Did You Go Into Medicine For The Money

[thsc]

aaronjw is right in saying that a physician ideally should be building enough of a nest egg to make the prospect of depleting their savings very unlikely. Really, everyone should be planning for their retirement in that way, it's just easier with a physician's high salary.

 

More importantly though, volatility can deplete a person's savings faster than a lower rate of return. If the low-yield years come early, savings get drawn down so fast that there's nothing left when the high-yield years come. When building up, it doesn't matter as much when the high-yield years come, but when drawing down it absolutely does.

 

Let's say you wanted to live off $100k a year and knew for a fact you'd die in 10 years. It'd take $670k of savings to let you do that at 8% growth rate. But, if you had no growth in the first 5 years followed by 16% growth in the last 5 years, you'd be broke in about 7 years. If you took that same $670k and only got 4% growth, but got it each and every year, you'd make it 8 years before going broke.

 

More importantly, in the second scenario, you can predict you'd run out of money in 8 years and could adjust your spending accordingly - spending a bit over $80k a year would get you to the 10 year mark. In the first you can only adjust after-the-fact, changing your spending habits each year depending on how the market did, which is not an easy task for most consumers.

 

Admittedly, the current market is very poor for guaranteed investments - 4% would be an incredible find - in comparison to the stock market, which has been growing strong. However, the stock market did much worse than just hold still a few years back, it outright cratered. If you had that same $670k in 2008, where there was a drop of 50% followed by several years of near-20% growth, you'd be broke in 5 years by drawing down that $100k each year. Point is, counting on the stock market can easily leave you broke, and it can do it without warning. Guaranteed vehicles mean a lower standard of living, but you know you'll have the money when you need it.

What do you guys suggest would be additional means of investing besides stocks and real estate? 

[rmorelan]

What do you guys suggest would be additional means of investing besides stocks and real estate? 

 

those are pretty much the two main routes Otherwise there are bonds which aren't good enough, directly investing in a single company or practise (like owning a medical service building) - some go that route, and there are a whole bunch of risky "crazy" other options - futures, derivatives, blah, blah.

[ralk]

What do you guys suggest would be additional means of investing besides stocks and real estate? 

 

You could buy gold (please don't buy gold).

 

Stocks and real estate are certainly the vehicles with the higher rates of return, each with their own pros and cons. Bonds, GICs, high-interest savings accounts are reliable, but as others have pointed out, aren't very lucrative - after inflation, many of them are actual money-losers (and yeah, the stuff in Europe with some of these vehicles is crazy - the nominal rate went negative!)

 

Any investment strategy should have a mix of things, and there's a place for almost everything in good financial management. High interest savings accounts pay little, but are readily accessible - perfect for holding a buffer of funds for emergencies that everyone should have (~6 months expenses). GICs and bonds can be helpful when you know you'll need money somewhat soon, but not immediately - when you're retiring or paying for a child's post-secondary education. For the longer term, stocks and real estate (with some caveats/cautions on each) have traditionally performed much better and so are the main choices.

[older]

His point, I think, was that by time retirement comes you should have accumulated enough of a retirement portfolio that you don't need to worry about depleting said portfolio by converting investments to those that are less volatile and subsequently less rewarding.

 

If after 25-30 years of practicing a Dr hasn't amassed at least a $1.5M nest egg with few liabilities (eg: mortgage, expensive car, etc) then they quite simply have pi$$ed away their earnings such that it really won't matter what they do at the end.

 

 

The point is to amass nest egg and live from returns, not from capital.  You think 1.5M is a great nest egg ? At 2% return, it is 30K a year before tax.

You'll have to deplete capital, and, depending in your lifestyle (and few doctors have a modest lifestyle , such retirement  portfolio can be easily depleted in several years. And you may live 30 years after retirement, or more.

 

I am not saying that investing in stocks before or in retirement is good. But "safe" investing is not good either, especially if you count inflation. "Mix of things" is what every financial adviser will tell you to do, but again - for smaller portfolios, returns may not be enough. While one part of your portfolio performed well, the other did not - that's how "balanced" portfolios work. You are protected from loosing big,  but you are not making good returns. Ergo, there is no best way, and risk increases dramatically for those with smaller nest egg in retirement.

 

So yes, doctors and those with high earnings are in good position because they have the best chances of accummulating significant  nest egg.

[ralk]

The point is to amass nest egg and live from returns, not from capital.  You think 1.5M is a great nest egg ? At 2% return, it is 30K a year before tax.

You'll have to deplete capital, and, depending in your lifestyle (and few doctors have a modest lifestyle , such retirement  portfolio can be easily depleted in several years. And you may live 30 years after retirement, or more.

