Q.

I’m interested in seeing a discussion regarding subspecialization from purely a financial perspective. I’m currently a general surgery resident. Obviously interested in surgical subspecialization but understand your articles must apply to all of medicine and your readers. I have seen this analysis for other specialties but not specifically for surgery.

I’m a 30 year old surgery PGY3 with $400K in student loans. While I understand there is more to the decision whether to subspecialize than finances, I can’t help but think about my loans capitalizing for two additional years (while making the salary of a fellow) and missing two additional years of attending salary early on in my career, which I’m realizing is a critical financial time in my life.

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Fellowship is Not a Financial Decision

This is a financial blog. And this is a financial post. But the truth is that this decision is not, or at least should not be, primarily financial. It’s a bit like deciding whether to have the military pay for your medical/dental school or not. You can run the numbers until the cows come home, but, except in rather extreme circumstances, the decision should be made primarily based on whether you want to be a military doctor or not. A decision based on anything else is likely to lead to regret.

It is the same way with choosing a specialty and choosing whether to do a fellowship. Of course, if you love occupational medicine and plastic surgery equally, you should be a plastic surgeon, but I think those types of situations are rare. I did not choose my specialty primarily based on its financial benefits and I don’t think you should either. Certainly, my “mid-range” specialty in terms of pay and competitiveness was more than adequate for me to become financially successful despite several less than optimal decisions along the way.

Longevity Matters Most

The truth is that the best financial decision you can make with regards to career, specialty, subspecialty, and type of practice is to choose the one that you can do the longest. Even if it pays a little less, or takes a little longer to get there, you’re going to come out ahead, especially when you take compound interest, an earlier start, and our progressive tax system into account. But let’s just run the numbers while ignoring those two factors to demonstrate my point.

Is it better to be an orthopedic surgeon and make $500K/year for 10 years or a family practice doc and make $200K for 30 years?

$500K * 10 = $5 Million

$200K * 30 = $6 Million

Clearly avoiding early burnout is pretty important financially. Consider my good friend the Physician on FIRE who retired a few months ago at age 43. Assuming an anesthesiologist makes $400K a year these days, and a typical one works until 65, he left $400K * 22 = $8.8 Million on the table. That’s four times as much money as most docs retire with.

So the most important financial issue with regard to specialty and subspecialty choice is whether that choice will lead you to choose to work longer because you like the work more. If it does, it is likely to be beneficial no matter what the numbers say.

The Effect of a Delayed Start

The emailer outlines well the effects of a delayed start. In emergency medicine, one can do a 3-year residency or a 4-year residency. Those of us who went to three-year programs refer to that fourth year as “the $400,000 mistake.” That’s not a technically accurate statement, but it’s close enough for government work. You see, you don’t actually take home $400,000. Maybe $100,000 is really just your tax bill. And that PGY4 received some sort of salary, perhaps $60K these days. So maybe it’s really a $240,000 mistake.

But wait, there are some other benefits besides just starting to make the big bucks earlier. You can refinance your loans and start paying your loans back. You can start investing and capture tax-advantaged space the delayed doc will never get back and reap the benefits of an extra year of compound interest. You also have more time to build a practice and get your income up during your longer career. It is hard to quantify all of those things, but they probably push it back toward a $300-400K “mistake.”

Most Fellowships Don’t Increase Income

What a lot of people don’t realize, however, is that doing a fellowship doesn’t usually increase your income. Obviously there are exceptions, but they are just that–exceptions to the general rule. First of all, most fellowships don’t increase pay. Look at all the subspecialties of pediatrics, internal medicine, and emergency medicine. Nephrology. Immunology. EMS. Toxicology. Ultrasound. Wilderness Medicine. Even in surgery, specializing may mean lower or similar pay. Average pay for colorectal surgeons is below that of general surgeons according to a recent survey.

Yes, there are some specialties that come with significantly better incomes, but usually much worse lifestyles. I’m thinking cardiology, GI, and critical care. But many docs (and their families) are surprised to see that 1-3 more years of training doesn’t equal any increased pay.

medical fellowshipTo make matters worse, a fellowship-trained doc is far more likely to be working in an academic role rather than private practice. It should not surprise anyone to find out that academic docs are often paid less than their non-academic colleagues for doing more work.

So if you’re trying to justify a fellowship for financial reasons (and you shouldn’t) be sure that

  1. The subspecialty is actually paid significantly more than the specialty
  2. The subspecialty isn’t going to force you into an academic role

Running the Numbers

The basic calculation here weighs the cost of fellowship against the increase in pay. There are a lot of unknowns here (interest rate on loans, investment accounts available, cost of disability and malpractice insurance, tax brackets, time value of money, etc), but we can make some reasonable assumptions, ignore a lot of minor factors, and make a few general statements.

Let’s say the cost of your fellowship is $250,000 per year. Most of this is opportunity cost. Let’s say someone is considering a two-year fellowship and the doc will work for 25 more years (including the two in fellowship.) How much more, after-tax does that subspecialty have to pay in order to be worth it?

One more comment before we do this calculation. In my experience, intraspecialty pay variation is far more impressive than interspecialty pay variation, but I don’t know what else you can do other than use averages for a given specialty when running these numbers a priori.

All right, the two docs live the same lifestyle but the fellowship-trained doc can invest a little more each year thanks to her higher earnings. How much more does she need to invest each year to overcome that $500K ($250K * 2 years) opportunity cost over 23 years? Let’s use the payment function from Excel and say both docs need $5M to retire in 23 years and will earn 8% a year on their investments.

Fellowship Trained Doc =PMT(8%,23,0,5000000) = $82,111

Non-Fellowship Trained Doc =PMT(8%,23,-500000,5000000) = $33,900

Basically, the specialist needs to make $48K a year more after-tax in order to come out ahead.

If we use the same assumptions, but make it a three-year fellowship, the number is $74K/year. A one-year fellowship? $24K/year.

Are there specialties that meet these numbers? Absolutely. For medicine and pediatrics, cardiology, GI, and critical care will hit these numbers, at least on average. For general surgery, vascular and thoracic should both get you there. But trauma, burn, colorectal, breast, oncology, etc? Probably not.

But it doesn’t really matter because as we’ve seen above, you shouldn’t be making this decision primarily on financial grounds. If you can’t pay off your student loans and have a very nice life on any type of surgical subspecialist’s income you have a spending problem, not an earning problem.

Besides, many generalists have discovered that building their practice by working smarter and harder will provide an income similar to that of a subspecialist without the opportunity cost. Yes, $400K in loans is a big hole to start your life in, but you don’t have to stay there long. Check out this recent comment posted on the blog:

Conclusions

Most of the time additional training does not make sense financially, but if the subspecialty pays significantly more than the specialty and you plan to have a lengthy career, it could be justified. But the truth is that if you applied this analysis to medical or dental school itself, most of those intelligent and hard-working enough to get through this long training pipeline would be ahead financially if they had simply applied those efforts to starting and running profitable businesses right out of college instead. So while this is a fun exercise, just like running the numbers on the military HPSP “Scholarship,” I wouldn’t bother. I’d make the decision primarily on non-financial factors.

What do you think? Did you choose to subspecialize or not? What were the financial ramifications of your decision? Do you think this should be a financial decision? Why or why not? Comment below!