Break on through to the other side – life philosophies

Today we are lucky to have a guest post from someone over on the other side of the continent… Florida that is. After my recent posts on the Tubb’s Fire, our evacuation, and the loss of our home and all of our earthly possessions our retired doc reached out to me. We had some great email exchanges and I asked him to write a guest post about his life philosophies…So here you are. Enjoy reading someone else’s perspective on work, life, and retirement.

Break on through to the other side

EJ asked me to guest post about how I got here. We share the experience of having our houses burn down a year or so into attending-hood and the chaos that ensued.   

I am a fully retired Anesthesiologist and Pain specialist. I turned 65 this year so I’m truly done.  No more side gigs.  I’ve turned my work back into my time, and it feels great, though still a little foreign.  It’s very Zen.  Zen is a form of vigilance and self discovery through meditation.  I don’t meditate, but my new freedom and lack of stress, my ability to attend to whatever I want whenever I want is delicious.  Describing retirement is a bit like describing the taste of honey, impossible except by actually living through the neurological experience.

Ed. Man this makes me want to retire early for sure. I have studied meditation and Zen Buddhism practices in particular. It is a matter of presence and mindfulness. Focusing on the actions to lead to insight. As for honey, it is delicious and I eat some every day.

My history

I started my work life at age 11 with a paper route, worked in a gas station, drove a truck, drove a wrecker, worked in a stone quarry ballin’ a jack hammer, worked as a janitor, delivered pizza, eventually became a research scientist then an electrical engineer.  In college I taught physics and HATED teaching the premeds.  One thing I would NEVER become is a physician.  Never say never. 

I acquired a girlfriend (Nurse) who was divorced from a academic Nephrologist and soon realized my engineer’s salary wasn’t going to cut it so I spent a year studying for the MCAT.  I scored in the top 1%, so I applied. 

By then I was 29.  I had a side gig teaching electronics in a local Jr college and I was taking some grad level Physiology coursework at the local university. So I wasn’t completely out of academia. 

It was fun to see my interviewers get to my MCAT scores.. Pause.. I say that so you can live vicariously since we’ve all suffered through those interviews.  I got in, the girlfriend flew the coup (proof God loves me), and it turned out I was destined to be a physician.  I say all that because the totality of my experience led me to my career, not just a dogged career path.

Ed. Pretty wild how life can lead you down the path you were meant to live. From engineer to doctor and all because of a woman. Wars have been raged for similar reasons (Helen of Troy!) and many will continue to make decisions based on companionship going forward.


Agreed though, you are lucky she flew the coup. It allowed for the rest of your journey to unfold. And yes, NEVER SAY NEVER. I have learned that more than a few times in my short time on this earth.

Rule #1 Be open to change

It was 1981 and interest rates were 18% with repayment starting immediately.  I had saved enough money as an engineer to fund my education, EXCEPT inflation cleaned my clock.  (note this)  I was out of money by the end of my 2nd year.  No way in hell was I going to take out a 18% loan so I raised my right hand and swore to defend the Constitution with my life, and went Anchors Away. 

I joined the Navy.  They paid for 2 years and I served for 2 years. Fair deal IMHO.  They let me finish my residency and I trained as a cardiac anesthesiologist and learned to stand toe to toe with the biggest ego’s in the universe!  Actually I had a blast.   Medicine was so interesting, saving lives and wining valuable prizes. I had let them socialize me.

I got to my first duty station.  All this high horse power cardiac training and they needed a pain management Doc. I knew something about pain management so I saw a couple patients. In a month I had become the pain management doc for the Southeastern US for all the services. This was back before pain became what it is today. They also made me assistant director of the ICU.  (Don’t volunteer)

Ed. Thank you for your service. I had debated joining the military to pay for medical school (this was pre-9/11). Financially it does not make sense in the long run, but as a 22 year old looking at $200k in debt it sure looked promising. The other downside of military training is that they can determine how you train and what you do when you come out.

Rule #2 When life hands you lemons make some hard lemonade!    

