Retiring Early is NOT the Result of a Higher Income

Every time I speak or write about retiring at age 54, someone feels the need to tell me “I could have done that too if I was a Specialist like you. I’m just a pediatrician.” Or they are one of the other specialties that tends to rank lower in income than general surgeons. The implication is that if they had the same income as me, they would have had the same results. This is not a correct assumption.

As they converse with me, their income frequently comes up in conversation. Often, they are earning more than I ever did, but I don’t bother pointing this out as they won’t believe me anyway. The reason they can’t retire usually becomes clear as well, but since they are not asking my advice, I don’t usually point it out. Their spending habits speak for themselves.

Self-bias is when we attribute the good things that happen to us as our own doing, as in it was because of our great work that we accomplished something great. But the bad things that happen are attributed to some outside force, never our own poor performance. 

Thus, if someone hears I retired at age 54, but they know they could not have retired or will not be able to retire by age 54, they assume it is because something special must have happened to me that didn’t happen to them. They seldom believe the reason they can’t retire yet is because they have different money habits such as putting themselves in the position of being house poor, they used debt too freely, they spent more than they earned, they drive cars they can’t afford, they never maxed out their retirement contributions, they spend too much money when they travel, or they borrowed from their retirement fund. They seldom attribute the issue as being caused by these self-inflicted wounds.

It is never their own fault, but an outside source that prevents them from retiring before age 60. They often tell me things like: you made more money than me, you got lucky in real estate, you had scholarships to keep your student loans low, you made gobs of money selling books, you didn’t live in a high cost of living area, or my favorite misconception – you didn’t retire, you switched to coaching and writing to make a living. 

Let’s look at what I, and almost everyone who retired early, actually did to set ourselves up for an early retirement. Spoiler alert — earning a higher income is not on the list.

Spend less than you earn

This is the single most important thing one can do to become financially independent, wealthy, or reach retirement ahead of schedule. Everyone has heard “You must spend money to make money.” But they tend to forget what comes before that, which is “You must save money in order to have money to invest.”

You must consistently spend less than you earn. The money you earn but don’t spend is the seed money for investing. To be a smart investor, you must first save some money that can be used to invest.

When I was in residency, I began teaching other physicians about money. I tried to convince other residents to contribute to the retirement plan the hospital offered. Unfortunately, only one other resident participated in the hospital’s deferred compensation retirement program with me. That one move, saving for retirement during residency, accounts for about one quarter of my retirement plan balance today.

During my residency I remember chatting with an attending while we waited for the next surgical case to start. We began talking about finances. He had been an attending for several years but finance was not his forte. 

He asked me “How long do you think you could last if your income stopped?”

I had never thought about it before. It took me a moment to calculate my answer. When I finally told him I could last forever, he scoffed at me in disbelief. How could a resident who earned only about $30,000 a year be financially secure enough to last more than a month without his paycheck? After all, he was having a hard time stretching his earnings to last all month.

I told him that my wife and I decided when we married to live on half of our income. The other half we would save for the future. Since we each earned about $30,000 a year, we set up our budget to live on $30,000 a year and save the rest. 

Thus, if my income stopped, we could live off her paycheck indefinitely. Until I found another job, we would simply stop saving. 

The 50% of our income that we did not spend was the reason I could max out my hospital’s deferred compensation retirement plan and fill up both of our IRA accounts every year during residency. We also saved money that was not in retirement plans. This pattern of living below our means was the reason we had enough money for a downpayment on a house and could also afford to take three months off when my residency ended before starting my attending job. 

We continued living on half of our income for the rest of our working years. That is a lot of savings that we invested. If you can’t learn to live on less than you make when your income is low, you will not be able to do it when your income is high. 

Most people are not willing to live on just half of their income, they want to spend more, and therefore couldn’t duplicate my results. But physicians and other high-income professionals can almost always live a very nice lifestyle on half their income, which is likely well above the median household income in America.

Use debt very sparingly

Debt is not our friend. When someone gives us a loan, they are not giving us anything. In fact, they are making good money off our desire to buy something before we have saved up enough money to pay for it ourselves. We have become indebted to them, and they now have power over us.

I used debt very sparingly until I became an attending. When my income went up, I started buying stuff with borrowed money. My aversion to debt seemed to vanish for a couple of years and our debt rose from about $6,000 to over $500,000. I lost my bearings during those years but found my way again a few years later.

When we realized what we had done, we began using the 50% of our income we were not living on to get out of debt. We have remained debt free ever since we made our final mortgage payment. 

I had mistaken the ability to make the debt payments as being the same as being able to afford something. They are not the same. 

After paying off their home mortgage, very few people ever say, “Paying off the house was stupid. Now we don’t have any more good debt. Let’s borrow 80% of the value of our home and invest that good debt for a better return.”

Almost everyone who pays off their house, keeps it that way. Having the weight of debt lifted from their shoulders made them feel less stressed and more secure. Since they have experienced both having debt and being debt free, they now know the benefits are not just monetary. Once you know better, you must do better.

Use the money saved to invest in a conservative manner

Invest, don’t gamble.

What does investing look like? Investing is when you put your money into something where you expect a good return and would be surprised if you lost the principal or the return was very small or nonexistent. In baseball this is hitting singles and doubles. Some examples of conservative investing: buying a certificate of deposit, making a ten-year commitment to a mutual fund, buying a rental property with the intent to keep it for at least 30 years.  

What does gambling look like? Gambling is when you are swinging for the fences, seeking a super high, above average return at the risk of striking out. This is also known as trying to “get rich quick.” Examples of gambling include; buying bitcoin, picking individual stocks you think will be winners, buying gold on the dip, trying to time the market, investing in futures, drilling oilwells, buying initial public offerings, or believing you have an insider’s tip.

Then there are those ideas that create a second job that you convince yourself is investing. Examples include; flipping houses, most side gigs, and day trading.

Be consistent

Consistency is a big factor in being able to retire early. You can do a great job of putting the maximum you can into your 401(k) and then blow your retirement future income by gambling instead of investing, which costs a huge chunk of money, or when leaving a job, pulling all the retirement money out to “tide you over” until you get the next job.

Consistency is very important to keep compound interest working to the max.

Spend less than you earn, invest the difference, avoid debt, and do it for a long period of time. You can’t miss with this strategy.

Next time you compare your results with someone else who seems to have done better, don’t ask yourself what they did to get so lucky. Instead, ask yourself which of the above items you could have done better. Then make the necessary changes. 

If you need more ideas to change your financial future, read my Doctors Guide book series

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1 thought on “Retiring Early is NOT the Result of a Higher Income”

  1. We all have some degree of luck, good or bad, that contributes to the outcome despite the process. However, we cannot change that. Your big four points about what we can do and the choices we make can change are key. Rational spending, saving, investing, and consistency also give you more options when you do get unlucky. My parents retired around the same age as you as a nurse and lab tech. Way less income than any doctor, but using the same principles.


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