Why This “Physician on FIRE” Ignored the 4% Rule & Delayed Early Retirement

Mindy:
Do you have a career that’s hard to walk away from? Whether it’s because you’ve invested time and money into your education or took the time to climb the corporate ladder to finally be at the top? Can you really walk away when you hit the 4% rule and should you, we will break that down today. Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen and with me as always is my CEO on Fire Co-host Scott Trench.

Scott:
Thanks, Mindy. Always great to be here doctoring up someone’s financials here. Looking forward to it today, BiggerPockets is a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting. We are so excited to have Leaf physician on fire here on BiggerPockets money today. And Leaf, of course, for those who know him, started in a great spot to approach fire. He is a doctor earning a very high income and spent very little out of the Midwest. No surprises that he was able to satisfy the financial independence equation and do that between the frugality and the very high powered offense on the income front. But we’re also going to talk about his business success, which he started Wall working full-time as an anesthesiologist and how that’s parlayed into the ultimate early retirement and incredible options. We’re also going to get into the mindset of actually retiring and how you might really have to go well beyond the 4% rule in order to pull the trigger.

Mindy:
Before we get into leave story, we want to thank our sponsor. This episode is brought to you by Connect, invest real estate investing simplified and within your reach. Now back to the show, leaf Darlene, physician on fire. Welcome to the BiggerPockets Money podcast. I’m so excited to talk to you.

Leif:
This should be a lot of fun. I’m overdue to join you on the podcast, and so I’m glad we could be here. I’m glad Scott was able to join us and this should be a lot of fun.

Mindy:
This will be a lot of fun. For those of you who do not know, leaf is the man, the myth, the legend behind the Physician on Fire Blog and also not just a clever name. He is actually a physician. So Leaf, you have an unfair advantage. That’s a phrase we use here on the BiggerPockets Money podcast, and your unfair advantage is that you make a boatload of money because you’re a doctor. How did you go from being a doctor to being financially independent? I mean, it doesn’t seem like it’s that big of a stretch. Wow, you make a lot of money, you don’t spend a lot of money. You save it up, you invest and then you retire. But there’s a lot more to it, especially for somebody who is in a occupation that is so closely tied to your personality and your person.

Leif:
Sure. Cheryl, you answered part of the question for me. Earned a lot. Saved a lot invested, and lo and behold, we had enough money to do we wanted including retire. But I think one of the big challenges is the fact that there are expectations from society, maybe from family, from friends, like, oh, you’re a doctor, you’re a rich doctor. And it starts when you’re in medical school, which is many, many years for becoming a poor doctor and then maybe decades away from being a rich doctor. So the expectation to drive a particular type of vehicle or live in a certain neighborhood, it’s definitely there. And so I think for me, just my identity was somewhat tied up in being a position, but I looked at it more of a, that’s my job, that’s a career, but it doesn’t define me and it certainly doesn’t need to define how I live my life.
And I found it quite easy to save, believe it or not, when I was making three to $400,000 a year. But I certainly know many, many, many, many physicians who had similar earning power and were not saving because Ms. Delayed gratification that we all deal with in our twenties often leads to an explosion of spending in our thirties. And I feel like I was pretty well able to avoid that. I married someone who have both met and know were relatively frugal compared to our peers, even if we might look like spend thrift compared to the average American household.

Mindy:
So I think that that is the point that I want to dive into in this episode is you had to make different choices. I mean, you said it yourself, oh, I was making three or $400,000 a year. How on earth did I retire so early? I guess we’ll never know. It’s really not difficult to see the facts, but there’s a lot more nuance to it. Like you said, doctors drive fancy cars. They don’t drive HHR except they do sometimes. And did you ever feel like fellow doctors were kind of looking down on you when you were making these choices that didn’t align with the traditional rich doctor vibe?

Leif:
I can almost guarantee maybe looking down isn’t the right term, but questioning and being curious and wondering why I hadn’t yet upgraded to something better to drive. But the fact is I didn’t care that much what I drove, and it certainly helps to not care too much about what other people think. Like in rural Minnesota, rural Michigan, very few people drive really nice vehicles and if you do, that might get you some envy. It might get some weird looks like who does he think he is kind of thing, right? I am not in where I’m trying to valet park my little Chevrolet when there’s Lamborghinis and Ferraris all around the nicer cars in the doctor’s parking lot might be a Ford F-150. Maybe they got the Raptor version or something, but it was not, the Midwest, as you know, is not as showy, for lack of a better word. It’s some other places in the world. So living in relatively low cost of living areas and places where modesty is a virtue certainly makes it easier to live the way we did.

