Physician Finance Interview #15: Physician on Fire

This is Physician Finance Interview #15, and today’s interviewee (Physician on Fire) needs no introduction.  The Physician Philosopher blog is now officially non-anonymous after The Physician Philosopher’s Guide to Personal Finance was published, POF has continually been one of the biggest sources of encouragement and wisdom for this blog since its anonymous inception in November 2017.

Lawrence B. KellerThis is the 15th in a series of Physician Finance Interviews.  If you’d like to read the other PFI posts, you can find them here.

The focus of the interview is to investigate how others have handled their money, income earning potential, assets, debts, and much more.

My questions are in bold.  The answers then follow.

If you are a medical professional of any kind, email me if you are interested in being interviewed and sharing your stories and experiences. The questions below are emailed to the person being interviewed and responses are returned, formatted, and published. 

Your Story & Background

1. Take a second to tell us about yourself so that others can see if their story relates. 

I’m a 43-year old part-time anesthesiologist. I’m also a husband, father to two boys in grade school, and a part-time blogger.

I live in northern Minnesota, where I’ve been for five years. I grew up in southern Minnesota, trained in Wisconsin and Florida, and have practiced short-term and long-term locums in Florida, Wisconsin, Michigan, Pennsylvania, and South Dakota, mostly in the first couple years of my career.

This is my thirteenth and possibly final year as a practicing anesthesiologist. [TPP: Being in my second year, this seems like an eternity away!  I bet it feels like it has passed in the blink of an eye!]

2. What is your financial background? 

How far back should we go? I got a dollar per week as an allowance as a youngin’. I started watering gardens and mowing lawns for $2 to $3 an hour when I was 9 or 10. My Dad taught me The Rule of 72 when I was in junior high.

Flash forward to medical school. I started playing with compound interest calculators and discovered this concept called swing trading. Had I discovered the fast track to compounding?

I sent my Dad an article about it. He sent me a book. It was called The Only Investment Guide You’ll Ever Need by Andrew Tobias. It didn’t mention swing trading. Maybe that wasn’t the secret, after all.

What I learned in that book kept me from making any major financial mistakes for the most part. When I started making doctor money, I maxed out every tax-advantaged account available, investing in mutual funds.

3.  Were you given a head start in the financial world in any way? Let us know if the opposite is true, too. 

I definitely had some advantages. I grew up in a family that earned good money (Dad was a dentist) and respected the value of a dollar. Even with a six-figure income, we shopped the scratch & dent and open-box deals. Garage sales. Thrift shops. Of course, we also bought new goods, but rarely paid retail.

My maternal grandfather was a physician, and he passed away in 1980 when I was young. Savings bonds paid crazy interest back then, and at rates above 15%, a portion of his savings was used to set up college funds for his three grandchildren.

At maturity in the mid-to-late 1990s, those bonds gave me $6,000 to $7,000 a year from age 18 to 23. I received a full-tuition scholarship and a number of other valuable scholarships that helped me graduate undergrad at the University of Minnesota with no debt. I stayed there for medical school and got out with about $60,000 in debt when the average debt was approaching $100,000 for graduating med students back in 2002.

When I was in college, my parents had planned on contributing $2,000 a year to my tuition. Instead, we put that money towards an IRA that I had started with money I earned working at a grocery store in high school.

Altogether, I had about $50,000 in contributions from family to help get me through school and started investing while young. I figure that dollar figure shaved about six months off of my time to FI.

[TPP: Investing early makes a big difference!  I hope to set a similar example for my kids, and have already started teaching my kids about money].

4. What is your current net worth? List the assets that compromise your net worth. 

I stopped publishing exact figures a while ago, but we’re in a position to spend a low six-figure sum annually with a safe withdrawal rate of 3.5% or less. I’ll let you do the math.

I publish quarterly updates on what the portfolio looks like in terms of percentages.

In terms of real estate, we’ve got a paid off house that we’ll be selling this year. The proceeds will go towards building our next home. I hesitate to call it our “retirement home,” but the lakefront property will be home base when we embark on our life of adventure this year.

We also have a second home that we’ll be moving into while the next home is built. It’s quite small and low-maintenance, and we have yet to determine whether or not we’ll keep it long-term.

Dollars & Debt

1.  List your current sources and size of debt. 

My last bit of debt disappeared when we sold our first doctor house a few years ago.

Other than revolving credit card debt that is autopaid in full monthly, I’ve been debt free since before forty.

2.  If you had/have student loans, what is your student loan repayment plan? 

I was lucky enough when federal loans could be consolidated to a very low interest rate. I think I was on a 25-year repayment plan at around 2.25%.

While one can easily make an argument to keep that low-interest debt and invest the difference, I opted to write one check and be done with it once we had a seven-figure portfolio.

Income & Spending

1.  What is your household annual income and will it be changing in the near future? 

Fire your financial advisorOver 12+ years in anesthesia, I’ve averaged around $400,000 a year. I was an independent contractor for the first six years and am in my seventh year as a W-2 employee. Altogether, I’ve earned about $5 Million and paid close to $2 Million in total taxes over the course of my relatively short career.

