Cash): 170,000

HSA: 30,000

Debts:

Medical School Loans: 60,000 @1.4% (18 years left on 30 year loan)

Mortgage: 120,000 @ 4.0% (9 years left on 15 year mortgage)  [House valued at about 300,000]

 

 

 

 

[Jenn]

Well, maybe not. The 2 of us have 2-3 times your savings (depending on how you value a military pension). We took the risk, but starting at age 50, and only 4 years into the experiment so far.

Important question is how much money do you (now and in future) spend? We are living on pension only, almost, so we aren't drawing down our savings more than 1% or so. I think Suze Orman would say you can't afford it.

[Zaphod]

Yes you could retire just fine. It all just depends on how much you spend of course. What are you looking at emergency fund wise, is that a year of savings in there? It seems with the size of your taxable you could easily reduce that by 50% and put it to work as well. It wouldnt be a high flying wild retirement, but you could. You could also refinance the mortgage to a better rate or even reamortize it (sometimes its free or a set fee of 250) to give you more cash flow and liquidity. Depending on the dividend rate on your taxable you may even be able to limit your principal draw down.

Otoh, you certainly have enough to scrape by til you found another job, or to take the employed position and not work like crazy, you simply dont have to.

If you could do it, itd be great to work at least part time or so and let your nest egg compound a bit before drawing it down at all, that would be excellent and powerful. If you do have some time off which impacts your income, make sure to do a bigger than usual backdoor next year.

Again, it really just depends on your spending habits.

[E5797]

My spending, including mortgage, loans, taxes, insurance is around 75-80k a  year now. I do like to travel though, so I could see wanting to spend more with more time off.  I'm not sure I would enjoy working as an employed physician under the new regime, so my gut tells me I'll probably have to either start looking for a job and put my house on the market or suck it up and work there a bit longer, if they offer us jobs, while looking for something better.  It's entirely possible they may just absorb our work into their other current manpower by shipping their physicians here.  I'll just have to try to negotiate a very limited non-compete area.

I probably do have too much in my emergency fund, but it's always been in the back of my head that something like this could happen.

[The White Coat Investor]

The general rule is 4%. So you've got $2.1M. So if you can live on $80K a year, then sure, complete retirement is one option. I'm in a not dissimilar situation and my decision about what to do if my hospital contract implodes has changed over the years.

Initially, I would have moved to another democratic group.

Then, I probably would have stayed with the new group, no matter how crappy it was, for a few more years until I had enough.

Then, as WCI started making a little money, I thought I'd just do WCI + locums.

Then, as WCI started making a lot of money, I thought I'd just do WCI.

In another 5 years, complete retirement would probably be a reasonable option for me given our current level of spending.

The longer things work out with the contract and WCI, the more options I have.

 

One option that most docs have, but which many of them don't realize they have, was really the whole point of The White Coat Investor book. If you earn like a doc, and spend like you're a regular joe, you can do all kinds of things with your finances, like retire completely after 5 or 10 years a la MMM.

[Joseph]

It is possible.  Seems a little bit early since it feels like more of a "forced switch" rather than your own choice.  You should take what you value as happiness into consideration.  You talk about travel and locums work; I recommend exploring that.

And the funny thing: you have a couple million dollars, but still student loan debt.

[E5797]

Joseph wrote:

And the funny thing: you have a couple million dollars, but still student loan debt.

Click to expand...

The student loan debt is at such a low interest rate (1.4%), I thought I would get more out of putting it into the taxable account.  My emergency fund at had been at about half what it is, but I dialed back a little on my automonthy withdrawals to the taxable account once I saw this situation coming about a year ago.  It's probably larger than it needs to be.

[jfoxcpacfp]

I wouldn't go with the 4% rule at your age (actually, I don't use rules of thumb for clients). You've got 26 years to cover your own healthcare costs until Medicare kicks in - that's an awfully long time especially with the uncertainties in the healthcare system. I strongly recommend a real financial plan, not simply a mathematical exercise based on what you have saved. Saving is only a means to an end, but "retirement" as an all-encompassing goal is far more vague than I would be comfortable with, particularly with more than 1/2 of your life ahead of you.

[Hatton]

I would be afraid to retire in your situation.  I agree that healthcare premiums are a big unknown going forward if you are footing the bill yourself.  The 4% rule of thumb applies to people retiring at 65 with a 30 year life expectancy.  I think 3% might be too high at 39 but it will allow you only $63k.  You say you need 75-80K.  You need to work a few more years even it is not ideal. If you like your location then work on paying down your mortgage and student loans.  You may be able to reduce your life overhead to 63k and add to your savings and walk away by 45.

