Middle aged doc (but no money) need advice

[dr_popeye]

I was a mature medical student. I am almost 40 and have paid off my med school tuition debt (was 200k) I have about 80k in savings and 20k in superannuation (sort of like the Aussie version of a 401k plan) I am specifically planning to not have kids. I don't own any real estate. I am around 40 can make 250-300k per year and should be able to save 150k per year after taxes here. I am contemplating how to retire as quickly as possible. I have a health condition which will likely force me to work part time within the next 5 years. I will likely continue to keep working but want to plan for the worst case scenario of not being able to work at all at some point in the next 10 years. I am in Australia, so the tax sheltering and other concepts specific to the US will probably not apply. I am after general principles for formulating my plan. My initial thoughts are work my butt off and have 800k in saving within 4-5 years to make the foundation for retirement. Strategy is why I am here and I didn't find the FAQ section as helpful as I had hoped. Please advise me Further details Tax is high here 40% over 80k, 48% over 180k. I don't own a property yet.

 

[bo_knows]

For your current spending rate of $100-150k (according to your salary and how much you said you can save), you would need $2.5-3.75M in assets to use a safe withdrawal rate of 4%.

Do you expect to have lower expenses in retirement? @ $50k/yr expenses, you'd need $1.25M, which you could save for in the allotted time frame, if you held to that expense rate now.

 

[Midpack]

I am after general principles for formulating my plan. My initial thoughts are work my butt off and have 800k in saving within 4-5 years to make the foundation for retirement.

Just plugging $800K into FIRECalc: A different kind of retirement calculator and assuming retiring at age 45 with longevity to age 85 and solving for spending:

A spending level of $29,637 provided a success rate of 95.0% (101 total cycles, of which 5 failed). This spending level is 3.70% of your starting portfolio.

Add to that any pension, annuities, (Australian) Social Security. Probably not what you were hoping for.

Strategy is why I am here and I didn't find the FAQ section as helpful as I had hoped. Please advise me.

A pretty broad request so I'm at a loss to make suggestions. However, DIY (we use paid advisors sparingly if at all) investing in low expense index funds is popular here, this Bogleheads wiki is a good resource consistent with the predominant investment philosophy here. You can explore the many links as you wish. Best of luck..

 

[nun]

I'd try to reduce your taxable income as much as possible. I don't know what options you have in Aus to save tax deferred for retirement above the superannuation, but if there are any make use of them. Then I'd get a thorough knowledge of the low cost ways o investing in Aus and follow the general AA principals.

 

[Midpack]

For your current spending rate of $100-150k (according to your salary and how much you said you can save), you would need $2.5-3.75M in assets to use a safe withdrawal rate of 4%.

Do you expect to have lower expenses in retirement? @ $50k/yr expenses, you'd need $1.25M, which you could save for in the allotted time frame, if you held to that expense rate now.

A 4% WR would be very aggressive for someone retiring at age 45-50. I think most would recommend something closer to 3% at that age to qualify as "safe" at all, and that's based entirely on past real returns...

 

[bo_knows]

A 4% WR would be very aggressive for someone retiring at age 45-50. I think most would recommend something closer to 3% at that age to qualify as "safe" at all, and that's based entirely on past real returns...

I guess that it depends on your level of risk. I should have provided examples between 3-4% *shrug*

Either way, it doesn't seem like his expenses are on track with his retirement plans.

 

[Cato]

...........................I am around 40 can make 250-300k per year and should be able to save 150k per year after taxes here...............

Is the 250-300k before or after tax income, if it is before tax income, using a basic Aussie tax calculator on the internet, the tax on that would be about 108k on 300k which would mean that you are projecting living expenses @ 42k PA and saving the rest ??

 

[dr_popeye]

Is the 250-300k before or after tax income, if it is before tax income, using a basic Aussie tax calculator on the internet, the tax on that would be about 108k on 300k which would mean that you are projecting living expenses @ 42k PA and saving the rest ??

