WCI #40: Physician on Fire Update

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Here's your host, Dr. Jim Dahli. Welcome to podcast number 40, an interview with physician on Fire.

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Coat Investor can help. Our quote of the day today is benign neglect is for most investors the secret of long term success. The hardest work in investing is not intellectual, it's emotional. We have a special guest back with us today, the Physician on Fire, who needs no introduction to most of you. He runs an extremely successful blog@physicianonfire.com that if you haven't checked out yet, you should. And we've had him on here before a few months ago. Physician on Fire, welcome to the show.

Thank you very much, Jim. I'm excited to be back on. It's been a while.

Yeah, it's good to have you here. So give us an update. How's your blog been doing? How did it do in 2017?

It did surprisingly well. You know, I'm humbled that you call it extremely successful because I'm not sure what that makes your site, which is about five, six times bigger than mine. But we, we partnered up early last year, March 4, we announced our partnership and that certainly helped bring some new readers to me. And in 2016, I had about 400,000 page views. That's kind of the currency or the scorecard we tend to use as far as the traffic on the site. And last year I had about 1.5 million page views, so almost quadrupled my traffic from the first year to the second. So that was pretty cool.

That sounds fantastic. And what can podcast listeners expect to see from you in 2018?

In 2018? Well, we're there already in some ways. More of the same. I've got a schedule where I put out a new post of my own every Tuesday. I have a guest post or an interview type post every Thursday within the White Coat Investor Network, which includes Yume and Passive Income MD within we have a Saturday selection that is a classic post. And then on Sunday that tends to be my most popular post. And that's a roundup article. Not article, but a list of articles that I have found throughout the week that I think my audience would enjoy. And I usually include a little tidbit of something personal in those posts as well. So that's the blog post schedule. I'm also doing some personal appearances which I haven't done a whole lot of beforehand. But I'll be speaking at your White Coat Investor Financial Literacy and Physician Wellness Conference here in March. So I'm definitely looking forward to that coming up very soon at the end of January, which I imagine will have happened by the time this is out there. But I'm going to be on stage at the New York Stock Exchange when we ring the closing bell. I had an invitation from Inspire Investing to be up there clapping, smiling and showing my face to the world. That's very exciting too. I'm also going to be at what is called Camp Phi Camp Fi Midwest in August and I know another physician already signed up after hearing that I would be there. So that's going to be a lot of fun. That's kind of a weekend retreat for a few dozen people and then we'll see what happens from there. New opportunities continue to present themselves.

That sounds great. Now for those who don't know, Physician on Fire is an anesthesiologist about my age, early 40s, who has really taken an interest in financial independence and retiring early and actually cut back to part time work. Just a few months ago. I think you went to 0.6 full time equivalents. Tell us about that. How's part time work treating you?

It's been great so far better than I had hoped. You know, in hindsight I surprised I didn't make this change sooner, but I didn't know that it would really work in my practice. But my partners have been gracious and have picked up the slack from the shifts that I don't work. So I started in October and I was able to arrange a schedule in which I basically a full work week at our surgery center and that's four 10 hour days roughly on average and then a 72 hour weekend of hospital work, part of which is home call. So I squeeze that into seven or eight really busy days. But then I have the next three, sometimes four weeks off. I just actually finished shift this morning. So I was on duty the last seven, eight days and now I'm not working until March. So we're taking advantage of this time, my family and I. I've got two boys that are age 7 and 9, so the four of us are taking some extended trips. We spent most of November in Guanajuato, Mexico, and we attended a Spanish immersion language school and just kind of took it easy in the central highlands of Mexico, which was a beautiful place to be and a lot of friendly people and it was awesome. Coming up here in. Go ahead.

This is incredibly remarkable. I mean, we're recording this on what, January 23rd, I think, and you're telling me you're off till March. I know you're at the conference here until March 3rd, and so that's got to be six weeks before you work another shift again while working six full time equivalents.

That's correct. I'm doing double duty. I'm pulling double duty in March. So after the conference, I'll do, I guess, a 1.2 FTE for March.

Okay.

But yeah, I'm off for six weeks and we're gonna spend most of February in Hawaii.

I'm sure there's a lot of podcast listeners for whom that sounds like a dream. They probably haven't had that much time off since the summer between first and second year of medical school. Right.

I think it might have been before medical school for me. I don't even know if I had that much time. If I did, I was probably studying half of it. So it really is, you know, after about 20 years, nice to relax and take a real break. Because a week or even two is hardly enough time to feel like you've really unplugged. And. And when you come back from a short vacation, you almost feel like you need a vacation from the vacation.

Unplugged is right. Six weeks.

I'm always plugged into the website in some way though, you know.

Sure. Yeah. It's interesting. It's interesting, isn't it? Yeah. You think you're going into this lifestyle specialty and it turns out that it's, you know, and then you take on this second job that eats up all your free time. It's not quite exactly what I think a lot of people think working from home is. The problem with being able to do your work at any time, anywhere is that all of a sudden you start doing the work all the time, everywhere.

There is always work to be done. I've tried to find better balance. That's another goal. In 2018, I kind of fell off the workout wagon and wasn't really doing much, and I just decided I need to prioritize and there will always be more blogging stuff to do. So that doesn't mean I have to do it, make sure I enjoy time with my family and take time to, you know, work myself. So.