Scott:
I think that there’s not a lot of, it makes sense, right? Mid six figure salary, middle class lifestyle in the Midwest, numbers are going to work out. You don’t have to be a great investor, although I know that you are a great investor and because you index fund the index fund, so you’re a great investor, pretty easy to be. Great.
Yeah, there’s a big bull market, so not hard I think to understand how you achieve fire at the highest level. All that needs to pass is a couple of years and the wealth will begin to compound really nicely in that front. But I don’t think a lot of people set out to become doctors so that they can retire early. That’s not really the general life path there. I think there’s more to it around fire in the concept of being a doctor that is more of a mental challenge. Can you walk us through how you think about actually leaving the medical profession once the numbers make sense?

Leif:
Yeah, and I want to clarify, and I don’t think you really made that accusation or whatever it may be, but I certainly didn’t enter the profession with the goal of retiring early from it. Oh, of course not. It was one of those things where I was good at science and math and graduated top of my class and my grandpa was a doctor and my dad and his dad were dentists. We had to have healthcare in the blood. It was kind of an, I don’t want to say obvious decision, but it was one of those things I knew I could do and chose to do and it was a good stable career. And so I found my way into anesthesiology and about 10 years into it, into my career that is after college, after medical school, after a four year residency and then 10 years in, I was at a place where I like my job all right, but I always like my days off even more, my weeks off even more than that. And I guess the question is how do you stop making that $400,000 a year and be okay with it?
One thing that makes my case just a terrible test case, terrible case study, is the fact that when I did discover financial independence and it was what, 20 14, 20 15, I realized it was a whole area of study that I had kind of ignored. I knew enough to invest in mutual funds and not to buy whole life insurance, but I didn’t know all that much about personal finance or investing and I had never heard about financial independence until I discovered these fire blogs and I knew that other doctors were in the same boat. I probably had more of an interest in it than most people in my profession and I still didn’t know much. So I decided to start a website talking about it. You mentioned it in the intro position on fire and I’ve since moved on and sold the site to a couple of enterprising physicians who are doing a good job with it and they’ve had it in their hands for the last, almost a year and a half now.
But what makes my a case study terrible is the fact that I made additional money doing that while I was running it and then when I sold it. But the truth is I discovered financial independence or let’s say 2015 and that my investments realized at the time spending about 70,000 a year. Now this is after our mortgage was paid off after my student loans were paid off, all of that, our expenses were pretty modest, 70,000 a year, seven years ago, probably closer to a hundred thousand a year now, but we are financially independent. When I learned about it, I just did the numbers like 25 times that, yeah, that’s about where we’re at. I worked another four or five years in anesthesia, and so I would’ve been between the additional money I made and saved during that additional four to five years and the investment returns on our nest egg, which was already about 25 XI even without the website would’ve retired with probably pretty close to double what I would need to be financially independent. And then the earnings from running a fairly successful online business and then selling it put us even another level beyond that. So financially the decision was easy to make.

Mindy:
You said after you discovered the concept of financial independence and you’d learned that you were financially independent already, you continued to work for four or five more years. Why did you continue to work?

Leif:
I liked the job. It really did. I just would’ve felt, I don’t know, to me irresponsible to just walk away as soon as I had the money in my hand. I liked where we were living. I just didn’t really want to make a drastic change and part of starting that blog and writing about it and putting my thoughts out there for the world to read and react to and respond to was a good way for me to work through the finances, the psychological impact, all of that. It really helped me kind of solidify I wanted to do where I was at and got quite a lot of good feedback. Other people in similar situations, how would they approach choosing retirement versus working part-time, which I did the last two years, and so I kind of eased into it, but it wasn’t so much part of my identity that my ego would suffer if I wasn’t working as an anesthesiologist. And so I learned that over the course of those three to five years by thinking about it, writing about it, and even practicing some mini retirement style tricks.

Mindy:
Stay tuned for more from Leaf on why the 4% rule didn’t work for him and why most people don’t use it today. After a quick break, welcome back. We’re here with Leaf dalene. Let’s jump back in

Scott:
Leaf mechanically, how do you fund your lifestyle? Is it from dividends from your portfolio? Is it from these other types of income streams? How do you actually pull money from your investment portfolio to fund your lifestyle full time?

Leif:
Yeah, that’s a great question, Scott. The plan I had was like you mentioned, dividends from a taxable investments, which are primarily index funds, a real estate fund or two, and then I would sell lots that have the least amount of gain to minimize my capital gains taxes. And I have been collecting on a 4 57 B account, which is a deferred compensation account that I grew to, again, multiple six figures to repeat that phrase over my 13 year anesthesia career. And so I get a few thousand a month from that. So I had it all planned out and then I sold the blog and I self-financed a significant portion of that. And so I get a check every month that covers our expenses and that will last for quite a while. So again, terrible test case. I did have a plan and it was working, but now I don’t really need that plan. I have this plan B.

