“I am not young enough to know everything .”Oscar Wilde, Irish Poet & Playwright
One piece of wisdom that I have garnered as I age is that I really should listen to those who have gone before me. Honestly, I only really came to appreciate this as I approached the age of 40. Perhaps, I am a slow learner. Prior to that, I still had a teenager-like superiority complex.
There were two main rationalizations that I had: 1) Things are different now and my elders mean well, but just don’t understand the new world in which we live. 2) I simply learned more quickly and am advanced for my age. I suspect youth felt the same way when Oscar Wilde came out with the above quote over a century ago.
Regardless, this week’s post is wisdom from a more senior colleague. You have heard many of my opinions as an early-40s physician, but I think these insights from someone further along the journey are very helpful.
About Dr. Latestart
Dr. Latestart finished training at an older age than those who took the direct sprint down the usual well-worn path from highschool. Once practicing medicine, he got thrust into the typical medical script due to his skills and promise (clinical job, academic job, and administrative/leadership role). In under a decade, he had a wake-up call with a cardiac event while on the job. Ironically, while running a code blue.
Wisely, he deviated from the script again and has gone on to have a fulfilling career, balanced life, and still has financial security. His story both “makes real”, and is lived experience of, what building holistic wealth means. The wisdom that he shares with us from his experience is reassuring for those of us who also deviate from the script by choice or unforeseen circumstance. It is also great advice for all of us, wherever we are on our career/life journey. Best lived as a journey rather than a race, and better “won” by the tortoises than the hares.
Thoughts on Financial Tortoises (by Dr. Latestart).
Everyone’s medical career path is different, but rest assured that medicine is a good career to navigate life with.
Some of us may be late out of the starting gate and this may add worry and stress to what is likely a shorter career than average. You may be a recent immigrant who has had to requalify in Canada. Or you may have made some very poor investment decisions which have left you with little net worth half-way through your career. Plans can be altered temporarily or permanently due to personal or family illness. Life will humble even the best of planners.
You can plan a route, but you also need to navigate.
Luckily, given the average remuneration for Canadian physicians (CIHI study, Globe and Mail, 2013) of $307,000, before overhead, you have the capacity to course-correct if needed. For perspective – individually, you will make 2-3 times the average Canadian family couple income before taxes (Between 83K-120K, StatsCan 2017). So, although you may slightly loosen the purse strings after years of abnegation, (unless you get extreme) the chances are that you will still be okay.
Even though you may not have a direct flight with no turbulence along the way, you can still look forward to a reasonable retirement if you don’t despair and follow certain rules.
#1 Pay for your taxes and retirement before you can be tempted.
If you are incorporated, you can determine your own income and smooth your cash flow. If you limit your expenses, there is a sweet spot of around 150K annual salary which will allow you to contribute fully to your RRSP and TFSA while avoiding the highest tax brackets. The money left in the personal corporation is thick gravy.
If you don’t incorporate, you will have to discipline yourself to not get behind on quarterly tax installments and be sure to catch up on any unused TFSA contribution room. The best way is to automatically transfer (hide from temptation) about 30-40% of your gross income into a “Tax Account” right off the bat. The 30% is based on $150K and contributing maximally to your RRSP (about 26K a year). It would be higher as you earn more – about 40% average tax rate for $300K. There are good detailed online income tax calculators to give an estimate. You may have earned the money, but it is not really all yours.
#2 You can live better than average, but not wildly so.
What will hinder you are expensive discretionary expenses: mortgage, cars and expensive travel. Yes, a mortgage is discretionary. If you can’t pay off the mortgage by the time you plan to retire, or reduce your workload, then it is too much—unless it is in a top-notch location which you plan to move out of when you retire. And a Subaru will get you from A to B just as well as an Audi for half the monthly expense.
You get much more bang for your buck by spending less than you do from working more. You save on both the sales tax and the diminishing returns from working into higher income tax brackets.
#3 Slow, steady, and consistent investing will get you there.
Even with no net worth at the outset, by contributing maximally over just 15-20 years you can have at least $1.8-2.1 million in capital. That is even in a low performing portfolio at 4.5% annual return. Plus, your house should be paid off at that point. You can use the many free online calculators that banks and insurance companies offer to prove this using your own data. That is far more than most Canadians can hope to accumulate. Steadily and consistently investing over many years will get you there. If you work more 15-20 years, then it will only grow further.
#4 Your biggest asset is your ability to work. Be a tortoise. Be steady.
Buy enough disability insurance to help eliminate worry. Worrying will eat into your ability to work. If you take care of your health and contribute maximally, then you can stop worrying. That is the middle road. Other choices are to live fast and die poor, or live poor and die rich. Then there is living sick and poor.
When you start out late, you are probabilistically closer to an event which will hinder your ability to live long and prosper (see above ECG). You can (and should) buy disability and/or critical illness insurance, but that is still the same as betting that your house will catch fire. You don’t want to have to use it!
#5 Buy the right insurance, but make your own.
What you can do proactively is maintain a basic level of physical fitness which will contribute greatly to your ability to live life to its fullest and work. The side benefits are better sleep, mood, improved insulin resistance, weight control, cardio-respiratory health, lower cancer risk, and the list goes on. If you work at a desk for a substantial part of the day, this is even more important. It is likely the most important investment you will ever make.
If you can’t find 30 minutes a day for living, then you’d better take that time to plan on dying.
Only 30 minutes a day. Or 150 minutes a week. The commonest excuse is “there is no time in my schedule”. In response, the best answer I have come across is that “if you can’t find 30 minutes a day for living, you better take that time to plan on dying”.
You don’t have to go overboard. Training for triathlons is another disease. Just do something that resembles the life of our hunter-gatherer ancestors: Move. It is the best investment in your ability to work (again, your biggest financial asset).
If necessary, even working half time you, will likely have more income than you would on disability. Plus, disability insurance won’t even continue after age 65.
Be A Tortoise
Tortoises live long, but they move every day to find food. My grandmother did as much. She didn’t have a fridge until she was 85. So, she would go out daily and buy her food fresh. She died at 113.
Move slowly, intentionally, and consistently with your spending, saving, and investing. Do this with your work also. If your work schedule really impedes some reasonable amount of physical activity, then you should question your work schedule. In medicine, work can easily flow into the off-hours and weekends with CME, academic demands, administrative tasks and extra availability (unplanned call).
Resist. Compensate. Move.