MtoM #143: Emergency Doc Becomes Millionaire in 2 Years and Finance 101: How to Spend in Retirement

This is the White Coat Investor podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom.

This is Milestones to Millionaires podcast number 143. Emergency Doc becomes a millionaire in two years. If you're finding our podcast informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes useful, actionable information not available on the regular blog posts or. Or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time, with no strings attached. Sign up today@whitecoatinvestor.com Newsletter. You can do this, and the White Coat Investor can help. All right, this is the Milestones to Millionaire podcast. It is driven by you and by you are the guests on it. The audience is the podcast. We feature you and your accomplishments, your milestones, if you will. And those milestones range from, you know, getting back to broke, buying a car, you know, these things that tend to be on the early end of the financial spectrum to people becoming DECA millionaires and financially independent and all kinds of other stuff on the other end. We want to celebrate those milestones with you and use them to inspire others to do the same. You can sign up to come on the podcast@whitecoatinvestor.com Milestones. Today we've got a guest that is featuring one of our relatively common milestones, becoming a millionaire. You know, it still means something in our world. You know, probably not as much as it did when Monopoly came out in the 1920s or whenever it was when being a millionaire really meant a lot. It's basically the equivalent of being a DECA millionaire today. But it still means something to most of us, and it's a goal that most of us have at some point during our lives. So we want to celebrate with you when you reach it, whether it takes you 25 years, whether it takes you two years. Like our guest today. Let's get them on the line. Stick around afterward. By the way, we're going to talk a little bit about what money to spend in retirement, what money to spend first, what money to spend second, et cetera. Our guest on the Milestones to Millionaire podcast today is Dusty. Welcome to the podcast.

Thanks for having me on.

Tell us what you do for a living and how long you've been doing it.

Yeah, so I'm a emergency medicine physician and I've been out of training for two years now.

Okay, so what milestone are we celebrating with you?

Me and my wife have reached A net worth of $1 million. So that's kind of the big one we're celebrating.

Wait, you became a millionaire two years out of residency?

Yes.

What does your wife do for a living?

Oh, so she's an attorney. So that has definitely helped a lot.

She's an attorney. Okay, and how long is she out of school?

So she has been out practicing for 12 years now.

Okay, so she's been out for a while. I'm sure that helps some. But, you know, when you graduated from medical school or when you finished residency or both, if you can remember. What was your net worth then?

So when I graduated medical school, we were right at negative 200,000. We both had some student loans that we had that was pretty much our only debt at the time. And then when I finished residency, I looked at this earlier. I think we were right at 100,000 to the positive. So we had broken even about six months before graduation for residency.

Wow. So in residency, you know, your wife is working as an attorney, but your net worth went up about $300,000. That's pretty awesome. $100,000 a year in residency. That's pretty good. Just by itself. We would have celebrated that with you, but in the last two years, you've gone from 100,000 to a million. All right, you got to tell us the story, because this is more than you guys made, probably.

It's right there at it. So we've had a few things that we were lucky in. I went to residency somewhere that allowed moonlighting, and I took advantage of that a lot during my third year of residency, which helped a ton to get a head start on everything. We're both pretty debt adverse people, so I think we're also very careful with spending, and we're also lucky to both have jobs that are fairly, well, high paying. So those combination of factors is really what led us to getting here so quickly.

Yeah, I feel like kind of an underperformer interviewing some of these people on the podcast. Those who have read my first book, 2014 the White Coat Investor, know it took us seven years to become millionaires at a residency, and I was pretty proud of that. I thought that was pretty good. You know, that's inspiring to lots of people, and yet I keep interviewing people that do it way faster. So it's pretty awesome. Congratulations on that. Let's talk about your net worth. Tell us what you tell us about your assets to start with.

Yeah, so I just reviewed that this morning because I usually only do it once a month, and it hasn't really Changed much in the last two weeks. But we have right at 500,000 in tax deferred accounts. That's a combination of 401ks. My wife has a TSP currently and I have a 457 at work along with a solo 401k I put some 1099 money into. We have right at 200 grand in tax free accounts with our Roths and HSAs and right at 250,000 and just regular taxable brokerage account and 50,000 in cash. So nothing too exciting. And it's 95% of it, I believe is in BTS X currently. So nothing too crazy on the investment.

