The FIRE movement has really caught on in recent years. It promotes frugal living for early retirement and financial independence. The term FIRE was first coined a few decades ago, but the concept has existed for far longer.
Increasingly, high-income physicians are discovering that they are very well-placed to do FIRE. They can save a substantial portion of their income in their early working years, reaping the benefits of compound interest, and then retire early before they get burned out.
This article will discuss what the FIRE movement is, how to do a FIRE, and who the FIRE movement is well-suited for.
What Is FIRE for Physicians?
The term FIRE, all in caps, stands for Financial Independence, Retire Early. The movement has been around for a few decades, but many believe it did not “catch on” until the 2008 financial crisis.
The FIRE movement promotes the achievement of financial freedom and early retirement from your traditional 9-to-5 job. There’s no cut-off age for when you have to retire to FIRE, but it’s earlier than the typical retirement age when you’re eligible for Social Security benefits. It could be as early as age 45, or closer to age 60.
With a Physician on FIRE, you don’t necessarily have to quit working altogether. FIRE could mean reducing hours, working occasional locum tenens, or teaching at a medical school. Or it could mean pursuing other low-paying or stress-free work that you truly enjoy.
If you want to FIRE, it does not mean that you dislike your chosen career. But doing a FIRE can open up more possibilities. Many doctors and high-salary professionals feel trapped in their jobs because of student loans, mortgage payments, and the lifestyle creep that comes with a hefty salary.
Benefits of FIRE for Physicians
Here are the primary benefits for physicians of doing FIRE.
Avoid Work Burnout
Physicians can escape work burnout, if not avoid it altogether, which is another way to protect your mental health and the integrity of your career. A tremendous amount of sacrifice and energy goes into becoming a doctor, only to wind up overworked and stressed out. Burnout is an epidemic plaguing the medical profession.
While being able to FIRE may not solve the stressors tied to being a doctor, not having to worry about your paycheck can alleviate a lot of the anxiety.
Work How You Want, When You Want
Working on your own terms is one of the biggest perks of FIRE, according to many of the physicians we’ve talked to. When earning top dollar isn’t your primary consideration, you can better advocate for yourself and your patients. Employers cannot hold you hostage with high paychecks needed to support your “doctor lifestyle.” You’ve got your own feisty money.
Doctors with the drive to get through medical school and doctor training, and then save up a lifetime of savings within a decade, probably are not content to sit around at home and binge The Bachelor. There’s an innate sense of drive and purpose.
Hence with early retirement, many doctors do continue working but in a different and more personally meaningful capacity. Maybe it’s doing reduced hours at an organization they more fully support, nonprofit medical work, or volunteering for a passion project.
While some might say this is merely a career change and not a true retirement, if you’re working for your own sense of purpose and the paycheck is not necessary, then you can consider yourself a FIRE retiree.
Secure Your Future
American physicians have huge earning potential, but they often accumulate significant debt along the way to get there. Adopting FIRE teaches physicians how to better manage their finances and live on less.
Many doctors see high household income, expensive vacations, and private school tuition for their kids as their rewards for years of sacrifice. However, this “reward” is keeping you locked to a high-burnout career to support your lifestyle.
Your future can’t be truly secure if you “have to” work to pay for a mansion and country club membership. Reaching prosperity early in your career can truly secure your future.
And if you pursue the Fat FIRE approach, you can eventually join the country club and get your dream house, just not now.
Pursue Real Happiness
Freedom from financial worry is a cornerstone of mental health and happiness, yes. But this applies more to having the ability to feed your family and pay for a $500 car repair without falling behind on other bills, not being able to fly first-class to Paris with the spouse and kids.
Unfortunately, the more we accumulate the more discontent we become. Generally when people start earning higher incomes — above what’s necessary to sustain housing, groceries, and unforeseen car bills — they just start spending more money on “nicer” things.