I was in during Desert Storm, we were going to deploy but then we didn’t, and soon after I was retired. I took some locums work around FL and longer jobs because I wanted to get a feel for different practice styles. I only took jobs where I could live on the beach. I made them get me a condo and I brought my wife, she brought her WOK and life was golden. I banked my salary, we lived off the perdeim and before you knew it I had $300K in a retirement account.

Ed. Working locums like another anesthesiologist I know – Physician on Fire. You are a man much like me. The way to my heart is my stomach and my wife is a great cook. I also know my way around a kitchen, but not like her.

It also seems like you grew your retirement accounts quite quickly. I am 4 years out and still not at $300k in my 401k. This is due to my student loans and other foolish things I did early in my life.

Rule #3 Save early, save a lot. Don’t buy crap like Porsches or Mercedes. Marry a girl who knows her way around a wok and is willing to put up with your BS.

I invested in mutual funds but in those days it was pretty much all about actively managed funds like Fidelity Magellan. I eventually found a practice I liked and became fee for service private practice, in other words my own boss.  Best move I ever made.  Nothing clears the mind like working for yourself.  Just don’t take it too far. 

I got into some side gigs and K-1’s and limited liability deals,  Not recommended unless you completely understand the business. My hospital forced us into a group, so suddenly I was a group owner with employees and contracts and payroll and rules of incorporation, retirement funds tax accounting for a C corp and so on and so on and scooby dooby dooby. 

It was a lot more work but I maintained control over our future so for me it payed off. During this time I started a pain block practice on the side. I did the practice in the hospital so I had no  overhead. It was a side gig. I put away about $300K extra per year just from this gig.  Far far more than what any of that K-1 crap generated.

Ed. Amazing how side gigs can pay so much. Pain is one of those fields though with a large financial reward. As far as being our own bosses, it seems like medicine now is going further and further into a employee based business which I think will lead to further burnout in medicine. This is one of my biggest concerns about the future of all of our fields.

Rule #4 leverage what you know. If what you know generates a lot of dough why screw around playing with yourself being a tycoon? Medicine is way too lucrative. 

Ed. Also known as keep it simple. We are doctors and we make a high income. Don’t go playing around with stocks thinking you will hit it big. There are people doing that for a living and only a small portion of them can beat the market.

Rule #5 Being the boss is good, a real headache but good none the less.

I went through a bunch of different portfolio styles, even did some day trading and option trading and commodities.  Too much work though I did make some money. 

I adopted 2 girls from China, and with the last one I took a laptop to China and made $50K day trading, though it was night trading since China is 12 hours ahead.  This paid for both adoptions, but I wouldn’t recommend. 

Just stick to plunging money into whatever gives you the most return week in week out.  I went through several recessions.  The key to recessions is low volatility.  I

n 2008 I decided to get professional management instead of DYI after I read a book by Ben Stein and Phil Demuth who introduced me to Modern Portfolio Theory and the Efficient Frontier.  This was the portfolio I had been searching for. 

In Oct 2 2007 My less volatile portfolio started to fall, and fell 2/3 of what the SPY did, and by 2011 I was even.  By 2013 I was 18% ahead.  It took SPY till 2013 to reach zero because of the higher vol. During the same time frame.  I’m not dissing anyone’s portfolio I’m just saying vol is as important as return maybe more important.

Interesting. I am typically a fan of a S & P indexed fund, but there is a point to be made for 3 fund portfolios or some other type of diversification. I don’t think anyone here faults others for their portfolios, just if they are spending a ton of money on fees and actively managed funds.

Rule #6 Watch your volatility.  Don’t just start adding stuff to your portfolio by guessing. Did you know VNQ has a volatility of 25%?  VTI is only 15%  

Eventually our group lost the contract, we were replaced by Blackstone, yes that Blackstone.  So I retired. In the meantime a group of surgeons became tired of being jerked around by the hospital so they built a surgery center and guess who still had a corporation, malpractice and a billing mechanism.

My partner and I set up that place.  No call, no weekends, health care, about 20 hours 4 days a week, damn near nirvana.  I did that for 7 years.  We eventually sold out to a management company so the center would have continuity in staffing when we split. I hated being an employee.  Finally I got a snoot full of “modern corporate medicine” and bid it Adios the week I completed enough income to make my SS cap.

