Reaching 5 mill and calling it quits in 10 years?

[finalpsychyear]

Simply put if you reach 5 mill in a taxable account 10 years from now and only plan on using 100k inflation adjusted per year and leave it in a 100% stock only allocation you should in theory never run out of money as this would be a 2% withdrawal. I am correct with this thinking?

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[NITRAS]

If you get an average 8% rate of return, 2% is very conservative.

 

[finalpsychyear]

If you get an average 8% rate of return, 2% is very conservative.

I did that to be extremely conservative. I am not comfortable with the 4% rule so i figured half that would be much safer especially someone who may retire when they are 45ish years old. While nothing is 100% guaranteed that low of withdrawal would be very unlikely to cause you to run out of your nest egg. Adding to that would be with the standard deduction for a married couple the long term capital gains if you withdrew 100k would be close to 0%.

In a perfect world i'd love to retire with 50x my annual expenses split between a taxable and tax deferred. Not sure if that is actually possible but doesn't hurt to aim high.

 

[NITRAS]

I think the “retire” at 45 is not realistic. Likely you’ll do something to make an income.
Even so, if the markets had some bad years, you keep your withdrawal percentage stable, and you won’t eat the principal too much.

 

[MOHS_01]

I think believing that you will be throwing back 400k after taxes for 10 years requires both a fundamental misunderstanding of the way the world really works, taxes, mathematics, unreasonable income expectations, or being high as a kite. Possibly some combination of the above.

Fly high, Icarus.

 

[finalpsychyear]

I think believing that you will be throwing back 400k after taxes for 10 years requires both a fundamental misunderstanding of the way the world really works, taxes, mathematics, unreasonable income expectations, or being high as a kite. Possibly some combination of the above.

Fly high, Icarus.

My name is misleading as I have been working since 2016 as an attending. Perhaps I should clarify. 5 million is doable if your counting a cash balance/401k but of course that is in a tax deferred account. Of course its highly unlikely if you started with a balance of 0 and expect that amount in 10 years. . The market has been quite good to say the least in that time. There's no guarantee what will happen in the next 10 years but one can hope.

 

[Mman]

Simply put if you reach 5 mill in a taxable account 10 years from now and only plan on using 100k inflation adjusted per year and leave it in a 100% stock only allocation you should in theory never run out of money as this would be a 2% withdrawal. I am correct with this thinking?

yes. Honestly 3% is probably extremely likely to be safe for a 50 ish year time horizon.

 

[Mman]

I think believing that you will be throwing back 400k after taxes for 10 years requires both a fundamental misunderstanding of the way the world really works, taxes, mathematics, unreasonable income expectations, or being high as a kite. Possibly some combination of the above.

Fly high, Icarus.

not exactly, there are plenty of docs that clear more than that on an annual basis. I mean not a high percentage of physician, but in raw numbers it is a large number of people. There are also other docs that have spouses that work.

 

[finalpsychyear]

not exactly, there are plenty of docs that clear more than that on an annual basis. I mean not a high percentage of physician, but in raw numbers it is a large number of people. There are also other docs that have spouses that work.

Maybe but usually there is usually an equity is some type of surg center, diagnostics center involved. The question is how easily can you get there while doing a 40 ish or under hour week not counting 90210 plastic docs for newbie docs in 2019. If we limit our example to 1 doc salary alone being able to pull it off I'm not sure that really will exist in the 2019 and beyond new doc era.

 

[Mman]

Maybe but usually there is usually an equity is some type of surg center, diagnostics center involved. The question is how easily can you get there while doing a 40 ish or under hour week not counting 90210 plastic docs for newbie docs in 2019. If we limit our example to 1 doc salary alone being able to pull it off I'm not sure that really will exist in the 2019 and beyond new doc era.

it completely depends on the specialty and the geographic area. At this point there are plenty of docs with gross incomes in the high 6 and low 7 figures. Will a pediatrics resident in Kansas be likely to take home 400K a year after taxes 5 or 10 years from now? Probably unlikely. But that doesn't mean other specialties can't continue to do very well.

