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Spending Flexibility Is Much More Important Than Your Retirement Savings

Leveraging Your Ability To Control Expenses In Order To Retire Earlier On Less Savings

The financial planners are having a tougher time designing retirement strategies for their clients who are living longer, retiring earlier in an economic environment of low returns. Wall Street used to have some nice returns back in the day, allowing financial advisers to calculate in an 8% return on investment. William Bernstein’s research shows that nominal returns (before taxes, inflation, fees) on index funds is somewhere in the 5-6% range… that doesn’t leave much on the table.

For someone who is interested in early retirement the problem is only compounded. I feel bad for financial advisers because they, like us doctors, can’t really afford to make major mistakes in their client’s financial plans. Furthermore, finances are highly influenced by the client’s behavior. The non-compliant investor who bails on their investments when the market crashes instead of riding out a valid low-market, or the one who decides to upgrade their home instead of build their portfolio will ruin the best written financial plan.

Let me share a very relevant story. I had a patient who suffered a penile fracture and came to me for follow-up in the urgent care, after having already had surgery once. My buddy had repaired this poor man’s dick after his injury suffered during the oh-so popular reverse cowgirl with his girlfriend. He was less than a month out and wasn’t supposed to resume sex yet… well, he did, and guess what he did? Yeap, the backwards cowgirl, again. So here he was, needing another surgery. The best urologist can’t help this guy.

This post is not just about minimizing your risk of penile fracture but also about recognizing a very powerful tool, your ability to flex your spending. I rarely hear anyone taking about it so let’s jump into some examples and talk about how you can ensure a healthier retirement this way. Some years your investments will return higher profits and some years lower or even negative returns… your ability to adjust to these fluctuations allows you to save less for retirement and have a more comfortable retirement.

I think retiring just to sit on your ass is bad for your health as well as bad for your soul, negatively affecting every being around you. Try to build a stash that can grow for years to come using the power of your high income. I talked about getting rid of all debt, then channeling the disposable income directly into your investments. A $500k investment can increase in value impressively if left to grow for several decades. In the meantime you build some passive income streams, or find a job that you love doing so much you’d do it for free.

The amount of income you need from your investments is determined by how much money you will spend in retirement. I like the idea of saving your stash early in your career as mentioned above and learning to be less dependent on expenses in order to create your desired lifestyle. Inevitably a time will come when you no longer need to pay much attention to your expenses.

The idea of having to flex your spending in retirement may sound depressing to some but remember that historically the market is profitable more years than it is down. Some months/years you can take out enough to even reinvest or keep aside as cash to use for splurging expenses. While some month/years it is wiser to take out less.


Imagine if you could live on less so that you could live in another country and work a job paying less than, much less than, what you are used to making as a doctor. If you have expense flexibility then you can trade a desired lifestyle for a higher income with a possibly shittier lifestyle.

Who hasn’t fantasized about having their own little cafe overseas or working as a barista, a job that most of us doctors are beyond able to handle due to our retail experience, also known as the US medical system.

Imagine living in a beautiful little city somewhere in the US, renting an affordable place, exploring the town and getting to know the people while working just 1 shift every few weeks in an urgent care/clinic. You can cover your overhead with very little income, you can use your free time to volunteer, and you can experience something totally different from what the average doctor has the luxury of doing.

This side income can be utilized in retirement or in a mini-retirement. It is especially helpful during those bull markets and those ‘crashes’ when the market isn’t giving up much returns. Here is a fresh example: November of last year (’15) my investments started eating shit and I would say now in April ’16 they are almost back to normal. If I was retired perhaps I would have picked up some shifts just so I wouldn’t have to pull money out of my investments. Absolutely necessary? no, but helpful.

Google Finance. VTSAX.

Now imagine you invested $500k over your working years and you see it grow to $1,000,000 right around the time you’re about to retire. Though you could now start the draw down process from your stash you are filled with some inexplicable worry of “what if this money runs out, let me allow it to grow a little longer since the economy is doing so poorly”. So you do just that, you know how to live on a reasonable income, which is lower than the average American spends, and you are flexible enough to go back to work and generate some income when the need or fear arises.

Why am I even mentioning this? After all, isn’t retirement supposed to be retiring from a job? The premise is that most of us want to be productive one way or another. Even if we stop working in medicine we will still find some way of generating a little income on the side, a hobby, real estate, an interest, etc.

If we want to retire knowing that there is no damn way that we would go broke in retirement then we would need a ton of money in our retirement accounts. This ton of money can only be had in 2 ways. Either you work a lot of hours, for many years, while saving a ton of money or you invest the shit out of that money and make it grow.

The first option sucks balls, in my opinion. Why work crazy hours in an ever-changing field with less and less job satisfaction just so one can lock themselves in their giant house in retirement and shut the world out?

The second option is quite feasible, investors do it all the time. However, it takes quite a lot of research, work, risk and a touch of luck. I am not comfortable using my entire stash for this purpose. Maybe 10%, but then again $50k isn’t much when it comes to investing aggressively.

Therefore, I choose option 3, saving just enough for retirement and banking on my ability to be flexible with my spending. With even a little adaptability my $500k will go 80% further than it would for someone who just wants to follow a ‘4% rule’.

Of course, you have to figure out what your number is. When you enter retirement what liabilities will you have, what assets will you have? If you have a paid off home, paid off car, no debt and just basic living expenses then you will do well.

What may hurt you in retirement is a high property tax. Remember, you won’t have much income in retirement, therefore you will be in a lower tax bracket, which means that very little of your property taxes will be tax-deductible.

I appreciate William Bernstein’s bleak (realistic) outlook on the future returns of mutual funds. However, for index funds to serve a purpose they have to return something to the investor otherwise I will keep my money in my savings account.

Worst case scenario my investments go down when I’m retired, but I will still get my dividends, let’s at 2%. That’s the number I will bank on as the very bottom line which I will need to cover my overhead with. An annual return of 2% of $500k would be enough to pay for my property taxes, HOA dues, food and transportation.

For the uber-fearful I will leave you with one last option, SPIA. If you hate the ups and downs of the market and just want someone to take your money and feed you a set monthly amount from it then you could consider this option. I’m still researching Single Premium Immediate Annuities but from what I’ve learned so far the money is actually guaranteed.


What do you think your retirement number will be?

Which method appeals the most to you? Saving more than needed, saving enough and flexing your spending or going with an annuity product?

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