I love California from Mt. Shasta to San Diego. I love Yosemite, Sequoia National Park, the Sierras, Joshua Tree, and Idyllwild. It has awesome beaches, great mountains, and great deserts all in the same state. The weather is always spectacular and the cities have tons of fun stuff to see and do. Sure, it has a nasty little earthquake and forest fire habit, but there are lots of opportunities in California that can't be found anywhere else. In addition to these unique aspects, many people have family in California and want to live close to them. Given the plethora of academic institutions there, many subspecialists have found a niche for their practice that cannot easily be replicated elsewhere. Other docs, due to religious, racial, or political issues feel strong ties to the diversity available in California.
Despite all that, I continue to be surprised and appalled at just how difficult it is for a physician to get ahead in California. In email after email I receive from doctors in that great state I hear similar struggles. The original title of this post was “8 Reasons California…” As you can see, it got worse the more I researched and wrote. The economic costs of practicing in California are above and beyond the so-called “Sunshine Tax.” Perhaps the best possible move a California physician struggling with financial issues can make is to move somewhere else. Where should they go? Practically anywhere else would be better from a financial perspective.
12 Reasons Doctors Struggle to Get Ahead in California
# 1 The High Cost of Living
Everybody knows about this one. Part of this is “Sunshine Tax.” People are willing to pay more to live in places with nicer weather and more to do. Part of it is that, on average, jobs in California typically pay more. For instance, the average teacher in California makes $85K, $36K (61%) more than in my home state of Utah. Nurses make 72% more in California, $100K versus $58K in Utah.
How about for doctors? Well, the salary info isn't quite clear. For example, one source suggests California docs from family practitioners to orthopedic surgeons are paid 15-18% more than Utah docs. Other sources suggest just the opposite, ranking Utah 24th and California 32nd in average physician salary. But either way, it is clear that the difference between a doc in California and a doc elsewhere is nowhere near the difference in other professions like teaching, nursing, and particularly technology workers!
So what costs more in California? Well, housing is the big one. The average home costs $546K in California. Utah is no low-cost housing mecca, but the average is $325K. It's $287K in Nevada and $139K in Indiana. $546K might not seem too bad, until you realize that is only 1/3 of the average in the Bay Area–$1.6M. In case it isn't abundantly clear, the average California orthopedist has to stretch to buy the AVERAGE house in the Bay Area and that house is completely unaffordable for the average California family practitioner.
Don't underestimate the effects of these higher costs on your ability to build wealth.
# 2 High State Taxes
Sure, you might get paid a little more in California, but that's only when you look at your gross income. You won't notice nearly as big of a difference in your net income. There are two reasons for that. The first is that our country has a progressive income tax. You would think that paying a higher cost of living would be canceled out by making more money, but the truth is that the income tax brackets don't cut you any slack for that. The tax brackets are only based on your income, not your expenses.
But wait, there's more. California is also notorious for its state income tax. Check out these brackets from 2018:
That's right. It tops out at 13.3%. There are federal brackets lower than that. Most docs won't be paying 13.3%, they just don't make enough. But they'll all be in at least the 9.3% bracket, and many will hit double digits. By the time you apply both your higher federal tax brackets and the California tax brackets, there won't be any of your increased salary left to use for the high cost of living. The only nice thing I can say about California taxes is that at least they don't have a city income tax like New York City.
I'm not looking forward to doing my first California tax return in 2019. Not only will I be paying 13.3% on every dime I make from Passive Income MD, but I'm told by some Californians that their state income tax return is longer than their federal one! This WCI Network thing would be a lot better if I could talk PoF into moving to Texas, PIMD into moving to Nevada, and TPP into moving to Florida!
# 3 Lots of Wealthy People
A third issue with physicians trying to build wealth in California is that California is seemingly filled with tons of wealthy people. It turns out that 75% of Californians are in the top quintile of income nationwide. In most places in this country, physicians buy houses in the nice neighborhoods and send their kids to the best schools. In California, those docs are competing with dot-com millionaires for those houses. In addition, thanks to the run-up in housing prices, many relatively middle-class Californias are millionaires and multi-millionaires just by virtue of having arrived there before you. Now, those folks can never move to another house in California thanks to the 1978 Proposition 13 that locks in your property taxes until you move, but you still have to compete with them to live in a nice area. Instead of being in the top 1-2%, docs find themselves merely in the top 15% or so.
# 4 Low MediCAL Payments
I was actually surprised that some doctors might get paid more in California, because that has not been my experience talking to friends in my specialty. One of my partners moved here from California and nearly doubled his income. Part of the reason for this is that a large percentage of California ED patients are on Medicaid (called MediCAL to be cute). Nationwide, the average is 32%, but in California, it's 43%. To make matters worse, MediCAL also pays worse than Medicaid in many states. Utah isn't exactly known for awesome Medicaid payments, but a level 5 ED visit here pays $133 (compared to $175 for Medicare). In California, it's only $108. So if you're in a practice that sees a lot of MediCAL patients, you probably won't be paid more in California than you might elsewhere.
# 5 High Transportation Costs
If you've ever driven through California, you may have noticed that it was a rather expensive experience. California has very strict environmental laws, which increase the cost of vehicles sold there. To be fair, California is such a huge market that most car makers have just adopted California standards for all of their US-sold cars. California competes for the highest gas tax in the country at 76.7 cents per gallon. To make matters worse, sales tax on it is calculated AFTER the excise tax is applied, so in a way, you're double taxed.
What's worse, however, is that Californians have notoriously long commutes and sit in traffic for lengthy periods of time, so you end up buying more of that overpriced gasoline. Californians commute an average of 28.9 minutes, the fifth longest in the country. To make matters even worse, it's my observation that Californians tend to drive nicer cars than many other places. Maybe that's because they're wealthier on average, or that they wear cars out faster due to all those commuting miles, or perhaps they just look nicer due to less rust from snow and salt. But the urge to keep up with the Joneses in the car department seems quite high as I drive around.