Side, very simple asset allocation, but you keep stuffing money into it like crazy. I had a fellow doc that I served with in the military and that was basically his investment strategy. Everything went into a 500 index fund. Him and his wife, they're both docs and they just stuffed so much money in there. I'm like, oh, hard to disagree with that plan. It's certainly working for you. Tell us about your house.

So we own our home. We live in a pretty low cost living area. And I said we really focus on trying to keep our fixed expenses low since we like to travel and do other things. So our current home, we paid I believe $220,000 for it. So, you know, again, probably the smallest and least nice house among all my other physician colleagues. But it works for us and we've kind of decided to focus on money elsewhere. So one of the big things was keeping our fixed expenses low, which. Including getting affordable housing.

Yeah, this is a very deliberate, intentional plan you're working here. You know, I don't think there's anybody else in your residency class that is a millionaire already, you know, and there's probably nobody else in your class that lives in a house that they bought for only 220,000. What is your goal? Why are you so driven to be financially successful so quickly?

I think a lot of it comes from upbringing. When I was younger, I remember my grandfather when he was getting ready to retire, which was probably in my late high school years, junior, senior year, he was going through all of his stuff and he had all these Vanguard forms that he was going through. And I'd never heard of Vanguard. And we started talking and I believe one of the first books he showed me was, I think it was A Motley Fool Guide to Teen Investing or something that kind of started the process and started reading throughout high school and college. So that plan was once we had an income to save it and set ourselves up so in the future we can kind of do whatever we want to do with our time and because we're still trying to figure out where we want to be long term and the kind of careers we want to have. And we both agreed that having a big nest egg would give us the flexibility to, you know, make decisions. So we can always try to find the best place for us career wise and life wise.

Yeah. So you've been financially literate for a long time. You just didn't have the income to go with it until recently.

Yeah, and that's what I worked a few years before medical school, about two or three years. I was a big reader in Mr. Money Mustache for years. And then along with you when you started the White Coat Investor blog, I was probably one of your first readers. And it has been super helpful having your site, especially as our income has grown and be able to have specific advice that really fits our particular situation. So, yeah, also a lot of luck involved getting experience.

Yeah. WCI and Mr. Money Mustache have actually grown up together. Mr. Money Mustache was started the month before WCI in April 2011. We started in May. So a lot of people have had that experience of following along with both of them as they've grown. All right, tell us about debt and what role debt has played. I mean, obviously you had some student loans, and it sounds like you may even still have some, and you've got a mortgage. Tell us about your debts.

Yeah, so we have a mortgage. When we first married, I had about 325,000 in student loans, and my wife had about 60,000 left from her law school. Now we're down to hers. Has been completely paid off for quite some time, several years now. And I'm down to my last 80,000 in federal student loans. And the reason we have the 80,000 is I have a loan forgiveness program through my current employer, who pays a set amount every month. And I have another two years left in that agreement. And at the end of that two years, it'll be basically paid off. And the total benefit was that was right at 100,000 that our employer offered for student loans. So they paid 100 grand, and we've pretty much done the rest ourselves.

And then the mortgage, I think it's.

Right around 190, 200,000. We've been in the home for two years now, and we put a little bit extra every month, but we got lucky with having a pretty low interest rate. So I think it's only 3 or $400 extra a month, basically. Rounded up to an even number for our monthly payments. So we're just kind of letting that do its thing. And no other debt we have, like credit cards we use for spending that we pay off every month, no car loans. That's pretty much the only debt we have now is the mortgage and my student loans that are left.

What part of the country are you living in?

We live in the southeast on the Gulf Coast.

Okay, and was that just where you wanted to live in your life, or was that a deliberate decision that had some sort of a financial impetus behind it?

A combination? We're both from near this area. I grew up about three hours from here, and my wife grew up about an hour and a half from here. So we were familiar with the area. When I finished residency, the initial plan was to go somewhere else. We have a few places we looked at for the future that we'd like to move to, but the combination of the low cost living and emergency medicine compensation is fairly high in this area. It was kind of hard to pass it up. And so the current plan is to stay here two to three, four more years until we're pretty much financially independent and then look at moving somewhere else. We bounced around the idea of we love to travel. We've been to New Zealand a few times. We just got back there like three weeks ago, went to the women's World Cup. And so that's a place we're looking at potentially moving or potentially some other bigger city in the country just to kind of dry some wheels for a little while.

