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Lessons from a Retirement Millionaire

I really like it when major magazines do Q&A’s with regular people, like when Kiplinger talked with Dane Lacey [3], a 49 year old radiologist from San Diego. It’s somewhat deceptive though as a radiologist is hardly a job that any regular person can get into. It’s a specialty that involves using imaging to treat patients and something you need plenty of schooling to do properly. It’s, as you’d expect, a pretty high paying job since he was able to save $240,000 for retirement in a single year.

As I read the Q&A, I thought I’d write down some good takeaways as well as clarifications on what I found suspicious. In summary, I felt like there were some good lessons to learn from someone who earned a significantly above average income that anyone could use.

Diversify Your Investments

Lacey was heavily invested in tech stocks, like Cisco (CSCO [4]), when the bubble burst and that hurt big time. A look at Cisco’s historical stock prices is still probably a scary sight for him, since Cisco nearly touched $80 at its peak and is still just a fraction of that, but it should be a lesson for everyone else. You don’t want a seemingly rare “black swan” catastrophic event to wipe you out and diversifying is akin to buying insurance.

Front Loading Retirement

Lacey front loaded his retirement savings because he wanted to retire while he could still enjoy it. I personally front loaded my retirement because I knew my expenses were lowest when I was young and because I had time on my side. This, coupled with frugality, means that you can super-charge your retirement contributions early so that they can grow as you age.

He had to work as a resident physician at $26,000 a year for four years before he could open a practice, where he started earning $220,000. It’s a lot like a college graduate getting their first job. You go from work study programs where you earn $15 an hour to an office job where you earn twice that. While it’s not multiplying your salary by 10, it’s the same idea. By being frugal and front loading your savings, you reduce your effective income to something only slightly higher than your former standard of living.

Pay Yourself Later

The quote of the story: “If you pay yourself first and then try to save, your standard of living will always adjust up to what you’re making, and you’re not going to have money left to put in savings.” Like a gas that expands to fill its container, your spending will almost always expand to meet your salary. Think of the friend who buys a new car after a promotion or raise because he or she can afford a larger monthly payment, that’s how your standard of living expands. There’s nothing necessarily wrong with that unless your goal is to retire early.

On Saving $240,000 in One Year

This answer perplexed me a little bit because I can’t figure out how he was able to save that sum of money into a retirement account until I started reading about defined benefit pension plans [5]. Apparently, the employer’s contribution limit is near $200,000 and there are no contribution limits. Since he was self-employed, he was able to put such a large sum away into this pension account for himself.

It’s easy to dismiss a story like this, since they are talking to a radiologist, but there are still some good lessons you can take away. What did you take away from this Q&A?