# 6 Health Savings Account Taxes
My favorite investing account is a Health Savings Account (HSA) because this Stealth IRA is triple tax-free. You get a federal income tax deduction when you put money in, it grows in a tax protected manner, and then when you pull the money out, as long as you spend it on health care, you don't pay any taxes either. In most states, you also get triple tax-free treatment with regards to state income taxes, but not California (and New Jersey.) HSA contributions aren't deductible in California. Why not? Just because.
# 7 No 529 Tax Benefit
California actually has a pretty decent 529 plan, with nice low-cost investments and reasonable fees. But unlike dozens of other states, there is no state tax deduction or credit for contributions.
# 8 SALT Deduction Limitation
Most doctors in the country had their taxes lowered by the Tax Cut and Jobs Act that went into effect in 2018. That wasn't the case for many doctors in California. That's because of the limitation on the SALT (State And Local Tax) deduction. It used to be that all of those state income taxes and property taxes you paid in California were deductible on your federal income tax return. Not any more. You only get to deduct $10K total. Now that hurt me in Utah too, but not nearly as much as a doc who was paying 10% in state income tax plus the property taxes on a fancy new doctor sized California house. It would have been even worse if the proposal to limit mortgage interest as an itemized deduction had gone through too.
# 9 LLC/Corporation Annual Fees
Many doctors and other business owners form an LLC or Corporation for various reasons. There is usually a fee that you have to pay to the state each year for this. In Utah, it's $15. In California, it's 53 times as high – $800 per year. Ouch. At least you get to pay it with pre-tax dollars since it's a business expense.
# 10 Weak Asset Protection Laws
Although California's malpractice environment is head and shoulders over places like Dade and Cook Counties (thanks in part to a $250K cap on pain and suffering), the fact that the people you may damage have higher incomes probably makes up for it. In addition, California is notorious for its weak asset protection laws. Although it protects 401(k) assets, California judges are known to routinely pierce IRAs, at least any amount above and beyond what is “reasonably necessary for the support of the debtor and dependents.” I'll bet my opinion of that amount is quite different from that of a California judge. Don't run to whole life insurance instead — only $9,700 in cash value is protected there and annuities get no protection. But at least you've got that big house right? Not so fast. This isn't Florida or Texas. Only $50-150,000 of those millions in home equity you've got are protected from your creditors. California doesn't have an asset protection trust either. One small consolation is the existence of a little known law that allows for a (probably un-qualified) “Private Retirement Plan” which can protect assets in California.
# 11 Highest Priced Disability Insurance
California is also notorious for particularly high disability insurance rates. If you'll be moving to California for or after residency training, you'll almost surely want to get your disability policy in place before you go.
# 12 Crazy Legislature/Laws
The California legislature is not known to be a particularly physician friendly body. As a full-time assembly, most legislators are professional politicians. Now, don't get me wrong, there are crazy anti-doctor laws being debated all the time including this idiotic one in Utah a few years ago. But California seems to go above and beyond. Perhaps the most recent one is illustrative. Although it hasn't passed (yet), this bill would essentially allow the state to fix all of the prices for physician services as a percentage of Medicare payments. Anesthesiologist Linda Herzberg, MD, described it like this:
When you set payments at percentages of Medicare to a state GDP cap, prohibit physicians from participating in the price-setting commission, and use physician licensing fees to pay for the commission to fix their prices, I’m not too interested in continuing a discussion about how this might work, even if the bill is revised. To quote the CMA letter, “Physicians are not a public utility and should not be treated as such.” If enacted, this bill is more likely to dramatically restrict patients access to care, promote early physician retirements and a physician exodus from California, as well as deter the entry of young physicians into practice in California, than anything we have seen to date.
There seems to be no end of crazy ideas coming from this body. How about this one to tax text messages applied retroactively?
Move or Deal With It?
It's obviously not impossible to get ahead as a doc in California. One need look no further than our WCI Network partner Passive Income MD. This anesthesiologist and his physician wife own multiple different businesses and are doing just fine. Okay, maybe that sentence confirms my hypothesis rather than providing evidence against it. Perhaps this post illustrates the reason why PIMD started looking for additional income in the first place!
If you're not in that sort of financial situation, you've got a hard decision to make. You can leave California and acquire wealth relatively easily simply by seeing patients, carving out a big chunk of your income, and investing it wisely. Or you can stay and make do as best you can. You may want to put more time and effort into building a side business than you otherwise would. You'll likely need to work longer to reach financial independence. You may need to take on more leverage risk or market risk to reach your goals. You'll probably find yourself feeling much more middle class than you otherwise would. Hopefully, your partner's increased salary can help make up some of the difference.
Now I'm sure I'm going to get roasted for this post by the 12% of my readership from California, but that's okay. Just don't expect a response before Saturday as I will be out of cell phone coverage all week while exploring Southern Utah. My staff is now all back from their backpacking trip last week, so feel free to ping them if you need anything while I'm gone.
What do you think? In what other ways is it difficult for physicians to build wealth in California? Have you moved from a high cost of living area to a lower cost area? What was it like? Have you decided to stay in California? What sacrifices have you had to make to do that? Comment below!
The above were more than a few of the reasons I left. With my new job I took a small gross pay cut but when taxes were taken into account, I come ahead thanks to the lack of state income tax and lower property tax in Tennessee. Still there is a lot I miss about California including the reliably good weather and great outdoors activities.
A good chunk of doctors also send their kids to private primary school in CA, even though there are great alternatives paid for by the draconian taxes schedules.
Likewise, the dozens of activities that kids do there days will cost you a heavier penny too in CA!
Great produce and great variety of ethnic foods are available though…
I knew California was hard on physicians because of taxes and HCOL items such as housing, but I never knew just how many more things are in place that really create strong financial headwinds for a doc to go against to eek out a living.
I grew up in California during my high school years and yes, the weather is beautiful and the things to do are amazing, but I would much rather live in my LCOL area, make bank and save, and visit California (or other similar great destinations) when the urge hits.
Some of the proposed laws you mentioned are truly outrageous. Have no idea what goes into the minds of the people who create them. It seems like there is an anti-doctor movement there and if all the docs do end up leaving that will be the only way to show them the errors of their ways.
Please do one of these posts on Illinois, New York, and New Jersey while you’re at it. At least in California you have great weather and national parks.