Mindy:
So when you started the blog, did you start it with the idea that you were going to sell it eventually or did you start it just as something fun to do?

Leif:
I didn’t really think about an end game or an exit plan. I mean, if you would’ve asked me back then, do you think this will make money? I’d be like, well, I mean if it makes a hundred bucks a month, that’d be really cool. But I did not expect it to do way better than that. I guess I did realize maybe a couple of three years in that this truly is an asset that someday could be sold. And when you have a business that’s very much one person focused, you want to, if you think you might want to take that exit someday, you kind of have to pull yourself back a little bit from the focus and make it more about the reader, which I kind of always tried to do. But once I realized, oh, this is a business time to stay blog, I tried to make sure that my focus was on the reader and not just an online diary or here’s, here’s me, here’s what I’m doing. This isn’t about me, this is about you.

Scott:
One of the things that has bugged me for fire and for countless BP money listeners is this concept of nobody actually ever retires on the 4% rule. It is the math of sound. We’ve exhausted that. We’ve talked to the originator of the 4% rule, the Trinity Study, bill Bangin, we’ve talked to Michael Kites who has expanded on that work and refined it and polished it, made it really shiny. So we’ve talked about it then we’re not questioning the math, but nobody ever actually acts on that. Again, if you find that person who is truly a 4% rule early retiree with no other income streams, no large cash cushion, no social security, please refer ’em to the BiggerPockets Money podcast. We would love to interview them. We have never found that person and I don’t think we ever will. What is striking about your situation is not that you’re abnormal, but that is every early retiree we’ve talked to has this that’s actually living the early retiree lifestyle and is not working. Generating income has these ACEs in the hole. Something else beyond that, like a massive real estate portfolio or a large cash position or a pension or a business or a side hustle or they work, I went back to work or their wifi, that’s a popular one too. But I’m more curious about getting into your head here and thinking, do you think you would have been able to retire on the 4%

Leif:
Rule and make that leap? And when I was blocking, I wrote up an investor policy statement and in that I said that I would retire with 40 to 50 x hour spending and Y so much that gives me a two to two and a half percent withdrawal rate, which is quite a bit lower than 4%. And there are a few reasons I figured I wanted that cushion to allow myself to spend more to allow for inflation due to the fact that I still kind of enjoyed working. It wasn’t like a hardship or a travesty to continue to work and since I already had 25 x, well, if that goes up 10%, that’s another 2.5. And I was making a multiple of our annual spending so I could set aside about three x per year. So every year that I worked, I might be adding about five years worth of spending between my investment returns and my earnings when we were spending so little.
So it just seemed like, yeah, it seems well worth it to continue on another four to five years in what at the time was a fairly new job while my kids were young and going to be in school. So without, I can go back and look at that and that was written with no assumption of any online income and say that’s where I would’ve been comfortable. So we’re in that two to two and a half percent withdrawal rate based on what our spending was then. But also understanding that in retirement that can change. You’re going to, in our case, travel more, which is more expensive than staying home. We’re going to potentially regret the cars that we drive. You never know, and we probably, yeah, I guess we have upgraded. We bought our first new car in retirement. So just knowing that there are many unknowns and it’s the unknown unknowns that I wanted to have that large cushion for.

Mindy:
Do you believe in the 4% rule, do you believe that 4% is a withdrawal rate that is sustainable? You mentioned 2.5 and I know that leans more towards big earn and his thought process and the 4% rule is originally meant for a 30 year timeline and you God willing will be a much longer timeline, which is where big earns advice and recommendations towards the lower end.

Leif:
Yeah, excellent point. That’s another reason, but I do, I think the 4% rule can work for sure, and for some people they’re not adding four or five years worth of spending every year that they work. They might be adding a half years worth of spending every year that they work. And so boy, to get that far beyond 4% might be a hardship. It might be a decade or more. So I mean you can look at the historical data a million different ways kids has, baker has Bill Bein has and the Trinity study, all of that. I’ve certainly looked at all of it and yeah, it is sound for a 30 year timeframe. There’s a very, very, very good chance that you will not run out of money. So yeah, I guess my answer is I do believe it can work, but I thought it would be easy enough to just work a little longer, one more year, four more times and yeah,