This is not the story of FIRE but it is the story of how to leverage what you know, and make it pay you. I could have made it work when I retired the first time, but the idea of setting up a SDSC intrigue me, and it was very lucrative.  I did not buy in because:

Rule #7  Know who you’re going to whom you’re going to sell. In this town there really isn’t anyone to sell the ownership shares so don’t buy.

Financially I’m good. I came to understand continuing to work after I already made all the money was just buying me liability. Plus I can sleep to noon if I want.

Portfolio wise I quit funding pretax accounts about 7 years ago when I realized I had way too much money in those accounts.  Required minimum distribution plus the Social Security Administration was going to kill me tax-wise.

I had always bought post tax stocks beyond funding the traditional IRA’s. Learning how to tax loss harvest early in my life, I have plenty of loss to apply against capital gains. I need to empty as much as I can from the traditional IRA and Roth convert it until I hit required minimum distributions at 70. 

So what I did was cash in 60 months of living expense from my post tax stocks, mixed it with about $100K cap loss from my harvest, and paid zero tax for that 5 years of living expense.   My only tax will be what the Roth convert generates. 

If the Trump tax cuts pass, I should be able to free up $114K per year at 12%. I still have $400K of capital loss left, which will be very useful. I have about twice as much in post-tax money as pre-tax money.  Nobody recommends this but I find it very useful. 

If I want a car I just slice a piece off the post-tax roast, mix it with some capital gains loss, pay no taxes and have a nice life. You heard it here first.  I put the 60 month’s of cash into VWSUX (gotta love that name- Vangaurd Short-Term Tax-Exempt Fund Admiral Shares) which is a municipal bond fund so it pays something anyway.

I am happy with my professional management.  It’s a straight fee, about 0.5%, but I get access to a better efficient frontier than the Bogelhead 3 which means a little more gain and less volatility. I have access to funds used by portfolio managers which are optimized for efficiency. They are NOT actively managed and are cheap. If I kick the bucket my wife will be properly be taken care of. If you pay 0.5% but make back 1.25%……

I’m waiting to 70 for Social Security since I need zero income to maximally Roth convert. The guaranteed 8% growth is groovy and if I die my wife will max out that annuity. When I reach 70, I will have to re-evaluate my cash flow, essentially retire again based on required minimum distributions and Social Security. 1st world problems!

Conclusion

I’m not recommending any of this, it’s just what I did.  There are many things I would do different now that I’m a smarter man. My wife is younger so she has a 45 year horizon.  We sweep a little less than 3% and Big-ERN’s spreadsheet says I could safely do 3.9% with Social Security, so I ain’t fretting anything except the EMP.  Hope this narrative is of some value, it’s a little counter cultural to the typical FIRE boilerplate.

Rule #8  Don’t quit too soon, this isn’t a race it’s your foundation to your future

Made the scene
Week to week
Day to day
Hour to hour
The gate is straight
Deep and wide

  Break on through to the other side

Jim Morrison Jan 1 1967

Ed. There you have it. One docs experience in life. I know it was long but it is nice to see how someone’s life has led to a comfortable retirement. Here are the rules broken down:

#1 be open to change

#2 When life hands you lemons make some hard lemonade!

#3 Save early, save a lot. Don’t buy crap like Porsches or Mercedes. Marry a girl who knows her way around a wok and is willing to put up with your BS.

#4 leverage what you know.  If what you know generates a lot of dough why screw around playing with yourself being a tycoon?  Medicine is way too lucrative. 

#5 Being the boss is good, a real headache but good none the less.

#6 Watch your volatility. Don’t just start adding stuff to your portfolio by guessing. Did you know VNQ has a volatility of 25%?  VTI is only 15%

#7  Know who you’re going to whom you’re going to sell. In this town there really isn’t anyone to sell the ownership shares so don’t buy.

#8  Don’t quit too soon, this isn’t a race it’s your foundation to your future

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DadsDollarsDebts

I am a Dad and Doctor trying to make sure I am living life in the best way possible. Whether it is having my finances together, being a great parent, or balancing my home life with work, I am here to kick a$$ and help you do the same.

