Financial Planning

I remember in first year med school I was studying the extrinsic and intrinsic pathways of clotting. The pathways first year are taught as part of cascade reactions in the biochemistry course. I decided to learn a little more so I checked out a 2500 page 20 pound text book on Hematology from the reference desk at the library. The book was so dense it took me half an hour just to find the cascades. Once I did I found there was a lot more to know. It was that experience that taught me the level of knowledge I was up against.

Medical school was about learning 10 things, and you were tested on those 10 things. The “neurosurgeons to be” learned their 10 things perfectly. Some others learned less completely, we all learned enough, but here in my hands was a book that contained nearly all there was to know about Hematology at the time of its publication. My 10 things weren’t even in the index. You learn more than 10 things as you progress and more than thousands of thing as you pass through residency to become attending, It starts with 10 but hardly ends there.

I’ve been thinking about CD’s retort that I’m the Socratic Gadfly of FIRE. It is true, but why is it true? Why don’t I just accept the MMM boiler plate? Why do I think that FIRE movie is propaganda? Why when I read misuse of the Pareto principal does it raise my ire? Why do I care? The essential reason I care is people are basing their futures on what is written. They are basing their futures on learning 10 things. In medicine you learn 10 things, then move onto the clinics and those 10 things are fleshed out into the blood sweat and tears of sick people. If you pay attention the 10 things become more than the cliff notes.

I had a pt once the first day of 4th year on the cancer service at the VA, who came in with extremis. It was the day I learned some people come to the hospital to die. It was also the day I met my wife in a bar as I considered what had happened. The patient came incoherent. I spent a couple hours trying to get an IV in him. I would get into a vein, but no flash. I could advance the catheter but no return and eventually the catheter would “blow”. I would pull out the cath and then it would bleed profusely. I thought WTF? and deduced the PT was in DIC. This was the expression of the cascades in reality. During the course he threw a clot or a wad of cancer from a leg vein to saddle in the pulmonary artery and died. The guy was riddled with metastatic CA and the 4th year resident showed up and cancelled the code. In reality there was nothing to do but that didn’t quench my feeling of inadequacy that I somehow let this guy down. The 4th year knew more than 10 things, way more.

It’s this kind of thing I see in the FIRE movement. I see a lot of people who know their 10 things, but knowing 10 things is woeful. There is a whole 2500 pages to know. I see people spouting those 10 things as if that’s all there is. It’s like a blind man exploring an alligator, not big deal till you find the mouth.

There is a kind of scholastic philosophy called essentialism. It is basically classical education, where you learn rhetoric, English, languages, math history, sciences, philosophy, religion. In studying that body of thought a societal cohesion is formed, and a kind of brotherhood of belonging in a way tat fixes you in space. It’s the education I gave to my children. It’s not just 10 things but it’s the 10 essential things that underpin the truth of shared human experience.

FIRE doesn’t have that. It has no truth. It has millions of opinions expressed for millions of reasons, promoting millions of narratives and agendas. It promotes a mechanism of using index funds to risk money in some simplistic formula, but in the end nobody believes that. It could have truth if it was broken down to the essentials, but as long as it’s every man for himself it does not constitute a body of knowledge. It’s a collection of half truths showcased as the truth, and then marketed as the truth. People are hanging their futures on marketed half truths, while the marketeers clean up. I find that disturbing.

There is a fallacy called the planning fallacy which basically states any plan takes longer to complete than planned. Plans are projection and projections don’t lead necessarily to reality. I break FIR down to 2 parts accumulation and retirement, very different beasts requiring very different plans. Refer to the planning fallacy when considering each

Attaining FI is certainly possible but RE doesn’t necessarily follow. Knowledge of 10 things is not enough knowledge to retire. FI may not actually be FI once you take risk into account. MMM became super frugal, made 1M and retired at 30 on 27K/yr aka WR = 2.7% a far cry from 4%. That plan at 60/40 AA has a good 98.68 chance of lasting 60 years, but what about health care inflation? You move to the alpo diet and hope you don’t wreck and fracture a hip on that bike in the Colorado snow. I guess we missed essential “thing” 11 and 12, yet they are glaringly obvious. It’s 98.68 with the caveat: if nothing goes wrong. What could possibly go wrong?