Scott:
That’s it. That that’s the thing is again, I think what’s super valuable for people listening here is here’s a guy who’s actually retired 300 bucks time in the track, meet the local high school and who knows the math as well as anyone. You literally ran the website physician on fire for years, which is a great fire website that talks about the 4% rule and these types of things. Yet your policy statement does not allow you to retire on the 4% rule. By the way, neither does mine. Mine’s posted publicly on BiggerPockets website around that. I ain’t retiring on the 4% rule on that and nothing else because I’ve interviewed too many people to know that nobody’s mind actually works that way with just that level of wealth. You crossed the threshold to fire, but you’re not actually retiring early on that level of wealth, even if that’s what you do all day long.
And the math as well as anybody in the industry, and that’s the phenomenon that fascinates me here on BiggerPockets money is the 4% crossing. The 4% rule threshold is the starting point. Now the journey to actually retiring begins and that often takes people several years of transition or comes with so much abundance that it’s kind of like, what the heck did I go to work for today on this? Which we occasionally have crossed on finance Fridays where the guy’s job was clearly just holding him back and was a completely waste of time relative to the overall financial position.

Leif:
I can’t say that I won’t ever truly work again. I mean something might just cross my plate that just sounds like really cool or it might be something that I start independently on my own. I’m 48 years old today and tomorrow and the next day, so I’ve got plenty of time and youth and the sound mind I think to do something different if I choose to. Right now it’s still pretty fresh. I’m a little more than five years retired from medicine. I’m about a year and a half retired from blogging and I’ve spent most of that last year building this house, moving into it, making it our own and traveling in the summer and being a stay-at-home Dad married to a stay-at-home mom, but it’s all very fresh and at some point, especially when we’re in an empty nest situation, maybe I’ll feel differently about being retired and staying truly retired.
So if I come back on the show in five years, maybe I would have a very different perspective and I never try to make long-term plans more than about a five year plan because man plans, God laughs, right? It’s going to be very different no matter what I think it’s going to look like in five years, whether due to exterior circumstances or internal motivations and you change your mind and who knows. So I’m not saying I’m not going to announce anything. I don’t have anything to announce, but I know enough to not say that here I am, I’m retired and I’m never going to work again because that’s not how,

Scott:
This is the soft launch of smaller pockets from Leaf from 2027 that we just heard here. So love it here.

Mindy:
We have to take one final break, but more from leaf on life after Phi when we’re back. Welcome back to the show.

Scott:
Let me ask you another question here that relates to this question around the 4% rule and why I think very few people actually stop working at the 4% rule. Let’s say that my goal is let’s use a hundred thousand dollars in annual spend and the goal is 30 times that number, so it’s $3 million in wealth, and then you have a year like last year or the year before where the stock market goes up 20 percentish from that point. So now you got 3.6 million, which is 36 times and maybe you’re well past it, maybe it’s been five or six years since that point and there’s so much more than what you had intended at your retirement, which I think is actually going to be a normal because the 4% rule again is so conservative that most scenarios end up with wealth being much greater,

Leif:
Right? You started at that a hundred thousand and adjust for inflation, not adjusting for your portfolio at all if you’re doing it by,

Scott:
That’s right. If you’re just in stocks in that portfolio that’s happened to everyone who fired 5, 6, 7 years ago for example, from a relative wealth perspective, even after accounting for inflation around that. And so how does that change the perspective on life and time and money at that point? Do you feel like an obligation to some degree to do more travel upgrade things to a fancier level, buy the nice car? How does that change your perspective when what I think is the average outcome for folks in your situation that have retired five, six years ago transpires over a couple of years?

Leif:
Well, I guess what you’re saying is that anyone who retired in my cohort of that five to six years ago, four or five, six years ago, we’ve seen tremendous stock market returns over that timeframe. And what we’ve done essentially is survive the most critical period where a negative sequence of returns can really make the rest of your financial life a little more difficult. It makes it less likely that your money is going to grow over the 30 year period because if in that five years and the most important years for survival of your portfolio is about two years before you retire to about five years after there’s that seven, maybe 10 year timeframe where if the stock market goes down each of those years and you are spending now, it’s going to be a bit more than 4%, maybe it’s 5%, maybe it’s 6%. If you’re going by the book starting with 4% of the initial balance and adjusting with inflation each year and ignoring the actual value of the balance of the portfolio, then you’re actually spending a larger and larger percentage.
Now in that situation, a human might say, I’m not going to stick with this. Buy the book 4% of what I started with adjusted for inflation. I can see that I have 28% less dollars than I did two or three years ago. I’m going to spend less. We’re going to take one less vacation. We’re going to postpone buying a new car to replace the used car. And so you’re asking about the opposite. Well, we are no longer really at risk of succumbing to a poor sequence of returns. And I think you’re right that we could choose to spend a bit more than the formula might suggest. On the flip side, boom, times tend to be followed by bust times. There’s a lot of volatility over the years. So you don’t want to go hog wild. You don’t want to do a reset after they run up of 50% or a hundred percent. You don’t want to get, okay, now it’s 4% of the 3.6 million because the 4% rule does account for good times and bad times. But if you’ve only seen good times and you do a reset, now again, you are at risk of sequence of returns going downward, which they probably will in the not too distant future.