 

I am not saying that investing in stocks before or in retirement is good. But "safe" investing is not good either, especially if you count inflation. "Mix of things" is what every financial adviser will tell you to do, but again - for smaller portfolios, returns may not be enough. While one part of your portfolio performed well, the other did not - that's how "balanced" portfolios work. You are protected from loosing big,  but you are not making good returns. Ergo, there is no best way, and risk increases dramatically for those with smaller nest egg in retirement.

 

So yes, doctors and those with high earnings are in good position because they have the best chances of accummulating significant  nest egg.

 

Living off returns really isn't feasible unless your capital is massive compared to your yearly expenses.

 

High-risk, high-volatility investments can have flat or negative years - you can't live off zero or negative returns. Those years you have to draw down your capital, there's not other choice. If you have a large amount of capital, that's not a huge deal - you hurt your future returns by reducing that capital somewhat, but not by enough to significantly impact your average yearly returns. You might get a good year to build that capital up a bit as well. However, with such high capital, you can have rather low rates of return and live off that. When you have tons of money relatively to expenses, multiple investment strategies are feasible, though each has their own pros and cons.

 

For smaller portfolios, living off returns is simply not feasible. As you say, low rates of return from guaranteed investments mean they don't provide enough funding. More volatile vehicles can provide enough funding, but because they do so sporadically, it takes a fair bit of luck to avoid degradation of capital and once that degradation starts to occur, it can quickly become a downward spiral, even in a strong market. A slow, predictable draw-down of capital is often a better option here - you might not live exactly as well as you'd like to, but you won't go broke either. This is where guaranteed investments have an edge.

 

Of course, people shouldn't commit to only guaranteed investments the second they retire. If I retire at 65, some funds won't be needed for over a decade, so there's nothing wrong with having some money left in high-return, high-volatility investments. But anything needed in the short-to-medium term should probably not be at risk of disappearing because the stock market fell unexpectedly. You do want a mix of things, but not for the reason you describe. Different investment vehicles have different purposes and having a mix of investments simply reflects the multiple purposes everyone has for investing. Moreover, that mix should change as the purposes for investing change. It shouldn't be about hedging your bets, it's about making bets only when you can afford to (temporarily) lose.

 

Again, physicians should be able to save up enough to easily pay for their retirement - if they don't live too opulently (big "if"). $1.5 million on retirement is below what most physicians should be able to save up for their retirement, unless they have a very low level of yearly compensation or retire quite early.

[rmorelan]

most retirement plans have people gracefully using up the capital as you go along (actually even RRSP forces you to do that effectively). Otherwise you end up at the end of your life with a massive amount of capital and well no more years to spend it

 

That is actually what I find is the most tricky aspect of all of this - you have often have no true idea how long everything needs to last for.

[thsc]

most retirement plans have people gracefully using up the capital as you go along (actually even RRSP forces you to do that effectively). Otherwise you end up at the end of your life with a massive amount of capital and well no more years to spend it

 

That is actually what I find is the most tricky aspect of all of this - you have often have no true idea how long everything needs to last for.

Haha, well put. 

[older]

most retirement plans have people gracefully using up the capital as you go along (actually even RRSP forces you to do that effectively). Otherwise you end up at the end of your life with a massive amount of capital and well no more years to spend it

 

That is actually what I find is the most tricky aspect of all of this - you have often have no true idea how long everything needs to last for.

 

 

Exactly.

And government will take half.  Nobody found a good formula yet.

[Sigmund Freud]

In the words of Sam Smith:

 

I don't have

Money on my mind 

Money on my mind

I do it for

I do it for the love 

 

Honestly though, as long as I love what I do and am financially stable, I don't care about making a lot of money - I wouldn't even know what to do with it all; I'm a simple person.  

[older]

In the words of Sam Smith:

 

I don't have

Money on my mind 

Money on my mind

I do it for

I do it for the love 

 

Honestly though, as long as I love what I do and am financially stable, I don't care about making a lot of money - I wouldn't even know what to do with it all; I'm a simple person.

 

 

Your wife, and especially your children,  will help you -  guaranteed.

[Sigmund Freud]

Your wife, and especially your children, will help you - guaranteed.

Won't have a wife. Don't know if I plan on having kids. But yes, if I have a family, then obviously I'd like to have money to support them, but all I really care about is the stability, not necessarily into luxury... yet.

[older]

Won't have a wife. Don't know if I plan on having kids. But yes, if I have a family, then obviously I'd like to have money to support them, but all I really care about is the stability, not necessarily into luxury... yet.

 

With a wife and few kids, you'll not be into luxury even if you are MD.