Notorious B.I.G., the eloquent rapper, perhaps put it best. Mo money, mo problems.
Because really, if you’re not happy with what you already have, how could you possibly be happy with more of it?
Types of FIRE
At its core, FIRE is early retirement through discipline, industry, and economy early in your career. There are lots of ways to go about accomplishing this and lots of different FIRE methods.
Here are some of the more popular ones:
- Fat FIRE: A popular method among physicians, this is an approach for those who want to have a high standard of living in retirement — more than $100,000. It requires more aggressive savings upfront, and often high-return investments early on like real estate investing.
- Lean FIRE: Almost the opposite of a FAT Fire, it emphasizes very frugal living. Many lean FIRE adherents live on less than $30,000 a year and may eschew credit cards and many material goods. The idea isn’t just contentment with less, but rather the more you have the less content you are.
- Barista FIRE: Some consider this a semi-FIRE or semi-retired approach. Barista FIRE retirees commonly work part-time at their existing employer or in a new line of work in order to pay for some expenses and benefit from group health insurance without having to touch funds in their retirement accounts.
- Coast FIRE: This method is sometimes called Slow FIRE. It means saving a significant portion of your income for retirement during your early working years. Eventually, you’ll be able to stop saving for retirement. You’ll continue working, but only cover the bills as you “coast” your way to early retirement.
How to Calculate Your FIRE Number
To calculate your FIRE number, start by figuring out your annual retirement needs and your desired lifestyle. You’ll want to ballpark what your annual expenses will look like, taking into account current spending, inflation and economic downturns, and overlooked expenses like health insurance.
Next, account for “other” expenses like your children’s college education, dream vacations, home purchases, or other major family events like a child’s wedding or setting up a college savings fund for a grandchild.
Also, consider any regular income sources after retirement, like rental earnings, side hustle revenue, part-time work, royalties, or investment returns.
Utilize financial independence calculators to figure out the “financial independence number” required for you to leave your full-time job.
You can also use FIRE calculators to calculate what your number is. These FIRE-specific calculators are helpful so you can play around with different inputs and assumptions for take-home pay, cost of living, savings rate, and rates of return for index funds and other investments.
Rule of 25
The Rule of 25 is a quick-and-dirty way to come up with your FIRE number. Using this method, you estimate what your annual expenses will be during retirement and multiply that figure by 25.
To figure out your total annual expenses, you can:
- Estimate what you think your total costs will be during retirement, making sure to consider taxes, home repair costs, health insurance, out-of-pocket healthcare costs, travel, gifts, and any financial assistance you will provide family members.
- Examine your annual spending year over year during your working years, and look at the year you spent the most money.
Then take that number and multiply it by 25 to reach the amount you will need to retire off of. To be even more conservative, some people use the rule of 30 to take the annual figure and multiply it by 30.
4% Rule
Other adherents will use the 4% rule to calculate their financial independence number. It works similarly to the rule of 25, but the formula is different.
Here, you take the yearly amount that you think you’ll spend in retirement, and then divide that number by 0.04 or by 4% to reach your FIRE number.
So, if you think that you will need $100,000 a year to live on in retirement, your FIRE number would be $2.5 million. If you estimate needing $250,000 a year in retirement, then your FIRE number would be $6.25 million.
To be a bit more conservative, some people might use 3% instead of 4% to reach their figure. This means you’d need $3 million for retirement if spending $100,000 a year, and $7.5 million if spending $250,000 a year.
Whether using 4% or 3% to calculate your figure, this is the amount of money you’ll need to invest. This approach assumes regular portfolio gains — so you do not deplete the principle — and that you can live off of your investment returns, assuming there is a positive rate of return every year.
Physician FIRE Strategies
If you are interested in pursuing a physician FIRE, here are some strategies to go about adopting this approach.
Determine Your Financial and Lifestyle Goals
This is the first step. You need to ask yourself how much money you need to achieve financial independence. You can think about it as a total lump sum or nest egg you’ll need, or an annual figure you’ll need each year to sustain living expenses and lifestyle goals.