What advice do you have for somebody that's just like you were a few years ago? Maybe they're, you know, just coming out of med school or they're in residency now and. And they're looking at you going, man, I'd love to go to New Zealand. I'd love to be a millionaire. Two years out of residency. What advice do you have for that person?

I think coming up with a plan is the biggest part. And then spending, especially early on, if you can find a way, as you're a med student, if you have a spouse that works, or while you're a resident to put money away. It's really, really easy when you become an attending when you already have those things in place. Most of our things come out of our paycheck without us even seeing them. And just when you put things on autopilot and, you know, you come up with a good plan, it's really easy. And that's why when you say you're impressed by it, I'm not sure if it's impressive because a lot of things we did were just things that got put in automation. We came up with a plan years ago and really haven't required any ongoing effort at all.

Yeah, that's the benefit of a plan for sure. You know, every month you got money coming in and you don't have to make a new decision about what to do with it. You already made that decision a couple of years ago. You know, it's like I tell my kids that you can decide today not to do drugs. Then every time somebody offers them to you, you don't have to make that decision all over again, you know. And it's the same with finances in a lot of ways. Well, what's next for you guys and your financial goals? You've talked about having flexibility, but I'm not sure I'm hearing a discreet, you know, early retirement goal or something like that out there.

Yeah, that's what I don't think the idea of early retirement. I'm that interested in it. I really like what I do. I'm sure I'll do it on some level for the rest of my life to some degree. We would like to travel more. So I can definitely see emergency medicine is very easy to go part time or work locum or things like that. So I'd imagine in three or four years we'll probably spend a few years either New Zealand or Australia or somewhere outside of the country and then come back to the US and try to find somewhere that, you know, work four or five shifts a month and just kind of enjoy life. I've also been bounced around the idea of going back to where I did training at. I really have some great relationships with people I worked with there. And to me that would also be a really cool place to be a part time faculty member one day and once we kind of have the financial things taken care of.

Yeah, you guys sound like you're pretty much on the same page when it comes to finance. I'm curious what your biggest conflict was or disagreement was about how you're running your finances now. Do you have any recollection of a time you guys had to make a compromise on it?

That's what I'm probably a lot more frugal than my wife is. She's not a spendthrift by any stretch, but I knew when we first started she didn't really want to know anything about financials. She just wanted to, you know, the money came in the account and you spend it. And I think when we first Started dating and especially the first year of marriage, I think I'm a little more of a numbers guy than she is. That was probably tough for her early on for us to get on the same page, but that was pretty short lived. And once I explained to her, you know, the reasoning behind it and kind of got her engaged and to figure out what, you know, got her input for what kind of life she wanted to live in the future, it actually was really easy. And it's again, she is now probably more financially literate than me in certain items because she reads a lot on her own and she comes to me with ideas and they're usually good ideas. So I think that was probably early on, just getting on the same page, spending, just because she had never really looked at it that way or had never budgeted or, you know, didn't really like. She had an IRA that was, I think it was some, some financial firm that she had been invested in for years and had really high fees and she didn't understand why that was a problem in her mind. I have a financial advisor, he's doing everything for me. So those early conversations were tough. But after that, we've been on the same page ever since.

Yeah. And the truth is, on a high income like you guys have, there's not a lot of sacrificing. You can pretty much buy what you want and still do pretty well. But you guys have done exceptionally well. So congratulations to you. Thank you so much for coming on the Milestones to Millionaire podcast to share your experience and inspire others to do the same.

Thank you so much for having me. I really appreciate the opportunity.