I guess part of my skepticism comes from not knowing about FIRE narratives in accumulation and reaching retirement financially independent by separate means. First time I heard about FIRE was a year after I quit, so FIRE didn’t bring me to the dance. I didn’t know the 10 things, so I had to manufacture essential things to get here. The MMM narrative is not my narrative and I find it remarkably shallow and self serving, so I don’t buy the soap, sometimes I wish I could.

My goal is not to rain on the FIRE parade but to think about that cliff outside in the cold distance.

No reason to get excited
The thief he kindly spoke
There are many here among us
Who feel that life is but a joke
But you and I, we’ve been through that
And this is not our fate
So let us not talk falsely now
The hour is getting late

Outside in the distance
A wildcat did growl
Two riders were approaching
The wind began to howl

16 Replies to “Financial Planning”

  1. Very well said Gasem.

    There are some that think that once you finish medical school you are prepared to practice medicine. There is nothing further from the truth than that.

    That is why even though you do obtain an MD after your name you still can’t see patients on your own but have to go through yet another training program to prepare you for becoming an attending.

    Even after completing residency there is a learning period for attendings before they find their groove and comfort level.

    The FIRE movement is appealing for me because it is preaching to the choir. I have gotten a distaste of medicine in my mouth and have seen a once noble profession being reduced to a small cog in a big money making machine that doesn’t care much about us. The majority of FIRE walkers have had an amazing bull run in the markets and project this going forward which is not reality. I do want to retire early but thanks to information from your writings I have slowed down the rush a bit just to pad the nest egg to survive a long retirement period.

    1. I’m literally 2 weeks away from no longer being able to go back to medicine as a backup plan. After 2 years out you can’t get insured. I’m still fully licensed and have ACLS and all that but without insurance kaput. It’s ok with me. Every epoch has its natural ending and every epoch has its natural commencement. I’ve spent 2 years in transition by design, enough time to understand the validity of my financial plan, and I’ve tested it 10 ways to Sunday and shared the results. I understand the differing needs between an accumulating portfolio and spend down. Spend down a different lifestyle, in some ways less predictable than accumulation, but if properly funded far more rewarding. This is my advantage in how I view FIRE. There is nothing presumed, the rubber has met the road. I am retired.

      I am fortunate to have the wife I have. I am fortunate to have the children I have. I am fortunate to live in this country where I was able to take my life in a direction of self sustenance and bring my family along for the ride. You can be whatever you want to be here, and it is no small thing. I am fortunate to have retired on the up-slope, since my spend down strategy is to spend only a portion of my return every year, it helps to have an actual return upon which to rely. My spend down strategy is actually an extension of the FIRE mantra. If I make 200K I spend half. If I make 300K I spend 1/3. Out of those 2 examples I have covered 2 years past + 3 more covered and yet to be lived. 2 years growth = 5 years living expense. That’s how my money machine is designed and I know exactly the cost of living, it’s not presumed but known. I’m fortunate to be able to optimize my tax picture going forward, and have that in my plan. If you talk to your patients you actually can gain insight into your likely future. The guy who is 20 years older than you on the average is you in 20 years. The parent 30 years older than you is you in 30 years on the average. The future is unknown but pretty predictable. This is not rocket science, it’s obvious.