Yeah, well, I think part time work is one of those things that can really impressively reduce burnout among physicians. I think there's a lot of docs that think they just want out of medicine that would be very happy with it if they could cut back to three quarter time or half time. Tell us about how that conversation went with your partners when. Because in your relatively small town, it's a little bit harder to cut back because someone else has to pick up the work. How did that go? And what do you think was the secret to getting what you wanted out of that conversation?

You know, that's a great point. And you know, there are only five anesthesiologists in town here. And, you know, the conversation started and I think I tried to kind of build up to it a little bit. I was hinting at maybe wanting to slow down, and I thought it would happen when one of my partners was ready to slow down at the same time and we could just hire another doc and each work half an fte, which is what the happy philosopher is doing right now, but with just the five of us. I happen to have one of my anesthesia colleagues who is on a curling team with me, and it was our turn to do concessions. And so we were just kind of chatting and I said, yeah, you know, I'm hoping one of our other colleagues will maybe think about slowing down sooner than later. And he said, well, you know, I think we could make it work for you anytime you want. I said, really? He said, yeah, you know, there were a couple of the guys that were doing locums elsewhere, and our hospital decided that they didn't want rdocs working locums elsewhere. So they basically put out a new guideline saying you can't do that. And so, you know, they thought, well, they would each be willing to work 10%, 20% more internal locums, essentially. And once they talked with the other partners, they all agreed to work 10% more, which allowed me to work 40% less. So it was pretty easy to convince administration it would be a cost neutral change to them. It would benefit the partners of mine who now could no longer do locums elsewhere. And as far as I'm concerned, it's working out really well. And I think my partners are pretty happy with the arrangement too, at least so far. And it's not a long, long term solution. We have actually hired someone that's going to come in about a year and a half from now. And at that point, if our volumes are roughly the same as they are now, I probably won't have a job here.

So you think that's a risk? You think they'll just force you out? Is it the partners or the hospital that would be forcing you out?

Well, why wouldn't. Yeah, that's it. I don't know. Force out is the right term. I might be ready to go.

Yeah, yeah, that's what I was gonna say. I was like, that's, that's kind of fortuitous for you to just.

But yeah, if not, you know, I mentioned Locums. That would be a great way to continue my career if I wanted to still work part time and then I could just say work maybe one month every three or four months and take even longer breaks and just, you know, I would have to do enough to feel comfortable with the type of case is that I'm doing and keep some skills. But you know, if I ever gave up, you know, taking call entirely, that would not be such a bad thing. Like I said, I just got off a weekend and I was working past midnight two out of three nights and of course up first thing next morning each day to do cases. So I wouldn't mind so much if I ended up finding a different position where I didn't take call at all. But for right now, I actually love this setup.

Now I'm curious. Personally, I thought maybe after you cut back to full to part time, rather that you might think, well, maybe I don't want to retire completely. Maybe early retirement isn't all that I'm really enjoying part time work. Do you think your attitude toward early retirement has changed since you cut back to part time?

I think that's a distinct possibility. And I guess I'm looking at these three to six week breaks as a chance to kind of mentally come to terms with the idea of not working. And so far I can't say that I've missed work when I've been away. So to do this for a year and a half, that'll probably give me some pretty good insight. And I'm only four months into it now, so time will tell. I would like to do a little bit of mission work. I'm looking at lining something up for later in the year and, you know, maybe that'll give me some, some purpose to continue to work enough to keep my skills so that I can maybe Use that to go help some people that would otherwise not find the help they need.

Very cool. Now, you've mentioned briefly earlier this concept of these long trips you're taking, this slow travel concept. Tell us more about slow travel and what you've done and what you have planned and why you think it's so great.

Yeah, slow travel is a lot different than a vacation. We've gone on vacation where every day we have two or three tourist sites we want to hit up because, hey, we may never be back here again. And you go from morning till night, and then other people have vacations, and it's not my idea of a vacation. You just kind of sit on the beach for a week and do very little, and then you go back to normal life. But slow travel is really more like living somewhat in a way similar to how you would live at home, but you're just doing it somewhere else. So our trip to Mexico every morning, we helped educate our kids. Normally they're in school, but we did their schoolwork in our apartment that we had for three weeks. And we saw some tourist sites, but maybe just a couple times a week we went out and did something like that. We went, like I said, to that language school every day, Monday through Friday. And slow travel is really just you're living, but you're living somewhere else. And you can do it a lot more affordably than you can a vacation. You know, Airbnb and VRBO rentals have weekly and monthly rates that tend to be quite a bit lower than the daily rate of a hotel. You know, you can find yourself a place with a kitchen and laundry and. Yeah, so it's just. It's a great way to kind of do less of a vacation and more of just exploring the world on a. On a budget. That's a little bit different. As far as what we've got lined up. I mentioned we're doing three weeks in Hawaii. That won't be that slow because we're doing three different islands and we'll be bouncing around quite a bit. We're thinking about going to Ecuador and Peru this spring. Our kids have seen shows on Machu Picchu, and our parents just went there and brought back the T shirts, literally that same Machu Picchu. So they're pretty excited about that. And after that, you know, I can see Southeast Asia, Australia, New Zealand. There are a lot of places we could explore.