NJ properties alone will eat you alive!
Taxes I assume you mean. I am amazed to run into docs who are paying $20-50K a year in property taxes. I’m almost embarrassed that mine are only $300 a month. I mean, I can understand high property taxes in a place like Texas without a state income tax, but in a state where the income taxes are also high? Where is all the money going? What are they doing that isn’t being done in low tax states?
https://www.dallasnews.com/business/real-estate/2019/04/04/think-dallas-fort-worth-property-taxes-are-high-well-you-re-right/
I live in Essex county NJ and my taxes are 16k on a property of 400k valuation or 4% of basis.
Going to California will require a nice downpayment but the property tax rate is 0.74 in Los Angeles with a 10.3-13.3% income tax rate.
There would be a marginal difference in cost of living over 30 years being close to home in NJ vs going to California.
Also, opportunities for ancillary income sources are arguably better. If you’re goal is to live off your income as opposed to thinking of it as “seed capital”
Cost of entry into real estate is challenging; I could live in a duplex in california using a doctor loan with a value upto 2 million dollars with a 20% down payment and renting out the other unit. Usually duplex at most but sometimes can go upto 4plex. The latter wouldn’t he practical for me, but a 4plex with 3 units rented out valued at 2.5 million in redondo Beach wouldn’t cost me more money than what I live with now in Essex county NJ.
After couple years I can refinance the doctor loan to a lower interest rate and use the equity build up to buy other income producing properties or invest into development projects.
Now, some of what I am speaking of is capital intensive and will not work for everyone here.
California isn’t bad, but it isn’t for everyone. If you are finishing residency with no debt then maybe what I am saying would have validity.
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If you have school age children, tell me where you will find a SFH in a top public schools district paying less than 600k in any top 25 housing market.
Seattle?, SF?, LA?, SD?, Phoenix?, Las Vegas, Dallas?, Houston?, Chicago? Boston? Long Island? Montgomery county, MD?, Baltimore? Philadelphia/mainline? Salt Lake City ? American fork?
Tennessee you’ll be going to private schools in some place like Memphis or public schools in a Tony Nashville suburb
Maybe outside perimeter atlanta. You could get a good house in Marietta for 400k zoned for Walton high. Alpharetta won’t be as cheap
What are all the low cost of living areas where you are living in top notch (defined as 8/10 on Zillow with a full complement of AP coursework and highest levels of per-pupil spending)?
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Since I’m not cool with going to west boondocks just to achieve a LCOL (I have physician relatives of the older generation who have done this). They have money but little else. They don’t have mortgages or car payments and didn’t spend a lot to educate their kids but the relatives (multiple families) have kids that are screwed up and maladjusted in a significant way vs those who came from suburbia, lower incomes and higher cost of living.
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California is harder to build wealth for those who lack wealth and it is harder for me than my relatives who are physicians and non physicians who settled there 40 years ago.
But primary care jobs are paying anywhere from 230k(Sacramento with hospital support to build private practice) base to 320k base in the central coast for 4days/wk 40 hrs tuition repayment, good benefits and relocation with bonus structure.
Even in the Bay Area at PAMF in Fremont they are offering 270k with rvus to bump pay into the 340k range. My tax burden in Bay Area would still be comparable to Essex county NJ
It might be tough to find a sub $600K SFH in a top school district in the top 5, but not in the top 25. Need me to send you some listings? 🙂
At any rate, everyone will find themselves somewhere different on the geographic arbitrage spectrum somewhere between Manhattan NY and Manhattan KS. I just want people to be aware of the financial benefits of moving down that spectrum. How far they go is up to them.
Sure I am open to that.
Homes less than 600k in a top 25 market in the top rated public school districts in their respective cities and metro areas. 8 or higher on Zillow while being at or near the top of respective states in per pupil spending (top 5th percentile Per pupil spending in their respective states).
There may be a few outliers but I am open and interested to see what your research turns up and what I might be missing.
It’s not the only criteria by any means but it is a significant factor to me which makes California not look as unattractive to me as it is to many others coupled with fact that it isn’t an order of magnitude more expensive than where I am at.
I only really know the Salt Lake City area, but here you go:
https://www.utahrealestate.com/1694649
https://www.utahrealestate.com/1690934
https://www.utahrealestate.com/1695485
Utah isnt really on my radar, but I’m definitely not opposed to it. The grassroots soccer scene coupled with its natural beauty. Never get tired of looking at the snow capped mountains. Definitely a place I would greatly enjoy visiting, if not living in.
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Having said that, take a look at Gilbert and chandler Arizona(not Scottsdale or paradise valley mind you – public schools not up to par)
Close to a top ranking public school (Williams field)
2000 sq ft home new construction (bit too small for me) on 1/10 of an acre with an HOA. 395k and close to 200/sq ft
https://www.zillow.com/homedetails/3122-E-Ivanhoe-St-Gilbert-AZ-85295/71623685_zpid/
If I am looking for anything around 3k sq ft with about 0.2 acre, it is 600k or higher.
Moving along, 2474 sq ft on 0.125 acre….In Gilbert, not even Scottsdale 410k
Higley High (9/10 Zillow)
https://www.zillow.com/homedetails/3958-S-Vineyard-Ct-Gilbert-AZ-85297/95087880_zpid/
550k for 3700 sq ft home with 0.2 acre….schools shitty, still in Gilbert
Zoned for the great Gilbert high (5/10)
https://www.zillow.com/homedetails/2314-E-Beachcomber-Dr-Gilbert-AZ-85234/8249030_zpid/
Also in the 85234, on 0.8 acres at nearly 800k with same lousy school
https://www.zillow.com/homedetails/1912-E-Lexington-Ave-Gilbert-AZ-85234/8233509_zpid/
Why not just cough up a little extra and go to paradise valley?
So, to recap you’ll be spending around 600k to be in a good school district in Gilbert in the area bordering Chandler basically.
85295 and 85297 to live in tiny home with no yard you can get below 600k
But certainly, there are buffer homes approaching and exceeding million dollars in those neighborhoods also.
