Flashback to 2008. I’m a new graduate nurse anesthetist. Nine years of school and training have come to an end. What have I earned? An in-demand, high-income job with great benefits. With over $120,000 in student loans, I do what most people in my situation do, seek out a financial advisor and insurance professional to ensure protection against a catastrophic event. Term life and long-term disability insurance policies are purchased immediately. With this much debt at my young age, it seems a safe hedge, never mind the $160,000 price tag over the next 35 years.
One event that this policy does not cover is the elephant in the room that is just starting to have a voice, healthcare provider burnout. According to a recent Medscape survey, 42% of physicians reported that they are burnout. Post-pandemic, over 30% of doctors and nurses report a desire to exit their profession earlier than predicted. We can debate the causes of burnout, whether it be the corporatization of the healthcare assembly line, private equity’s entrance into the space, constant computer clicking, or the ever older and chronically ill patient we care for daily. Healthcare providers now recognize that burnout exists and could happen to any of us at any time. As someone who has personally experienced burnout, I implore you to think deeper about how you are hedging your financial future against burnout.
We all did what we were told to do by those we likely admired. We completed substantial schooling, obtained advanced degrees, and endured rigorous training to acquire the knowledge and skills to provide expert care to individuals in need. For this, we are compensated handsomely. We work endless hours and sock away money in 401ks, 403bs, and IRAs, all of which we cannot touch until retirement without incurring substantial taxes and penalties. At first glance, these actions seem smart; they may be. But what happens if you desire to exit the profession at age 50 instead of when your retirement plan allows you to draw from it penalty-free? Will you have enough saved by then? Have you set yourself up to have that option? If not, are you being intentional about constructing your financial life to have that option?
Wanting to Work or Having to Work
I like to classify working a job, i.e., “trading time for money, “using three classifications centered on whether an individual wants to or has to work. All of us are in one of these classifications at different times in our respective careers.
- Want to/Have to – an individual who truly desires to go to work and must continue working to pay bills, save for retirement, and support their lifestyle.
- Have to work – regardless of an individual’s desire to go to work, they must continue working to pay bills, save for retirement, and support their lifestyle.
- Want to work – the individual does not have to work to pay bills, save for retirement, or support their lifestyle. They work because they want to work. These individuals can choose if and when they work. They are financially free.
Many traditional retirement plans offer upfront tax sheltering with the common thinking that we will pay taxes post-retirement when our active income is less. Let’s pause to ponder this assumption. Do we honestly believe that taxes will be less in 25-30 years? Policy discussions are already leaking out of Washington about the taxation of unrealized capital gains. The problem with traditional retirement plans is that they tie you to your job until you have a large enough nest egg saved to retire or transition to the 3rd classification.
Today’s article presents a different way of thinking. A way shared by the entrepreneur crowd that I now surround myself with daily. The talk shifts from how much active income you earn to how many income streams you have. As high-earning, in-demand professionals, there is another way to leverage our earnings and accelerate our timeline to enter the 3rd classification.
Asset investing and passive income – the golden egg or the goose?
I first saw this analogy when reading Killing Sacred Cows by Garrett B. Gunderson and have used it countless times when speaking with investors. In traditional retirement planning strategies, one trades time for money (golden eggs) and saves a percentage of those eggs in paper assets (stocks and mutual funds) over our long careers. Our entire post-retirement financial livelihoods are modeled on a 7% average annual return. Upon retirement, we are advised to take a pay cut and live on 4% of the earnings of our basket of golden eggs and attempt to preserve this wealth because who knows how long we will end up living. To the average individual, this sounds safe; to me, this sounds risky. Do we understand the investing thesis of the individuals running our mutual funds? How much are we losing in fees? What if we want to cut back substantially before age 65? What if we live to be 100 years old, and our plan was modeled to age 86?
Think like the bank – buy gooses
When funds take our money, what are they attempting to do with it? Double it as many times as possible before you start drawing from it. These funds are constantly moving capital across assets classes such as stocks, real estate, and commodities to make money on our money. Instead of the set it and forget it retirement strategy pushed by the financial industry, I have personally decided to buy or build gooses (assets) that consistently produce golden eggs in the form of cash flow, equity, principal paydown, and tax write-offs. My asset of choice is real estate, but other assets can include investing in businesses. Whether personally owned or owned with partners, these assets diversify my total portfolio and provide me with passive income and tax breaks regardless of if I am administering anesthesia. These assets can be leveraged, sold, gifted, and passed to heirs, independent of W-2 employment.
Building a traditional retirement portfolio through healthcare employment while simultaneously building a portfolio of income-producing assets is well within reach of most of you reading this. Much like building a 401k nest egg, it takes commitment to putting your earned income to work in assets that consistently produce golden eggs. At Stream Stack Investments, our goal is to educate professionals on how to leverage their active income to invest in gooses so that they can accelerate their entrance into a position where they only work if desired.