#3: Different Ways to Think About Retirement

Welcome to the Passive Income MD Podcast where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now let's get on with the show. Hey everyone. Today I thought we could talk about some of the different ways to think about retirement. Now, I don't know about you, but I never got taught this stuff in school. All I knew about retirement was what I heard about on tv. Saw an advertisement with some elderly people walking on the beach on commercials or maybe in passing and some things maybe my parents would say or other people around you would say when they talk about what their retirement would look like and want to be like. Now, I only knew of one way to retire, growing up or one kind of path to retirement. And I don't think there's a name for it, but I would just consider it classic retirement where their concept is you work hard, you have a job and you continue at that job for, you know, the ages of 30 or maybe even younger than that until you're 60 or 65, at which point you have lived your life, major money, and hopefully you're in a good position where you can just stop working and enjoy the rest of your life, however that might be. And normally what that enjoyment looks like is, yes, living on the beach somewhere, traveling with a significant other perhaps. And you've seen the commercials, what it looks like. And that's the picture in my mind. And how are you going to actually live during that time or how are you going to sustain yourself financially? Well, you've heard of things called Social Security where the government will pay you out a certain amount. You have perhaps a pension if you're lucky, where a corporation or company that you've worked with for a long time will continue paying you a percentage of your foreign former salary, basically a paycheck until you die, just to say thanks for working for a company and putting your time in. Or perhaps you set up some retirement accounts where you save money over time with either doing it yourself or with the help of financial advisor. And that money somehow will produce enough income or you'll be kind of drawing down from it and it will last again hopefully until you pass on. And that is the classic way that I've always thought about retirement. You work hard and I just thought that is the normal way to live life. You put your time in from those ages, the middle ages someday you get rewarded for it down the line by just being Able to sail off in the sunset and do whatever you want to do. Now, we all know that times have changed. The days of pensions have kind of gone. I mean, I'm not saying they're not there. I mean, I know some people who work for some, especially for physicians, they work for some larger health organizations and you might hear that they receive a pension by the time they, you know, hit 20 years, or 15 or 20 years, 25 years. But that's when it starts to vest or when it starts to become active. And over time, the more you work every year, you start to accrue a little bit more in terms of benefits or payout, whenever that pension might be. But I think for the most part, not just in the medical field, but out there in the real world as well. Pensions are a thing of the past. I think the companies, it's tough to have it on their budgets, especially with people living longer, just not really been financially viable. So they've allowed you to have something called a 401k or a retirement plan or benefit where you're able to contribute to over time, perhaps the company might match or put some sort of additional benefits in there. And again, over time, you choose the investment, I guess, essentially. And over time, hopefully again, that's accrued a certain amount so that you can retire someday and live off of it. So now they've kind of shifted the burden from what was once a we'll take care of you situation for working hard for us to a you figure it out on your own and hopefully it'll work out. And then there's, of course, Social Security, which we've probably all heard about. And there is a lot of hype around will Social Security be there for most of us when we are ready to retire? I'm 42 years old. I have very little to no expectation that Social Security will be there for us when it comes time. And there have been all sorts of calculations, especially with the baby boomer generation getting to retirement age, with the average lifespan continually increasing, that there's probably very little chance that the government will be able to support us in our retirement. But again, that is the way I always used to think about retirement. And that's probably still the way things are portrayed in the way that most people think about retirement. The funny thing is, it's just strange to me a little bit now that I've kind of seen a lot of different ways how people are just okay with that, that they're okay to say, I'm just going to grind away for 20, 25, 30 years, perhaps in a position that they might not be really happy in, that they might quite have the type of life that they wanted, but that they might be willing to sacrifice, especially during that period, to get something somewhere down the line. Now, we'll go into that a little bit later. Why I think it doesn't quite make sense to me anymore. But before that, I want to kind of get into some other ways that I've heard about retirement or I think about retirement. Now, the second way I want to think about retirement or the way I've heard about retirement lately is something called fire. Now, one of my good friends and a partner of mine, his blog site is called Physician on Fire. I mean, the first time I saw that, I had no idea what he was talking about. Why is he on fire? And this site he was really passionate about or something, or just excited about something. But it turns out that FIRE is an acronym and it stands for Financial Independence Retire Early. So Financial Independence, Retire Early. And I think that really tells you exactly what the mindset of somebody who's pursuing retirement or thinking about retirement in the fireway. And that means that they are trying to reach the place of financial independence as quickly as possible. And at that point, then they will retire early, whatever that point might be. And the goal is to essentially do that as quickly as possible. Meaning that they want to achieve financial independence. Yeah, as soon as they can. And so how do they decide what that point is? When they're ready to retire, when they've reached fi or financial independence. And many people use some of the work that's been done in something called the Trinity study, where, you know, they showed that if you have a certain portfolio of a certain size, a nest egg of a certain size, you can draw essentially 4% of it every single year and adjusted for inflation. And that with a very, very high percentage probability. Doing many different scenarios and different, you know, they played out many, many different type of situations that with a 95 plus