I’ve taken advantage of geographic arbitrage, earning an above-average salary in lower cost of living areas in the upper Midwest. My wife and I are both from small towns in Minnesota and Michigan, so this is where we wanted to be. It’s a happy coincidence that I’ve had the ability to earn an excellent living here.

My wife has a Masters in nutrition and trained as a registered dietitian, but she chose to stay home to raise our children; the first baby was only a few months away when she finished her internship.

I dropped to part-time in the fall of 2017. My workload and pay were reduced 40%. I’ll be dropping the other 60% this summer.

Interestingly, I won’t be done earning an income. I’ve found ways to generate a decent income with my online presence via physicianonfire.com. I donate half of my profits, but there should still be enough left over to support our annual spending without accessing retirement funds and initiating our drawdown plan.

This should segue wonderfully into your next question, which is…

2.  Do you use a monthly budget or track your spending? List your major expense categories for each month in your budget/spending. 

We’ve never used a budget (budgets are not sexy, despite what J. Money says), but we spend with intention. Some might call it mindful spending. We’re keenly aware of when, where, and how we’re paying for things and evaluate whether or not it’s worth it as we go.

[TPP: If I am being honest, we fall into the same line of thinking.  You call it “intentional” spending.  I call it being lazy.  We spend less than we make each month, and so we stopped budgeting.  Personal finance blasphemy!  Yet, we meet our savings and debt destroying goals and the rest is gravy.]

I started tracking our spending after I started a blog, confirming what I believed to be true — that we were spending $6,000 to $7,000 a month as a debt-free family of four.

Our biggest line items are food and travel, despite our frequent use of travel rewards to keep that slice of the pie much more reasonable.

3. Does giving to charity or causes you believe in play a part in your financial life? If so, what percentage of your annual income goes towards this endeavor?

Absolutely. I knew I’d feel guilty walking away from a lucrative career when I could continue earning money for the many good charitable causes out there.

I addressed this in two ways. The first was building up our donor advised funds (DAFs) to about 10% of our nest egg. We hit the quarter million mark in our DAFs in 2017 and I continue to give to and from our DAFs.

The second was the pledge to donate half of my profits from my website. As a result, I’ve already donated six figures, mostly to the DAF, but we plan to give another six-figure sum to and from the DAF in 2019.

Saving & Investing

1.  Do you have an emergency fund? Why or why not? 

I tend to keep at least a couple months’ worth of expenses available in a “high-interest” checking and savings accounts. I also consider our taxable account to be a money source that we can tap anytime. Counting that, our “emergency fund” is closer to 200 months’ worth of expenses.

If we encounter an emergency that depletes all of that, I will be very, very upset. [TPP:  Fair enough.  I think I’d be upset about that, too!]

2. What percentage of your income do you save towards retirement/investments each year? How did you determine this level of saving?

We always spent what we wanted and invested the rest. It seems that every year has looked different.

My general recommendation for those interested in early financial independence to live on half of your take home pay.

For a high-income professional, that might mean paying about 1/3 of your salary in taxes, spending 1/3 and using the final 1/3 to pay down debts and invest.

3.  You mentioned your assets above. What is your investing philosophy?

I like to keep it simple. A simple three fund portfolio would be adequate. It’s boring, but effective.

I own more than three funds for several reasons.

I wanted some real estate exposure, so I own a REIT fund and have made a handful of investments with crowdfunded real estate platforms.

Tax loss harvesting is also something that I do and it’s easier when the asset classes owned in a taxable account are not repeated elsewhere in the portfolio.

Historically, owning a higher percentage of small value stocks has paid off. It remains to be seen whether or not this alpha will persist, but I do tilt to small and value stocks a bit. The following is what I own, normalized to a total value of $1 Million.

4. If you could tell other doctors about one thing you’ve learned about saving and investing, what would it be?

For every dollar you spend, use a dollar to invest and grow your net worth (and don’t try to hit home runs).

5.  If you have kids, are you saving for their college education? If so, describe where and how.

We started 529 Plans when our boys were babies, and we’ve always put it at least enough to get a full state tax deduction when it was available (varies by state of residence).

A few months ago, I was able to proclaim that our 8 & 10-year olds each had a six-figure 529 Plan. Today, I can proudly say they each have a high-five-figure 529 Plan.

As long as I have earned income, I imagine I’ll continue contributing enough to get get the full state tax break. In Michigan, where our lives will be based soon, if we put in $10,000 a year between the two plans, we pay $425 less on the state income tax. That’s like an immediate 4.25% return, the opposite of a front-end load.

Retirement Goals & Gaffes (Mistakes)

1.  What is “your number” and your age that you feel will allow you to retire? How’d you arrive at this number; give us some details. 

Believe it or not, the Physician on FIRE does have FIRE plans, and I touched on them above.