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Looking at Chandler AZ(home of intel)
535k 2800sq ft on 0.2 acres (below threshold for me) zoned for Basha high school (7/10)
Other top schools are Perry(Gilbert) and hamilton high
Zip codes: 85286,85249,
0.4 acres and 3200 in a nice neighborhood in chandler: only 899k
I would buy here and send my kids to brophy prep or Phoenix country day also except this is zoned for some of the better public schools in Arizona instead of buying in Paradise Valley or Scottsdale, which is routinely over 300 dollars/sq foot for comparable sized homes.
https://www.zillow.com/homedetails/3440-S-Whetstone-Pl-Chandler-AZ-85286/157725235_zpid/
2666 sq ft on 9313 sq ft lot zoned for hamilton (10/10 on Zillow)in Gilbert
815k
https://www.zillow.com/homedetails/763-W-Nolan-Way-Chandler-AZ-85248/8225383_zpid/
Other than being new, I’m not sure what those schools (higley and Williams field have that is notable; basha perry
Basha perry abd hamilton habe a good complement of ap courses and a lot of stem education
https://www.cusd80.com/cms/lib/AZ01001175/Centricity/Domain/38/2020%202021%20HS%20Course%20Catalog%20FINAL%202.pdf
But you have to pay to have a halfway decent home in the neighborhood
And did I mention it is not even Scottsdale? Scottsdale is more expensive for comparable homes and lot sizes in places like McCormick ranch.
Everything in paradise valley is expensive but it is nice, including the older homes.
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Dallas:
Look at some place lien Colleyville near ft worth
I have a cousin who is a Psych there and her home is 3700 sq fr on small lot and valued just under 700k
Median for Colleyville is 689k and the school (Colleyville heritage) is good not great but has most of what I would look for despite being 7/10 on zillow.
I thought Plano is good but not as good as I would like. Plano-Richardson
Schools around 7/10 on Zillow (Plano West and East respectively)
Get more house for money than highland park but the schools aren’t as highly ranked.
530k for a house on a 5000 sq ft lot
https://www.realtor.com/realestateandhomes-detail/2705-White-Dove-Dr_Plano_TX_75093_M89342-31705?view=qv
1.1 million for a house with a so-so school district in another part of Plano 3400sq ft in a 6000 sq ft lot. 24k/yr property tax (that would almost be a break for someone in Northern NJ, NYC metro, Chicago)
https://www.realtor.com/realestateandhomes-detail/Josephine-St_Plano_TX_75024_M83635-82729?view=qv
Areas I actually liked would be Frisco TX
Fast growing with excellent schools and home around 3000 on a quarter acre are available in the 400k range.
Fine if I life and work there but If I work closer to Dallas it is easy in morning door to door but 8 dollars per day in tolls and burn a good chunk of gas (less with a hybrid I suppose)
It is on the Dallas north tollway wheee many large companies are looking to relocate so in long run the commute would be worse.
This brings me to highland park. Best schools in Dallas proper on one side but the other side zoned for north dallas high which is dump.
Median home is 1.7 million.
Approximately 350-500/sq ft
Everyone I met undergrad at Emory decades ago who were from Dallas was from private schools. Those from Richardson and Plano and the like were from public
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I have done this exercises for nearly every city in the east coast (not really most of the southern cities except for Atlanta)
I also didn’t consider places I wouldn’t consider living like Milwaukee. Why? Because it is Milwaukee.
I don’t believe I can live in any top school district in a home for a family of 4 that is about 3000 sq ft on about a quarter acre (although outside of California my requirement is higher due to lack of parks in most other cities)
Looking between 550-600k to be on the low end of spectrum and in higher tax states it’s closer to 750k
It’s not “top 5” markets, nor is it top 25. Its more like top 15
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The downside to California is due to their restrictive NIMBYism there is a housing shortage; as such, you could spend money and end up in a shitty district.
I don’t as much house in California to be happy or as much yard due to the outdoors and the wealth of resources both paid and unpaid that it offers
It’s not for everyone and not for everyone with debt who isn’t looking for side gigs.
It’s not for people who aren’t entrepreneurial.
It isn’t for people who whine about medi cal, which pays reliably and on time.
Again, a person needs to be entrepreneurial to address the factors that make seeing such patients not cost effective.
Unfortunately residencies teach people to be content as salaried schlubs.
Taxes are high in California, but opportunities to use salary (seed money) to invest and develop side gigs is great also.
More money is needed up front to enter the housing market. If someone has a lot of debt, it might not be a good fit.
I could spend 500k down on a 2.5 million dollar quad and my housing expenses in California would be comparable to northern NJ on monthly basis with ability to build massive equity and leverage for acquiring more properties.
The duplex economics
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If you’re far behind, it is a rough place to get ahead (in large part because of the high cost of entry for home ownership)
If you’re willing to use your doctor loans to buy multifamily, re-fi and trade up once your multifamily is cash flow positive(sometimes
This can ALSO be done with a doctor loan) It’s not so bad and opportunities abound in nice neighborhoods for younger newly minted attendings.
semiretiredmd.com can say more on this
but if you’re not behind, it is an excellent place to get ahead and not exponentially more expensive when you are talking about having kids and being able to send them to top schools and have access to the activities and extracurriculars valued most highly by ones family.
I said: “It might be tough to find a sub $600K SFH in a top school district in the top 5, but not in the top 25.”
You disagreed with me, and then proved me right with your examples.
Looks to me like you found a lot of reasonable sub-$600K homes. Just because you want to live in something nicer hardly makes it crazy for someone else to live in a less expensive house. Many people feel 2500 sq ft is too big for them. I grew up in a 4 bedroom, 2000 square foot home. It was fine. It’s still fine.
The following markets look overvalued
LA-OC 5-9%…maybe a short term deceleration in the rate of appreciation and maybe even decline but not much.
Of note, the average first time buyer of home in 1981 was 31. Today it is 47.
http://www.doctorhousingbubble.com/the-home-less-millennials-in-1981-the-median-age-of-a-home-buyer-was-31-and-today-it-is-47/
California has a high renter population and as much as 30% of 30 year olds in the highest cost areas live at home.