certainty that it's going to last you for 30 years, and out of those different scenarios, the vast majority of the time you're going to end up with a significant amount of money, even more than you perhaps started with, but you're able to still draw 4% a year and you're able to live off that. So in some ways you're kind of creating your own pension. If you can kind of create that portfolio or nest egg to a certain size to a point where again, you just multiply by 4% times 04 that amount, you can say all right, I can draw that every year and live comfortably and very, very likely, if my lifestyle doesn't change and we're going to be accounting for inflation anyways, that you'll be good and you'll be able to live. And those people are really, really, really looking to retire as soon as they can. And usually that is in their, whether it's in their 30s, whether it's in their 40s. And there are a lot of people who came to prominence by really talking about this online. Even there's new documentaries about it. Documentary called Playing with Fire, I think it's called. And again, my friend Physician on Fire, he talks about quite a bit. And the cool thing is I started following his blog when pretty soon after he first started for someone like him, he didn't even know about the concept Fire. And at some point he learned about online, he took a look at his portfolio and he said, whoa, I've already kind of reached that point. I'm already at the point where I'm financially independent, so I could technically, according to those calculations, I could retire today. And I think that blew his mind. And perhaps he wasn't quite happy with what he was doing clinically. He basically came up with a plan to retire early. And if you've been following his blog at all recently, he has retired and now I can't even keep up with him anymore. He is traveling all over the world right now with his wife and his kids and they're living that lifestyle where they totally retired and he's not doing anything clinically and honestly he loves it, he's very happy with it. He's got a plan. He's not doing it haphazardly, he's taking care of his health care. He thought of how obviously about his kids education and so he's not being haphazard about it, but he's really, really been smart about it. He continues to blog today and you can catch his blog on physicianonfire.com I check it out and I read it all the time. And that is the whole concept behind fire. Retiring early. Now there's a third way to retire. The way I'm actually a firm believer in and the way I try to think about retirement and I've been practicing and I don't hear a lot about this type of retirement, but it's something that I call gradual or phased retirement. Again, we've all heard that type of advice. You know, you start saving for your retirement now, whenever that might be and hopefully by the time you're 60 or 65, you've got enough of a nest egg or portfolio size that it's good enough to quit working. If you're lucky, you know, you're in some good years with the stock market or whatever it might be, then maybe you're able to fire or retire early. Now, again, the concept is to grind it out for X amount of years and then have the rewards later. Now personally, I used to accept that as that is the norm and that's the way to be. But today I totally think differently. I mean, and I've seen too many things people get to sometimes to that age when they're supposed to retire and then their health isn't there, right. Or things happen in their life and they feel like they've missed out on so much of their life and they didn't really take full advantage of what they had at the time. And if anything that I found is when I talk to people who are kind of near that end stage, they wish that they had spent more time doing certain things when they were younger. Oftentimes they wish they had traveled more, they wish they had spent more time with their family. Nobody ever wishes they had worked more. It's never that. But it's wish they had spent more time with their loved ones doing the things that they love. And that happens oftentimes when your health is still there, when your young environment have that opportunity and the energy to do these type of things. But that doesn't typically happen later on in life. That's like especially during those middle years. And the thing is that if we're going to give all those years away to working just to have a life later on in life or perhaps freedom later on, to me, that kind of doesn't make sense anymore, especially because, you know, unfortunately, you know, I've seen some friends, I've seen some, even some former classmates of mine already pass away, you know, from tragic things. And it's really shown me that life is short. And you have to figure out a way to make it the most extraordinary at all times, not just in the future, 30 years from now. So the way I think about retirement is that a retirement is really you getting to the place in your life where it's really your ideal life that you're able to get to the point where it's your ideal life and you're able to live there comfortably, financially and securely. And the only way you can really figure out what that point is, where your happy point is, and that point of balance is to slowly cut back on your clinical hours until you reach that point. Now, the only way that you can really do that comfortably is to create and have other sources of income coming in to replace that clinical time that you give up. Right. For example, let's say I work 40 hours a week, 50 hours a week, it probably is a more realistic number, right? If I work 50 hours a week full time and I get paid X amount typically for each of those hours, or that 50 hours. Now if I drop down five or 10 hours a week, it's going to change my lifestyle. Especially most people do live up to the lifestyle of the salary or the amount that they have. Right. So what can you do? Well, as you create these other streams of income that we're going to talk about so much on this podcast, that I talk about so much on my blog and on my course and at the conference is that as you create these other streams of income that provide cash flow, and that's like real money that comes into your account that you can absolutely start to use whenever that cash flow starts to come in from this other streams of income, you can use it to really buy your time back. Meaning that as that money comes in, you can start to slowly cut back your clinical hours so that really you don't feel the change in lifestyle, so you don't feel that change in income or whatever's in your bank account at the end of the day, and you slowly cut back until you find that happy place right as the income comes in. Now that's what I've decided to do. I said that I've really worked over these last five, six, seven years to create those, that other income, those other streams, so that I can just start cutting back on my clinical hours. Now I wasn't at a place where I was really happy with, with my clinical