Habits of Physicians Who Retire Early

No physician wants to work until they die.

Maybe some do because they love their job, but I’m guessing most want to enjoy the twilight years of their lives traveling, spending time with their family, engaging in social causes, or whatever it is that makes them happy — anything besides work.

Most physicians don’t want to work beyond their 60’s, and with the FIRE (Financial Independence Retire Early) movement gaining momentum, some physicians don’t even want to work beyond their 40’s. The problem is many physicians paint themselves in a financial corner that makes it hard to retire early.

I get it. Physicians spend years in school and residency toiling – eating boxed mac n cheese, living in cramped student housing, neglecting their loved ones – so when they start working, they immediately want to reward themselves and their families.

Some take it a little too far.

Earning $250,000 a year may sound like a lot, but not when you’re paying back student loans, buying multi-million dollar houses, driving luxury cars, sending your kids to private schools, and so on. Forget retiring early when your income barely covers your expenses.

You may be rich, but you’re not wealthy. Being wealthy means not having to work if you didn’t have to.

As I’ve read FIRE blog after FIRE blog about the habits of early retirees, one thing struck me that I don’t necessarily agree with, and that’s an overemphasis on frugality in retirement.

In a recent businessinsider.com article that shined a spotlight on early retirees – most of them bloggers – these are some of the habits of these early retirees in order of importance:

  • They take inventory of their finances.
  • They track their net worth and spending.
  • They’re frugal.
  • They underspend on housing.
  • They focus on increasing their earnings.
  • They bank their raises.
  • They create passive income (their idea was to start a blog).
  • After retiring, they spend even less.
  • They move to areas with a lower cost of living.

I understand the need to be frugal in the build-up to retirement, but frugality in retirement is not my idea of retirement. I want to be able to spoil my grandkids, give to worthy causes, and travel where I want. My ideal retirement does not jibe with being frugal.

As physicians, there’s a better way. Here are the habits of physicians who retire early:

They create passive income.
This should be at the top of every physician’s list who’s aspiring to retire early and not sixth on the list like it is for FIRE bloggers. This should be at the forefront of any early retirement plan because with the primary goal of generating passive income, everything else follows.

Passive income is vital to early retirement because unless you create a stream of income that makes you money while you’re sleeping, the only way to make more money is to work more hours, and you may already be maxed out as it is.

Institutional investors, like endowments and foundations, as well as ultra-wealthy investors, have long gravitated towards passive income investments for wealth building.

As for wealth building, they look to alternative assets not correlated to Wall Street that not only generate short-term passive income distributions but long-term passive income from appreciation as well.

Here’s how Warren Buffett explained the importance of income-producing assets:

“The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit, and in the next year earns 20% of $120 million and so forth.” 

Physicians who retire early have one commonality in their investment portfolios – private commercial real estate.

Investing in private commercial real estate through a pooled investment vehicle like a private placement or syndication delivers superior risk-adjusted returns compared to public investment options.

In the past 20 years, the average annual income return (not including appreciation) of private real estate has beat the income return of all public options, including REITs.

When factoring in appreciation, which the other options don’t offer, private real estate delivered a 9.43% average annual return – and that’s at lower risk because of its non-correlation to Wall Street volatility. **

They Reduce Debt.
The sooner physicians can get rid of debt, the sooner they can put more money to work to generate passive income. Instead of bleeding cash from paying interest on debt service, they could be earning passive returns while their underlying investments appreciate.

The sooner that saved money gets invested, the longer it can be put to productive use to grow wealth.

They Don’t Overspend on Housing.
By minimizing what their most significant expense was, physicians who retired early gave themselves more investment capital for growing wealth.

A common objection I get when I bring up this point is that “well, my house is an appreciating asset.” That may be true, but it’s not an income-producing asset, and as we discussed, income-production, along with appreciation, is essential for compounding wealth.

They’re frugal.
Physicians who retire early without exception generally lived more modestly than their debt-burdened counterparts. They cut out the country club memberships, private school tuitions and fancy cars to get to their ultimate goal. However, once they retired, it’s a different story.

It’s a classic real-world example of the grasshopper and the ants’ parable. Physicians who retired early sacrificed in the build-up years so they could genuinely splurge in retirement.

They Don’t Touch Raises and Bonuses.
Retiring physicians didn’t go out on the town and celebrate their raises and bonuses by buying more expensive cars or remodeling their homes.

Raises and bonuses were immediately funneled into the passive income-generating machine. You get the point.

Retirement should be about enjoying life and rewarding yourself for the sacrifices made by you and your family to get to this point. Unlike the FIRE crowd who made their money from blogs, retirement shouldn’t be the end all be all where frugality before and during retirement is the only way for you to retire early and make your money last.

Physicians who retire early don’t want to worry about money, and those who have done it right have all focused on private passive income investments – particularly in the commercial real estate class.

Private real estate provides income streams as well as profits from the appreciation that allows for compounding of wealth and allows physicians to retire early and comfortably.


**Source: Black Creek Group using data from Bloomberg; NCREIF; NAREIT. Twenty years are ending December 31, 2017.