Still California is the 12 highest in that metric with most of the western states rating low on the metric
Northeast states are the highest with NJ being the highest. 39.2% if 18-34 year olds live with parents.
I once read that it was still 30% who are above age of 30.
https://www.usatoday.com/picture-gallery/money/2019/07/02/living-at-home-states-where-millenials-still-crash-with-parents/39627851/
Phoenix and Vegas running up again and Dallas as well. Lot of overpriced crap not in good school districts which I have illustrated in a way that anyone interested can easily verify.
https://www.google.com/amp/s/www.presstelegram.com/2020/07/15/bubble-watch-l-a-o-c-california-home-prices-seen-5-9-overvalued/amp/
Word. NY has some gems, but not bright enough to overcome working there!
We live in eastern Washington state, and we are literally being close to inundated with former Californians moving here. No state income tax, no tax on groceries, much lower property taxes, good asset protection laws, lots of sunshine, good access to ski areas, three national parks in the state, and an overall cost of living 10% below the national average are very appealing. Many are able to buy a property here for one-fourth of what it would cost them in CA. And the population of nearby Coeur d’Alene, ID, is now composed of about one-third ex-Californians.
Well, the Adirondack Park in upstate NY is bigger than all the national parks combined.
I’m not sure you’re aware of a few of the parks in Alaska. I’m sure that if combined they’re bigger than most states.
As a physician you can have (almost) anything you want but not everything you want. Housing in NYC is expensive but you learn to live small, save on furniture, cars, utilities and make use of free or low cost attractions like parks, museums festivals, low cost theatre as well as highly rated public city schools and cheap direct flights. You can build wealth in NYC if you accept that one of your luxuries is location. You won’t have a 5 bedroom home, nice car or feel particularly “rich” on a daily basis . You also won’t need a cleaning person bc your place will be so small you can clean it quickly.
FWIW, we hit 6 figure net worth during my residency with several young kids without pinching pennies and our net worth continues to grow though admittedly not as fast as if we lived in rural USA. That said, WCI’s net worth would likely grow faster if he never bought the boats/new cars, never had kids and moved to rural Wyoming but he doesn’t seem to want to do that either. Money is important but it isn’t everything and we don’t all want the same things.
I find the “geographic arbitrage” preaching on this site tiresome at times. Sure, if you have a bunch of kids and a SAH spouse in residency you probably shouldn’t move to NYC but it can de a good fit for a 2 income family. I know WCI’s writing is about what he knows which is living in UT but some of us are doing just fine financially in HCOL areas and these areas have real benefits that some people value more than others.
He is not bashing high priced states. It is a legitimate analysis of whether one living in CA will achieve financial independence in a reasonable amount of time. It’s no different than analysing high priced ETFs/Mutual funds, using expensive financial advisors or buying expensive real estate. By the way, the “preaching” is needed to keep us focused. If one doesn’t like this preaching, then one can search for another church.
It’s kind of funny to be seeing the comments for this post at the same time as the one that ran two days later on ADUs written by a doc in California. Here’s a quote from a comment there:
This HCOL thing is a real issue.
I love that- “one of your luxuries is location.”
Some docs need to hear this sermon, but it sounds like you’re taken care of already, which is great!
In addition Cook County has a terrible malpractice environment and New Jersey’s estate tax may be the worst in the nation. You’re absolutely right that I could do a similar post on each.
While I would agree with your point on malpractice environment, I found that my marginal state and LOCAL income tax rate fell from 10.5% to 3% when I relocated from Cuyahoga Co., Ohio (Cleveland) to McHenry Co, IL (Chicago collar county) in 2000. The difference has narrowed in recent years as Illinois has increased their state income taxes while in Ohio, declines in the state income tax have more than offset the increases in local earnings taxes. At the time of the move in 2000, property taxes were nearly identical. The last time I looked in 2018, the property taxes in Ohio have increased by about 50% in the municipality in Ohio while they have remained nearly flat in the municipality outside of Chicago.
Interesting. Didn’t realize taxes in OH were so high. But I’ve only lived there for a month.
If you have a choice, don’t practice in California. I have family there and I have been begging them for years to leave. None of them (non-medical) will ever retire. They will proudly report how much their homes are worth and conveniently leave out that they have $800K-$1M mortgages with car loans and credit card debt and pathetic retirement savings as if this is normal. I tried to get a job in the Los Angeles area as a pediatric subspecialist a while back (to be closer to family) and they offered me 40% less than I was making in Florida at the time. I was so upset, I told them that if they did not want to hire me, then just tell me that it would not work out rather than insult me. They looked at me bewildered and explained that my offer was very competitive to other subspecialists in the area! I will state it is understandably a very difficult decision for folks who have family in California. I recently had one trainee take in everything that I have taught them and yet wants to be near their parents. They have taken a job in Nevada, but I envision them eventually returning home. These decisions are very difficult and complex…
My ex-Medical Director tried and tried to move his family to CA from Oahu to access better schools for his kids, two of which had special needs. He was kind enough to discuss his interview process with me. He got offers for several exciting sounding jobs, in well-respected concerns including UCDavis, UCSF. Exciting until the compensation package was offered.
They moved to Missouri finally, where he can essentially live like a king, have all his kids in private school and work four days a week.
But…Missouri.
I agree CA is a poor choice to live/work financially. But life is about more than finances and fortunately as a physician my salary is high enough I have the luxury of being able to live essentially anywhere in the US I want. We decided it was worth the cost so that our children could grow up seeing their grandparents and cousins regularly.
However, after living in the Midwest and PNW, I’d be very happy to settle in either area if I could just get my entire family to move as well… That seems unlikely to happen, so I’ll just have to put up with my daily views of the ocean and 70-80’s degree weather.
The racial and ethnic diversity in CA is something that is a lot of value for me and my family. Yes, I can make a lot of money in Indiana or the midwest but with the current political climate, I’d rather be in a place where there is a more diverse population around.
Not only that, there’s something to be said about living in a place where your home is where other people vacation!
I agree. I much prefer living where others vacations and have for a large part of my life (AK, UT).
