Speaker 1 (00:02.242)
Welcome to the Physician Family Financial Advisors Podcast, where physician moms and dads turn today's worries about taxes, investing, and extra money into a comfortable feeling of financial security. I'm Ben Utley.
I'm Nate Rennecke. Today we are talking about physician retirement. That is how to double your money in half the time. And while doubling your money takes some strategy, it also takes some habits and potentially even a little bit of mindset change in order to be able to do this over and over again. So when we talk about the strategy today and we get into the numbers, stay tuned for a little bit of how to use that information.
and how to execute it in your life time and time again. How to work. That's right. So Ben, why do we think about this in the form of doubling? Like, why are we bringing up the word double? What does that get people?
put it to work.
Speaker 1 (01:02.112)
Yeah, I think it's just the American dream of having twice as much. Yeah. I don't know, we hear it all the time. Maybe it's the double mint gum commercial, know, double, double, double your pleasure, double your fun. I don't know what it is about doubles, because if I was thinking double, I mean, I'd rather have triples and Forex sounds pretty good to me too. And why stop there? Let's go with 10. But I think it was something like investing. People think of doubling as like as good as they're going to get.
Yeah, it's simple, right? And sometimes if you can think tripling is kind of hard, that's hard to do in your head. It's easier to do doubles. And it's also a way of getting you from point like where you are today to where you want to go in your mind.
Well, when you're halfway there, like, you know, there's no, there's no turning backs, a point of no return.
Yes, exactly. Okay. So, can tell people kind of how to do this, right? There's a way to kind of figure out a double in your mind. What is that?
Oh, oh, this is my hint. The rule of 72. The rule of 72.
Speaker 2 (02:12.75)
So what's that?
Okay, rule of 72 is this neat little math shortcut that allows you to do amazing, what is the word, exponential math, know, compound math in your head. Like you can astound your friends at parties. So the rule of 72 says if you take the number 72 and you divide it by the rate of return that you get from something, an investment, then that tells you how many years it takes to double. And by the way, this doubling rule works with things other than money, like
Back when I worked in the labs and I was streaking petri dishes, you could count on this math when you try to figure out how long it would take for a bacterial colony to double in mass. And so, you know, if that bacteria grows at a rate of let's say 7 % a day and you have, you know, 10 cells on the first day, then let's see, 7 % into 72 take 10 days for it to double to 20 cells, right? So that's, so it's basically.
the rate of return or the rate that you're experiencing divided into 72 gets you the number of periods to double. So if you get a 3 % return, three into 72 is 24 years, right? If you get a 4 % return, four into 72 is, let's see, 18, it's 18 years to double your money, right? If you get a 7.2 % rate of return, it takes about a decade to double your money. And if you get a 12%,
rate of return which no one could promise anymore. It takes about six years to double your money.
Speaker 2 (03:47.05)
Okay, since no one can promise that anymore, I'm going to ask you to do some more math. A little bit of an example. a lot of the physicians you serve, they're well established. They might have a couple million dollars in retirement accounts.
Yes, true that. just folks, they all started with one dollar. Or negative dollars.
That's right. Or negative. Let's do it. Yeah. So that's how they all started. But let's imagine we have a 40 or 50 year old physician and they have two million bucks. Right. Walk me through kind of how they should be thinking about that two million dollars and how they're going to get to. I mean, sometimes we see that when we run a retirement plan, they might need
six or eight million dollars.
Yeah, yeah. So I see this quite a bit. So we invite all of our clients to an annual progress check. And the question there is like, am I on track? Am I going to have enough money for retirement or whatever my goal is given the amount of money that we have today? And there's a neat little sheet that comes out and it says, today you have $2 million. You've got about 10 years until retirement. And at retirement, you're going to need $6 million. And inevitably, the client will ask, hey,
Speaker 1 (05:06.254)
where's that extra 4 million bucks going to come from? Cause 10 years doesn't seem like very long to be able to pile up 4 million bucks. mean, in my math that's $400,000 a year and there's no way we're going to able to crank that out. That's typically the deer in the headlights thing that I get. I'm like, okay, well let me teach you about the rule of 72. And so let's say that I'm going to assume a low single digit rate of return that it might be reasonably achieved by an average investor over a long period of time with no guarantees. Okay. So let's say that that
that client is targeting a 6 % rate of return. So follow with me kids, 72 divided by six is 12, right? So 12 is pretty close to 10 years, going from 50 to age 62. So what we know is that that initial 2 million bucks the, this person has is likely to double to 4 million bucks by the time they're at retirement, you know, 10 or 12 years from now. So that makes a big chunk of it. And usually there's a big sigh of relief. Oh, wow. I forgot that, you know, my investments are expected to get a return.
