By Dr. James M. Dahle, WCI Founder
Many of you have previously seen the series of posts I did for “high income” doctors aimed primarily at well-paid specialists or dual-income families making $500,000-$1 million or more per year. This post addresses the opposite issue—”low-income” doctors. The average physician these days makes around $275,000, and surveys show that the vast majority of doctors make somewhere in the $180,000-$450,000 range. This post was triggered by an email from a long-time reader with this question/comment:
How Can Primary Care Doctors Save 20% of Their Income?
“In a previous post, you discussed savings percentages, and you argued for 20% for physicians, which I think is a great goal but really isn't very realistic for primary care doctors. In the US, the average primary care physician made around $225,000 last year. If you remove hospitalists (which really aren't primary care at all) from that equation, the number is even lower. Primary care providers also work a lot more hours than many specialists and are often the least satisfied physicians, as well.
I think many specialists don't really understand how much of a difference in pay there is between themselves and their primary care brethren. For instance: The WCI can put away 20% of his income to retirement/savings and still have a take-home pay that is higher than the GROSS income of most family doctors. It's really not comparing apples to oranges. You talk about living like a resident, but honestly, if most family doctors put away 20% their whole career, they wouldn't live much better than a resident their whole career. I chose my career, because it's what I like to do. It's my calling. I understand I don't get paid like an ER doctor. However, I do get tired of the population thinking I get paid like one. I routinely have patients that make comments about our charges that have no clue that they make well more than I do.”
I sympathize with your plight and agree that family, friends, your patient population, and society at large assumes that because you have an MD after your name that you have a gold coin swimming pool at home, a la Scrooge McDuck. However, I think you're probably overstating the issue for most “low-income” physicians.
My Decade as a ‘Low-Income' Doctor
Before launching into the rest of this post, let's take a look at my actual earnings record and savings rate. As you may recall, I graduated from medical school in 2003 but never made more than $200,000 in a single year before 2012. That's about a decade I spent as a “low-income” physician. I'm quite familiar with what it is like, thank you very much. Yet somehow, apparently by magic to many physicians and other Americans, we managed to save somewhere between 5%-63% of our gross income for those years.
In residency, making around $40,000, we saved 5%-10% (46% in the year I graduated, thanks to the huge boost in income for that final six months). As a military attending (making about $120,000 per year), I saved 26%-63% of my income per year. As a “pre-partner” in my physician group (making less than $200,000 per year), I saved in the 25%-35% range per year. I vehemently disagree that the ability to save a reasonable percentage of your income has anything to do with whether you are a “low-income” physician or a “high-income” physician and is really much more about your chosen lifestyle/spending level.
Now, as a partner in a well-run, democratic emergency medicine group and especially as an owner of The White Coat Investor, I make more money. But I had only been a partner for a year and WCI wasn't making much at all when we became millionaires seven years out of residency. That had much more to do with the way our family lived for the previous decade and with the financial habits we had instilled in ourselves.
Do we save a lot more money now than we did as a resident, a military physician, or an employee? You betcha. Is it easier to build wealth on a higher income? Absolutely. But I reject the notion that it is very difficult (much less impossible) to build wealth on an average physician's income—or even significantly less than average.
I bet the average American household, living on about $70,000 a year, thinks it is pretty hilarious to see doctors making three or four times their income who think they have it rough. They think you're rich because, compared to them, you are! So no, I don't think the fact that you only make $90,000 or $120,000 or $175,000 or $200,000 or $275,000 is an excuse to not be saving 20% of your income for retirement. Rant over, let's move on.
7 Financial Considerations for the “Low Income” Physician
#1 Student Loan Issues
I don't feel bad for doctors who have a relatively low income. I know you can have a pretty great life on $150,000 a year, because I've done it. The ones I feel bad for are those with a high student loan burden. If you've got $400,000 worth of student loans at 8% on a 10-year plan, that requires payments of about $60,000 per year in after-tax dollars. Take a single doctor making $150,000 who pays $30,0000 in taxes, puts $30,000 into retirement, and pays $60,000 in student loan payments. and I can understand why that doctor might be feeling pretty pinched.