      One thing I did was sit down and journal the retirements of all my family tree that I knew about. I considered their jobs, some were entrepreneurial some union workers etc. I considered their lifestyles and relative comfort. I considered how well they could take care of their wives, and I considered their retirement lifestyles. I considered their deaths. Since they were my people, and I knew the facts (more or less) it was very informative. If you talk to patients they will tell you their stories, tell you what they did and what they did wrong (regrets) and that info goes in the hopper too. I’m an upper middle class white boy who grew up in the 50’s lower to middle class and I come from lower to middle class people. I will die an upper middle class death, and leave some legacy to give my kids a boost up. It’s not hard to fund something like that, if you are clear that is what you’re funding. I just read an article that people think they will need 1.7M on the average to retire comfortably as a couple, according to Schwab, and that isn’t early retirement, maybe 62 early but not 32 early. People are smart. People have a clue. People have a sense of risk. People have lived lives that has taught them more than 10 things.

  2. If you are a gadfly, we need more gadflies. The groupthink of the blogging echo chamber isn’t that helpful.

    I do think getting doctors to know just 10 things about investing or personal finance would be a huge step-up in their knowledge.

    It is a sad scene out there. Bill Bernstein would agree with you that physicians don’t put in enough rigor and study when thinking outside of medicine.

    I love the comments about how to think independently and the value of classical education. I studied Liberal Arts and earned a BA degree with a lot of analytical courses. Learning how to think critically and independently was the best thing I got out of college.

    1. Hi WD, I wish it was as truly easy as the agenda pretends. Investing is risky. The only thing more risky is not investing (and maybe debt). All you an do is have a simple plan available that will work as long as the the market continues in general to rise. Best you can do and they will buy it or they won’t. The problem is not saving, it’s the spend down. That’s where the risk lives and people are risk averse.

      I had a blast in college. I did a lot of science math and engineering but also logic philosophy language historical humanities. It does lead to systematic critical thinking.

  3. So I am planning my husband’s retirement. I agree that it is NOT as easy as how huge my stash is. Equity investing in particular is volatile which is exactly what one does not want in retirement.

    However I do not want a part time job with managing RE. We did well when we had more but I see it could have turned out poorly. We were just lucky.

    I am using government benefits delayed till 70. I am using bonds in my RMD account. I am using GIC ladders. I am also getting a very firm handle on what our true expenses are and will likely be in the future.

    There are simply a crap ton of variables to think and plan around.

    Plus now our daughter wants to pursue a different path in her studies. That is code for it will likely be more expensive.

    Spending shocks is well named.

    Like your recent operation Gasem. I was quite relieved to see you start posting again post op.

    Life throws curveballs. Sometimes a lot of them.

    1. Hey MB, Yes I have a daughter with shifting career ambitions as well. Managing that risk is actually more important to me than portfolio risk, not from a financial perspective but from a perspective of where she ends up 50 years from now after I’m long dead. She can call the tune but she can’t self destruct. I’ll stand in the way of self destruction.

      Any way one manage’s funds is OK with me, Robo or Hobo, government gravy or brokerage groovy AUM or DUMB. If you have few wants and liabilities it’s easier on the portfolio till the hammer comes down and you start to generate medical bills and such. My wife over the weekend generated a vitreous separation with some retinal bruising and concomitant visual field disturbance and the traipsing from generalist to specialist ensued. Fortunately I still have a little juice and got her what she needed pronto. No retinal tear, no retinal separation no obvious macular or foveal swelling or degeneration. Her scans looked normal to me, A little HB in the vitreous, should resolve over months. Vitreal separation is a normal function of aging. You just never know. Possessing long term solvency is literally worth it’s weight in gold. My heart surgery was $600K, 500K generated in one month. I did not cheap out on insurance prior to the event but it’s so easy to misstep and zig when you shoulda zagged. Fortunately we zagged. My goal is to shed a little light on the journey