 

[doctalaughs]

it completely depends on the specialty and the geographic area. At this point there are plenty of docs with gross incomes in the high 6 and low 7 figures. Will a pediatrics resident in Kansas be likely to take home 400K a year after taxes 5 or 10 years from now? Probably unlikely. But that doesn't mean other specialties can't continue to do very well.

Sure there are a significant minority of docs clearing 400k after taxes (ie making 600+), although I suspect that to be somewhere in the 5-10% range.

I think he’s talking about saving 400k cash a year though, which would *possibly* clear that 5 million after 10 years with good returns.

That is mathematically possible for probably 1% of docs (ie average spine surgeon living in his mom’s basement with no car or family) but realistically near impossible for all but 0.1% of doctors - who are really businessmen or celebrities primarily, not docs.

 

[Mman]

Sure there are a significant minority of docs clearing 400k after taxes (ie making 600+), although I suspect that to be somewhere in the 5-10% range.

I think he’s talking about saving 400k cash a year though, which would *possibly* clear that 5 million after 10 years with good returns.

That is mathematically possible for probably 1% of docs (ie average spine surgeon living in his mom’s basement with no car or family) but realistically near impossible for all but 0.1% of doctors - who are really businessmen or celebrities primarily, not docs.

I disagree and know way too many that can do that living in a relatively low COL area with high reimbursement rates across several specialties.

 

[MOHS_01]

not exactly, there are plenty of docs that clear more than that on an annual basis. I mean not a high percentage of physician, but in raw numbers it is a large number of people. There are also other docs that have spouses that work.

Sure.... but what do they live on? Do you mean to tell me that you believe someone making 1m a year is going to live like they're making a resident's salary? Get out....

Like I said, throwing back 400-500k a year is a tall ****ing order -- and this is coming from someone who does fairly well for a doc and has done it. It is simply out of the reach of >95% of docs. It would be out of the reach of >70% of two physician households.

 

[MOHS_01]

it completely depends on the specialty and the geographic area. At this point there are plenty of docs with gross incomes in the high 6 and low 7 figures. Will a pediatrics resident in Kansas be likely to take home 400K a year after taxes 5 or 10 years from now? Probably unlikely. But that doesn't mean other specialties can't continue to do very well.

Oh, I see now -- you don't know about taxes.

hint -- you have to earn, after practice expenses, $750k to put $400k in the bank.

 

[MOHS_01]

I disagree and know way too many that can do that living in a relatively low COL area with high reimbursement rates across several specialties.

No, you really don't. Make $400k? Yeah, by May.... Deposit $400k after the tax man steals his freedom ransom? Late October / early November. Most docs will not do that every two years.

 

[Mman]

Oh, I see now -- you don't know about taxes.

hint -- you have to earn, after practice expenses, $750k to put $400k in the bank.

LOL, I think you have no idea how much money some docs out there are earning.

 

[Mman]

No, you really don't. Make $400k? Yeah, by May.... Deposit $400k after the tax man steals his freedom ransom? Late October / early November. Most docs will not do that every two years.

I'm not talking about "most docs". Hell, I put away $400K per year and I know plenty of docs making more than me.

 

[MOHS_01]

LOL, I think you have no idea how much money some docs out there are earning.

Quite possibly, surveys only provide a partial picture. I know it's hard to do enough work individually and legitimately to earn 7 figures.

I'm not talking about "most docs". Hell, I put away $400K per year and I know plenty of docs making more than me.

Here's to success. Cheers!

 

[doctalaughs]

I'm not talking about "most docs". Hell, I put away $400K per year and I know plenty of docs making more than me.

You must work with a select group of docs, more from a financial discipline angle rather than earnings. I know how much every partner in my group makes (and roughly what they save) and while all break 500k pretax, and a few break 750k- none save more than 200. Most 100k or less.

And only a couple have ridiculous spending habits.

It takes a very rare doctor making 750-1 mill to save 400k after tax.

 

[finalpsychyear]

You must work with a select group of docs, more from a financial discipline angle rather than earnings. I know how much every partner in my group makes (and roughly what they save) and while all break 500k pretax, and a few break 750k- none save more than 200. Most 100k or less.

And only a couple have ridiculous spending habits.

It takes a very rare doctor making 750-1 mill to save 400k after tax.