All right, hope you enjoyed that interview. Dusty's done fantastic. Obviously, for a lot of us, if you can become financially literate before you start making the big bucks and have a plan in place, you really hit the ground running. This is what Katie and I did. We weren't as early as Dusty. We were probably halfway through residency when we started really learning this stuff, but we had a plan in place when we graduated. The problem is I wasn't making very much income. I was making about $120,000 a year as a military attending, so we couldn't do that much. But we still hit the ground running with what we had, and it made all the difference in the world. So please those of you who are in medical school, those of you who are in residency, in dental school, whatever you're coming up on those big earnings years, put a plan in place first. It's amazing what you can accomplish. And all of A sudden, just a few years into your career, you have so much flexibility and so many options to build this awesome career that you're going to enjoy and be able to do all kinds of stuff with. So take care of business early on and you will not regret it. I promise. All right. I promised you at the beginning that we're going to talk a little bit about spending in retirement. And I think this is an important topic to understand. You know, the truth is that many doctors dream of retiring from the workplace before that traditional retirement age of whatever it is, you know, 60 to 70 somewhere in there. Most docs can't do it though. Why can't they? Three reasons. They spend too much, they didn't save enough, and they didn't invest wisely. They simply don't have the resources to retire at the time they desire to retire. So they end up working an extra few years. Now. It's not the end of the world, right? Life isn't all about money. It's not all about retiring as quickly as you can or having the biggest nest egg in the graveyard for sure. But paying some attention early on in your career, like our guest today, can facilitate. This is at least being an option for you. Whether you just want to cut back and be a part time doc like I am and like I suspect Dusty will be in just a few years, or whether you want to retire completely. You got to have the money to do it. You know, a lot of people just have to wait until they have more savings, until compound interest can do more magic on their nest egg, until they start getting some Social Security money. And that's fine. But if you want to retire early, you got to spend a little more time thinking about how to spend in retirement, especially those first few years. People worry about this age 59 and a half rule, right? You basically can't get into your retirement accounts, at least your IRAs till age 59 and a half, or you'll have to pay not only taxes that are due, but penalties. You know, a 10% penalty. That rule is actually age 55 if it's a 401 and you've separated from the employer. So that's the first way you can get into your money earlier is don't roll it into an IRA, leave it in the 401 and then you can spend it at 55 without any penalties. So that's kind of cool. Don't forget about that. If you're thinking about retirement date earlier than 59 and a half, other great options for that time period. The truth is most people who have enough to retire early. If you have enough money to retire before age 59 and a half, you almost surely have a taxable account, right? Because you just haven't been able to stuff enough into your retirement accounts in order to retire early. So that's what you spend first, right? You get into that taxable account and you spend the high basis stuff first, so it doesn't cost you much in taxes. And then eventually you may end up spending the low basis stuff as well before getting into your retirement accounts. Especially if you're still at an age where you have to pay a penalty to do it. Don't forget, there's also lots of exceptions to that age 59 and a half rule. One exception is a 457 plan, right? This rule does not apply to 457s. These 457 are deferred compensation plans that lots of employers, particularly academic employers, often offer. You know, depending on the plan provisions, you can often get into that as soon as you retire. And so that's what lots of people do to cover years from 50 or 55 to 59 is they use their 457 money. So people are living off their taxable money. They're living off their 457money. Don't forget, there are other exceptions for that age 59 and a half rule as well. For example, you can take money out to pay health insurance premiums for a first home for you or your kids if you're disabled. Obviously if you die, you can get into there earlier. There's some new exceptions that came up with the Secure Act 2.0. For example, if you've been the victim of domestic abuse, you can get to some of that money penalty free. So lots of options there. Roth IRA principal you can get to before age 59 and a half. There's also this cool exception they call the 72T exception or the SEP exception. Seppstantially equal periodic payments. This is basically the early retirement exception. If you retire early, you can get to your retirement accounts without paying penalties. You just have to take out only a reasonable amount each year, and it works out to be 3% or 4%, which is about what you want to take out anyway if you want that money to last. So that works just fine. So that's how you get to your money before age 59 and a half without paying that penalty. And it's not the end of the world if you do have to pay a little bit of that 10% penalty on some of your retirement money. Because chances are, if that's the case, you're probably paying at a much lower rate, even including the penalty than when you put the money into the account. Other things you can health savings accounts, right? For health medical expenses, you can take money out of there anytime, penalty and tax free. If you've been saving receipts for prior medical expenditures, you can take that money out and spend it on anything and just put it up against those prior receipts that you have. Again, tax and penalty free. But you don't really want to raid that for non medical expenses ever if you can avoid it. But certainly not before age 65, because then you got to pay a penalty. It's not a 59.5 rule with an HSA, it's a 65 rule. So keep that in mind. Now, once you're kind of past these penalties that you got to worry about for early withdrawal from