      As far as my recovery, I’m about 90% and it’s coming along. Came out of the deal with normal LV wall motion and normal EF and a mammary artery feeding my cardiac arteries beside a couple vein grafts So I bought 10-20 years. I was on a ton of medicine post op including amiodarone for arrhythmia but have weaned that down to a beta blocker and an arb and I remain in sinus. Amio is a NASTY drug, glad it’s gone! I work out 7 days a week 45 -75 minutes a day split between weights and treadmill with weight vest and keep my HR around 160 through the course. My weights are set up in circuit so I just go from station to station keeping my HR around 150 to 165 throughout and recover to the 70’s in 2 minutes. Not bad for an old duffer. This is an advantage of retirement I have absolutely no excuse. No labor epidurals, no up all night with an emergency AAA, 8 hours of sleep plus a nap if I want and plenty of things to learn.

      1. I’m curious on the heart surgery expenses – you mention 500k/600k – clearly that was before insurance? Assuming you can buy insurance for a reasonable rate – isn’t that a hedge against such exorbitant costs? Even if you are buying a gold plan somewhere – as long as you are budgeting for it – it’s a hedge.

        Separately but related, you mention fracturing a hip while having fun – having a job doesn’t really help you when you fracture a hip – you might have some insurance, but if you can’t go back to work, you aren’t going to have that insurance for long. Plus, many won’t have income if not working anyway…. Being FI, you at least have a money stream coming in to help pay for hamburgers while you are laying in bed at home. 🙂

        1. 600K is what insurance paid. It was not a before number. I had the goldest of plans Medicare plus a supplemental that paid everything after a small deductible. I have no idea what it would have cost at non medicare rates but lets say it the equivalent bill Obama care pays typically 70% once the deductible is met, Say the deductible is 10K and the premium is 10K. That means your bill is 20K + 0.3 * 600K = 200K. Your point about budgeting is exactly right, now you know how much to budget. I believe the hip reference was to the article on disability insurance actually being portfolio insurance. The point of that is a large unexpected expenditure can really knock the hell out of the presumption of being FI. People like to think FI actually means something in terms of a guarantee on the future, if 25% of your money evaporates you may no longer be FI. Having money for hamburgers is very good! I’m a fan.

          1. I completely agree that large expenditures, planned or unplanned can change someone’s perception of FI – I did want to point out that the exposure to catastrophic medical in any given year is limited to the max out of pocket for a given plan. I was on an ACA plan during a planned gap year 2 years ago – we had a max out of pocket of 10k – and I can testify that it is a max – we hit it with a run of juvenile arthritis. In this case insurance indeed provided insurance! Total medical for the year was the max out of pocket of 10k + the premiums of 18k – for a total of 28k. (family of 4)

          2. Thanks JK for the info.

            I reviewed plans when they first came out in FL (Blue Cross) and they did not work like you describe. I have not reviewed them since. Glad they do work now.

  4. Very astute post. I’m in the early stages of my retirement planning so I appreciate your blog as a way to add knowledge and others experience to my 10 things. I have a planning spreadsheet with all my accounts. Whenever I read one of these posts, there’s always another variable to add to the spreadsheet. Thanks I think!

    Like MB, I to am glad you’re back blogging. My father had refractory a-fib, so I fully agree that amiodarone is a very nasty drug. The only drug that worked for him was the equally terrible flecainide. Nothing but side effects but it did slow his HR into some semblance of normalcy.

    Sadly he recently passed away. He handled the household finances in a DIY manner so I’m helping my mom who never had to deal with this stuff. While I’m not surprised, true to his engineering background everything was organized and catagorized. What was surprising was the size of the portfolio, way bigger than I ever imagined, mostly in growth mutual funds. Even more surprising, most of the IRA funds were in Roth. He wasn’t even allowed to convert the tIRA until 2010, almost 20 years after he retired. He always complained about and never wanted his RMD, SS and taxable were enough so he shrunk it. Not my plan, but it certainly worked well. My mom is well provided for and any inheritance will have minimal tax load for me and my siblings. I think he knew the SECURE act was coming.