If i recall he is no frugal freddy but very calculated. I think 100k or under was his spending habits so hats off to that guy. I'll take my 6 pack, 5:30 mile, and ability to IF 24-60 hours at a time for ultimate health for now working sub 35 hours no wknds, nights, holidays, calls and going part time tele med only T minus 10 years at 42 where medicine will be practiced on a different weekly revolving beachside accomadations till the whiskey wins.

 

[finalpsychyear]

You must work with a select group of docs, more from a financial discipline angle rather than earnings. I know how much every partner in my group makes (and roughly what they save) and while all break 500k pretax, and a few break 750k- none save more than 200. Most 100k or less.

And only a couple have ridiculous spending habits.

It takes a very rare doctor making 750-1 mill to save 400k after tax.

Well if they have kids in private school/college/grad school they are spending 50k a kiddo so that is a huge variable. Otherwise I cannot fathom spending 100k a year unless kids tuition is in play but i am a frugal freddy.

 

[MOHS_01]

Well if they have kids in private school/college/grad school they are spending 50k a kiddo so that is a huge variable. Otherwise I cannot fathom spending 100k a year unless kids tuition is in play but i am a frugal freddy.

Private school is expensive AF. True story.

 

[pjl]

Mman is right here. It is VERY common in the real world to find specialty MDs over that range. Most that I know have a spending problem. I know a couple guys making 1.5+ while also somehow living paycheck to paycheck. Not at all impossible to retire within 10 years if your expenses are low.

With regards to your question, there is a small dependence on your investment decisions. If you want a noninflation adjusted 100k/year, you only need 5 mil sitting in a bank account to live to 80 as an average aged new attending (5 mil/100k=50 years). Nobody does that, please see bigern's guide on safe withdrawal rates for various investment scenarios. The Safe Withdrawal Rate Series: A Guide for First-Time Readers


I would encourage you to re-evaluate your life to find a way to continue your involvement in medicine beyond FI. Full time is not necessary, but there is a great deal of fulfillment that can be achieved when you strip your practice down to just the portions that engage you mentally and provide you enjoyment.

 

[doctalaughs]

Mman is right here. It is VERY common in the real world to find specialty MDs over that range. Most that I know have a spending problem. I know a couple guys making 1.5+ while also somehow living paycheck to paycheck. Not at all impossible to retire within 10 years if your expenses are low.

With regards to your question, there is a small dependence on your investment decisions. If you want a noninflation adjusted 100k/year, you only need 5 mil sitting in a bank account to live to 80 as an average aged new attending (5 mil/100k=50 years). Nobody does that, please see bigern's guide on safe withdrawal rates for various investment scenarios. The Safe Withdrawal Rate Series: A Guide for First-Time Readers


I would encourage you to re-evaluate your life to find a way to continue your involvement in medicine beyond FI. Full time is not necessary, but there is a great deal of fulfillment that can be achieved when you strip your practice down to just the portions that engage you mentally and provide you enjoyment.

I don’t think anyone is arguing with mman that specialists can earn large incomes (we clearly know that personally to some degree or another).

I do think he’s far overestimating how many save 400k in cash per year (not theoretically- really).

The truth is, Even if you don’t have expensive habits that can rapidly burn that 400k/yr savings potential (fancy cars, house(s) or ex-wives most importantly) the kids are the X-factor. I could probably save that much regularly (and I’m almost 15 years in) if single but a few kids combined with “giving them the opportunities that everyone else in this income bracket does” means A LOT of expenses.

 

[Mman]

I do think he’s far overestimating how many save 400k in cash per year (not theoretically- really).

I have no idea how many people actually save that much money. I'm simply talking about physicians that earn enough income to do it. Whether or not they actually do is up to them.

 

[finalpsychyear]

Oh, I see now -- you don't know about taxes.

hint -- you have to earn, after practice expenses, $750k to put $400k in the bank.

Its actually just slightly over 600k net income even in a state with state income tax filing married. If your lucky to live in a no state income state you get to keep like about 430k of 600 in texas for example.