 

There was a special in G&M financial advice column few weeks ago about a couple with 4 or 5 kids. The guy was a stockbroker with income more than a MD. Wife at home with kids. They coudn't afford to buy a house in Toronto, yet alone to save for retirement.  

 

If you won't have a wife. you are fine, ha ha. But that's not a typical route in life, is it?

[thsc]

With a wife and few kids, you'll not be into luxury even if you are MD.

 

There was a special in G&M financial advice column few weeks ago about a couple with 4 or 5 kids. The guy was a stockbroker with income more than a MD. Wife at home with kids. They coudn't afford to buy a house in Toronto, yet alone to save for retirement.  

 

If you won't have a wife. you are fine, ha ha. But that's not a typical route in life, is it?

4 or 5 kids are a lot. Most people are unlikely to have that many. 

 

What's wrong with having a wife if she's earning 6 figures? That should only help if anything. Unless you get divorced lol

[rmorelan]

With a wife and few kids, you'll not be into luxury even if you are MD.

 

There was a special in G&M financial advice column few weeks ago about a couple with 4 or 5 kids. The guy was a stockbroker with income more than a MD. Wife at home with kids. They coudn't afford to buy a house in Toronto, yet alone to save for retirement.  

 

If you won't have a wife. you are fine, ha ha. But that's not a typical route in life, is it?

That's seems a bit odd - what are they doing that is costing so much?

[IamIDP]

yup, very well. If they are aware and plan appropriately they become one of the "quiet rich". Most millionaires are actually quite normal looking. They don't do flash, they don't show off. They don't need to impress anyone - they already are winning.

What do you classify as "rich"? No offence but MDs are not rich, if you go into medicine thinking you'll be rich you're a fool. Making even $300-400k a year doesn't classify you as rich because after taxes, expenses, and time you have to put into your career, it won't mean much. 

[ralk]

What do you classify as "rich"? No offence but MDs are not rich, if you go into medicine thinking you'll be rich you're a fool. Making even $300-400k a year doesn't classify you as rich because after taxes, expenses, and time you have to put into your career, it won't mean much. 

 

I'd certainly call making more than 99% of Canadians "rich", even after considering training time and debt.

 

What do you classify as "not rich" if $300-400k doesn't qualify? Yeah, we're not talking Scrooge-McDuckian levels of rich where you have rooms full of gold coins, but by most people's standards of the word, physicians generally qualify as being wealthy.

[aaronjw]

People have no room to quibble over definition of "rich" when their income is/will be 6x+ the median income lol

[xkittens]

People have no room to quibble over definition of "rich" when their income is/will be 6x+ the median income lol

Hah your definition of rich probably depends on what you grew up with 

[medigeek]

Why compare the rest of Canada to physicians? Comparing incomes in that context is severely misleading. Most Canadians dont even have a bachelors degree. Of those that do only a minority have them in rigorous fields. On the whole very few Canadians have invested so much time/effort and money. So how is it fair to compare their incomes to a physician's income? Husband works construction, wife works at a call centre. They now make 80k a year and it's somehow deemed "wrong" if a doc makes quadruple that.

[makingfetchhappen]

Why compare the rest of Canada to physicians? Comparing incomes in that context is severely misleading. Most Canadians dont even have a bachelors degree. Of those that do only a minority have them in rigorous fields. On the whole very few Canadians have invested so much time/effort and money. So how is it fair to compare their incomes to a physician's income? Husband works construction, wife works at a call centre. They now make 80k a year and it's somehow deemed "wrong" if a doc makes quadruple that.

LOL. You are joking right? 

 

I'm not exactly sure where comparisons are to be made, if not to the rest of the population. 

 

But, construction... Really?! Have you ever worked construction or anything similar? 

 

It's a grind just doing it for a summer or anything like that. Give it a try if you don't believe me. Good luck getting through the first 3 months, let alone the first winter. 

 

Construction work is very good pay compared to a lot of other fields, but it's also much harder. People who do that sort of work tend to die a lot earlier too, and that's kind of a big deal.

 

Also, why would you assume that education = time, effort, and worthiness? I have a couple of degrees myself, but I don't exactly envy the guys I know who left high school to slug it out at construction jobs. And LOL for me to tell them that their jobs are less rigorous! 

 

No one said that it was wrong that physicians make 4x more, all they said is that $300K and up is wealthy, etc. 

[medigeek]

Construction was just an example, I know how rough it is.
They do reach solid money at a much younger age though and have the potential to be well off if they invest everything correctly. Not to mention that they have more free time in their 20s.

 

That's all irrelevant though, it's all about what the market dictates.

 

And yes that is considered wealthy lol.