    1. Those engineers, I tell ya, optimization experts. The word engineer is derived from a word that means “clever”. My dad owned a stone mill and quarry for a while. I worked there for 60 cents an hour but it helped feed my family. One day we were out at the quarry and he needed to raise 20 tons of stone onto a truck but the derrick wasn’t powerful enough to overcome 20 tons on the end of a lever arm. He could rotate around a circle however. Next to the derrick was a quarry pit full of water he rotated the block into the water and used water pressure displacement to lighten the block enough, effectively floating the block, so the derrick was effective. I was probably 15 but I totally got it, yes clever. He also left my Mom well cared for and was also a bug a boo on minimizing taxes. It’s very informative to understand precisely how someone else did it. That’s how you share the wealth, far more than any boiler plate click bait “rules”. A scenario may not appeal to everyone but likely will apply to someone.

      Fortunately my afib was due to reactive inflammation from the operation and soon dissipated enough I could wean the drug. My dad also was on amio, he died from fulmanent pulmonary fibrosis and likely amio was contributory. Not sure what is worse the stroke from the afib or the amio to avoid the stroke. You’ll kill it GF

  5. I’ve been reading financial blogs daily since 2011 when I finished my masters and started my well paying job with almost 6 figures of student debt. I’ve seen blogs come and go and read a lot of opinions and perspectives. I enjoyed reading your comments on blogs and bookmarked your guest post so I was thrilled when you started your own blog. Thank you for going against the grain of the majority of the of PF bloggers and sharing your insights. I’m a chronic optimizer and your posts have made me see my investments and financial plan in a new light. I’m so grateful for your quasi mentorship through this blog. I’m the first person in my family to go to college and my husband and my husband has only a fraction of my interest in finance. We’re coming up on 1 mill in invested assets and your posts have really helped me start planning the framework for our future. Thank you and I’m so glad to hear your recovery is going well!

    1. Hi LX, what a nice post. I’m just sharing my journey, but I’m dead serious about the journey and enjoy engaging the study of retirement planning. I think people adopt whatever philosophy brings them to the party and if it’s MMM they buy and go ride a bike. If it’s boggleheads they pull out the tambourine and start to chant 4 x 25, 4 x 25. I have no dog in that hunt. This is America and people can do what they want, but it’s reasonable to granularize the future which is what I attempt to do.

      I came to retirement by a different means after years of trading, investing, loosing and winning, reading money magazine etc etc, I came across the notion of quantitative investing. I finally had a model to optimize and a literature to study that had noble prize winners as the authors. It changed my investing life and that’s who brought me to the party. I never thought about RE because I enjoyed my work nearly up to the end and never heard of boggleheads or MMM or WCI till a year after I retired.

      I’ve learned a ton since discovering boggleheads because it gave me another point of view to contrast with and I think the synthesis of points of view creates something even better so it’s both/and not either/ or. I do have a goal in my analysis and it’s in my “about” statement especially: “To die rich? Who cares? To not die poor? That’s the ticket!” That statement is all about risk management, the one thing not well covered in FIRE. The other thing not covered is failure. Have you ever read about FIRE failure? I haven’t either. The way you succeed is to analyze the failure, where is the failure? You really have to dig for it, but when you find it, its a piece of gold. If you engage you will succeed. In America you get to be anything you want.

  6. Man, I just found your blog and absolutely love your writing. I’ve been living and breathing WCI and PoF (and the greater FIRE movement) for the past couple years as I transition from residency through fellowship into practice. Your take is a splash of cold water, equally jolting and refreshing. I’ve found so many of the current takes (esp around the FIRE movie) insufferable, but have nowhere near the words you have. Really appreciate your perspective.

    1. Hi Dr PB Yea I’m the itinerant old crotchety retired bastard in the group. When you retire the whole perspective shifts from accumulation to risk management. WCI and PoF have their legit points of view, I’m a bit of counterpoint. Good luck in your endeavor

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