I’ll still be 43 when I retire from medicine, but I plan to continue with my online endeavors. I’ve said that I’ll be retired not retired.

A few years ago, when I discovered the concept of financial independence, I realized we had it by virtue of our investments totaling at least 25x our spending of about $70,000 a year.

To retire completely and early, I think it’s prudent to have closer to 30x your anticipated retirement spending. This has to include allowances for healthcare, home maintenance, vehicle replacement, etc…

2. How much will you be spending annually in retirement? Give us some details.

We spent nearly $100,000 last year, but that included almost $30,000 for a new-to-us 2017 Nissan Armada. We plan to pull a travel trailer with this beast in the near future.

Factoring in being fully responsible for our healthcare coverage, I anticipate annual spending in the $80,000 to $100,000 range. That includes a lot of what some might call discretionary expenses or fluff. I know families the size of ours that live well on half that.

Ours is more of a fatFIRE budget and I’m OK with that. We can always cut back if we want to or feel the need. [TPP: Having that flexibility is important.  It is a great way to avoid sequence of return risk issues.]

In terms of where the money will come from, more than half of our assets are in a taxable account and that should easily last us until 59.5. I’ve also got a 457(b) that I’ll be drawing down over the next five to ten years. It’s deferred compensation that technically belongs to my employer until I choose to withdraw it [TPP: 457’s can be complicated – I wrote a post about them here], so I don’t want to leave it in there indefinitely.

I’ll probably make some Roth conversions of the relatively small amount I’ve got in other tax-deferred money. About 13% of our nest egg is in 401(k)s, one with my employer and an individual 401(k) I started via my online business.

3.  If you have already retired, tell us about it. 

I haven’t retired quite yet, but I always figured it would happen sometime after we had an empty nest. It wasn’t until I realized we could afford it that I realized I’d much rather have more freedom now while our boys are young, adventurous, and still listen to us (most of the time).

4.  If you plan on retiring early (before age 65), how do you anticipate handling health care costs?

I’ll be looking at our options for traditional health insurance via the exchange and open markets. Catastrophic and short-term plans are now available with the ACA penalty.

Finally, we’ll look closely at Healthcare Sharing Ministries. The latter, while not insurance exactly, may be our best option as we are a pretty healthy bunch and are regular churchgoers.

Advice & Farewell

1. What advice would you give to The Physician Philosopher readers who may be a younger (or current) version of you?

Learn to love the career you’ve got. If you can’t love it, figure out what parts you like and focus on those. If you can’t tolerate it, figure out why and fix it.

Find ways to grow the gap between what you earn and what you spend. You can clearly approach this from the earning side, saving side, or both.

Financial independence is extremely valuable. You may love what you do now, but jobs and people change. You may feel differently about life in 5, 10, or 20 years.

[TPP:  If I am being honest, I needed to hear this myself.  Thanks for the solid words of advice, as always. I’m working on figure this out as we speak – and I am sure many of my readers are as well!]

2. What is the toughest challenge facing physicians who are just finishing training?

I think the typical student loan burden is the biggest challenge right now. The average balance of the indebted student has doubled in the fifteen years since I finished med school.

It’s not only figuring out how to pay it off, but also understanding the optimal way in which to do so and the options for loan forgiveness.

3.  What is the top financial mistake you see your colleagues making that you would advise our younger physicians and trainees to avoid?

Don’t confuse income (or income potential) with wealth. I see physicians who are beyond broke acting like they’re wealthy. Don’t do that. As the Physician Philosopher will tell you, the correlation between big spending and happiness is quite weak.

4.  What are the top two-three resources you would recommend to a reader outside of The Physician Philosopher website (book, blog, podcast, etc)?

Bogleheads

White Coat Investor & Passive Income MD (partners in the WCI Network)

FIRECalc

5.  What questions do you have that TPP readers might be able to answer?

How do we get more people interested in managing money responsibly?

Thanks for being willing to take the Physician Finance Interview!

TPP: I can’t thank Physician on FIRE enough for being willing to do this interview (or for the massive amount of help he has provided along the way).  That last question is exactly why I started this website and am currently in the process of starting a financial curriculum at the medical school and residency where I work.  So, I look forward to hearing what others think as well! 

5 thoughts on “Physician Finance Interview #15: Physician on Fire”

  1. Great interview from one of the all time greats in our niche.

    POF was an inspiration for so many people, bloggers and non-bloggers alike. It was a major discovery when I first happened upon his website and found someone that shared very similar philosophies of how I wanted my life to be.

    I look forward to reading posts of what it is like to be on “The other side” of the work-retirement equation. Compared to POF I had a later start and thus a little more delay in my time line to pull the plug but still plan to retire at an early age (goal is early 50s).

  2. First off, TPP that curriculum sounds awesome!

    Secondly, I enjoyed this interview and appreciate the transparency. POF, if you would elaborate on why you have your HSA investments in bonds, I’d Love to hear it. Congrats on all that you’ve accomplished.

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