A rough career transition in 2019 followed by the pandemic highlighted how I was still financially tethered to my job — after 10 years of practicing as a subspecialty trained radiologist, saving, maxing out my retirement accounts, and investing in the stock market and in real estate. Looking around, I saw other physicians in a similar predicament. After years dedicated to rigorous training, we were still trapped by “golden handcuffs.” High income was not necessarily translating to high net worth or financial freedom.

It didn’t seem fair or necessary. There had to be a smarter way to financial freedom — without having to live on a shoestring budget or work more shifts. I poured time and money into educating myself — really understood my financial independence numbers, learned the impact of asset allocation and taxes on my retirement nest egg, and put strategies and systems in place to optimize returns.

I set out with a three-year goal to financial independence. I hit those goals in under a year. At 41, I was finally financially free.

I realize that if I had known ten years ago what I know today, I could have become financially independent my first year out of fellowship.

The impact on my net worth would have been millions of dollars. However, this pales in comparison to the lack of choice and control over my time over that decade. I see other physicians around me making the same costly mistakes I once made — waiting until retirement to become financially free. We absolutely need to approach financial independence differently.

Why and when

The true impact of financial independence lies in having the choice to practice medicine on our terms and the ability to take back time to focus on what matters most to us — nourishing our relationships, traveling, and taking care of our physical, emotional, and spiritual wellbeing.

This goes hand in hand with the perspective shift that we do not have to wait till retirement to be financially free — we can claim it much sooner by being intentional about it. As physicians across the nation experience burnout like never before, the need of the hour is to increase awareness of the possibilities and paths to financial independence.

Passive income during the growth phase and in retirement

I cannot underscore the importance of passive income — mailbox money that you do not have to trade your time for. But not all passive income is created alike. Most physicians invest in the stock market through retirement accounts, IRAs, and brokerage accounts and wait decades to hit their financial independence numbers. But even very conservative investments in real estate have returns that are many times higher during the growth phase and later in retirement throw out much higher tax-free inflation-controlled profits. Returns from your investment vehicles and, by extension, your asset allocation are the biggest factors determining how fast you can get to financial independence.

The importance of diversification

We have all heard talk about multiple streams of income — mostly as a means to increase your income, thereby shortening your path to financial freedom. But this takes on a whole new meaning in retirement — enter the sequence of return risk.

This essentially means that with a pure stock/bond portfolio, if you have an early bear market right after you start drawing down your assets in retirement, you may not have enough of a buffer and may end up depleting your assets much quicker than you anticipated.

Banking on investments that are primarily in the stock market is why there is so much anxiety among physicians who are ready to retire or in retirement when there is a stock market crash.

Source: Investmentmoats.com

Real estate returns in retirement, on the other hand, do not involve a drawdown. You have cash flow from your rentals that are inflation controlled, tax-free, and in most scenarios, there is rent growth over time with increasing cash flow.

The only way to be truly financially free is not to be tethered to one’s job or the stock market. It is imperative to have contingencies in place to protect against this scenario.

The IRS can be your friend

Our single biggest expense every year is how much we pay in taxes. But returns from real estate are often tax-free because of depreciation, and there are advanced legal strategies that help you possibly shelter your clinical income from taxes if you are actively investing in real estate. This serves as a catalyst in your financial freedom journey that cannot be dismissed lightly.

“The best time to plant a tree was 20 years ago. The second best time is now.”
– Chinese proverb

I still have physician friends who commute four hours a day to a job they are not satisfied with. I know a physician mom who travels and works out of town two weeks a month — leaving behind her two-year-old twins — because she believes she has no options — after earning half a million dollars annually for over a decade.

It’s about time we owned our future.

This essay is cited in the KevinMD record on physician personal finance.

Param Baladandapani is a radiologist and can be reached at GenerationalwealthMD.

Image credit: Shutterstock.com