Chart a Plan
To fast-track your retirement, you’ll need to devise and stick to a financial plan. While this may seem obvious, it’s often very overlooked with a vague, “I’ll save as much as I can.”
Your plan is your blueprint for allocating income, student loan or debt repayment, maximizing Roth contributions and other retirement savings, and thinking through a balanced investment strategy of aggressive and more secure assets.
Having a financial plan can provide clarity and direction, amid shifting financial landscapes and material desires that run counter. DIYers can start with a transparent budget that looks at their total spending, and then develop a plan to modify it based on financial goals.
For those uncertain about where to begin, or even confident DIYers, it’s always a wise idea to consult a financial advisor. They can confirm you’re on the right path, or offer professional recommendations on how to make your money work even better for you and meet your retirement goals.
Live on Half of Your Salary
Don’t wince. You can do it. Most Americans live on a fraction of what high-net-worth doctors earn every year. The discipline required may not be easy, but it’s doable. Doctors earning $300,000 a year can live on less, but individuals earning $30,000 cannot earn $300,000.
The 50% figure is a rough rule of thumb. The goal is to live on substantially less than you earn. For you, the figure may be 33% or as much as 70%. There are lots of ways you can trim your spending to get there.
You might be telling yourself that you didn’t get an MBA or MD to wind up eating bologna sandwiches for lunch. And that’s not an unfair perspective.
Physicians on FIRE don’t have to eat bologna sandwiches at lunch. But if you can’t stomach the idea of living lean, you’ll need to add another income stream. This can mean picking up overtime hours at work or locum tenens, teaching part-time, or finding a lucrative side hustle.
Invest Wisely
Invest your money as wisely as possible. The difference between a 4% average return versus a 9% average rate of return can mean retiring a decade earlier.
Some favor picking a proven, high-performing portfolio and mimicking its asset class allocation. This “lazy” approach can deliver results that beat the stock market.
Others favor a three-fund portfolio approach, where you’re involved in picking the investments — a mix of domestic stock market index funds, international stock index funds, and total bond market funds. The percentage for each fund type would be determined based on your age and tolerance for risk.
Embrace Simplicity
Being able to enjoy simplicity and a more minimal lifestyle can help physicians reach FIRE. Lifestyle creep is huge, as peers and society at large hold (up) doctors to certain expectations for housing, education, and their standard of living.
High income now is not the same thing as long-term financial security or wealth. Especially when high debt is often needed to maintain a high-salary lifestyle. Even though you have the means to live lavishly, you don’t have to indulge.
You don’t have to bring a bologna-bag-lunch-sandwich to the office. But could you bring last night’s leftovers? Do you need the latest-year car? Or could you drive a 10-year-old model like billionaire mogul, Warren Buffet?
How Physicians Can Reach FIRE Faster
Here are some ways that doctors and other high-earning professionals can reach FIRE even faster.
Increase Your Income
This can mean salary negotiations, bonuses, overtime hours, or other work outside of the medical field. Many doctors have great success investing in real estate as a lucrative physician side hustle and find the time commitment and inconveniences to be much less than most people think. The benefits reaped far outweigh any hassles.
Inheritance
While any inheritance is far from certain, some individuals may expect to receive a significant inheritance from their family at some point in the future. While you shouldn’t count your chickens before they are hatched and factor it into your total FIRE number, if you do receive these funds during your accumulation years make sure to invest them.
Save Even More
While the general aim is to save at least 50% of your salary, try to save even more. This may sound impossible, but for many medical professionals, it’s not. If you’re earning $300,000 a year and living off of $150,000, you could probably drop down to $120,000 or $100,000 or even less. Most American households manage on far less each year.
And for surgeons and higher-paid specialists, it’s often possible to live on far less than 50% and still have a very comfortable standard of living.