retirement accounts, you should also think about how do I want to spend spend this money? And there's somewhere there's this dogma out there. And I don't know how it got started because it's not always true. But the dogma was basically spend taxable first and then spend tax deferred and then spend tax free money. That's not the case. I mean, as a general rule, yes, you generally want to spend taxable money before retirement account money, but that's not always the case. If it's very low basis money, especially if you're going to be dying soon and your heirs would get a step up in basis on that money, you may not want to spend that before retirement account money. And then of course, when you're talking about tax deferred and tax free money, you can adjust how much you take from each of those accounts and basically set your own tax rate. And it's unlikely that the most efficient way to do that is take all the tax deferred money before taking any of the tax free money. A combination is probably the right way to go. You know, you take tax deferred money up to the top of whatever bracket you're in and then tax free money above and beyond that. That's probably a more tax efficient approach to take to spending your money in retirement. Now you might have some other assets out there that are available to you. Maybe you have some home equity. Typically that's something you tap pretty late if you need to at all. Likewise, if you, for whatever reason ended up buying a cash value life insurance policy, like a whole life policy, that's generally something you want to take relatively late. The best use for that is to leave it to your heirs. And so if you don't need it, that's one of the last things you'll leave. It goes to them totally tax free, because that's the way death benefits are. Just like your taxable account goes to them tax free. Of course, thanks to the step up in basis at death. You also want to keep your estate planning desires in mind, right? If you're planning to leave a whole bunch of money behind to charity, I mean, you preferentially want to leave them HSA money and tax deferred money because they don't pay taxes on any of that. So you won't pay taxes, they won't pay taxes. You can make a big difference there. And if that were the case, you might spend your tax free money preferentially because it'll lower the overall tax burden paid. On the other hand, if you're planning on leaving all your money to your kid, and your kid's even more financially successful than you are, they'll certainly appreciate inheriting the tax free money, the Roth IRA kind of money. So you may want to spend that last in order to leave more of that to them and live on your taxable and tax deferred assets during your lifetime. So estate planning certainly plays into it as well. Be careful with people who are dogmatic and telling you exactly the order you must spend in. It's really a year to year decision. Looking at your tax bill and deciding where to pull the money from. I hope that's helpful in understanding how to spend in retirement. The other thing to talk about, I suppose is how much to spend in retirement. And the general rule there is, again, don't get dogmatic. Start with something like 4% of your Nest egg and adjust as you go. If a really bad sequence of returns, you know, crummy returns, show up in your few years of retirement, you might want to dial it back a little bit. You know, maybe only sending 3% or 3.5%, certainly not more than 4%. If it doesn't show up, you can spend a little bit more than 4%. And certainly if you're now 85 or 90 years old, you don't have to hold yourself to the 4% rule. You're not immortal, right? Spend a little bit more. It's not a bad idea. One plan some people do is they just spend their entire required minimum distribution. And that percentage goes up over time. It starts at about 4% at age 75. By the time you're 92 or something, it's like 12% a year. It's okay to spend that much. If you're spending about what an RMD would have you spend, that's actuarially pretty sound and not a bad way to decide how much to spend each year in retirement. The truth is, most people die with more than they retired with because they just don't spend. People that have been good savers, they don't spend that much in retirement. They're worried they're going to live to be 105, and really, they only live to be 85 on average, or 83 on average. And their nest egg continues to grow throughout retirement. That's certainly what's been happening to my parents and most good savers. That's how it works. So most people who have become millionaires by the time they retire need to be encouraged to spend more money. And so if that's you, spend a little bit more money, find something that'll make you happier, find a cause you support and give away some money and quit worrying about running out of it. You're not going to live forever, and you're almost surely not going to run out of money. If you've been managing your money so well that you were able to become a millionaire by retirement, it's not like that goes away instantly when you go into retirement. You just become this total spendthrift. It doesn't happen. You're still good at managing money. And if something bad happens, you'll be able to dial back your lifestyle just like you used to, adjust your lifestyle to your income and be able to be okay. If you're finding our podcast informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes useful, actionable information not available on the regular blog posts or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time, with no strings attached. Sign up today@whitecoatinvestor.com Newsletter. You can do this and the White Coat Investor can help if you want to be on the podcast whitecoatinvestor.com Milestones. If you want to come to our conference, you can also do that. You can sign up wcievents.com We've got a Facebook group, we've got a subreddit, we've got a forum hosted on our own website. We have all these resources. We want to help you to be successful. 98% of the content we produce is totally free. The stuff we charge for is very high. Quality and well worth the money and much cheaper than our competitors and peers out there producing similar content. So we're here for you. That is the whole point of this enterprise. Not just the podcast, but the whole White Coat Investor is to help you get a fair shake on Wal Street. 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