And therefore I could get a return out of this and things are to be okay. Well, what about the other 2 million? Right? So I'm like, yeah, what about the other 2 million? mean, if you save, so now we've got to save $200,000 a year. That's still a lot. And I'll say, well, how much are you going to save this year? And you know, usually this is a late stage physician. They say for college, their kids are in school and you know, they're on Monty hall now. They have the ability to save most of what they make. And let's say that they're going to save $50,000 this year. Okay. Well,
$50,000 has a chance to double in that 10 or 12 year period as well. And so that could be another 100,000 towards the $2 million gap. And what you find is the annual contributions also have an opportunity to double over a period of time. And so that's how we close the yawning gap between $2 million and $6 million.
Yeah, the gap seems so large when you look at it from that angle because in your mind it doesn't make sense. Compounding makes no sense unless you really break it down like this. Because it took them till they were 50 to get to 2 million. So logically it's going to take another 50 years to get to 4 million. How on earth am I getting 6? This really is the power of investing, staying invested.
Speaker 1 (07:25.058)
Yeah, this is the reason we invest is not to get a little return, to get the long term return on the return on the return. That's, what we're shooting for.
That's right. Yep. And you know, I do the same thing with the, with the physicians that are, that I'm doing annual checkups with it's, it's even more difficult to imagine because they're, they might be 35, but the beautiful thing is they have many more doubles in, those 30 years, let's say that they have to get to retirement.
And that client can take more risk, right? So they could expect a higher return.
That's right. That's right. So maybe they have three, four, five doubles. We don't know. But even in a conservative world, they have three doubles or four doubles. And they sure they may only have five hundred thousand dollars at this point, but they're adding so much every single year. And it's doubling so many times that inevitably you just stay the course, stick to the plan. And even though there's this this gap in there, it allows them to kind of
relax, be like, okay, if I make these contributions like I'm supposed to, I can enjoy some of the rest rather than thinking I have to sprint to get to this, you know, what seems like unachievable multimillion dollar retirement.
Speaker 1 (08:44.3)
I get so excited about teaching this when I'm talking with clients because A, they've never heard of the rule of 72. B, they've never seen the power. And C, I get to use squares, right? Because it's two or three to the second power and I love squares. I guess that makes me a geeky square guy. So can I give you an example like how this works? Because I want to answer the question like how do I double my investments in half the time?
Exactly, that's what I was thinking. Half the time. We promised half the time. So tell me.
Half the time. I could probably do better than half the time. all right. I'm making this up as I go along folks that don't have this skewed up in front of me. This is a live recorded moment of this. Okay. So let's assume that, I'm meeting with a 35 year old physician, hardworking, happy family, ready to move forward, get on track targeting 65 or there about. Okay. So now I've got 35 to 65. That's 30 years, which is three decades. Okay. So
Right now that doc might have money sitting in a certificate of deposit or a checking account and the best they're going to get is magically 2.4%. Right? Cause 2.4 % makes the math easy on the rule of 72. And so if I divide 2.4 % into 72, what I get is 30 years to double my money. All right. So yeah, it's right. Exactly. I love that. All right. So.
That's not a lot of doubling in a long period of time. So what I want to do is I want to reduce that time in half. I want a 15 year doubling period. So the rule of 72 works in reverse as well. So I take 72 and I divide it by 15 years. And that tells me that I need a rate of return that's around a little bit north of four. All right. So I can cut the doubling time in half.
Speaker 1 (10:33.87)
by going from a 2.4 % return to a foreign change return or in low change. right. So yeah, I've doubled the amount that I've doubled the rate of return, but I've also cut the time period in half to double my money. Okay. So now let's take this up a notch and let's say that, uh, we're expecting a 7 % rate of return, which is not unrealistic over a three decade time period. Okay. So I take 72 and divide it by seven. get about 10.
years to double my money. It just so happens that I have three 10-year periods between now and my client's retirement and so I take two to the third power is eight and now that that same money instead of getting me you one time or two times gets me eight times. So that's better than doubling your money in half the time it's 8x'ing your money in the same amount of time. So that's exactly how it's done. Now of course
Mm.
