Your Life, Your Money, Your Early Retirement
Early retirement for physicians–interested?
If yes, you then you need to know there is a potential road block to your goal.
I’m telling you this to help you circumvent it, so that you can ultimately achieve your ideal life.
Because, sometimes, it’s less about someone else telling you what to do with your money and more about what you want.
What do I mean?
There is an assumption that a professional is competent in their field.
They’ve been educated, have degrees and certifications.
That is certainly a yard stick of their knowledge and skill—right?
What if that is not the case?
How will you know if the advice you’re getting from someone is detrimental to your well-being?
Well, that’s where Chris Mamula comes in—this is a fellow who’s been there, done that. He is now gung-ho on sharing his experience of financial well-being and early retirement for physicians.
Yay for us!
Where he is to this day unfolds like this:
He left his job in his early forties—despite a situation that could have derailed his plan to build wealth. He became involved in a blog started by Darryl Kirkpatrick who retired at age 50. They bring two different perspectives to the retiring early mindset. Darryl leaned toward a traditional retirement but took the leap a little early. Chris is all about extreme retirement. They are two people who took the leap and created the blog Can I Retire Yet?
Chris recounts his experience with a financial advisor and explains how he came to a DIY mindset.
He also gives us insight into his background, and why he chose to use a financial advisor in the first place and then delves into his decision to take control of the planning and his road to retirement.
Stay tuned for some killer stories with plenty of hair-raising obstacles that eventually evolve into to financial success.
What You Will Learn
How Did I Get Here?
Chris’ parents were both high school educated. After graduating from high school, his father became a newspaper photographer, and eventually opened his own photography business. He states his parents didn’t have a great income. How did his parents achieve their financial stability? Chris says his parents were smart. His mother knew how to stretch a dollar and his father had an entrepreneurial mindset. They were frugal by necessity, which set a good foundation for Chris. They set the example of living below their means and saving money. They were able to retire a few years early, in their early sixties, and their finances are safely set.
In the meantime, Chris became a physical therapist. After he and his wife graduated, each of their starting incomes exceeded his parent’s combined income. At this point he had not heard of early retirement for physicians. Like many professionals just graduating in high paying fields, he and his wife didn’t have any training on how to invest money and become financially independent.
The financial information floating around was copious and hard to sort through. Chris, like many people, perceived the information to be overwhelming and complicated! He felt like it would be a good idea to find an experienced professional to guide him. For a recommendation, he turned to his parents, who were financially stable. In hindsight, he realizes his parents were doing well despite this financial advisor.
Chris is clear that his parents set a great financial example for him. He eventually realized neither he or his parents were being given sound advice.
What effect did this have on Chris and his plan for early retirement? Early retirement for physicians? Yeah, that’s where he was headed.
Because of his experience, Chris has become a passionate FIRE blogger (Financial Independence, Retire Early)! Chris can’t say what he wishes he had known prior to meeting with an advisor.
Afterall, the reason he turned to a financial advisor was because of the sheer amount of information he was facing, which complicated his investment choices (and limited his ability to create a financial plan that was sound).
He found it hard to know what information was good or bad. The advisor seemed knowledgeable, he threw around a lot of the big terms such as diversification, dollar cost averaging, and mutual funds. The advisor seemed to know what he was talking about! Now, Chris would tell anyone looking for an advisor to educate themselves, to understand what questions to ask.
Chris started working with the advisor in his mid-twenties. He worked with him for ten years before he began to suspect something wasn’t right. During the first meeting he talked to the advisor about his goal of retiring early. Later, Chris began to get serious about retiring by the age of 40, but the advisor balked at the idea. As Chris began to read and investigate, he realized the advisor wasn’t guiding him in the direction that would allow early retirement for physicians, which was the way he had planned to go.
He feels the direction the advisor took him was a red flag. You need to investigate the advisor’s background. How was he trained? Was he trained as a salesman? Is he getting paid to sell you anything? That is a conflict of interest. How does he get paid? How are the fees set up?