Texas Income Tax Calculator - SmartAsset

Find out how much you'll pay in Texas state income taxes given your annual income. Customize using your filing status, deductions, exemptions and more.

smartasset.com

 

[MOHS_01]

Its actually just slightly over 600k net income even in a state with state income tax filing married. If your lucky to live in a no state income state you get to keep like about 430k of 600 in texas for example.

Texas Income Tax Calculator - SmartAsset

Find out how much you'll pay in Texas state income taxes given your annual income. Customize using your filing status, deductions, exemptions and more.

smartasset.com

I need to live in a better state.

 

[WisNeuro]

I need to live in a better state.

If you want to own a home, Texas ain't it. Property taxes in most places are some of the highest in the country. You'll get taxed some way.

 

[NITRAS]

Property taxes are high, I’d pay a lot more in most states’ income tax brackets. You can avoid the taxes by living in a less expensive house.

 

[Baron Samedi]

Simply put if you reach 5 mill in a taxable account 10 years from now and only plan on using 100k inflation adjusted per year and leave it in a 100% stock only allocation you should in theory never run out of money as this would be a 2% withdrawal. I am correct with this thinking?

This plan falls apart during the first bear market. If the market dips 50% and selling off stock is literally your only source of income, you're going to take a huge hit and may end up running out of cash a lot quicker than you expect.

The benefit of investing in the stock market is long term. By living entirely off of your stock equity, you negate that benefit and subject yourself to MUCH more short-term volatility risk.

 

[sliceofbread136]

You need a bond tent when you retire, or else you may have to pull out of your equities when they are down.

either that or have steady income from rental properties or something

 

[FlowRate]

This plan falls apart during the first bear market. If the market dips 50% and selling off stock is literally your only source of income, you're going to take a huge hit and may end up running out of cash a lot quicker than you expect.

The benefit of investing in the stock market is long term. By living entirely off of your stock equity, you negate that benefit and subject yourself to MUCH more short-term volatility risk.

You need a bond tent when you retire, or else you may have to pull out of your equities when they are down.

either that or have steady income from rental properties or something

Why these options vs. putting a large chunk in a moderate return dividend ETF?

 

[Baron Samedi]

Why these options vs. putting a large chunk in a moderate return dividend ETF?

I'm not a huge fan of real estate(except I am starting to get a bit more interested in certain REITs), so that would not be my suggestion, though I know others have had success with rental properties.

Bonds can be useful to help protect you, somewhat, from market volatility. Bonds tend to hold their worth in bear markets, though you are certainly at risk for losing capital with them, too. For someone who needs to protect capital and can't wait out a bear market, such as the original scenario, they can provide a bit of a safety net.

As for your question -- dividends aren't guaranteed anymore than capital gains are. If companies tank, they withhold dividends and allocate those funds elsewhere within the organization. In these situations, you are still doing what I fear with this investment strategy -- selling off stock at a big discount in order to make ends meet. Another thing to consider is that dividends are taxed as regular income, so for OP's strategy to live off 100k a year, he's losing somewhere around 15-20% just on income tax.

 

[Angus Avagadro]

Dont forget inflation if you plan on being retiree for a long time, say 30 yrs if you retire at 50. Inflation averages around 2% a year, so your 100k per year will be reduced by 60%, or said another way, your 100k will only buy 40k in purchasing power 30 yrs from now. This is why you should have other income streams, rental properties, second business, annuities, etc.

 

[NITRAS]

Dont forget inflation if you plan on being retiree for a long time, say 30 yrs if you retire at 50. Inflation averages around 2% a year, so your 100k per year will be reduced by 60%, or said another way, your 100k will only buy 40k in purchasing power 30 yrs from now. This is why you should have other income streams, rental properties, second business, annuities, etc.

The rate of return on investments is above the 2% withdrawal rate. Rates of return of stock funds should be at least 7-9%. Ideally your withdrawal rate+inflation should be < your rate of return. This will keep your buying power stable.

 

[Angus Avagadro]

The rate of return on investments is above the 2% withdrawal rate. Rates of return of stock funds should be at least 7-9%. Ideally your withdrawal rate+inflation should be < your rate of return. This will keep your buying power stable.