Yeah, it's pretty amazing what possibilities open up when you have these three to six week blocks of time off from work. And it's really Quite an opportunity. I mean, I think of a lot of places I'd like to go, but it just doesn't make sense to go there for less than two weeks. And it's tough to break out of two weeks. Even with my schedule. It's tough to get two weeks to go there.

It is. And that's tough with four kids, especially when your youngest is 2 years old. That does change the dynamic.

Right.

And our boys are seven and nine years old. Yeah. And so they travel pretty well and they don't need naps and they don't wear diapers and they can, they can keep up with us as far as, you know, hiking and exercise and just having energy. I mean, they have more than we do now.

Yeah, that helps quite a bit. I mean, I have one of the most lifestyle focused partnerships I know of and you know, we've got a rule that you can't take more than two weeks off without getting approval from the other partners. And so even, even just a two week is, is a fairly difficult thing to do. Easy to take a week, but two weeks is much more difficult and three weeks is almost impossible in our partnership. And is it so even, even working when you drop?

Yeah. Because I think you've announced now that you will be working half time this summer, Correct?

Yeah, I'll be, I'll be half time by August. It sounds like it's going to be a gradual change. One of my partners wanted a few more shifts and so it won't be an abrupt going from three quarter to half time. Right. In August it'll gradually trend down from April through August. But by the end of the summer I'll be down to half time, which I'm excited about. But the truth of the matter is what I'm trying to do is cut back to full time because I've got this other thing going that's, that's honestly, I'm spending more time on than I am my practice already. And so what I really got right now is a full time job and a three quarter time job. So I'm trying to cut down to just one full time job for now.

Good luck with that.

Yeah. All right, let's, let's turn the page a little bit. Let's talk about safe withdrawal rates for early retirees. You know, this is something people love to talk about for hours on end on the Internet. But I want to hear your thoughts on what safe withdrawal rates ought to be for early retirees, how that changes when you're retiring in your 40s and 50s versus 60s or 70s and what advice you have for listeners on safe withdrawal rates.

Sure, this is something that I've certainly read a lot on and you know, I owe my knowledge and opinions to William Bengen, who had the first study out there and then the Trinity study out of Trinity College, and more recently Michael Kaichis, Wade Pfau. And there's a really Great series from earlyretirementnow.com he's got, I think about 23 posts in a safe withdrawal series now and he's done about 10 case studies looking at this from a PhD economist point of view. And so now the standard, and you often quote this one on your site, is the 4% rule, which says you can save up 25 times your anticipated annual expenses and you're in really good shape to have your money last 30 years or more. Now with an earth early retiree, let's say I retire in my 40s, I might live 50 years or more. Now. The good news is under most scenarios, if you look at past results and of course you have to have some assumption that the future will look something like the past, even if it's the worst case scenario in the past. Because when they say that 4% is good enough, that really means that in almost every scenario in the past, and I think the 4% rule works 97 to 98% of the time, even in the worst time to retire, you would still see your money last at least 30 years before the balance goes down to zero. If you're withdrawing 4% that first year and then increasing that withdrawal with inflation, if you want to last longer, you might want to consider withdrawing less now. Most likely you'll be fine with the 4% rule and you might even be good with a 5 or 6% withdrawal if the sequence of returns, that is the returns right towards the end of your career and early in retirement are at least average or not significantly below average. Personally, I'm planning on a 3 to 3.3% withdrawal rate. Part of that is because the markets have kind of been on a tear lately and my potential retirement date is it's more based on a timeframe now than it is on a dollar amount. I've surpassed the amount that we would need to maintain the lifestyle we have at a 4% withdrawal rate. And I think we're actually maybe now after below 3%. I would not be surprised to see a bear market come soon and that might change things for us. But yeah, I think I've talked quite a bit about that. But there's certainly other things you can do if you don't feel comfortable strictly having investments and counting on the market to give you returns. There are other classes. Real estate ways of earning passive and semi passive income as a retiree. Passive income MD certainly has some ideas on that.

Yeah. Now I, I've always been to the school of thought that this is something people spend way too much time and math doing. I'm kind of a fan of the Taylor Larimore school of thought where you kind of keep an eye on your balance and you adjust as you go. I mean, all through our lives we adjust our spending according to what we have and what we make. And I don't see why that would be any different in retirement. You know, if you're retiring with just barely enough, you've just eked over your number and you're just barely going to make it, then I can see why, you know, if you have no ability whatsoever to cut back on your spending in retirement, why these studies would be so important. But I think for most of our listeners here, that's not so much the case they're going to be in. The difference is, you know, if you need to cut back a little bit, maybe you take three vacations instead of four. You know, and there's a lot of places that a typical physician retiree, at least one that's been paying attention to her finances for the last 20 years, should be able to cut back on. And so I'm a big fan of adjusting as you go. I have a blog post coming up now where I argue that of these three factors, your ability to cut back your asset allocation and your initial withdrawal rate, that the most important is probably your flexibility, much more important in that scenario. And so I think we spend way too much time talking about the asset allocation and more particularly the withdrawal rate, when in reality we're not locked into some certain level of spending. We can change that as we go along. And if things are going great and bad returns don't show up early in retirement, we can spend a little more. If all those bad return years show up early in retirement, well, you're going to tighten your belt and spend a little bit less. But I guess I don't see that as the end of the world that a lot of these studies seem to suppose it is.