It turns out that Chris’ advisor was paid on commissions by sales. There are three ways financial advisors are paid and three red flags to watch out for when choosing an advisor:
- assets under management
The fee-only financial planners not a guarantee of trustworthy advice. Chris believes that you must be involved in your financial planning by educating yourself.
- If their fee based on insurance sales
- An advisor is interested in selling you insurance
- If they want you to attend a “free” dinner as a lure to sell their product
The importance of choosing an advisor wisely, knowing what red-flags to look for, and being involved and keeping track of your financial direction is imperative.
The turning point came when Chris began investigating FIRE blogs. He read a stock series by J. L. Collins. In the series, the author talks about like the impact of fees, and how you can determine what they are.
This triggered Chris to go through some statements. That was when his light bulb moment occurred. One of the statements discussed a surrender value. Chris owned a variable annuity –but he didn’t know what a surrender value was. Chris knew that he had to pay commissions; however, when he sat down to itemize the commissions were only a small portion of the cost.
Chris realized while itemizing that the fees had high recurring expense ratios. A substantial portion of his portfolio at that time was in this variable annuity (25% of his portfolio), which had its own layer of fees. The way that the account was structured, there were a variety of fees that seemed minimal. They were $50 here or $75 there. However, when you multiply those small fees over multiple accounts, they add up. As Chris investigated further, he realized that what he was seeing was the tip of the iceberg. What was underneath? Were the fees being paid worth what he was gaining?
What was he gaining?
Realizing What Lies Beneath
The financial advisor was telling Chris and his wife to bypass their 401k, which meant they were paying excessive taxes. Since Chris, like a lot of physicians in a high tax bracket, it equals to a huge loss. There were other issues that were detrimental to Chris reaching his goal of early retirement.
- He couldn’t contribute to his Roth IRA anymore; yet the advisor never taught Chris about the Backdoor Roth
- His money was going to investments; however, they were not in efficient taxable investments (which would affect dividends and short-term capital gains)
- The poorly managed investment strategy drove his income even higher than necessary, creating more taxation.
After factoring in fees and taxes, he and his wife were unnecessarily paying just over $20,000.
When he realized that he was paying unnecessary fees and taxes he decided to become a DIY investor to eliminate all the needless fees and taxes—completely.
Chris now pays a fraction of the amount he used to pay, and his portfolios have increased!
Chris assures me that the advisor did talk about topics like his goals, life planning, and additional insurance. He states, “We did talk about things, but again, everything kind of seemed very cookie cutter.”
The problems may have stemmed from the advisor being used to a certain type of client. Chris was not a typical client due to his high income, planned to retire at 40, and the fact that he and his wife willingly saved half their income. He also chastises himself for being so trusting.
What could contribute to complications in a physician gaining financial wealth?
- High income
- Lack of training in finance and investing
- Your advisor not understanding your situation/needs
- You are a target for financial advisors seeking new clients
- Perceived idea that finance and investing are complicated
Chris reiterates, “You have to educate yourself, and you have to be your own advocate!”
He wants to emphasize that your plan also needs to fit your goals. He says, “You need your own plan that makes sense for your own situation, your fears, your desires.” I agree that you need to be your own advocate and customize your plan and would emphasize that there are some unscrupulous advisors who know you just came out of medical school, residency, even college, and have no training.
I wrote an article for White Coat investor regarding the target physicians have on their back when it comes to insurance sales. I want to be part of the process in educating medical professionals about their finances with this podcast and blog.
But where should you start?
There are a lot of physicians who would like to skip the financial advisor and dive right in. Chris says to pick a topic and start reading everything. He started by reading every blog he could find, including FIRE blogs, and the whole White Coat Investor archives!
He asked himself: What do I want to do? Then he dove in whole-hearted. In addition to the blogs and the four best DIY finance books, he began to research dividend investing approach, the index investing approach, the real estate.
He recommends reading:
- L. Collins Stock Series on his blog, which has been turned into a book called “The Simple Path to Wealth”
- The Little Book of Common-Sense Investing by John C. Bogle
- The Intelligent Asset Allocator by William Bernstein
- All About Asset Allocation by Richard A. Ferri
I’ve Read 50 Books. What next?