13 thoughts on “Break on through to the other side – life philosophies

  • January 24, 2018 at 7:28 am
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    You know the day destroys the night
    Night divides the day

    Any post that includes the Doors is bound to contain a lot of wisdom. And this one certainly proved that adage. Thank you, sir.

  • January 21, 2018 at 1:25 pm
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    >When life hands you lemons make some hard lemonade!

    Now THAT’S a life philosophy I can get behind!

  • January 17, 2018 at 9:10 am
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    Ha ha, the guaranteed 8% growth is groovy! Sorry, I couldn’t help myself.

    I don’t know what I’m more impressed with — your service to our country or adopting two little girls. Thank you for both.

    You’ve given me lots to think about. We’ve done a bit of tax loss harvesting but haven’t had huge losses.

    Mr. Groovy and I are ages 56 and 58 and haven’t touched our traditional IRAs since we’re keeping income low for the ACA. In 2019 we should be able to get a decent health plan outside of ACA and begin the Roth conversions.

  • January 14, 2018 at 11:53 am
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    Interesting, what a busy life. I hope my professional life is boring compared with this, I’m early in my career. All that change gives me anxiety.

    Thanks for your Naval service. My co resident in radonc was a naval academy grad and taught at the nuclear school. That guy brought out my best, what a good doc, motivator and person.

    I have heard so many people sing the praises of tax loss harvesting. The problem I have is that it lowers you tax basis so tax on gain is larger later when selling. I guess if one needs to sell a lot of depreciated assets for some reason, it could make sense. However, for the passive buy and hold crowd, I’m not sure I see it’s benefit. I’m glad you can slice off the roast tax free, but isn’t that at the cost of a lower cost basis? Might it be a wash? Plus, if you live in the zero% CG bracket it won’t matter anyway. Sounds like you have some RMD and SS checks that won’t make that possible.

    • January 15, 2018 at 1:56 pm
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      At the time I had no idea how lucrative my Navy deal would be. Blind pig finds acorn. I just knew a big loan at 18% would kill my future. It was the time when Jimmy Carter went off the rails and people were freaking out about tuition. The Navy got smart the year after I made my deal and started requiring 2 years payback for 1 year of school. My scholarship was 2 years payback for 2 years school. The scholarship paid tuition plus a living stipend. When I went active duty as an O-3 I made a salary about $90K per year salary plus bonuses (or something like that. Frankly I don’t remember) and I was fortunate to do some moonlighting for the local hospital groups as well as train myself to be more effective in the practice of pain medicine, had a better training in trauma medicine and ICU experience. Plus I arrived in Civilian practice with no debt. It was both a blessing and a pleasure to serve. I made a lot of interesting friends, good salt of the earth peeps.

      Tax loss harvesting is not a panacea but a flexibility that allows you to better control the future. Eventually I will run out of LTcap gain but in the meantime in the above example it saved me about $100K in taxes to pull off my Roth conversion maneuver. That $100K is a lot of European vacations.

      It also becomes important if you’re hovering around let’s say $150K spending in retirement. The tax law lets you pay 0% cap gain up to $104,000 (top of the “married over 65 standard deduction” 12% bracket) and 15% on the amount above 12% till you get to the highest bracket where you are charged 20%. So on my $150K slice of roast $104,000 is tax free and I am taxed 15% ($6900) on the remaining $46,000 for an effective tax rate of 4.6%. But with some LTCL in the bucket My effective tax rate is 0%. So you are right in your basis analysis, but by the time I run out of LTCL I may be dead. It also prolongs my portfolio since I can leave that $6900 invested and use it’s future value to pay my taxes when I run out of LTCL. This strategy therefore turns my post tax stock account into something very close to a Roth, while the LTCL lasts and it glide slopes down to full nut cap gains after the LTCL runs out because of the growth of money I was able to not spend on taxes. It didn’t cost me anything to collect the loss, I merely sold at a loss, booked the loss, and reinvested into another broad based index of similar performance.