Right, and a requirement to be rigid. You know, like you say, if you are retiring with what might be called a lean fire in the Reddit terminology, which is having just enough to have your 25 times somewhat bare bones expenses, then you have not a whole lot of Flexibility. But if you're more like you or me and looking at a quote unquote, fat fire scenario, the opposite of the lean fire, then yeah, certainly if you have a $80,000 or 100,000 or $120,000 budget, you know, then there's room to cut back. It does help if you aren't already used to all of the finer things. You know, there is, of course, the hedonic treadmill, and that's a whole other conversation. But being comfortable with cutting back is also important, too. For sure.

All right, let's change subjects here. Let's talk a little bit about being debt free. Now, you've been debt free for quite a while. I became debt free last spring when we paid off our mortgage. It comes with both upsides and downsides. What's your take on being debt free now that you've been debt free for a few years? Tell us about what you're glad about, what you regret, etc. As far as being debt free, I.

Have no regrets that I paid off my mortgage and bought our most recent home with cash. And I paid off my student loans, too. Now, in hindsight, I can see what the S&P 500 has done in the interim. And I actually did that just the other night when we bought our house. It was a little over four years ago, and the market based on The S&P 500 is up 65% or so in the interim. So, you know, if I had taken on a mortgage even after paying the fees and some interest, I'd be well ahead of where I am because I guarantee you my house is not worth 65% more than it was four years ago, maybe 10, 15%. But again, that's in hindsight, and we didn't know what was going to happen. And also there is the wonderful feeling of not owing any money to anyone and not seeing a couple thousand dollars, few thousand dollars leave our checking account each month just to pay a mortgage. Student loans, same deal. I think I was at or under 2%. I paid them off at least five years ago. And of course, I would have done better in the market. But I feel very at ease knowing that I don't have any more debts to pay.

Yeah, well, if only you had that almanac that Biff had in Back to the Future, you know, then you could go back instead of, you know, instead of buying stocks and keeping the mortgage. You could have bought Bitcoin and kept the mortgage, and then you would have really killed it. So, yeah, it's true. You can't make These decisions in retrospect and there are, you know, risks either way. There is the risk that the market will go on a tear and you just basically locked in, you know, a 2 or 3% return paying off these low interest rate student loans and low interest rate mortgages. But at the end of the day, it really is nice to have that improved cash flow. And it's interesting because most of the people I meet that advocate this carrying debt scenario and investing it on the side are, are not particularly wealthy. And I think when you're not particularly wealthy, I think you can make a better case for that. I think you have more of a need to take risk, whereas you kind of know what you want to spend in your life. You've already got enough to do that you don't really have a need to take leverage risk. And so, you know, it's, it's the old scenario of when you won the game, stop playing. Yeah.

And I think the fact that, you know, we live in a low cost of living area and our home probably not even 10% of our net worth too. So the sting of say, missing out on better returns elsewhere isn't really much of a sting because we still have 90 plus percent of our net worth invested elsewhere.

Yeah, exactly. All right, well, we asked for questions on both Twitter and Facebook from readers and we're going to get to as many of those as we can today. We don't want to make this podcast too long and so I'm going to save some of these questions because we were just overwhelmed with them. We've got some several dozen questions here. I'm going to save some of those for future podcasts, but let's get to as many as we can and we'll just go through these and try to answer them and go from there. Alright, so this first one comes from Twitter from Terence Yu, who asks, should Roth IRA be considered for intermediate term savings goal, I.e. saving for a house in seven years instead of using a high yield savings account? You want to take a shot at that one?

Sure. I guess my first question would be why you're saving for seven years for a home. Maybe you're like us and you want to buy a home with cash or not have a mortgage. But if you're saving for down payment, hopefully you could do that in maybe seven months. But as far as, you know, investing in Roth and then accessing it for a home or a big purchase, I recommend against it. I think if you can get money into a Roth, you want to leave that there as long as you can. And that's not where you want to go looking for money for a down payment on a home. So, yeah, my advice would be no.

Now, a Roth IRA and an IRA for that manner, you can take out up to $10,000 penalty free if you're using it for a first home purchase, which is not necessarily just your first home, it's just you haven't bought one in a while. And so that's a nice feature of a Roth ira. But I agree with you. My Roth IRA money is so valuable. I mean, this is money that's going to compound tax free for decades during my life, and if I leave it to heirs for maybe six or eight more decades after my death, I hate to raid that for something as silly as a house down payment that I could save up.

Otherwise I would much rather, you know, take out a, even a physician loan and at a, at a, at a low down payment to, to buy a home rather than, like you say, raid a Roth account.

Yeah, it's just, it's just so beneficial. And you know, in addition to the tax benefits, it makes your estate planning easier. It gives you additional asset protection in almost every state. And you know, I think it's, it's probably something that, you know, it's designed for retirement and you really ought to use it for retirement if you, if you can help it.