You know, you get into things that have a 7 % plus return, then you're going to be taking some risk. You you're going to be exposed to some equity-like thing. It might be real estate, it might be equity mutual funds. For us, it's index funds. But there is going to be some risk in that. And of course, I'm going to say this for the attorneys, there are no guarantees. Past performance is not a promise of future returns.
That's right. Yeah. so that is actually where we came up with this in half the time is that those numbers are close to right. I mean, as far as what banks offer versus investing your money. And that gets us to something important here. And this is the kind of mindset shift or habits that I'd like for people to consider adopting, which is when you start to, when money starts to pile up at the bank.
Speaker 2 (12:23.078)
And you ask yourself the question, what should I do with this? What should I do with this extra money? It's important to not think of this, you I just have 20,000, I just have 50,000. I might as well just, I'll do something with it when it hits, fill in the imaginary number that everybody is different and kind of anchors themselves to.
the cash in the bank indifference amount.
Exactly. And so let's imagine it's $100,000 and you like having that hundred. It's comfortable having that hundred thousand. It's more comfortable than it is exciting to invest your money because many physicians don't see that as exciting.
fun to watch the money pile up in your bank account and it gets comfortable.
Yeah, and you comfortable you start kind of dreaming of what you could do with the money, which I don't think is bad, but it needs to be weighed against the option of not just investing in these boring index funds, but it needs to be weighed against the option of that 8X your money. Maybe if you're a mid 40s, because that's when money starts to really pile up as a physician, you know, if it's 100 grand, you probably have two doubles in there.
Speaker 1 (13:31.406)
I get it. So what you're saying is if I'm, if I need to keep like 50 grand laying around in my, my checking account for like daily expenses and maybe I've got, you know, some more money set aside another account for emergency fund, but I look at my checking account and I have $150,000. If I'm hearing this right, what I need to be thinking is, oh, that instead of that, oh, that extra a hundred thousand, you know, it's, it's not really a lot. feel good about it rather than looking at it. need to ask the question, well, uh, 30 years now, would I rather have
that be 200,000 or would I rather have it be like 800,000? Because by leaving it there, I'm basically saying no to an additional like three quarters of a million bucks. And that's not a huge stretch. mean, you can look at past performance in the market and realize that it's, that's not a super hard number to have achieved in the past.
Exactly.
Speaker 2 (14:14.242)
Yeah.
Speaker 2 (14:25.355)
Yep.
So that extra dollar sitting around your checking account is costing you $7 at retirement.
That's right. So the first step here is when that starts to, when money in the checking account starts to kind of, investing the money loses its excitement a little bit. Think of it in terms of the rules 72 or in terms of doubles. And then the second step is invest your money. Don't let it pile up like that. Go through your due diligence, make sure you keep the cash you need, but invest the rest. And that's really.
what this tool allows you to do is get you past the mental roadblocks of like just not doing anything with your cash.
Okay, cool. All right, so is it okay if I start to wrap this up? Yeah. Okay, I've got one thing to say about this. So most financial advisors out there either sell something or they are charging a percentage of the assets under management. Okay, so we don't have a dog in this fight. Whether our clients invest or they do not invest does not make a bit of difference in terms of our paycheck. We're flat fee, we charge a subscription fee. So...
Speaker 1 (15:33.666)
This podcast is not a rah rah, get your money in the market so that we can get our fees on kind of thing. Whether our clients invest or not or whatever risk they take, that doesn't impact how much we make. This is simply for your benefit. It's a mind hack for you to think differently about the cash that's just sitting there in the accounts staring in the face and basically just doing nothing while you're out working your butt off. So think about that.
Alright, thanks everyone for listening today. I hope you will learn and use and teach the Rule of 72. So if you have questions, you can drop a question on us at 503-308-8733. You can email us, podcast at physicianfamily.com. If you'd like to get our handy dandy newsletter that comes out every two weeks, we will not spam you. You can go to physicianfamily.com, scroll all way to the bottom and put your name in the blank and we'll send you our tasty delicious newsletter.
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