hours. I was working so many nights and weekends and it was causing a creat taking a toll on my family, it was taking a toll on my physical health. And I said this is not sustainable over the long term for me. And so as that income started to come in, I slowly started giving up some of those hours. Now, I recognize that not every clinical specialty is able to do that that easily. Not as easy as my specialty anyways in anesthesia, but, but maybe you can, maybe if you have a practice, you can start taking a half day at a time or perhaps you can book one less surgery or you can take a couple less patients a month, for example, if you're an OB. Now, those are ways to slowly cut back and that might free up some of your time so I've started doing that same thing where I started cutting back now. I didn't wait till later on in the future. I, I wanted to cut back now so buy that current time back so I could do those things that I really wanted to do in life. And that meant spending time with my family, with my friends, going on trips. Now I understand that financially I probably would be in a better situation if I saved even that extra cash and income and let it built up in my account for a day in the future. And perhaps I would have a larger cash flow or perhaps a nest egg or something like that in the future. However, I realized that life again is short. And I truly believe the best time in my life is currently, now, when I'm 42, in my 40s, when the kids are young, when my wife is there and she's healthy, I'm healthy. We're all in one house and everyone currently is healthy. Thank God my parents are healthy. As other members of my family for the most part, and we have this opportunity to be together and do things together. I feel like this is the prime time of my life that I should be spending a lot of time and energy devoted to doing these things that I love. And that includes medicine as well. I mean, don't forget that I love being a physician. It's not that I don't enjoy it, I just don't enjoy it at certain times when it kind of really compromises those other parts of my life. Now I get a lot of joy and satisfaction out of being a physician. But there is a happy place, a balance. For me now it's different for everyone. There are some people who love working to the edge. They just get so much joy and satisfaction out of it. So that's different for someone like that. There are other people who like to work 30 hours a week, 20 hours a week, half days, and these kinds of things. But you'll never know what you really truly enjoy and what's a good sustainable place for you until you try it. And for most of us as physicians, we just can't take that leap because we're giving up so much of our income, right? Especially if you are the head of the household or you are the main provider. Now that's why I believe it's absolutely important to get those other streams of income going early as possible. It takes time for those things to build up. And we'll talk about it. It is not an easy thing. It is not a get rich scheme. But slowly, little by little, as you build those streams that Income will start to grow. And the cool thing about a lot of these passive income streams is that they tend to scale, meaning that they are not time limited, meaning that you are not trading your time for money. It's not a one to one thing over time. Hopefully these passive income streams start to grow over time, meaning that the same amount of energy, effort, time that you put in, the output becomes greater, the income becomes greater. And so as that continues to grow, you can start buying your time back now. No fancy acronym for that. I mean financial independence, retire slowly. I've heard from some of my fellow bloggers that's not a bad term as well. I just think it's retire gradually firg. But that's not really a cute term. So I don't quite use that quite a bit. But that's just one way to think about it Again, are you stuck in that classic mindset where you feel there's only one way. Work hard and grind, give up your life now, retire someday in the future. Or are you in that mindset where you just got to retire as soon as possible? Here's my thing with the fire movement and I absolutely love and respect the people that are in it. It's not for me because I love being a physician. I don't want to retire completely from it. At least with the financial independence you have that option, I get it. But I don't want to retire early. I love what I do and I want to continue doing it for a very, very long time. And I want to do it because I love it, because I'm passionate about it and that it's a choice, not because I have to. And that's what I want to continue doing for a very, very long time until I'm told I can no longer do it properly, you know, or do it well. At that point I will retire. But I want to gradually retire. And I've been doing that and I've been practicing that. And honestly, right now I'm at a very happy place. Especially over this last year, I've really, really worked hard to cut back my clinical time. And it's weird because mentally it's not always the easiest thing to do. Especially we're not trained to do that. We're trained to work as hard as possible, just grinding there. It's just a normal thing for physicians to do and other healthcare professionals is just to work absolutely as hard as you can. So it's strange sometimes when I have those days off and I feel kind of weird, especially initially when I gave that time up and maybe I wasn't working during that time. I wasn't doing anything particularly productive, but just hanging out with my kids at home and it felt sometimes, I don't know, to be honest with you, a little bit wasteful that I wasn't doing something. But now I've really grown to appreciate that that is the reason I did all that. Because that time is so precious, make the most of it. And you just never know how things will go in the future. And so I really want to make sure I live that extraordinary life every moment and every day and make the most of it. And that is by essentially finding that happy place. So where are you at at this point? Have you started to really think about how you want to retire? Because your goals will be different. The way you approach it will be different. So have you really come up with that goal? And I think it's important for you to do because then you will act differently. You will take different types of risks, you will take different actions depending on the way you want to retire. So think about it and let me know whether it's in the comments on the podcast page or in the blog or in our Facebook group Passive Income Docs or Passive Income Professionals. Love to talk to you more about it. Let me know till next time. Take care everyone. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you a part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group Passive Income Docs and you can always learn more at our website, passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.