      By using this strategy I can leave my real Roth accounts unmolested and growing and as a possible transfer of wealth vehicle to my kids. Something interesting to consider is what happens if your spouse dies. In that case your 12% tax rate jumps to well into the 24% bracket, because “12% single age 65” ends at $52,300 instead of 104,000. So on the above $150,000 example you would be $0 cap gain to $52,300 and $14,665 on the remaining $97,700 for an effective tax rate of nearly 10%. With LTCL you can better mitigate that tax cost

      This “spouse dies” scenario is also extremely dangerous tax wise, if your RMD is high and you are getting SS. Best argument ever to Roth convert.

      Here is a useful calculator to do the whatif: http://taxplancalculator.com/calc

      • January 15, 2018 at 5:28 pm
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        Ok I think I’m following you. (Interesting bit about dead spouse tax implications)

        Thanks for educating me, bear with me a bit longer please.

        So, if I were to retire and plan on spending every red cent AND assume that my cost of living decreased 50% when my spouse died AND always live in the zero% LTCG bracket AND never have any traditional IRA I wanted to Roth convert. If all those Boolean ANDs were satisfied, what would be the benefit of Tax loss harvesting?

        • January 15, 2018 at 10:07 pm
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          https://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/ira_calculators/rmd

          This is the Schwab RMD calculator. Plug in some numbers and you will discover what is going to happen to you when you RMD. That money is taxed as ordinary income. So one thing you can do is pay your taxes from your post tax account by selling some stock and mixing it with some LTCL. It is recommended you pay taxes from a source outside of the IRA.

          Your Boolean however is unrealistic in that your IRA will likely generate much greater sums than the 0% cap gains >65, single limit. For example with a $1mil IRA and RMD at age 70 your RMD +SS will already be bigger than the the $52,300 limit of the 0% cap gain. At age 70 the required RMD will be $36,496 on $1 mil. The taxable portion of SS is 85% of the benefit. If you max out the FICA contribution during your working life your SS at age 70 is $42,500 so $36,125 is taxable for a total taxable income of $72,621. The tax on 72,621 (single 65) is $8924 so you can pull out$9000 from your taxable account mix with LTCL and pay the tax and spend $72,621. Here is the rub. at age 80 your RMD will be $63,124 and you will get an inflation adjusted $36125 from SS. If inflation is 2% your taxable SS will be $44,036 and your net taxable income will be $107,160 with a tax bite of $16,744 again best paid from post tax + LTCL. This will continue with a bigger and bigger tax bite each year till age 97 when the RMD annuity starts to decrease a little, BUT SS continues to increase with inflation. The projected age 97 income would be $166,880 with taxes of $31,700. At age 97 it is projected you will still have $742,000 in the IRA and the IRA will be depleted at age 115 paying taxes all along the way. The point being the government is going to get their taxes out of you and post tax plus LTCL helps you maintain your spending power. If you try to spend every red cent your taxes will be MUCH higher.

          How’s that?

          • January 15, 2018 at 10:22 pm
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            Another thing you can do is retire early, live on tax free post tax money with LTCL till you reach an age where you can tap pretax money without penalty. If you can live on $52,300 while paying health care and taxes more power to you.

            People can contract their spending about 20% before it gets very annoying. At 50% I’m sure you could subsist but it would feel very tight. If a spouse dies it’s unlikely your expenses drop 50%.

          • January 16, 2018 at 10:21 am
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            Beautiful!
            I feel like I’m starting to wrap my head around the retirement issues. Things get complicated with RMDs.

        • January 16, 2018 at 1:50 pm
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          Actually the complexity comes with taxes. We talk about multiple streams of income but the government does the same. They rely on millions of streams and under force of law and have constructed funnels under force of law to Hoover up your dough. There are advantages built in however to control to some extent the Hoover’s suction. If you are a dump the money in a pre tax account take 4% and take a nap kind of investor the government has a big Hoover aimed at your money when you RMD. If you spent 20 years planning for RMD then you have options. Passive income retirement is about making your money last longer than you in the face of the Hoover. That planning is over decades Tax losses harvesting occurs when you book a loss. So pay attention to losses and consider the future advantage of booking that loss

    • January 15, 2018 at 1:58 pm
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      TNX WD

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