And it's probably the last account you should access in retirement. Now, some people use a Roth conversion ladder because you can get at those conversions after five years and you can withdraw your contributions to Roth at any time. But again, why would you, like you said, that can grow tax free forever, basically. So I would let it do that.

It's very impressive to me now to look at the money that Katie and I put in a Roth IRA during residency and what it's grown to, and knowing that we're still two decades away from a typical retirement age, I mean, that is going to be a lot of money. Those, you know, it's a big sacrifice to save three or five thousand dollars during residency and put it into a Roth ira. But at that time, we thought we were done with Roth IRAs as soon as we got out of residency because, you know, there was no backdoor Roth IRA back then. And so we were really hesitant to do anything but max those out. In fact, I think my third year of residency, I actually took out a 0% credit card loan to max out my RO IRA, knowing I could pay it off in a few months as soon as my first paycheck hit. But it was just, you know, I looked at it as that valuable that I was willing to borrow money on a credit card to make sure I could max it out. And so then to turn around and rate it for something like a house down payment just seems, just seems wrong.

Yeah, I started one for my fiance when I was still a resident. And so, yeah, we've had that money for, well, since about 2006, so 12 years. I'm sure it's probably darn near tripled.

Yeah, I bet it has. All right, our next question, also on Twitter. This one comes from three Wood. I'm wondering if I need to re evaluate my office retirement plan. 10 employee dental office with a 401k. My wife is full time, so we can max for both of us. And based on the census, it was too costly to add profit sharing before the tax law changes. Now these ones are always interesting. Retirement accounts are really simple. If it's just you or just you and your spouse in the business, you know, you just go get an individual or a solo 401k and that's literally all you have to know about it. As soon as you start adding employees, it gets complicated. And in fact, I think once you have employees, it's no longer a do it yourself project. I think it's time to hire a pro to do a study. Sometimes you're going to find at the end of that study that the answer is sometimes a 401k, sometimes it's a SEP IRA, sometimes it's a simple IRA. There are several different ways to do the 401k. But the bottom line is you may end up spending more than your benefit from having the retirement plan because you got a, you know, you can't discriminate against the employees. You've got to provide them a match. And you're, you know, you can't be getting this sweetheart deal while they get shafted. And so you have to look at all the laws on that and you have to do these studies with actuaries and looking at the ages of your employees and your age and it really gets pretty complicated. And so it sounds like three Wood here decided to did this study a while back and was really wondering now with the new tax law whether anything has really changed. And the truth is I don't think I know whether anything's changed enough to make it more beneficial. I would suspect given the drop in tax rates that it's probably less beneficial now than it would have been before. So if this study was done before and it didn't make sense for him or her to have a 401k that it probably doesn't make sense now, but it never hurts to get it studied again and to hire somebody to come out and take a look at all the employees and how much people are likely to contribute and do that actuarial study to decide whether it's worth putting a retirement plan into place. It doesn't hurt to do it again every few years because situations do change.

I'm glad you took that one, Jim, because I did not have a good answer. I've been an employee. I've been an independent contractor. And like you said, all I had to decide was how much to put into my solo 401k or back in the day I had a SEP IRA and now I have an employer's 401k. But I do have a question for you, Jim. How does someone go about finding the person to do that study or that census that would tell you what might make the most sense?

Well, it's actually, there aren't a lot of people who do this. There's a few firms and you'll find them both on Dental Town as well as on our recommended list at the White Coat Investor under the recommendations tab of people who specialize in this. For example, one of my, one of my advertisers, Konstantin Latovsky, basically specializes in this. And this is what he does. He goes out and he does these studies on your practice. You know, you got four employees and you got, you know, two dentists, and he does a study on you and says, you know, what would work best for you given how much you want to contribute and how much you want to save and how old your employees are. Is a simple IRA or it's a 401k with a safe harbor. You know, and there's all these different ways to do it, but honestly, I've looked at this enough that it just isn't a do it yourself project. You need a pro involved if you've got employees in your practice.

Gotcha. And I like Kahn. He's on the White Coat Investor forum quite a bit. So he does give some really good answers there.

Okay, let's take one from Facebook. This one's from Austin Nguyen, who asks, can you discuss the pros and cons of holding cash and a money market in one's portfolio, especially considering the 1.4% return on Vanguard Money Market versus a 3% US inflation rate? I've seen example portfolios with as low as 0% to 2% to even around 10% with the Schwab Robo Advisor and also says I really appreciate all of the WCI network. Thank you. You want to take this one? What do you think? Cash in a portfolio, how much should be in there? What's reasonable, what isn't?