We live on Maui in Hawaii, where the COL is astronomical (even this article reports the gas cost here is the only one higher than CA). Everything is more expensive but…it has caused us to re-understand our life, simplify and appreciate things. We never were “keeping up with Joneses” types anyway; bought used cars for cash, Toyota/Honda, cook at home, we don’t spend a lot on “things”, my closet is refeshingly simple: slippahs (“flip-flops” for you mainlanders), aloha shirts and lots of shorts. a couple pairs of pants and a couple ties I never wear.
But in 30 minutes we can be snorkeling in waters that folks spend $10k to fly to once in the lifetime, hiking a dormant volcano above 10,000ft, or tramping through jungle.
I recently took a very part-time gig as a “medical director” at a private RTC because my state job doesn’t afford me enough direct-care for my taste (I’m a state employed clinical director and supervise a lot. Amazing state holidays, 13 per year). The PT job pays well and will pop our ability to improve the house, take slightly more groovy vacations and save more. I still work fewer hours than my old inpatient job. But many docs I know here have two jobs or multiple income streams, including nearly every one of my state-employee colleagues.
My parents are native Californians. My wife’s parents are native Californians. Despite this I’ve been trying to convince my wife to leave for years. Like someone else said, if I could move the whole family somewhere else we would. Komifornia is the absolute worst on planet earth. If we didn’t have two little kids I’m sure I could have convinced her to bounce.
We lived in SLC for my fellowship and loved it! Should have never left!
Absolutely. A physician income combined with a solid financial discipline/knowledge can more than overcome these headwinds. It is important to understand the headwinds exist even if you choose to paddle against them.
The financial side to these big life decisions are incredibly important but don’t have to be the biggest deciding factors. Choosing where to live has so many facets., Family, friends, weather, beliefs, culture to name just a few.
We are staying in a HCOL area because it is where our families are. Almost no amount of money could lure us away.
The more info we have to make these choices the better. Knowing what you can get when moving to or living in a HCOL area is crucial to understand what kind of life you can have. It can only help!
Knowing the math behind wealth building in a HCOL area greatly influenced our home buying decision. It helped us not choose the Dr house in the Dr town and this decision will shape the rest of our lives.
I made the crazy move from Houston, TX to Southern California. However, in my first year after moving, I find the situation differently. 1)The cost of living “in the loop” in Houston is actually quite high and compares to living in California. The property tax in that area is about the same as income tax would be in California. Although you do have to pay property tax in California as well it is not as high as in Texas. 2)The public schools where I am working are rated much better than the public schools from elementary through high school where we were living in Houston. In addition, so many top public universities are located in California. 3)The area where I am working has a good payor mix which is much better than where I was working in Texas. Although Medi-Cal payments may be relatively low compared to some states, most patients will have quicker access to it. Texas has one of the highest rates of uninsured patients. 4)I practice in Nephrology and most of the power and money distribution is decided by people who started the practice. I was in a situation where the calls, holidays, vacation time, share of medical directorship income were not being shared equally. I had an opportunity to join a group in California which does just that.
And finally, I always wanted to live in California. Every weekend we have the opportunity to see some place new. Wealth accumulation is important but it’s nice to live in a state with more progressive values.
This is still a bit of an adventure for us as we have family and friends in Texas. But, so far, I feel California does have a lot to offer.
While I understand why # 4 contributed to your decision to change jobs, I’m not sure that’s a Texas vs California thing.
Reasons one through three seem relevant though
Interesting article. Looking forward to the commentary. When I discuss this with colleagues, there is an interesting disconnect between emotion and math. I get it. But then again I’m FI in mid 40s.
Maybe kind of like kids that way. Parents can’t imagine living without them and DINKs see a terrible financial decision.
It’s not only docs. My son and his wife (not docs) lived in Santa Barbara for 6 yrs. and could only live in an apartment and had not great jobs. They moved home to the Midwest and within 3 months could buy a 5 bedroom house and after 5 yrs my son also has 6 rental houses (had 8 and sold 2). They miss the great weather and ocean but they could never have the lifestyle there that they have here.
Nontraditional med student here. My wife and I grew up in CA, met there in college, and worked there for years after college before moving to the Midwest for med school. In LA, we used to pay $1500/mo for a mother-in-law unit that was less than 400 sq. ft, we both had commutes significantly longer than the average listed above (bumper to bumper most of the time), and we’d get really happy when gas was under about $3.50/gallon. Not to mention, the high cost of land and labor was built into the cost of every good and service.
Now we’re renting an apartment that’s twice as big (and in much better shape) for half the cost. My wife makes a fair bit less than we made together in CA, but we feel a lot better off. A lot of my classmates are from CA and are hoping to go back for residency or practice. The weather’s hard to beat, and I love the family members we both have back there, but I sure don’t miss the rest of that mess.
Certainly not a great place for a high income professional to build wealth. Probably not a bad place to be if you are penniless. I have found it a great place to visit.
I love living in CA. No comparison to some other states, in my opinion.
#12 is true for any cherry-picked legislative body in history or geography.
#8 is a consequence of a spiteful/vindictive pusa. Dumb choice for anyone to vote for him.
Now I understand why you live in California, the “best of all state”.
#8- the SALT limits hurt me mildly in WI, but I am glad it passed. Its a fair law. Basically, being able to deduct our high income and property taxes from our federal taxes allows us to disproportionately push the burden to other states that do not have such high state income taxes and property taxes. I lost a big deduction on my federal taxes, but it is fair to everyone in the country.
Not sure you can blame tax policy entirely on a president. Last I checked the Legislative branch was separate.
Would be interesting to do a similar analysis for OR. I’m living in TX building wealth but hope to FI +/-RE and end up in a rural part of northernmost CA or southernmost OR with a free and clear house within a decade or so. For my situation, OR might actually have a higher cost of living vs CA.
For a FIRE’d family who wants to live frugally, say on $55K/y, the marginal OR tax bracket is a whopping 9%, but CA is only 4%. Although OR has no sales tax and this may balance it out a bit, I doubt I’d be paying >$3K/y in local CA sales tax with $55K income, which is about the additional state income tax we’d pay in OR.
