Financial Independence

FI stands for Financial Independence, which is the first half of the FIRE acronym (Financial Independence Retire Early). Once a PA reaches FI, the RE part is optional. In the FI community, FI is considered the point a person or couple has reached when their savings is 25x their annual expenses. For example, if a couple spends $80,000 on their expenses per year, they would need to reach $2 million to have been considered to have reached FI. The two very condensed ways to achieve FI sooner rather than later are (1) to cut your expenses and (2) to increase your savings rate, all while investing as much as possible for the future.

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The generally suggested 25x annual expenses in savings is based on the Trinity study. This study showed that if a person or couple were to withdraw 4% of their savings annually to spend in retirement, there is a 95% chance that their money would last for 30 years (this is also called the 4% rule). If you are familiar with this concept, you may be thinking, “But wait, if I do plan on retiring early in my 40s or 50s, then 30 years based on the Trinity Study doesn’t sound as though it would last me until the end of my life?” That is completely true, so if you are looking to truly retire early, you likely should aim for having 30 to 33 times your annual expenses in your invested nest egg combined with your other streams of income that are not your traditional working role. Some will choose to have some type of income once they’ve reached FI to still be able to RE with 25x their annual expenses (think part time work, a side job, entrepreneurship, rental properties that generate income, etc.). Additionally, many will choose to decrease their withdrawal rate if the market is lower for a period of time to conserve their money. Pursuing FI takes patience and persistence, but hey, so did becoming a PA, so you got this!  

 

The Trinity Study also assumes the average for the stock market’s rate of return to continue to be the amount of 7% – 8% since the 1950s. Even though the market has crashed several times since the early 1900s, the market always comes back up, and rises higher to what it had previously been. The standard FI key to investing is to consider investing in low-cost broad-based index funds, and to not panic when the market dips. Rather, continue to invest in the market, and envision it as though it were on sale! 

 

So why do PAs pursue FI? There are so many reasons! To help treat and prevent burnout by empowering you to be able to practice medicine how you want to. To retire early (if this is a desired goal). To work part time. To develop and practice hobbies. To travel the world. To spend more time with family and friends. To start a passion project such as a business or nonprofit organization. To give back to others. To have the time and headspace to truthfully figure out what you would like to do with your “one wild and precious life” (Mary Oliver). I hope you can see that ultimately, FI is a choice for freedom and flexibility!