Well, there are really, I would say two main benefits of having cash. One is if you're a retiree and you want to write out a bear market and have money to fund your expenses without selling any investments, cash can help you sleep at night during those times. Now I have read really pretty thorough study from early retirement now in which he said that cash cushion, it will benefit you during that bear market, but it probably costs you more in the more lengthy bull market. So in the end you really do come out behind doing that. The other big advantage of having that cash is dry powder. So if a great investment opportunity comes along, might be an alternative investment, might be an angel investing situation or a microbrewery like I invested in, then you have the cash at the ready to go ahead and invest. But again, there are other ways of having dry powder. I mean for me, it's my taxable investing account. I can sell that money that those index funds, those mutual funds at any time. I could have plenty of cash ready to go in 48 hours to make that investment or even cover that expense. You know, we could even kind of roll emergency fund talk into this a little bit. But you know, like you say, your cash is probably not going to keep up with inflation. That that's kind of how it works. You know, median inflation is about 2.5%, mean is about 3% in the US and currently our savings account are paying, you know, 1 to 1.5% for the most part. So I'm not a big fan of holding cash for those reasons and I'd like to hear your opinion, Jim.

Well, I think if you're a retiree, you can make a little bit more of a case for it. For example, my parents portfolio has a little bit in cash. I think it's 5% and I think at one point it might have been 10%. And our theory there was, well, we got two, two and a half years of withdrawals that you can take. No matter what's happened in the stock and bond market, you know, the money's there and that gives you two and a half years to wait for the market to come back if there's some terrible event. That was our reasoning behind it. But if you're in the accumulation phase.

Less than two years.

Yeah. If you're in the accumulation phase, it's hard for me to justify any at all. I don't actually have any cash at all in my retirement portfolio, but I've got a couple of cash like things going on that probably make that not necessarily 100% true. The first is my nominal bond fund allocation is in the government thrift savings plan G fund. And this is basically something that Pays bond yields 10 year treasury bond yields with money market risk. And so right now I think it's paying 2.35%. So I mean it's 1% better than most of the savings accounts you're seeing out there right now. So that's a little bit better. But it really does, you know, act like cash as far as risk goes. So I can't say I'm not in any cash at all because I've got this cash on steroids kind of account. The other thing is I've got so much cash sitting around to pay taxes and things like that. You know, other commitments I have going forward, I mean sometimes well into the six figure amount, I have cash just sitting around because you know, my taxes aren't due for a couple more months. But especially your portfolio, like yeah, it's not part of my portfolio. But you know, if you look at everything, yeah, I've got some cash drag from that. But I'm just not comfortable taking taxes that are due in two or three months and putting them in an index fund. I'm just not comfortable with it. And so I keep them in cash and it earns, you know, 1%, 1.3% or whatever you can get on cash these days. And so I don't know that I can criticize somebody with a small amount. Now you got 25, 30, 40% of your portfolio in cash. I think you're making a mistake. You're either trying to market time or you are just not taking enough risk. I mean, a lot of people don't realize how much risk they need to take in order to meet their retirement goals. I mean, when you are not investing aggressively, you might need a 50% savings rate just to be able to retire at the end of a normal length career and forget early retirement. So it's important to be appropriately aggressive with your investments.

I'm always surprised at the articles I read, maybe in USA Today or something where they interview very wealthy individuals and how much cash they're holding. It's surprisingly high, 20, 30%. But I think these are entrepreneurs that may be looking for the next big thing in a business to buy. But for investors like you and me who aren't dealing in the eight nine figure portfolios. Yeah, I think a very, very low cash allocation is appropriate.

Yeah. All right, let's do, let's do a couple more of these. Let's take one more from Twitter here. This one comes from physician couple who I believe is a blogger out there says for those who will die with money left over, what do you guys think of intentionally overfunding your kids? 529 from the get go with the thought the money will eventually be used for grandchildren or even great grandchildren.

You know, that's a great question and you're right, I think they are or I know they are a couple of bloggers. I think it's not a bad idea. You know, the money that is not used by your children can be used for cousins, nieces, nephews, grandkids, etc. But over funding or super funding intentionally, right off the bat. Well, you're going to miss out on at least if you're in one of the, you know, 30 some or 40 some states now that offer a state tax deduction. If you go over that amount, which is often about $10,000 per year, well, you're not going to get a tax break on that money. So there, there is that little bit of a thing you'll miss out on. And you know, I'm kind of at a crossroads right now where I saw our two 529 plans each crossover into six figures just this month. And so we're deciding, do we Congratulations on that. Thank you. Yeah, that's another check in the boxes of things I wanted to see happen before considering an actual retirement. But yeah. So you know, do we just stop now? And the kids are eight or nine years away from college, so that money could go up another 50 or 100% or could be stagnant, but we'll probably continue to contribute up to through the state allowance for a tax deduction at least for the foreseeable future as long as we're earning an income. And I guess there might be some thought to super funding it if we know that we have far more money than we're going to need to fund our own retirement. It will grow tax free. And if you think about your kids, kids, it might grow tax free for 30 years or more. And so that's pretty amazing. Now will that keep up with the cost of the rising cost of education, which has gone up at double or triple the rate of inflation? Hard to say, but not a bad thought. If you're really, really well off and you've overfunded Your own retirement.

Yeah, I think it's pretty clever idea. The fact that you can change beneficiaries and keep that compounding, that tax free compounding going for, you know, a couple more decades every time. Or if you're leaving it to grandchildren, have them leave it to great grandchildren. I think there's a lot of potential there. And so certainly as long as you're not missing out on something else that you ought to be doing with the money, you know, maximizing your retirement accounts, which give much better tax benefits than a 529, I think it's okay to go and do something like that. And you may see some incredible benefits from it over the decades. Yep. All right, let's take this one. This one's kind of directed at you. I think this comes from Jason Kelly via Twitter, says I'm in a similar position as a physician on fire, but I'm 37. Our family plan life insurance sounds or health insurance rather through UHC is $1,200 a month with a $4,000 deductible. What's your plan for health care coverage going forward? 18 to $19,000 a year is a huge chunk of a 65 to $70,000 budget.