Although nominal property tax rates seem similar on both sides of the border (~1%), once we can actually afford a house on the CA side, Prop 13 should protect us from tax increases going forward. Also, OR just passed that crazy statewide rent control law, which would scare me off of any local real estate investing.
Haven’t compared all the factors WCI mentions yet so would be interested to hear from someone who’s familiar with the region.
They’re probably not bad places to retire to assuming you can handle the increase in housing cost.
I also find “rent control” laws amazing and am surprised anyone invests there.
Don’t even get me started about California. I am a 7th generation Californian (had a Spanish great, great times 4 grandfather married to my Mexican Grandmother who settled in Santa Cruz before CA was a state). I have deep roots and still a ton of family here. I love the land and I’m in love with the Pacific Ocean and the Sierra Nevada. Despite these things, I constantly consider leaving this land I love because of the outrageous laws that you mentioned among others that I consider downright immoral.
I don’t live in CA and don’t have plans to (although after a few days in Coronado and La Jolla, I can totally see why lots of people do!). I always find these debates logically ambiguous, highly emotive, and somewhat comical… there are clearly pros and cons to every place. Our current state in the south has many reasons to be a “terrible” place for physicians to build wealth, too. State/local taxes are fairly high, property taxes high, and our “anti-tax” governor has taken very few steps to alleviate the problem, instead handing out breaks to large out-of-state corporations. Corruption is also a problem, with kickback scandals directly harming medical professionals and most lawmakers escaping justice. And finally, the market is saturated for many specialties.
It reminds me of a funny poster I saw several years ago while in undergrad–“Enough sleep / A social life / Good grades. Welcome to college, you may choose two.” There are so many factors to pick and chose from, and potentially sacrifice when discerning where to practice. If someone has a mind to manage finances well, I’m sure he or she will take steps to mitigate and plan for the future, no matter the state.
You’re right that I could write similar posts about many places, including Utah. But I’m in the publicity business here and if the publicity a “controversial” post like this usually generates leads a doc to fix their financial life then I consider that a win.
Hi, was wondering what you meant by comparison of malpractice being head and shoulders above Cook county. I may be moving to the Cook area and want to know why med mal is a risk there? Thanks.
Google is your friend.
http://lmgtfy.com/?q=why+is+cook+county+a+terrible+malpractice+environment
Lots of suits, high dollar amounts, sympathetic juries etc.
It is not JUST Cook County that has this problem. Madison and St. Clair Counties (adjacent to St. Louis) have as bad a reputation. All three counties are in the worst ten in the country for medical malpractice.
When we signed contracts with vendors, our corporate attorneys would not allow any clauses where the litigation was directed to Cook Couty courts.
I’d be interested in seeing the full list if you have it available.
It would be interesting to see some comparisons of so called “natural experiments” such as physicians separated by the border in the Tahoe area. Similar physicians in all respects expect 1 lives & practices on the CA side of the border and 1 lives & practices on the NV side of the border. My understanding is that houses are actually more expensive on the NV side of the border in Tahoe, since by living there you can greatly reduce your state tax burden.
I don’t see many other areas of CA where this comparison could be made. Along the OR/CA border there are a few medium sized populations, but many could argue that the benefits of CA living is concentrated in the urban centers (SF, LA, San Diego and Tahoe). Northern CA is beautiful, but a different culture than the cities.
In Chicago, physicians are able to work in IN or WI to mitigate some of the issues (such as malpractice and reimbursement rates). CA has most of its population far from other state borders.
Another option for a CA physician could be geographic arbitrage through airfare (fly to a job in a nearby state). Taxes would be due in your permanent state of residence, and would need to understand state tax reciprocity, but cheap flights are available out of LA and SFO. Can you earn more, even considering the expenses of commuting to a job outside of CA, while retaining the benefits of CA living?
On the border it depends where the job is, then the tax home can be gamed. From my anecdotes, there is still a lot of emotion involved, more than hard numbers.
Good thought, but I don’t think it would fix very many of the issues. A better arbitrage is to have a second home there and vacation there frequently, not live (and pay taxes) there!
There are relatively few physicians living and practicing in Incline Village, on the NV side of the border in Tahoe. Many of us who practice there are based in CA. However, there are quite a few physicians living in Reno and practicing in Truckee. There are also some physicians living in Truckee and practicing in Reno, although I can’t swear they don’t also have tax residence in NV. I’m guessing not because they have kids in local CA public schools.
This is a good choice for a blog post because it will stir up people’s emotions and make them think about how to balance qualitative factors versus quantitative factors.
How do you put a price on weather, diversity, entertainment and other things that are mainly in HCOL areas?
We’ve lived in several states throughout different stages of school/ training, including Pacific Northwest, East Coast, and The South, finally ended up in SoCal and are very happy.
We lived like residents early on, invested, and are FI in our 40s. We take call while relaxing on a floaty in the pool, under the sun, near the ocean. But for single income family or primary care MD I could see it being more difficult.
I think this is the right attitude to have. Everyone values different things. As long as you’re financially savvy and intentional about your choices, you should do fine. There are many paths to financial success. HCOL areas make a financial journey much more challenging, but not impossible given smart choices in other areas.
I personally chose against CA for my first job because I want to reach FI faster, and without family in CA the cost wasn’t worth it to me at this point in time. With that said, SoCal remains my favorite place to visit and once I’m more stable financially I would strongly consider relocating there. Just wanted to give my net worth a jump start.
One thing I’ve noticed anecdotally about both coasts is that people with roots there tend not to leave. Residents who are from CA usually want to go back there and residents I’ve met from the NY/NJ/CT tri-state usually want to stay around here. I find with folks from other parts of the country there’s not so much of a drive to be back where you grew up.
I’ll add that for many there are both political and ethnic/cultural factors at play. If you value diversity or if you have kids in an ethnic minority and want to live in an environment with a higher concentration of other minorities you’re also looking at the coasts. (Yes other big cities as well but not like NY and CA). Also, if you lean blue there’s more on the coasts as well.
Thank you! Being in a community where you’re not stared at when you walk your dog, or your kids aren’t called terrorists in school, or you can eat good food from your culture is worth any amount to me.