It is before tax. I know the goals are a little unrealistic. 2.5-3million would take much longer to accumulate obviously but according to the 3% calculation, that is what I would need right? It sounds like my plan will only work as a ten year plan, not a 5 year plan... 42k/yr living expenses would work since I already own a car.

 

[Htown Harry]

...42k/yr living expenses would work since I already own a car.

Welcome, Doc.

I mean no offense - and I'm not making fun of you in any way - but if you're serious in thinking that your odds of success for a 40-year retirement will be materially affected by the car you own at year one, then you're starting on your quest for information in need of a serious wake-up call.

"Easy" answers from strangers on the internet and rules of thumb are just a starting point. You need to put in some study time. Here's the consensus reading list:
http://www.early-retirement.org/for...reading-list-with-a-military-twist-46732.html

On the positive side, there's nothing wrong at all with any ER plan that starts with saving like crazy to build up your assets.

 

[MichaelB]

Hi dr_popeye, welcome to the forum. The FAQ section has many helpful links and threads but there is no "how to" guide to early retirement. There are many helpful members here.

The first thing you need to do, however, is determine what a realistic retirement budget looks like. It has to include things like car replacement and house repair and even unplanned expenses - and taxes. Once you are comfortable with that you can figure out what size portfolio you need to produce it with a reasonable amount of risk. The 3% number midpack suggested is a good starting point. 4% is high for a 45 year old, but it can be done. No one can tell you how much you need to live but we can share all the different components of a budget one will certainly face over a lengthy retirement. My suggestion would be to focus just on the budget for now. Then you can figure out how much you need and how to get there.

 

[DangerMouse]

1. I think the first thing you need to do is ascertain how much of your salary can be sacrificed to Superannuation. I believe they changed the rules for the current tax year, I know a friend in Sydney is able to sacrifice 25% of her salary at the moment.

Being Australian, I am not so hung up on the 4% SWR as US based FIREE's are. I think the benefit of having a functioning national health service, a government pension provided if you should blow through your own money and assistance to enter into nursing homes takes away some of the fear of running out of money that exists in the US.

What you have to consider if you are planning on an early exit is how would you fund your lifestyle between retirement day and the day when you can draw down your super? As we both know, there is no way of accessing super until the magic date, so you need to work out how you would bridge that gap.

We have been looking at buying property in Australia but the costs are so outrageously high for what can only be described as mediocre stock that we have put that idea out of our head.

I think the other thing you have to decide is where do you plan on living when you do retire as I think that plays into whether you buy property or not.

With your large by Australian standards of income, perhaps you need to look at managed funds or individual stocks that give you the imputation credits for tax purposes.

 

[LakeTravis]

Being Australian, I am not so hung up on the 4% SWR as US based FIREE's are. I think the benefit of having a functioning national health service, a government pension provided if you should blow through your own money and assistance to enter into nursing homes takes away some of the fear of running out of money that exists in the US.

Sounds like I need to move to Australia!

 

[Birchwood]

I'm a retiring doc(62 yrs old) and started making money at 35 yrs old. I think the first 20 yrs of your practice is the most lucrative and you should save as much as you can. Your health condition adds more pressure to save more.
Tips:
1. Save as much as you can and learn how to invest it yourself.
2. Live frugally but enjoy life too. Stay away from the lifestyle of doctors.
3. Pace yourself with work and keep yourself healthy.
4. Handle your money yourself and don't let other people do it for you.
5. Emphasis on doing things than buying stuff.(simple lifestyle)
6. Have a constant health check up.

 

[chris2008]

Track your expenses daily and in writing.
Avoid buying stuff just because you "deserve" it.

 

[Midpack]

I guess that it depends on your level of risk. I should have provided examples between 3-4% *shrug*

Maybe you read this last month, if not...

