My office mate is just starting out, and seems overwhelmed by finances. When I mentioned my father was a retired physician, and had retired well, she was very interested in how he had managed that.
I asked him this weekend, and got a shorter-than-expected answer. In many ways, the answer is very simple: save money and invest it. I will embellish the answer and see if it might be illuminating.
Dad finished residency in a surgical sub-specialty, served with Uncle Sam for 2 years, and then came home to join his father in practice. For a short time he was an employee, but within the year became a partner. In some ways, this was an easy way to start a practice–especially because my grandfather’s vision was failing, so he was saving all the surgeries for my dad’s return. In other ways, this was a very hard way to start a practice, as he was the junior partner–to his Dad! Over the years, he has said that financially it probably would have been wiser to take one of the other offers he had when he got out of the Armed Services.
In any case, there they were, a partnership of 2. My dad put away 10% of his income in a pension plan, and 15% into a deferred compensation plan, for a total of saving 25% to retirement. [I would point out that my office mate and I don’t have so much tax-deferred space available at our current employer.]
This retirement money was invested in stocks and traded periodically. For those who are die-hard index fund advocates, I note that this took place before Mr. Bogle started Vanguard group in 1975. Like fishermen bragging about their big catches, my dad mostly likes to talk about his winners. There were losers, too. Overall, my dad and grandfather did very well with their investing.
Over time, my grandfather retired, and my dad went on in solo practice. Some years he did well, some years not so much. He had some health issues and cut back relatively early in his career. I think also the rise of the HMO was very tough for him. In his 50s he definitely went through a period of working just to keep the office open–he didn’t bring home very much money at all, and had my mom come work in the office to save money on staff. In his last few years in practice, he joined a number of other specialists in an attempt to save on overhead; from what I heard at the time, he didn’t save any money there at all. He retired just shy of his 64th birthday, after more health issues.
During this time, he supported a family of five. In retrospect, he and my mom made important choices about where their money went. We lived very well, but not quite as well as others in the same circles, so that my dad could continue to save for retirement. For example:
- He had a family vacation every year, but most were in driving distance from home. Sometimes the vacation was just visiting family. He and my mom also took a vacation alone every year, which was usually a lot nicer.
- He bought a nice house, a big one with a large lot; but it wasn’t in the fanciest neighborhood, and he didn’t trade up. He and my mom live there still today.
- He joined a country club and played golf his entire working career (and beyond), and picked up skiing in his 40s. Neither of those are particularly inexpensive hobbies. However, he did not own a second home, as many at the club did.
- He liked new cars, and never bought used. He did not trade them in every 2 to 3 years, as his peers did, but kept them “until they cost too much to maintain” (probably 5 to 8 years in the ’70s and ’80s).
- He educated his children very well, and not cheaply. We none of us took fancy vacations abroad, or received new cars from our parents, during this time.
This is not to boo-hoo my childhood, or enlist sympathy for the poor surgeon who didn’t have a second home, travel abroad all the time, or get new luxury cars every 2 years. It’s to point out that even a surgeon, in the heyday of the ’70s, had to make choices about where to put his money. He could afford the necessities, and some of the luxuries, but not all the luxuries.
What he did is sometimes called “paying yourself first:” take your retirement savings off the top, and live on the rest. Simple in theory, maybe a little harder to carry out. Especially if your wife wants a beach house, and your daughter is asking for a car of her own.
Nevertheless, we all lived (and very well!), and after 31 years of private practice, and putting away 1/4 of his salary (maybe not in the tough years, I didn’t ask), he was able to retire comfortably.
To my office mate, and to anyone else out there trying to figure this stuff out, I hope this was helpful. I have more from my dad to share about retirement, which I may write about this week or next.