I think in highlighting the reasons California is a terrible place to build wealth you also demonstrated an outline for how to build wealth here:
– Realize your luxury is living in California, and enjoy the free stuff (we’ve nearly optimized the use of cars out of our day to day lives – all year round)
– Realize you’re not wealthy here, and adjust expectations accordingly (that 25 y.o. tech worker over there makes 400k, yo).
– Find other ways to increase your income (PIMD style) or spouses income (we’ve got a lot of other high paying jobs: tech, entertainment, biotech)
– Live like a resident longer (wife and I have savings goals that reflect our significant debt (mortgage) burden, we monitor every dollar despite being w2 wealthy)
– Understand the trade off between renting / buying and realize that renting (forever) might actually be optimal. Realize that in a lot of cases, buying will put you in: A) an unimpressive house, B) a long commute, or C) a mortgage WAAAY above what you’re actually “comfortable” with
And… unfortunately there are factors you can’t control: student loan debt, being in a “low paying” (by CA standards) specialty, and life’s emergencies.
You’re not wrong though. Its stupidly expensive here (bay area) and our ability to make it work has been driven by both frugality and luck. I can’t honestly recommenced moving here to anyone, that said, if you want to or have to, people with A LOT less money make it work.
Meanwhile, we’ll continue to run, bike, hike, climb, swim, or sit outside and stare at the redwood trees every day of the year.
Agreed. Some couples reside in California because a non-physician spouse working in tech can do well and has many opportunities. Compensation can vary. (Health insurance, 401k match, ESOPs, and stock based incentives, etc). The key is getting on the property ladder fast if you think you’ll want to reside here for the long haul.
Excellent comment.
I went to see the Redwoods with my daughter in February and we got to enjoy some of that famous California (liquid) sunshine while doing so.
Interesting. Taxes are definitely higher than Utah, no doubt, but…
-Even Kaiser pays better than Utah for EM these days, and salaries are higher across the board.
-It’s not difficult for a nurse to earn 175-200k a year there with a bit of overtime (and OT starts after 8 hours, so every shift involves overtime). That’s a huge difference, and their insurance is 100% paid for, no copays, no deductibles.
-Medmal protections are pretty good in California
-Sacramento is similarly priced to the Wasatch Front
-The UCs are far superior to the state schools in Utah in pretty much every way
-There are better schools in many (not all) parts of California- education is simply not funded in Utah
-There are more opportunities in general in California depending on your spouse’s career
-California has a higher percentage of women physicians, and more highly placed women physicians, so perhaps more professional opportunities for women
-It’s a more diverse state, so this may be helpful to minority physicians who wish to move up the ranks.
For a physician-SAH family, Utah would probably be better. For a physician-physician couple, maybe. For women and minorities, California may offer more opportunities. For a nurse-physician couple, California hands down. In my anecdotal experience, as long as you can find a decent real estate situation (and that’s a big if, unless you look at Sacramento), the folks I know who have relocated to California are killing it compared to Utah.
I moved from PA to Sacramento 4 years ago and never regretted it at all. Sunny weather most of the year, diverse population around me, I can wear a hoody and sandels even in the winter, good asian food everywhere.
I agree nursing in California is a whole different deal than doctoring there (especially compared to Utah.)
Utah is a wacky place for EM, but last I checked it had above average EM incomes especially since they’ve done a great job keeping out the CMGs.
I’m riding in the car right now with an emergency doc who moved from Sacramento to Utah 5-10 years ago. While he had very slightly lower pay while in the partnership track his pay is now 60-70% higher than it was in California. Yes, it’s anecdote but geez…..
Yes, in medicine especially we can take advantage of geographic arbitrage. There is a range of pay for most billing codes and for physician salaries.
If you work in silicon valley you may have upside potential with a tech startup. But as an average doc forget about overcoming all these costs and risks.
If you are starting out and ambivalent about location, heed this information.
If you are older and more connected and don’t want to leave that is fine. Just realize the financial sacrifice you are making.
People say to me sometimes. “Oh sure, you reached FI right away but you are in the Midwest.” True. But there is a reason that I MOVED HERE. No regrets.
Also remember that your first job will likely not end up being your only job. When things fell apart at my other group there were a lot of opportunities in California without having to move to another city (or state), sell the house, and pull my children out of school. In a small town, that probably wouldn’t be the case for a specialist.
For real estate it goes both ways. It was more expensive for us to buy a place, but we also made a bigger profit selling it than we would have made elsewhere. And remember, up to 500k net profit is TAX FREE for MFJ. I know people who have done that a few times in the area, each time building more wealth.
The biggest hit for us above is #8 but I’m hoping that will change at some point with a new president down the road.
The good weather and high property prices are mostly in a narrow strip of land along the ocean to about 10-50 miles inland in California. The DMV is a nightmare everywhere. In the summer the air is toxic from constant wildfires. It is legal to break the windows of anyone’s car if you think an animal is in danger inside it. The state is not for everyone.
Adjusted for cost of living CA ranks 36th in overall taxes in the country with New York is 51st.
cost of living in CA is much lower if you live little bit inland and avoid Bay area and coast.
CA property tax is .77% . Texas 1.84 percent . In CA there is a 2% cap on property tax annually But in Texas it can go up to 8% . Properties in desirable areas of Texas or any other states are expensive too.
Medicaid currently pays like medicare in CA thanks to Tobacco tax.
Medical malpractice rates are far lower.
sooner or later every state figure out ways to sock the taxpayer. Because politicians promise more and taxpayer demand more.
We live in any state for different reasons weather, ethnic diversity, food , family and so forth. Somethings are priceless.
Tobacco tax? Have never seen a penny of it. Who gets it and how? The reason California physicians are treated so hostility by Sacramento is the weak representation by the California Medical Association. They are too busy fighting for public health measures like sugar drinks and vaccines but letting physician hostile, insurer benefitting laws pass like our surprise medical bill solution. Poor representation isn’t unique to California. It’s a nationwide trend. Until we realize our worth we will remain undervalued. At some point we need to learn to say no, so we can make a decent living for the years invested in obtaining an education. $270 for a MediCal emergency appendectomy is just not adequate compensation for surgery and 90 days of care.