Occasionally we see posts using 4% as a "safe" withdrawal rate for early, even very early retirees. The classic 4% SWR is based on retiring at age 65 and planning on 30 years, IOW success rate for the portfolio out to age 95. The success rate for early retirement assuming a 4% WR is lower all else being equal, or a lower WR is implied to maintain the desired success rate. Just plugging into FIRECALC FWIW...

Success rate 1871 thru 2011

Plan Years	20	25	30	35	40	45
Retirement Age	75	70	65	60	55	50
4% WR	100%	98.3%	94.6%	92.5%	86.1%	84.4%
3.5% WR	100%	100%	100%	99.1%	97.0%	97.9%?
3.0% WR	100%	100%	100%	100%	100%	100%

Remember these success rates are based entirely on past history. A 100% success rate means the plan would never have failed had your plan ended in 2011 or earlier. Whether or not future real returns will fall within the range of past results is unknown, but we all hope that will be the case.

 

[nun]

Being Australian, I am not so hung up on the 4% SWR as US based FIREE's are. I think the benefit of having a functioning national health service, a government pension provided if you should blow through your own money and assistance to enter into nursing homes takes away some of the fear of running out of money that exists in the US.

Agreed, being from the UK when I run my ER numbers for being resident in the UK vs my current US residency I come out way ahead in the UK. That is mostly due to the UK's far lower healthcare costs (practically zero for me), lower overall taxes (excluding VAT) and less expensive staples of life like food. Getting both UK state pension and US social security is also nice.

Anyone planning ER outside of the US must take into account the US bias of this forum which obviously puts great emphasis of healthcare costs and personal financial management. In the UK most people do not have the flexibility in retirement accounts that exists in the US and they either have DB plans or are forced to buy annuities with their DC plans when they retire.

 

[obgyn65]

Difficult to give any advice as tax implications and financial planning differ widely between the US and Australia.

Please advise me Further details Tax is high here 40% over 80k, 48% over 180k. I don't own a property yet.

 

[Amethyst]

Point of clarification re: SWR chart that Midpack posted:

Does this chart assume any particular asset allocation? For example, it wouldn't seem as if taking 3% per year from a 100% cash allocation could have a 100% success rate.

Amethyst

Success rate 1871 thru 2011
Plan Years202530354045Retirement Age7570656055504% WR100%98.3%94.6%92.5%86.1%84.4%3.5% WR100%100%100%99.1%97.0%97.9%?3.0% WR100%100%100%100%100%100%

 

[nun]

Difficult to give any advice as tax implications and financial planning differ widely between the US and Australia.

......but it's not impossible. The principals will be the same, but the specifics will be different.

 

[DangerMouse]

I think there are major differences between Australia and the US systems which totally change the way of looking at things.

1. Mortgage interest on primary residence is tax deductible in US can't claim anything in Oz.
2. Savings for pension, in the US is limited to 401k amount as determined by Govt. In Oz is % of salary plus limits imposed on top earners by the Government.
3. Employer contributions to 401k/Superannuation. In US employers can get away with giving very little, in Australia it is a mandatory 9% of salary, even for temporary workers.
4. Shares in Australia pass on the dividend credits to the individual shareholder.
5. A functioning National Health Service in Australia means no-one is stuck in a job until they are 65 just because they are scared of not being able to get healthcare.
6. No estate/inheritance taxes on death.

 

[Danmar]

Oz sounds much like Canada except slightly different re #2, #3

 

[dr_popeye]

Thanks for the posts everyone. They gave me lots to think about. I realized I didn't explain the entire scenario. The plan was to get a nest egg and leave it. I don't think the numbers I stated before are realistic due to the high taxes here. I might save 100-150k per year if I plan for it. If I did locums in the most remote areas I could save more but I am uncertain about how long I could do that for. I don't plan to totally stop working at 45. I want to build up a retirement fund and then work part time. Therefore I will not be withdrawing on the original amount. That was only the worst case scenario if I was incapacitated for work. So if I can have an income of 200-250 for 5 years and save 750-800 and then work part time thereafter?