Several chapters of the original WCI book deal with this issue. The best solution is prevention. If your dream in life is to be a part-time occupational medicine physician in rural America making $90,000 a year, you probably need to avoid going to a medical school with tuition of $82,000 per year and paying for it with student loans that have a 6%-10% interest rate. At a certain amount of debt, you simply cannot afford to be a primary care physician. You don't get a pass on math.
I would submit that a reasonable upper limit for your total student loan burden would be something like 2x your expected attending salary. The less the better, of course, but at two times your salary, you're starting to approach a burden that you will never escape from without some type of loan forgiveness program (whether PSLF after 10 years, if it still exists, or IBR after 20). At 3-4X your income, you have a real problem requiring extreme solutions.
If you're like many who find their way to this blog, you may be beyond the point where preventing the student loan issue, choosing a more lucrative specialty, or enrolling in a forgiveness program can be part of the solution. At this point, your only options are to refinance your loans when rates drop and carve out a portion of your spending (hopefully prospectively, but if necessary retrospectively) to pay them off. As Dave Ramsey likes to say, live like no one else now so you can live like no one else later.
#2 You're Not a Back Surgeon, and That's OK
Pediatricians look at hospitalists enviously, family doctors look at emergency doctors enviously, emergency docs look enviously at ophthalmologist salaries, ophthalmologists covet the boats of back surgeons, and spine surgeons look at the hedge fund manager on their street and wonder why they can't get their own jet, too. There will always be someone who makes more and has more than you.
If you would instead spend your time looking at the 99.9% of those who have ever lived who make LESS than you, you would probably be a lot happier. Although spending money doesn't increase proportionally as your income increases (due to higher tax bills and the need to save more to maintain lifestyle in retirement), a doc making $600,000 is always going to be able to buy more house, drive fancier cars, and take more exotic vacations than a doctor making $200,000. However, having had the benefit of a more gradually increasing income than most doctors, I can assure you that a gross income of $300,000 doesn't make you twice as happy as $150,000—if it makes you happier at all.
#3 Avoiding Portfolio Complexity
Doctors making $150,000 don't need very many retirement accounts, and they may never need a taxable account at all. If they want to save 20% for retirement, they can get that out of a run-of-the-mill employer-provided 401(k) and a Roth IRA or two. No need to deal with tax-loss harvesting, donating appreciated shares, tax-efficient investments, muni bonds, I bonds, complicated estate planning or asset protection strategies, defined benefit plans, profit-sharing plans, SEP IRAs, individual 401(k)s, whole life insurance, variable annuities, or Health Savings Accounts. Heck, they don't even have to learn how to make Roth IRA contributions via the Backdoor.
#4 Disability Insurance
Disability insurance is really easy for a “low-income” physician. You can do it with a single policy. In fact, you may not ever need to do anything but exercise the FPO option on the one you bought in residency.
#5 Social Security – Plus/Minus
One downside of being a “low-income” physician is that Social Security tax will be assessed on a much higher percentage of your income—especially if you're self-employed—than a doctor making $400,000 or more. However, this is countered by the upside of having Social Security provide a much higher percentage of your retirement income than for a highly paid doctor. Your Social Security payments will be essentially the same. Plus, you get the same Medicare benefits as highly paid doctors, despite the fact that they might have paid two or three times as much for them.
#6 Taxes – All Plus
Our highly progressive tax system is very favorable for the “low-income” doctor. I almost made it into the 10% tax bracket one year as an attending in the military. A family of four living on $150,000 can relatively easily get their federal tax burden down to 5%-10% of their gross income. Surprised? Don't be. Just run the numbers.