You know, I'd be happy with that United plan, I think that's what UHC is, 1,200amonth, $4,000 deductible. But I know I won't have access to that. And there was a, you know, a lot of illustrations that we see on your forum of people who are out there buying their own insurance. And you know, when I leave my employer, I'll be in the same boat as you, which I know that you've been purchasing your own health insurance and evaluating your options. Every year there are going to be new options. And I've got a great guest post from a healthcare finance banker coming up that'll be released on January 25th. So that'll be out now when this is live. And he talks about what the options will be in 2019 when the penalty for a non Affordable Care act compliant plan is lifted. And so right now if you're over 30 years old and you purchase a catastrophic plan, well, that doesn't qualify and you have to pay the penalty. That will no longer be the case. So I'll take a close look at what those catastrophic plans actually cover because I think we can be self insured for the costs that run in the tens of thousands of dollars most years. We would not incur that. I just want to be covered for the 6 and 7 figure really awful things that can happen to people if you end up in the ICU for a while or get a nasty cancer. So catastrophic plans are one option starting in 2019. And I know you've looked quite a bit at the health sharing ministry plans and have friends who are using those and they tend to be less costly even though they do have some drawbacks and are not the same as health insurance. So I think those two options will be getting a lot of scrutiny. Take it, we'll take a look, really close look at that for our family.

Yeah, for sure. I kind of chuckle when I hear this question. I hear people ask it all the time, you know, what am I going to do about health insurance? What are we do about health insurance? And I'm like, same thing I do every year.

Yep.

You know, every year we get to the 1st of December and we go, what are we going to do for health insurance next year? And we look at, you know, health sharing ministries and we look at, you know, what's available through my partnership. We look at what we can buy in the open market. You know, when you're self employed, you're, you've been buying your own health insurance for years. I know exactly what it costs and so I know what it would cost going forward. And it's expensive stuff. And that's because health care is expensive stuff and because of our broken health care system. But, you know, it's now no different from your other expenses. You know, when you're retired, you're going to have to cover your groceries, you're going to have to cover your property taxes, and so you need to have enough money that you can cover all those expenses. And I really don't see health insurance as being dramatically different from all those other ones. It just happens to be particularly expensive and a lot of people get it through their employers until they retire.

Right. And like college, it's been going up at a rate much higher than inflation and that's not sustainable forever. You know, I don't, I don't see 6 to 10 to 20% raises in costs. I don't know how it's going to be fixed. But if every retiree has to pay $100,000 a year in health insurance, that's just simply not going to happen. So I'll be really interested to see how things unfold over the years.

Okay, let's take a couple of softer questions here. This one's from Dr. Curious, another blogger. I'd love to hear how your visions of practicing medicine later in your careers have evolved and changed over time given what seems like earlier financial independence than anticipated for both of you.

You. Yeah.

Take a shot at that first.

Oh, sure. I, you know, I, I envisioned working, oh, at least into my 50s. You know, my, my kids will be with us until I'm, I think about 53 would be when my younger would enter college. And then I discovered this whole concept of financial independence and realized that work was optional and, and everything I had read in that space said that, well, once you're financially independent, work becomes more enjoyable because now it's your choice. And I find myself questioning that choice more and more and being more annoyed by some of the things I used to just take for granted as part of the job. So interestingly, I have become, I hate to say it, but a little more cynical towards my career in medicine. And I tend to question sometimes why I am going into work just after I fell asleep at 11:30 at night and coming home at 2 and going back the next day, missing out on my family going to the water park like they did on Saturday. So it's interesting and almost sad in a way, but having reached financial independence has made me question things that I never used to question.

Yeah. And it's interesting that you feel like you're missing out on a water park trip during a bomb cyclone, but, you know, okay, I get it.

They're all.

Must be indoors. Yeah, okay.

My wife would tell me I didn't miss out on much except for a lot of screaming kids.

Yeah, for sure. I mean, you know, it's interesting. I don't know that I had this great vision when I was in my training. You know, I guess I assumed I'd work till 60 or something when I came out of the military and joined my current partnership. I think my plan, and I was lucky in that very early in my career I kind of figured out this financial stuff. But my plan was to hit financial independence by my early 50s. And I thought by, you know, 50 or so I'd be cutting back to what I'm going to be going to this summer. So, you know, half time, ish. Kind of six, eight shifts a month and do that throughout my 50s, you know, have dropped the night shifts, work this halftime kind of schedule through my 50s, and retire around six. And I think probably the success of the white coat investor has allowed me to knock seven years off that plan. So instead of working half time for a decade, I'll probably work half time for a decade and a half, two decades. I think that's probably the only shift I anticipate right now I don't plan to quit medicine anytime soon. You know, it's interesting, all my partners are always asking me that, when you gonna quit, when you gonna retire? But I really don't, don't plan to. You know, I basically, I basically eliminated the crappy parts of my job. I no longer work night shifts. I no longer work a ton of shifts. I've got plenty of days off, you know, unless I want to go on a three week trip and that becomes a little bit more difficult. But until that sort of a thing becomes a major driving force for me, I think I'm going to continue doing what, what I'm doing, you know, for now. It's like a post I did a couple of years ago when I, where I put a Venn diagram together with on one side your ideal life and the other side your actual life. And I've spent the last two years trying to get as much overlap between those circles as possible. And I think that's true. I think it does make you happier the more overlap you can get between your ideal life and your current life. And so that's what I've been trying to do.

