There are three primary topics that I always discuss with you and our SimpliMD community:

1. Business structuring

2. Tax efficiency

3. Wealth accumulation planning

The key to maximizing all three of these is for you to start your professional micro-corporation. This is a recurring message here, and it presents a straightforward opportunity for each and every one of you simply because you have a medical license.

This would be a great time to mention my new course that I will be publishing early this summer called “Doctor, You Are A Business” and if you follow this link, you can save $500 by joining the wait list now. This will be a fantastic course to take in preparation for starting your own micro-corporation.

You might ask why this is so important? Because owning a business is the key ingredient to wealth accumulation in the US, and it's within reach of every one of you!

Owning a business has proven to be the primary source of wealth for 80% of pentamillionaires in the US.

For those unfamiliar with the term, a pentamillionaire is an individual with at least $5 million in investable assets. You can learn more about this in my post The Pentamillionaire Doctor: Your 10-Step SimpliMD Roadmap.

Allow me to rephrase the previous statement for you.

Opting to work as an employee, a path chosen by around 90% of new doctors, may not lead you to where you want to be. Why? Because in a large healthcare organization, punching the clock doesn’t reward your hard work and problem-solving abilities.

Your training instilled in you the belief that your individual effort, ambition, and resolve would empower you to control your own future. You’ll learn that it doesn’t translate well with traditional employment, but the good news is that it does resonate well with owning a micro-business.

Why all this talk about $5 million? Because it represents the net worth needed to achieve financial independence and support an annual spending rate of $200,000, which aligns with the lifestyle of many doctors.

For many of you, all of this chatter is linked to the Physician on FIRE movement. Personally, I am a fan of achieving financial independence, but I don't think it's necessary to retire early once you reach that point. Instead, I believe it should provide you with the freedom to use your time to do whatever you want, which for some of us includes continuing to practice medicine.

To further this conversation I thought you would enjoy Dr. Daniel Shin’s breakdown of two flavors of the FIRE movement. Take it away Daniel.

Fatty Flavors of FIRE:  FatFIRE and MoFIRE

written by The Darwinian Doctor February 20, 2024

Introduction

Today we’re going to discuss some of the fattier flavors of financial independence, specifically FatFIRE and MoFIRE. FatFIRE implies spending over a hundred thousand dollars annually in retirement, while MoFIRE stands for “morbidly obese” FIRE and implies spending over $200,000 in retirement. 

Do you have the wrong idea about FIRE?

I think it’s important to talk about these flavors of financial independence because a lot of people have the wrong idea about financial independence. Many people think that just because someone is seeking FIRE, they’re a penny pinching miser and also lazy because they’re seeking early retirement. 

We discussed at the end of last episode how early retirement is actually completely optional once you’ve attained financial independence. In fact, all of the people that I personally know who have achieved early financial independence have continued to work. The main difference is that they’re in complete control of their day-to-day schedule, and they get to do exactly the kind of work that brings them joy. 

In an ideal scenario, work is something that brings both satisfaction and intellectual stimulation, so I can understand why people continue to work after financial independence. It’s part of the reason why I still work despite being in a very fortunate position where I have a mix of income options beyond my surgical income alone. 

So the true goal that drives me now is to move as many people as possible towards financial freedom, primarily through the power of real estate investment. 

FatFIRE

As I mentioned above, FatFIRE implies spending at least $100,000 annually in retirement. This is over $8,000 a month, which for most people is sufficient to live a good quality of life in most cities in our country. This amount of money will go even further in retirement when you consider that most people in retirement aim to have most of their debts paid off. 

For example, imagine your living costs if you didn’t have student loans, a mortgage, or a car payment. Eight thousand dollars a month would go a long way.  

FatFIRE means less limits

People who are aiming for FatFIRE don’t want to be so limited in their spending in retirement. They want to be able to go out to restaurants and have the ability to travel modestly to see friends and family. 

The math behind FatFIRE

If you’re interested in a FatFIRE level of retirement, by the 4% rule you need to have at least $2.5 million saved in a mix of stocks and bonds at the time of your retirement. 

To review, the 4% rule is from the Trinity Study, which showed that with a mix of stocks and bonds, you can safely withdraw up to 4% of your nest egg without the risk of depleting your funds over a 30 year time period.  

Two and a half million dollars is a lot of money, so let’s take a moment to discuss what you’d have to do to save that much money by retirement. Spoiler alert, it’s not as hard as you might think. 

How to save $2.5 million

To save $2.5 million, you do need to consistently save money and invest it into the stock market. But as you’ll see below, the more important elements in this equation are arguably time and the magic of compound interest.  

If we assume an 8% average annual return in the stock market, which is historically accurate, you only need to put away a fraction of that $2.5 million as long as you have time on your hands.

Here’s the surprising math behind saving $2.5 million:

• Start at 25 years of age

• Save $850/month for 40 years

• Invest the money into stocks with an 8% return

That’s it!  In this 40 year time period, you’ve only contributed $408,000. However, due to the magic of compound interest, that $408,000 will grow to over $2.6 million over 40 years. 

A note about inflation

This is probably a good time to address an important factor in any talk about financial independence, and that’s inflation. Over the last year, everyone has seen the pretty drastic effect that inflation can have on your day-to-day cost of living.  

Inflation does seem to be coming under control now, but you can see easily that if you don’t factor in this economic force, your retirement calculations might be totally worthless. So anytime that I look forward to the future, I assume a 4% inflation rate in the cost of living. 

This might apply to things like groceries, gas, and things like entertainment. I think you could effectively argue that some categories like healthcare and college tuition should probably have even a higher expected rate of inflation. You’re probably right about that, but let’s leave that nuance for another day. Now, let’s talk about my favorite flavor of financial independence: MoFIRE. 

MoFIRE

MoFIRE stands for “Morbidly Obese” FIRE and it implies spending north of $200,000 a year in retirement. That’s around $16,700 a month. 

With $200,000 a year, people who’ve achieved MoFIRE can have significantly more options in terms of living, eating and travel.  Instead of just traveling in the continental United States, for example, you can easily travel to Europe a couple times a year.  

Instead of limiting your restaurant choices, you can also throw in a few Michelin star restaurants to really expand your palate. And if you’re going to be renting a place in retirement, you’ll have a much wider range of options with a MoFIRE level of spending. 

I aspire to MoFIRE

For me, I aspire to at least a MoFIRE level of spending in retirement.  My longtime readers might recall this post, where I outlined our annual spending.  This was about six years ago when I first started on this journey towards financial freedom.  We’ve made a lot of changes in our life, but because of the phenomenon of hedonic adaptation, it would be fairly difficult for my family to move backwards  in terms of quality of life.  

FIRE is about security

While this might be a personal thing, I like to think about FIRE in the context of the word security.  Just because you’ve achieved FatFIRE doesn’t mean that the retirement police are going to make sure that you spend at least $100,000 a year. 

The important thing is that you can spend up to that amount if you’d like to do so.  Through hard work, saving, and investment, you’ve built up an unassailable nest egg that can sustain you through thick and thin.  

So for some people who are generally suspicious of the 4% rule and the concept of financial freedom, setting a large goal like FatFIRE might be the right move. 

Again, you don’t need to spend a hundred thousand dollars in retirement just because you’ve achieved FatFIRE, but if you want to, you can safely do so. 

– The Darwinian Doctor