 

 

LOL. You are joking right? 

I'm not exactly sure where comparisons are to be made, if not to the rest of the population. 

But, construction... Really?! Have you ever worked construction or anything similar? 

It's a grind just doing it for a summer or anything like that. Give it a try if you don't believe me. Good luck getting through the first 3 months, let alone the first winter. 

Construction work is very good pay compared to a lot of other fields, but it's also much harder. People who do that sort of work tend to die a lot earlier too, and that's kind of a big deal.

Also, why would you assume that education = time, effort, and worthiness? I have a couple of degrees myself, but I don't exactly envy the guys I know who left high school to slug it out at construction jobs. And LOL for me to tell them that their jobs are less rigorous! 

No one said that it was wrong that physicians make 4x more, all they said is that $300K and up is wealthy, etc. 

 

 

 

[makingfetchhappen]

Construction was just an example, I know how rough it is.

They do reach solid money at a much younger age though and have the potential to be well off if they invest everything correctly. Not to mention that they have more free time in their 20s.

 

That's all irrelevant though, it's all about what the market dictates.

 

And yes that is considered wealthy lol.

There are a few fields where you can be making good money with little education in your 20s. Dental hygiene, real estate agent, etc, .

 

At the end of the day though, doctors will still make more, factoring time and education as well. Start an Excel spreadsheet and work it out. Even a 40 year old is better off going for med!

 

Free time in your 20s is a bit of a myth I think. If you work construction you come home and collapse and cannot move at the end of the day, even if your week is only 40 hours (I've done similar and I have been shocked at my inability to move at the end of the day).

 

I dunno. I am in my early 30s now and I don't recall seeing anyone living it up with a lot of free time in their 20s. Maybe you would have spare time working a 9-5, but when I wasn't in school, I was living in Toronto and no one can afford to be there on a 9-5. 

 

I also don't understand where this myth that doctors miss their 20s comes from. I know lots of doctors (including residents). I meet new ones all the time actually!

 

I was on vacation a few weeks ago and these guys started talking to me. Turns out they were residents. They were 28 years old. They were on a 3 week vacation! I was wondering how that is even possible. I have never taken a 3 week vacation ever! I can barely leave my practice for a few days!

 

Sure residents and doctors may work long hours, but what are you even comparing it to? You are not some sort of martyr giving up your 20s. Your 20s are for working and thankfully you still have energy left to have fun! 

 

 

 

[NLengr]

There are a few fields where you can be making good money with little education in your 20s. Dental hygiene, real estate agent, etc, .

At the end of the day though, doctors will still make more, factoring time and education as well. Start an Excel spreadsheet and work it out. Even a 40 year old is better off going for med!

Free time in your 20s is a bit of a myth I think. If you work construction you come home and collapse and cannot move at the end of the day, even if your week is only 40 hours (I've done similar and I have been shocked at my inability to move at the end of the day).

I dunno. I am in my early 30s now and I don't recall seeing anyone living it up with a lot of free time in their 20s. Maybe you would have spare time working a 9-5, but when I wasn't in school, I was living in Toronto and no one can afford to be there on a 9-5. 

I also don't understand where this myth that doctors miss their 20s comes from. I know lots of doctors (including residents). I meet new ones all the time actually!

I was on vacation a few weeks ago and these guys started talking to me. Turns out they were residents. They were 28 years old. They were on a 3 week vacation! I was wondering how that is even possible. I have never taken a 3 week vacation ever! I can barely leave my practice for a few days!

Sure residents and doctors may work long hours, but what are you even comparing it to? You are not some sort of martyr giving up your 20s. Your 20s are for working and thankfully you still have energy left to have fun!

 

Toronto is filled workaholic nut bags though. It's not a good example.

[makingfetchhappen]

Toronto is filled workaholic nut bags though. It's not a good example.

LOL I agree. The boyfriend and I are currently making our escape plan. Toronto is a big money pit that is not worth it. 

 

And ya, everyone is crazy here and obsessed with status. First question is always "what do you do?". 

 

However, I have been open to leaving Toronto for years now, but guess where all of my lawsuits are? I'm planning on leaving anyways, but the reality is that Toronto sucks you back in if you are in the working world outside of the public sector.

[NLengr]

LOL I agree. The boyfriend and I are currently making our escape plan. Toronto is a big money pit that is not worth it. 

And ya, everyone is crazy here and obsessed with status. First question is always "what do you do?". 

 

However, I have been open to leaving Toronto for years now, but guess where all of my lawsuits are? I'm planning on leaving anyways, but the reality is that Toronto sucks you back in if you are in the working world outside of the public sector.

Not if you switch to oil and gas!