Are All Doctors Truly Capable of Achieving FIRE?

Can all doctors reach the point of FIRE? Let me ask the same question another way. The way that I most often get asked the question. Which is: Don’t you need to be a plastic surgeon to reach FIRE as a doctor?

I’ll start by giving you my answers before I defend them below.

To answer the first question, yes. And to answer the second question, no. But it helps.

Please allow me to demonstrate.

What is FIRE?

FIRE is a diverse and personal concept. And it stands for Financial Independence Retire Early.

In my opinions, FIRE is living your life on your terms It has nothing to do with finance per se.

doctors FIRE — *A couple docs enjoying the* path to FIRE…

However, finance is likely the biggest restraint to living life on our terms for the average human. This goes for those in both lower and higher socioeconomic levels. Sometimes it’s even easy to wonder if it can be a bigger restraint in the higher socioeconomic strata.

(P.S. It’s not. But the fact that some high income earners place themselves in self imposed golden handcuffs is a very avoidable fate…)

So, that’s what FIRE means to me. I want to reach financial independence to live life on my terms. Honestly, things may not change very much externally when I reach FIRE. But internally, the change will be immense.

Why doctors should want to achieve FIRE?

My personal goal in reaching financial freedom is not to leave medicine. I really love what I do. But I know myself and know I will be happiest working because I want to not because I have to.

Now, you may want to reach FIRE to leave medicine. And that is ok. It’s a personal choice. And that can be reason enough to want to achieve FIRE. Anyway, that’s the whole idea. You can do anything you want. It’s living completely on your terms.

But I bet if you really think about it, if you were one of the financially free doctors in the world, you may actually find a way to practice medicine that you love as a result of that freedom.

And I truly believe that a world of financially free doctors can change and improve healthcare in ways that we cannot even imagine. It would be that powerful.

In fact, here are 9 ways that FIRE doctors would almost immediately improve the whole field of medicine…

So, I hope that I’ve established that whether for personal, professional, or a mix of both reasons, FIRE is a worthy and worthwhile goal for all doctors.

With that in our hat, let’s go back to the original question at hand…

Can all doctors reach FIRE? Or is it just the ones in high income specialties?

I strongly assert that all doctors, regardless of specialty, can achieve FIRE.

And I’m going to prove it.

In order to reach FIRE, you need to achieve a nest egg of retirement savings whose yearly withdrawals are equal to or greater than your current and foreseeable expenses. (For simplicity’s sake, we are going to ignore passive income in these calculations. But you can see how passive income figures into your retirement calculations here.)

So, circling back, to achieve FIRE we need to achieve a nest egg amount that we can draw from each year such that the amount withdrawn covers of yearly expenses while not diminishing our nest egg so much that we run out of money before we die.

That sounds very complicate to figure out. But thankfully it’s not.

Determining your FIRE number

If you know your goal yearly expenses ($X) and a safe yearly nest egg withdrawal rate (4%), then following simple equation will then allow you to compute how much of a nest egg you need:

4% = $X/Goal Nest Egg

Which means…

Your FIRE Number = Estimated Yearly Expenses/4%

See, pretty simple. If you are following so far, move on. If not, take a pause and check out this post for a more in depth breakdown and examples of figuring out your personal FIRE number.

As an example, if your annual expenses in retirement project out to $120,000, your goal nest egg is $3 million using this equation.

So now you know your goal nest egg or FIRE number. Great. But you still need to know how you are going to reach or achieve that number.

Reaching your FIRE number

To reach your FIRE number, you need to follow the basic formula to build wealth: Increase and invest the margin between what you make and what you spend.

Broken down into steps, you need to:

Create a savings rate between what you earn and what you spend each year
Then you need to invest that savings rate, ideally via wise investing in broadly diversified, low cost index funds.

So, how much do you need to invest to reach your FIRE number?

On Microsoft Excel, there is a Future Value function that can help predict the growth of your money through savings and investments.

For example, I want to know how much my nest egg will be if I save $50,000/year and expect my investments to grow at a modest 5% after taxes and fees (always be conservative with your expected return estimates).

I type the following into Excel:

=FV (5%, 30, -50000, 0, 0)

The first value is the interest rate.

The second value is the number of years you are contributing. Let’s say you are early career and plan to work 30 years.

The next value is the annual contribution amount which must be put in as negative.

The first “0” is your current savings. If you have $10,000 already saved, you would put “-10000) in this position. Again we will assume early career so let’s say $0 here.

The last value is a “0” if you are contributing at the end of the year, which is default, or a “1” if contributing at the beginning of the year.

So, we punch this equation in and see that our money would be worth $3.3 million when we retire. You now know that you have to save $50,000 annually in wise investments with a net annualized interest of 5% and you will be able to retire when and how you want. That is powerful!

But can all doctors reach this goal?

I’m firmly going to say yes!

In the example above, the $50,000 of annual savings is 20% of an annual salary of $250,000. Most physicians will be making around this much. In fact, it’s $100k less than the average salary in the 2023 Medscape compensation report. It’s actually equal to the average salary for the lowest paid specialty in that survey, PM&R doctors at $249,000.

It’s tough love but if you can’t save 20% of your gross salary, you probably have a spending problem. And if you can’t live on a $120,000 annual salary, you definitely have a spending problem and not an income problem.

It’s all about mindset. Everything dollar you spend is a trade-off with something else. Do you want to ensure your financial future for yourself and your family or do you want a car that can go up to 200 mph even though you’ll never drive it that fast?

Budget and spend intentionally on the things that make you the happiest. Save and invest the rest. Create a written financial plan to help guide you.

Once you have this plan in place, you can rest easy and know that your financial future is secure. This will allow you to enjoy the present without worrying as much about the future. It will make you a better doctor and a better person.

So, yes. It is possible for all doctors!

You absolutely 100% should be able to save at least $50,000 annually to invest. You absolutely 100% should be able to live in your retirement on $120,000 annually (remember, many of your expenses will be diminished by then).

That means that all doctors can reach FIRE.

Even if you need to adjust variables like you are starting out later in your career so your time frame is shorter and savings need to be higher. It’s beyond possible. There’s really no reason any doctor should not be on the path to FIRE or at FIRE.

But…and there is a but…

It’s easier to do the more income you have.

And therefore, for higher paying specialties, like plastic surgery, reaching FIRE is much easier. In many ways.

For one, saving enough money to invest, $50,000 in the example above, means saving a much smaller percentage of your income when it is higher. That makes it easier to do. Thus, while saving 20% of your gross income is a good rule of thumb, a higher income earning doctor may be able to save below this rate depending on their goal nest egg.

And second, the more you earn, the more you can save. And thus you build a larger nest egg that can support a more expensive retirement.

However this doesn’t give any doctor an excuse

If you are a higher earning physician, you still need to save and invest wisely. Ignore this or make the mistake of thinking your high salary excuses you from these rules and risk ending up a burned out physician living paycheck to paycheck despite your salary.

And if you are a lower earning physician, follow these rules but also recognize there are myriad ways to increase your income clinically and non clinically. And this doesn’t matter what specialty you are in. Data actually shows that intra-specialty compensation ranges are much greater than inter-speciality compensation differences!

What is the takeaway message?

Personal finance is not complicated. But that doesn’t necessarily make it easy.

You need to follow some general rules. Create a savings rate. Invest wisely. Spend intentionally. Again, these rules are simple. But some effort goes into following them – at least in the beginning before you automate these habits.

However, the good news is that all doctors can and should reach FIRE! I hope that I’ve proven that here. Yes, it will be easier for some and harder for others. But, regardless of where you are starting from, your financial comeback (just like mine) can be on the horizon!