No argument with the above in principle. The stock market goes in fits and starts, some years up, some neutral, some down. Even with the historic 7% yearly gain for the S&P, there will be a correction at some point. The last correction in 2008 took me seven years to return to the pre correction highs in 2008. The stock market performed pretty well during that time, but I lost a 7 yr period when my investments should have doubled instead of returning to where I was in 2008 prior to the crash. Delayed my retirement a bit.

 

[finalpsychyear]

Sure.... but what do they live on? Do you mean to tell me that you believe someone making 1m a year is going to live like they're making a resident's salary? Get out....

Like I said, throwing back 400-500k a year is a tall ****ing order -- and this is coming from someone who does fairly well for a doc and has done it. It is simply out of the reach of >95% of docs. It would be out of the reach of >70% of two physician households.

My one ortho friend who had claimed to have done the above doing PP in the South only did the above for a few years (living off like 85k a year) and said once he got married and had some kids it just wasn't realistic so the point you made bears repeating. My guess is the other posters who can hit this are mid career and have paid off homes, loans, rental or other types of incomes added to their clinical. it just isn't realistic especially starting out. Dual income docs both specialists who don't really want kids till later or at all then yeah doable.

Also the scenario (hitting 5 mill in 10 years) is maybe possible where you make high income very early in career (600k net) for 3-5 years early in career and live on 5k per month before kids/wife and somehow invest it all so your maybe at a mill or 1.5 mill before wife and kids come into play that guy maybe can do it but it's ridiculously hard to get there. You'd need 1.5 mil and keep adding 125k yearly for 10 years and hope you get 7% returns and maybe you barely get to 5 mill but thats before paying taxes. Oh well guess it won't work after all.

 

[Mman]

This plan falls apart during the first bear market. If the market dips 50% and selling off stock is literally your only source of income, you're going to take a huge hit and may end up running out of cash a lot quicker than you expect.

The benefit of investing in the stock market is long term. By living entirely off of your stock equity, you negate that benefit and subject yourself to MUCH more short-term volatility risk.

Actually at a 2% withdrawal rate it does not fall apart during a bear market. Even if you timed your retirement at the worst time possible and took a 50% hit to your holdings in the first 12 months, you'd still only be withdrawing 4% total. And 4% was the magic number from the Trinity study with a 60/40 portfolio that would not bounce back as fast as 100% equities would.

You can play around with portfolio visualizer that lets you include sequence of returns risk. For a 50 year time horizon, that 2% withdrawal rate survives 93% of the time even with the worst year of the 50 years happening first. After 50 years, the 90th percentile remaining balance is $271M (inflation adjusted) and the 10th percentile is $2.3M.

As your withdrawal rate approaches 1%, you can safely invest higher percentages in equities. Of course the question is why would anyone put 100% in equities and withdraw so little unless they just wanted to have a massive estate left over? To max your own lifetime spending it would probably be better to have a more balanced portfolio and withdraw more.

 

[Baron Samedi]

Actually at a 2% withdrawal rate it does not fall apart during a bear market. Even if you timed your retirement at the worst time possible and took a 50% hit to your holdings in the first 12 months, you'd still only be withdrawing 4% total. And 4% was the magic number from the Trinity study with a 60/40 portfolio that would not bounce back as fast as 100% equities would.

You can play around with portfolio visualizer that lets you include sequence of returns risk. For a 50 year time horizon, that 2% withdrawal rate survives 93% of the time even with the worst year of the 50 years happening first. After 50 years, the 90th percentile remaining balance is $271M (inflation adjusted) and the 10th percentile is $2.3M.

As your withdrawal rate approaches 1%, you can safely invest higher percentages in equities. Of course the question is why would anyone put 100% in equities and withdraw so little unless they just wanted to have a massive estate left over? To max your own lifetime spending it would probably be better to have a more balanced portfolio and withdraw more.

Interesting -- but does this assume only a one year bear market with a quick recovery?

 

[Mman]

Interesting -- but does this assume only a one year bear market with a quick recovery?

no it assumes a random distribution of returns following that initial terrible downturn and shows all the possible results. You can use the portfolio visualizer website to come up with whatever sequence of returns risk you want. You can even pick having the 7 worst years in the time frame all happen initially, although in that case almost anything with equity exposure gets battered.