The first step is to settle on one strategy to begin working with it. Chris realized he had bad investments and wanted to get out of them. He could roll some of those over without tax consequences. Then there were some such as the variable annuity. It was time to make a pro versus con list.
In his case, the variable annuity was in a tax-sheltered account—so there were no tax consequences. However, there were going to be surrender fees. That brings us to a question that you can ask yourself: Is there an optimal time to get out of this?
Chris and his wife had a lot of taxable investments. That meant they had to look at the impacts of the fees if they held those investments versus what selling them would have on taxes? After making those decisions, they had to decide how they wanted to move forward. They decided to max out their advantaged savings and automate it.
This means they would not have to think about it again. Because he and his wife had a high savings rate, they decided to automate their taxable investments.
They straightened out the mess but now its time to move forward.
How will they start planning from this point?
Being on the same page with a spouse is of paramount importance. Chris said that was a challenge for them. They had very different approaches to finances and had to work on finding a solution that suited both. I suggest writing out goals in order to commit to them. Chris agrees and recently wrote a blog post about writing out his investment plan. Chris advocates lining up spending with values. He and his wife were able to save so much more by doing this and being on the same page.
Oh and may I suggest going on a money date?
Looking Back, Moving Forward
We asked Chris for his advice if you need to handle a situation in which an advisor isn’t a fiduciary, a person who doesn’t have your best interest in mind, or you discover you are paying too much money for this advisory relationship.
- Have your questions prepared
- Do your research before approaching an advisor
- Ask yourself: If how the advisor is paid is in-line with your goals
- Get how they are paid in writing (including commissions, assets under management, and any other way they might collect a fee)
If the advisor attempts to sell you a policy, it could be they are getting a commission. There are other services that you are not technically paying for, but there may be a fee attached that you are unaware of.
He tells a fascinating story of a sixty-something couple who started looking at statements and asked a question about how the advisor was paid. One simple question brought on a barrage of threats. He threatened them that they would never be able to retire. He tried to use fear-based manipulation and technical language to confuse them!
Early Retirement for Physicians: What is Your Goal?
Do you have the same goal as many other doctors, which is early retirement for physicians? We’ve given you a starting point. You have some good basic red-flags to watch for, questions to ask, blogs and books to get you started. Take control—your retirement depends on it!
Journal Club! DiverseFI.com
This Journal Club is dedicated to an article posted on www.diversefi.com titled, “The Money Mind Meld.”
In it, the author Doc G, discusses his relationship with money and how it has changed since he hit financial independence. I found this article fascinating, a hidden gem, really. And I am excited for each of you to read it.
Doc G talks about the emotional awakening he had when he realized he was financially independent. This is what he calls “the money mind meld” which had actually caused him to experience a full-blown depression–diving into the thoughts, concerns and fears about money and how they play a large role in our lives. He also talks about being focused on budgeting, frugal life hacks, spreadsheets, tracking investments, side hustles.
All these things keep us engaged along the way, but once you hit that magic number, now what? What is the larger purpose?
I quote, “We derive a sense of identity from our goals and aspirations. For some, this is innately tied to the W2 hustle. My profession as a physician is deeply ingrained into my being. For those not so enamored by the 9 to 5, often striving toward financial independence becomes a part of that identity. Often new connections and friendships, whether in real life or online, are formed on the basis of this striving.
Financial independence can shatter both of these identities.”
What I like really about this article is that it addresses a topic almost no one talks about. The part that really hit home to me was the thought of, and I quote, “What happens when you are finally done talking about side hustles, frugality, and investments and look around to see that there is no one to discuss the other joys of life with.”
I know that I don’t want to be that person, and I’m sure all of you don’t want to as well. It’s great that we are all part of this community, but this article hammers home that it needs to be more than just in the form of an online connection.
I have had the pleasure of meeting some of you at conferences or other events, and I hope that I will be able to organize some types of meet up to build a stronger community. Shoot me a message or put a post in our Facebook group if you might be interested. If you aren’t in the group, join us at financialresidency.com/community
Remember money is just a tool to help you fulfill your ideal life, don’t lose sight of your real goals and dreams.
Doc G thanks for an excellent article!