In a preceding post, a guest poster argued that doctors are rich, should consider themselves such, and should be proud of their financial success.
In this post, I'll argue that:
- Very few doctors are rich.
- Those who consider themselves rich are likely to not end up so.
- A high income, while helpful in the journey toward financial success, does not by itself constitute financial success.
Nobody Ever Said Doctors Were Financially Average
In the heart of his argument, our guest poster compares a highly paid physician, who makes nearly 50% more than the average doctor, to the median US household income. Setting up a strawman argument is an easy way to make sure you win the argument. This misrepresentation of my argument is significant. I consider physicians, dentists and similarly highly paid professionals to be solidly upper-middle class, not “average.” If your definition of rich is “more than average” then I will concede, doctors are rich. But when you appropriately compare doctors to engineers, accountants, and successful business owners, then I see far less difference than the average American seems to see.
I think of my father, who recently retired from a full career as an engineer during which my mother was a stay-at-home mom for nearly all of it. The first few decades he worked for his state government, and then in the last decade of his career, he gradually phased out by working as an independent contractor.
He has a pension and health care, which if you tried to buy today on the open market, would be worth $1-2 Million. During his last decade of work, he also qualified for Social Security and using a SEP-IRA, acquired a decent-sized nest egg. By anyone's standard, he has a comfortable retirement. He never needs to work again and can essentially do whatever he likes with his time in retirement.
My in-laws (accountant and school teacher) are in a similar position with a military pension. In fact, when I was in the military, I knew a number of nurses who had entered the military as a medical technician at age 17-18 and were retiring as a nurse or a PA at age 37-38 with an inflation-adjusted pension for life, including health care. Most of them went on for a second career, but if they were frugal enough, they were essentially financially independent at that point.
All of these folks had nice houses, boats, planes, automobiles, and took fun vacations. There are plenty of doctors who not only aren't retiring at 38, but still have a negative net worth.
Eliminating Poorly Paid Docs From Your Analysis Leads To Inaccurate Results
My illustrious opponent in this debate chose to eliminate doctors that are poorly paid from his analysis, choosing instead to use a physician with an income of $289K per year to illustrate his point. He decided not to consider family physicians or academic physicians in his argument. He apparently also decided not to consider military physicians, pediatricians, internists and many of their subspecialties either.
The average physician salary is $200K. If your analysis assumes doctors make 50% more than the average doctor, how many doctors are you really talking about? According to the AMA, 360K of the 703K doctors in the country are in family medicine, pediatrics, internal medicine, and the lower-paid pediatric and internal medicine subspecialties. Another 44K of the doctors in the higher paid specialties are in academics, research or other non-clinical positions. This doesn't even count poorly-paid military doctors and other government employees. My opponent's analysis neglects over 57% of physicians, as if that doesn't matter! And I haven't even mentioned the 130K general dentists in the US with an average income of ~ $150K.
My opponent also glosses over the fact that medical student loans are not only high, but they are rapidly climbing due to skyrocketing tuition, the elimination of subsidized loans, and high loan rates (try getting a student loan for med school now for less than 6.8%.) I get emails on a weekly basis from physicians who are starting their careers with a negative net worth of $300K for a single doc to as much as $450K for a pair of married docs. My opponent glosses over student loan payments (“just $15K a year”) perhaps because he is thinking about HIS student loans, not the loans of those coming out of training now. If you owe $300K at 6.8%, amortized over 10 years, that's an annual payment of over $42K a year. Not significant? You be the judge.
Compound Interest and the Late Start
My opponent also minimizes the effects of “the lost decade” for physicians, where they are in training and their peers are earning money and stuffing it into 401Ks. Many financial books use an example similar to this one: Joe starts putting in $10K into his 401K starting at age 25 and stops contributing at age 35, investing a total of $100K. Bill puts $12K into his 401K from age 35 to age 55, investing a total of $240K. Which ones ends up with more money at age 55? If you assume a return of 8% a year, Joe ends up with $729K and Bill ends up with $593K, despite investing nearly 2 1/2 times as much money. My opponent thinks this effect is “less relevant.” Again, you be the judge.
Yes, other professions sometimes have a delay due to training. A college graduate might not start working until age 22. With a master's degree, he might be 24. But that's far different than a pediatric endocrinologist who, assuming she went straight through school and training, doesn't get out of fellowship until age 32. In my experience, it is very rare to find an attending level physician under 30 years old. Does the average physician have more discretionary income than the average American? Absolutely. Does he have more than a typical upper-middle-class family? Not really, especially when you consider the effects of higher taxes, the late start, and the high debt burden.
Physician Income Decline
Physician income levels continue to fall. Look around you. There are primary care practices failing every day in this country and the doctors are contracting to become hospital and other ACO employees. Anyone that thinks doctors will make more as hospital employees than they used to as private business owners prior to the many regulations that have been placed on them in the last 10-15 years is delusional. Just this month, physician Medicare payments were cut 2%. Student loan costs are going up, the training isn't getting any shorter, and reimbursement is going down. Even if you believe that physicians are currently “rich” based on their income, surely it's easy to see a period of time in the future when they will not be so.
Most Doctors, Like Most Americans, Can Get Rich
Now don't get me wrong. I believe that nearly every doctor can, and should be “rich” at some point. But it surely isn't automatic, and it doesn't come just by virtue of magically graduating into a high income. It happens the same way it happens for accountants, engineers, teachers, small business owners, and other upper middle class Americans. You have to carve out a certain percentage of your income (and make no mistake, the percentage is higher for doctors due to their late start and higher tax burden) and use it to build wealth. Money is fungible. Income can be used to acquire assets. Assets can be used to produce income. In my opinion, a “rich” person doesn't have to work. They can live just fine off what they already have. There are far too many doctors working in their 60s, and even 70s, because they HAVE to.
Responses From Sermo Poll
I posted a poll on Sermo, a physician-only forum, asking if doctors are rich. 82 doctors responded. 34 thought doctors were middle class and only 3 thought doctors were rich. 27 said it depends on the specialty, 8 said it depends on their financial habits, and 7 said it depends on when they graduated from medical school.
An Occ-Med doc said:
Doctors are rich in ego and stupidity and have poor insight of what constitute wealth and richness. We are just highly-skilled, overworked, manual laborers.
A Pediatrician said:
I'll Be Rich Soon And I'm Grateful
Now, a bit of a personal note. I'm not rich yet, but I'll be there soon. There's no doubt my wife and I have been blessed with the ability and desire to work hard, reasonable intelligence, and good health. Our high income absolutely has a lot to do with that. But our financial habits have at least as much impact. We budgeted, saved, invested, insured against catastrophe, and gave money away when I was earning $20K a year. We budgeted, saved, invested, insured against catastrophe, and gave money away when I was earning $40K a year. We budgeted, saved, invested, insured against catastrophe, and gave money away when I was earning $100K a year. We continue those same habits now. The difference between what we've earned and what we've spent is what is making us wealthy. A decent income is a necessary, but not by itself sufficient, condition for becoming wealthy. Without reasonable habits of frugality, even a very high income will not make someone rich.
If you live like a resident when you first get out of residency, grow into your income slowly, and invest wisely, you'll find that you have plenty of money with which to have a comfortable life, save for your retirement, and help others. You don't have to be some kind of a miser. Put 20% toward retirement, and spend or give away the rest. If you have a high debt burden, had a late start, or you want to retire early, maybe save a little more. It is very doable. If, on the other hand, you believe you're rich just because you have a high income, and then start living like it, there's a good chance you'll never get there.