[Jenn]

My PLAN for retirement included maintaining my credentials as a doctor so that I could at any time return to earning >>$100K/year as a doctor instead of only $20-50K/year if I can no longer get licensed (over 4 year gap needs a return to residency in some states as I read their laws!). You could easily fulfill that with part time work (if they will take you, and at part time) for the current hospital, even if this is an insulting pay cut so long as you can stomach the insult for the benefit, or with locums- brief enough to permit yet fund your travel plans. Especially in your 40s not 50s like me it would be very advisable to continue the insurance of a medical career to fall back on- never know what may happen in the next 50 years. (You might marry and have 7 kids! And if you're not female like me there's no age cut off for when you might have kids.)

In my case, marital issues and cussedness (mine mostly) complicate the picture- my husband doesn't endorse my plan and is gradually abandoning his medical credentialing. I don't want to be the one stuck going back to work at a job I hate while he thanks me and admits it's too bad he can only earn $20K/year now, so I might give up mine as well if it's just too much trouble. His argument that he has an Army pension which won't vanish is valid, but that pension is slightly less than we currently spend and HE could be the one remarried with 7 children if he were very unlucky after my death... Well, if he's a poor widower someday guess he'll be safer from gold diggers.

Humor interlude: 69 yo Bob Smith shows up at the country club with a breathtakingly gorgeous young woman. His friends are gobsmacked and ask if she's actually dating him, or is it a joke, etc. He informs them she is his WIFE and they are further amazed. "How did you get HER to marry YOU?" they demand.

"Easy! I lied about my age.... I told her I was 20 years older!"

[Grant]

Although there are many unknowns, using the Variable Percentage Withdrawal spreadsheet from Bogleheads, starting at age 39 and lasting to 100, with a 60/40 mix gives you starting withdrawal percentage of 4.1%. So, yes, possible but with VPW, you need to be able to cut spending significantly (25%+) in down years.

[uptoolate]

Having 4 children and only starting to earn at 33 after residency and fellowship,I never had the option to consider retirement at such an early age but even in your situation, I'm pretty sure that I wouldn't have had the guts.  And that is in Canada where medical coverage is not really an issue. With those numbers and no changes in your family status, I am betting you could do it but I would wonder if you would be happy. Despite the downs of medicine there is still alot of fulfillment and satisfaction to be found for most.  You have done a great job with the savings to be in a position to even be able to consider it.

[jfoxcpacfp]

@Grant, you should also consider that you will be getting much reduced SS. I wouldn't discount the value of that as a lifetime annuity at retirement. I'm sure the rules will change by then, but SS will not go away. As much as I am not a fan of annuities, you should at least consider whether there is a way you can replace that income.

[PhysicianOnFIRE]

Option 1 sounds lame.  Much less money and more work, no thanks.  Bachelorhood makes you more mobile and gives you more options than most.

Option 2, finding a different job, may be wise if you want to continue to grow that nest egg.  I've written about someone in a situation with $80k in spending and $2 million dollar net worth, showing the benefit of working beyond FI versus taking Option 3, an early retirement.  Link to my own article, which I know is generally frowned upon, but applies to your situation so well.  Spoiler alert:  working a bit longer greatly enhances net worth and nearly eliminates the risk of running out of money if you can handle working another 5 or 10 years.

I think you could make option 3 work, and locum tenens would be a great option in an early retirement scenario as a single man.  I've done a fair amount of locums as an anesthesiologist and it can be a great way to experience different parts of the country in a "slow travel" way, with all expenses paid and a nice paycheck.  You can work as little or as often as you like.

Great work, by the way.  You're in an enviable position financially.  The buyout situation isn't so enviable, but you've positioned yourself wonderfully to have options that few physicians your age would have.

 

[uptoolate]

I agree with the above by PoF.  Locum work can be great fun if you have the personality for it.  I retired at 53 but of course as soon as people found out I started getting calls as to whether I could cover this or that for a week or two or three.  Dealing with the paperwork can be a bit trying especially for licensing I found.  I turned almost all of this down with the exception of those coming from old friends in great need and overseas volunteer work.  The working experiences have been great and a chance to see new places and different populations and styles of practice.  Again, if you like that sort of thing.