Yeah. And if you do end up wanting to take those three week or even three month trips, you do have the option of locums. And, and you and I happen to both have the benefit of being in specialties where shift work is common and easy to find.

Yeah. I tell you what though. I don't get super excited about getting on a plane to go somewhere and work a shift that is not enticing to me. In fact, if my small democratic group lost the contract to some large contract management group that dictated we see a billion patients an hour and told us how to do our job and how, what shifts and schedule we're going to work, well, I'd give a lot more serious consideration to early retirement, I'll be honest.

Yeah.

It just wouldn't be nearly as appealing as it is now where, you know, I own the job and go in and get to see my friends and we get to control as much as we can, you know, within our healthcare system. It would be much less appealing to me if, if my job weren't such a good one.

Sure. And when I did full time locums, we, we didn't have kids. So it was just my wife and I traveling and it was kind of like slow travel. We went and explored a new city and actually it was really, really a lot of fun. And a lot of those jobs, they didn't Want to pay for call? So I worked a day shift and had the afternoons and evenings free or.

That's great.

Get done at three o'. Clock. Yeah, it's cool.

Yeah. At this point, moving somewhere else would be uprooting the whole family. And I don't think my family would be very excited about that, especially when the alternative was for me to just quit working.

Right.

All right, so let's do one last question here. This one comes from Cope via Twitter. What non financial, non professional learning do you now find most fulfilling? What work do you now find most meaningful? What do you find most surprising about fire? Thank you.

You're welcome. That's a lot. That's a lot of three questions and pretty philosophical at that, but I guess I'll tackle that, you know, the non financial learning or activity and I think for me the most fulfilling or meaningful is that which involves meeting other people and getting out of the house. And for me that's like the curling club and home brewing club. And I'm still learning because there are new skills to learn and new techniques and I'm hanging out with people that I wouldn't meet otherwise. And I think that's, you know, important, especially when you're, you know, if you're working a lot as a physician, you spend a lot of time around the same people doing the same kind of thing. And when you've got a family, you tend not to get out as much. So just have that outlet where, you know, once a week or once a month or whatever it is with any kind of a social group that you get out and do something outside of your normal routine that's great.

You know, what non financial, non professional learning do I find most fulfilling? I don't know. I like history. I think history is pretty fascinating to learn. But the work I find most meaningful is the work I'm doing. If it wasn't the most meaningful thing for me, I'd quit doing it. You know, I enjoy practicing medicine. I think medicine's fascinating. I love the study of people, you know, and just what makes them tick. I find it endlessly fascinating. What do I. What do you find most surprising about fire? Well, I guess I think what I find most surprising is how important a high income is to getting there early and how much of a difference raising your income can make in getting you to fire. I mean, I basically knocked seven to 10 years off getting to fire by finding a way to dramatically raise my income. And I think while a physician income is obviously plenty, I mean, look at you. It's Obviously, plenty of money to get to early financial independence. It's amazing that if that's really your goal, there may be other pursuits that can get you there earlier. You know, real estate, investing kind of stuff, and the business world in particular, that if that's really your goal to get fire, you know, maybe medical school and residency isn't the fastest route to get there. True. I think. I think that is, you know, something that I found surprising because certainly when I was younger, I didn't think anybody made any more money than doctors, you know, and I think a lot of us go into medical school not realizing that there are all these other options out there.

Yeah. What's most surprising to me, I think, is just how little people know about this whole concept even of financial independence and the fact that you can retire early. It was news to me about three years ago, four years ago, I had never heard of it. And. And just. It's surprising how many people in other. Other fields like you say they can start making money at 22, 25, and good money by age 30, when we're just starting out with our negative net worth. And so what surprises me is how many people in their 30s and 40s that are in great shape to do this and how few people understand that it's possible and that you can live well and. And retire early or become financially independent and work the way you want to.

Yeah, for sure. Well, you're doing a great thing, what you're doing over at the Physician on Fire and teaching people to, you know, understand these principles and understand that they do have options available to them and that if they're, you know, feeling burned out, if they don't want to be in this career, that there are changes they can make to become financially independent, which maybe it will make them enjoy their career more, but if nothing else, it gives them the option to get out of it. And so I appreciate what you do. I'm sure our listeners do, too. And I appreciate you coming on the podcast today.

Well, thank you very much. Thanks for the invitation, and I hope we get a chance to do this more often.

You're very welcome. If you haven't checked out Physician on Fire, you can find it@physicianonfire.com I recommend you go over there today and check out some of the posts and start dreaming about what you would do with financial independence.

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