It has been a long week. In fact, it has been a long few months, with not enough vacation time to break it up.
While on a walk home, I started thinking about what my schedule might look like if I cut back to very part time, just working enough to qualify for health coverage. In my mind, it sounded very pleasant.
My friend, who has decided to work One More Year, will actually be doing this in a few weeks. She is suddenly a good deal more interested in having me cut back as well, so we can have more time to socialize together. She asked if I could afford to do so.
I don’t think I can, just quite yet. But I thought it might be interesting to look at the finances of cutting back, and see where the sticky points might be for me.
I decided to use nice, round numbers to start with. Please be aware that these are neither my numbers, nor my friend’s numbers.
In the example, our mature (over 50, student loans paid off) doctor is married, filing jointly, with a full-time salary of $200,000. When she goes part time, she receives a salary of $100,000. She stops contributing to a pretax retirement account, her post-tax retirement account, and to her general savings. She also has to pay more for health insurance. At first, the finances look like so:
After estimated taxes (federal, FICA, and local–which can obviously vary tremendously; I chose a total of 6% without deductions. These are based on estimates for 2023), the gap in income starts to close:
Lastly, I took into account some other differences, such as contributing to a Roth IRA, an estimated difference in health insurance premiums, and saving more each month. After all, what FIRE-minded physician earning a full salary wouldn’t put aside more each month for sinking funds or investments?
Suddenly, the difference in funds that hit a checking account each month isn’t all that great.
This is where personal finance gets personal.
If your frugal PCP looks at these numbers and says: great. I spend less than $6000 a month already and live comfortably. I can work half-time, cover my current lifestyle, and let my retirement savings compound for many years. Well, they can be on the road to Coast FI and enjoy a long weekend every week.
If your mature PCP lives a little larger, and says: hey, I spend $6000 a month (or even $6900). Cutting back to half time takes me awfully close to the financial edge, or over, I don’t think I can handle that. In that case, they can work full time a little longer, or think about cutting back to 80%, or take another look at their spending to find things they are willing to cut.
(I have left out the PCP who is spending $12000 a month, and hasn’t really thought about saving for retirement. Or in general. In which case I might refer them to A Tale of 4 Physicians, and tell them that cutting back on work is probably not in the cards for a while.)
Lastly, the retirement-ready PCP might look at this and think: I spend more than I am going to be taking home with part time work, but I’m already financially ready to retire. This money is just extra: perfect for paying for big splurges, or letting me withdraw less from my retirement accounts right now.
I hope, with good reason to believe it is true, that my friend is in that last category. She is choosing to work a little longer, mostly as a bridge to get used to the idea of retiring fully. I think she won’t mind a little extra income in the coming year, either.
I am more in that second category: at the minimum fraction of FTE that allows me to keep my insurance, I would probably bring home what I spend each month, on average, but not any more than that. That would put a crimp in my plans to travel, fix things around the house, and generally live a life where I don’t need to worry about costs very much. Much though I would like to take a break, I think I’ll keep working with my current schedule. For now.
When would you decide to cut back on work to half-time? Or do you plan to work full time until you stop altogether?
It’s interesting to see these numbers. I cut back to 4 days a week in the middle of last year. It was an easy transition. I will likely go straight from 4 days a week to full “retirement”, though. Cutting back further wouldn’t make sense from a work perspective. It would be difficult for me and my employer because I think I’d be trying to fit 5 days of work into 2 or 3. (When I cut back to 4, they didn’t make 20% of my work disappear.)
I use “retirement” in quotes because I don’t plan to fully retire when I leave my full-time job. I have a few side projects lined up that will generate some “fun money” or a “playcheck” as Mike Drak calls it in his book “Victory Lap Retirement”. That will make our savings last longer.
Yes, the numbers are interesting. I note that for the higher salary, our doctor is living on about 55% of their income, after retirement contributions and taxes–so they probably don’t need to replace their full salary once they retire.
A few years ago, I would have thought that working part time wasn’t possible. It is still not desired by employers (after all, patients will have sick calls even on a day off), but–as with my friend–the prospect of someone retiring and not seeing patients at all suddenly makes a part-time arrangement preferable to no doctor at all.
(Love the term, playcheck!)
Interesting! I still have not run the numbers for myself. Technically I am at Coast FI but I like more of a cushion and the idea of not being able to save anything would stress me out and make me less comfortable living as large as I want. At least I think it would. But. I could do an easily reversible shift I think… maybe down to 75%.
Hi, C! Yes, the lack of cushion is mentally distressing to me. I think a drop to 75 or 80% may be in my future (but not this year). The trick is to make sure that your work load actually drops commensurate with your salary– the workload for medicine is now (apparently) that you spend about 2x the time spent with patients doing paperwork (charting, dealing with results, calling insurance companies). So I could end up doing very little less work for a much lower salary.