What is Fat FIRE and Why it Should Be A Goal For Physicians

Fat FIRE refers to the achievement of financial independence (FI) from wage labor with high investment income. The term was coined to refer to a more luxurious state of financial independence which does not require stark frugality in order to avoid wage labor for subsistence.

Before the pandemic, the financial independence retire early (FIRE) movement was slowly growing popularity through the evangelism of a few. Mr. Money Mustache, Pete Adeney, is perhaps the most famous of the bloggers who brought the concept of retiring young to the masses.

What is financial independence?

The concept is simple: save a large fraction of wage earnings for 8-10 years, invest wisely, and allow compound interest to grow a nest egg. One day, this egg will have grown large enough that its proceeds can support the worker throughout his life. That day will mark the day of financial independence. Through a combination of clever tax planning and using post-tax investment vehicles, investors will have access to their retirement funds decades before traditional retirement age. Work, at that point, is optional.

The history of the FIRE movement

Early writers about this concept included Vicki Robin and Joe Dominguez, who first published Your Money Or Your Life in 1992. Mr. Dominguez successfully achieved financial independence in the 1970s and subsequently spent the next 20 years teaching others how to accomplish the goal. In the book, money is translated into time, or units of life.

The concept of financial independence rose in the ’10s with websites like Mr. Money Mustache, Afford Anything, and Mad Fientist. Paula Pant of Afford Anything achieved financial independence in her early 30s through a combination of successful real estate and index fund investing. She subsequently began a successful personal finance podcast. Brandon Ganch of Mad Fientist documented his journey to financial independence from his career in computer engineering. His contributions include valuable guides to tax-efficient investing such as Roth conversions.

A common theme in this early period was the achievement of $1,000,000 in investable capital conferred financial independence. Assuming a 4% withdrawal rate, the retiree could look forward to a $40,000/year investment income on which to live without ever working again.

the FIRE movement has been criticized for setting the savings goal too low

Since its inception, the FIRE movement has been controversial. Naysayers submit that living a monkish existence to save for FIRE, then continuing to live in those reduced circumstances is no way to live.

The famous personal finance expert and writer Suze Orman has publicly said she “hates” the financial independence movement. She noted that the savings goals that FIRE aspirees achieved were minuscule. “Two million is nothing. It’s nothing. It’s pennies in today’s world, to tell you the truth.”[1]

Considering that a two million dollar nest egg might only produce $80,000 investment income, I suspect many physicians would agree with Ms. Orman.

Evolution of the FIRE Movement Created Subtypes of FIRE

As the FIRE movement has become more popular, new voices have shaped the single behemoth goal into different categories or different subtypes of FIRE.

Fat FIRE refers to the achievement of financial independence with high investment income, more (and sometimes much more) than the minimum required for subsistence. Multimillionaires fall into this category.
Coast FIRE means that the investor has diligently saved a nest egg large enough that its growth potential will inevitably create financial independence without requiring any further contributions.
Barista FIRE means financial independence has been partially achieved; part time work is remains necessary, for example, part time work to pay for health insurance benefits.

Can physicians achieve financial independence?

In short, yes, physicians can and should aim to achieve financial independence. Other physicians have done so; wage-earners who make a fraction of the income commanded by most physicians have done so.

Recently on The White Coat Investor podcast, a young neurologist had saved nearly $1,000,000 in her taxable brokerage account. She planned to continue working earning $250-300,000 but was glad to know that she and her husband did not have to save any more for retirement. She had achieved Coast FIRE.

More famously, Dr. Dahle, the White Coat Investor himself, achieved financial independence through diligent debt payoff, investing, and business building. He has almost certainly achieved Fat FIRE.

Barriers Preventing Physicians From Achieving Financial Independence

Student Loan Debt May Delay Investing

In any talk about physician finances, student loan debt must be considered. For those who have student debt, the mental burden of the money owed can far outweigh the financial implications. Some residents may pursue lower-paying academic or non-profit work in order to achieve public service loan forgiveness. Others choose to pursue highly compensated opportunities but then must shoulder the burden of the loans.

In both options, income must be thoughtfully allocated to debt and to investment.

Suppose loan debt is lower than or equivalent to annual attending income, for example, $150k debt and $200k income. Nearly all savings can be paused to allow rapid debt payoff.

In the reverse situation, in which debt is $300k and income is $200k, it may not be in the physician’s best interest to delay saving and investing for many years.

Lifestyle of Physicians Prevents Saving

Physicians are burdened with the expectation of prestige. In bygone days, the rich doctor was often a businessowner who began his career with very little debt. The stereotype endures today despite the stagnating income and higher debt burden carried by young physicians.

Unfortunately, the trappings of being rich may prevent the achievement of financial independence. Big house, luxury car, private school, expensive clothing all drain physicians of our investable capital. Thomas Stanley famously wrote in The Millionaire Next Door about the benefit that blue collar millionaires enjoy by the low expectations they carry for their personal residence, transportation, and attire.

Education of physicians prevents saving

I think this is less of a problem now than it was 10 years ago. Young doctors have good resources available to learn about personal finance now more than ever before.

All physicians should strive for financial independence

It has never been more clear to me that physicians are not leaders in healthcare any more. In the future, we may even stop being called doctors altogether. While we enjoy a healthy income, more physicians than ever are experiencing burnout.[2] The rates of physician suicide are as high as they have ever been, at 300-400 deaths annually.[3]

Experts and leaders cite the lack of autonomy in the workplace and the escalation of daily tasks to unachievable levels.[2]

I don’t know of any good studies correlating financial independence and the experience of physician burnout. But I suspect that physicians with a balance sheet full of income-producing assets experience agency in their own lives.

For this reason, Fat FIRE should be a goal for all physicians.

References

[1] Paula Pant Interview with Suze Orman. Episode 153. https://affordanything.com/153-hate-fire-movement-suze-orman/

[2] Hartzman, P and Jerome Groopman. Physician Burnout, Interrupted. N Engl J Med 2020; 382:2485-2487. https://www.nejm.org/doi/full/10.1056/nejmp2003149

[3] Matheson, John. Physician Suicide. American College of Emergency Physicians. https://www.acep.org/life-as-a-physician/wellness/wellness/wellness-week-articles/physician-suicide/