“How much should I be saving?” We rarely talk about finances as physicians. What is enough?
Multiple times a week, I get asked by colleagues, “How much should I be saving? How is my family doing, saving for retirement? I’m not sure I am doing enough.” We rarely talk about money and personal finance in our profession as physicians. And when we do, it’s a hot stock tip or a real estate investment from someone’s cousin – trying to hit a home run rather than string together multiple base hits. What works in investing is boring. Pay yourself first – save every month and let your capital go to work for you.
Before we jump into that question, “What is enough?” there are a few issues I want to unpack. First of all, what is your “Why?” Why are you saving? Is it to save for a blowout family vacation? Or for a mortgage? Or is it to slow down at work or to fully step away? We make the journey more challenging without having a sense of direction.
How many of you had to take out student loans for college or medical school? How many of you are still paying back those loans? Now think about this, how does it feel to give your children the gift of never having to borrow for college? Does that give this goal a bit more bite or emotional weight? Or how does it feel to get your entire extended family together for an Italian vacation? Seeing multiple generations together, laughing, and enjoying time together?
I raise these examples because when you have a strong why, especially one you create with an emotional connection, it makes figuring out how to accomplish your goal much more effortless.
The 25x Rule
Now let’s get back into the details. In finance circles, you will often hear about the rule of 25. The thinking goes, you need 25x your annual spending to reach financial independence. Those who want a “larger” retirement push this number even higher, 30x your annual spending or more.
This “rule” comes from a 1994 paper by William Bengen. Bengen looked at historical market returns over 50 years to determine a safe withdrawal rate over a proposed 30-year retirement. Many advisors at the time stated the “average” market return was 8% and inflation was 3%, leading to a withdrawal rate of 5%. Under Bengen’s data, that higher withdrawal rate often led to running out of money. Hence, the 4% safe withdrawal rate (SWR).
How do we determine our annual spending? Many in finance recommend estimating 80% of your current spending. But for physicians, estimating our yearly expenses in retirement this way neglects our two most significant “bills” every year – taxes and saving for retirement. These two categories alone account for over 50% of our cash outflows each year for most physicians. Then there are all the expenses of maintaining your license – CME, licensure, conferences and travel, disability insurance, etc. – these all go away too.
Review your spending over the last month or the previous year, but remove those spending categories that disappear once you retire from medicine. This will give you a much better estimate for retirement spending. For the majority of physicians, it is closer to 35-50% of current spending.
Why is it so important to have a firm grasp on what is enough in our lives? Human beings generally, and physicians specifically, have a bias towards action. We think that doing something is better than doing nothing. It’s rare to ask what we give up by taking action.
This is an area I’ve been pondering more frequently these days. My wife and I welcomed our first son into this world a few months ago. There is nothing I love more than spending time together as a family. And it’s forced me to make difficult choices with my time that before I would attempt to squeeze in.
One of the decisions our family made was that I was going to work less. I will be working 4 days/week, and I’d like to get down to 3 days/week. As an anesthesiologist, this is reasonably straightforward, but I realize that is not the case for all specialties.
Honestly, this has been a mental challenge for me. I know, very specifically, the value of each day of work in the OR. So I know what income I am giving up by working 20% less, and it’s raised all sorts of scarcity demons in my head. – We need MORE, what if I can’t work, will I still be able to retire or pay for college….
Because my wife and I know what is enough for our family, and we are more than on track for our family’s financial goals – including taking our baby on his first international trip this spring! – and for us, that my time is best spent at home.
Why is this so critically important for physicians? If there is one thing we are all great at, it is putting our head down and working harder! How else did we survive residency? So if you don’t know what is enough for you or your family or how you are doing on your journey, you’ll naturally do what you know best and grind it out.
Physicians are facing epidemics of suicide, drug and alcohol addiction, divorce, and burnout. Seeing our colleagues suffer and struggle is heart-wrenching. I know how hard you trained to become a physician and how much you care about your patients.
Studies demonstrate that financial worries are a significant predictor of burnout, especially in our physician colleagues. What if, instead, you decided that more was not the answer? What if doing less but more quality was your choice? How would that feel?
Finding Enoughness from Limitations
I recently finished reading 4000 Weeks by Oliver Burkeman. Mr. Burkeman wrote about time management for the Guardian newspaper for many years. What Oliver quickly realized in this role was how nonsensical most of the productivity advice truly was. When he was more effective in cleaning out his email inbox… it just generated more email!
Burkeman highlights that we are all mortal, we all have limits, and part of the human condition we desperately try to ignore is that we must say no to things to say yes to those areas that matter most to each of us. We cannot do it all, be everything to all people. So why not stop trying?
While each of us needs to determine how much we need and want to spend in retirement and how we are progressing towards our goals, it is even more critical to have deep conversations about what is enough in each of our lives. Let’s flourish as a profession! By having enough time for our family, friends, and loved ones. By having enough time to care for ourselves and our colleagues. Thoughts?
This article was originally posted on DocWorking.