Scott:
So the answer is don’t move the goalposts, that’s it. And the pile gets bigger and bigger, which just continues to create to keep things very stable, but you just don’t move the goalpost and that just gives you more and more and more and more security. And it sounds like the other part of it is you’re just content with exactly what you have from a lifestyle perspective. And there’s also probably not that pull too with withdrawal more than what you have. Are those factors coming in?

Leif:
Yeah, that’s good. I’m not saying that you should never spend your investment returns because most of us who are following, not even the 4% rule, but something less than that are going to end up with piles of money when we die, unless we give it away while we’re still alive or choose to spend a lot more. And I think the younger you are, the more cautious you should be because I still know that I could have a 50 plus year investing timeframe, but my parents who just came to visit, they are in their late seventies and their investments have done well recently. I’m not going to tell them to forego that $30,000 trip to South Africa that they took or whatever it might be, right? They’re at a point where they don’t need to worry about 50 years, 20, 25, that’s a possibility. But 50 plus, no, it’s incredibly unlikely. And unless there are scientific advances that are coming and coming soon that will blow us all away.

Mindy:
What is the biggest difference between what you thought retirement was going to be like and what reality actually is?

Leif:
I think I probably assumed I would be more productive. Do you know Parkinson’s law?

Mindy:
I don’t.

Leif:
Yeah,

Scott:
Scott. I believe that’s the one where time or a task will swell to fill the time that you allot to it.

Leif:
Exactly. Exactly. So when you have unlimited time, the things that you want to accomplish have an unlimited timeframe and no deadline. And so I find it’s much easier to procrastinate and things that I might’ve gotten done in a weekend because I have the weekend and that’s all I had, well, I’ll work on it and I’ll putz around for an hour or two here and an hour or two there, but there’s much less urgency in many of those things that, oh, I’ll get to it eventually. So I guess I thought I would be more productive in certain ways, and I think I have found a balance where I like to do different things throughout the day and not just focus on one thing all day long.

Mindy:
Yeah, the productivity aspect. I am not retired, but my husband is, and I have seen him as soon as he was done working, he’s like, this is my time now. I have to run everywhere and be so fast all the time and just produce, produce, produce. And I was like, or you could take a break because now you’re retired and now he’s morphing into the, it takes a lot longer to get things done because I don’t want to say there’s no sense of urgency and I’m certainly not throwing him under the bus.

Leif:
Probably a better sense of balance, right?

Mindy:
Yes. It’s okay to read a whole book that doesn’t teach you anything. It’s okay to go and run a marathon if that’s your jam, which it is not mine, but I hope you win.

Leif:
Yeah, no, that’s definitely, definitely true. Before the, we started recording, we were talking about what we did on the weekend and I was like, gosh, which days were the weekend? Oh yeah. Let’s see. We had a family gathering and I made a bunch of pizzas and then I watched football the rest of Saturday and most of the Sunday too. And that’s okay. I enjoy football. Didn’t get a lot done this weekend.

Mindy:
Yeah, but also, what else do you have to do?

Leif:
Talk to you, talk to Scott.

Mindy:
Yeah, exactly. I mean, I think it’s perfectly valid to take your time and enjoy your life.

Leif:
I

Scott:
Make dinner most days. Yeah. Alright, well Lee, thank you so much for coming on today and sharing your story with us. Thanks for sharing my day in the life of retirement looks like and being so open about the actual reality of getting way past it from a financial standpoint before making a leap. Super interesting. Congratulations on your fantastic retirement and your multi marathon. Your mornings you have won’t even run the full marathons on there. That’s just trading for you it sounds like at this point. So congrats on that and can’t wait to see what the next couple of years bring for and last. Super excited for the launch of smaller pockets.

Leif:
I got to check that before you do. If I log off quick, you know why domain name.com

Mindy:
Leaf, it was great to talk to you. Thank you so much for your time today and we’ll talk to you soon.

Leif:
Sounds good. Thank you, Mindy. Thank you, Scott. We’ll see you soon.

Mindy:
That wraps up this episode of the BiggerPockets Money Podcast. He of course is the Scott Trench, and I am Mindy Jensen saying, take a bow, Highland Cow.