Let's assume the family puts $30,000 into some combination of retirement accounts, HSAs, or other pre-tax accounts. That leaves $120,000. Now, subtract out the standard deduction of $25,100 [2022], and you're left with $94,900. Now, apply the progressive tax brackets. You pay 10% of the first $19,900 ($1,990), 12% of the remaining $75,000 ($9,000), for a grand total of $10,990 or 7.3% of your gross income. And forget about AMT, since you probably don't make enough to get caught by it. A doctor making twice as much might be paying 4-6 times as much in federal income tax, and that isn't counting state, local, or additional medicare (PPACA) tax.
#7 Professional Benefits ‘Low-Income' Specialties Enjoy
Sometimes, when coveting the salary of a CT surgeon, we forget that we only did a three-year residency, as compared to a five-year residency and a two-year fellowship. We may also forget about those Neurosurgery malpractice premiums; that General Surgery call schedule; or the time, effort, and talent required to match into Dermatology. When those poor suckers were cramming for two extra days trying to raise their board scores from 250 to 260, I was in the student lounge playing foosball or skiing. Many doctors in lower-paid specialties had a relatively easy match, enjoyed a short residency, and may work 95%+ of their career between 9am and 6pm on non-holiday Monday through Fridays. That might not be worth $200,000 a year to you, but surely it is worth something. Aside from avoiding the pain of a longer residency, those of us who did shorter residencies also got into the game of serious retirement savings/attending salary sooner.
Now, before you post hate comments due to that paragraph, I am well aware that many specialties with long training periods have relatively low income (pediatric subspecialists have a particularly bad ratio of time in training to income), that some FP residencies are quite competitive and require lots of call, and many pediatricians do inpatient work. I'm just generalizing, so take it for what it is worth.
As always, the intraspecialty pay gaps are far larger than the interspecialty pay gaps, and the most important thing in specialty choice, even from a financial perspective, is to pick something you love to do. Far better to be a preventive medicine doc for 30 years than burn out as an anesthesiologist after 10.
I think the most important thing for “low-income” doctors to realize is that their financial situation is much more similar to an engineer, a small business owner, an attorney, pharmacist, or non-physician practitioner than it is to a plastic surgeon raking in $750,000 a year or an orthodontist making $1.2 million. Family, friends, and society at large won't ever understand, but as long as you do, you can still have a very comfortable financial life.
What did I miss? Any other financial advice that is particularly important for doctors making less than $200,000 to know about? Comment below!
🙁 I’m one of the “poor sucks cramming for two extra days” for Step 1 (I’m taking it on June 27th, while many of my classmates have already taken it), reading WCI at 2:57am after busting out eight blocks of practice questions. Haven’t seen the light of day for…wait I don’t even know what day it is.
Trying to match plastics though, so Dr. Dahle’s right. My life SUCKS right now, and will continue to suck for many years, this I know. No skiing for me.
Hang in there Curran. I was also one of the “poor sucks cramming for 2 extra days” to raise my Step board scores. In all honesty, it probably didn’t make a single iota of a difference. But it’s the DRIVE that squeezes those 2 extra days out of you that will probably also play a factor in you matching into plastics.
I can sincerely tell you with a straight face that I did not enter medicine for the money. I have always had compassion for others, an idealistic and oftentimes naive view of the world, and I knew I wanted to enter a field where I could make a difference in people’s lives.
However, money certainly plays a role once you have gone through 10 grueling years of training. I do expect to get paid a reasonable amount for my expertise and services. There are those who are willing to work for free (and I do that too, going on mission trips overseas). But I think the problem with our society is that they are willing to pay $299 for the latest iPhone, $500 to watch their favorite NFL team (when watching it on TV is the best seat in the house and is free), but refuse to pay $60 for a clinic visit. They will, however, pay $5,000 to get their breasts augmented. Our priorities are all screwed up.
Anyways, hang in there Curran, stay true to your goals, remain headstrong, and you’ll get there.
haha… Step 1 is pass/fail now, no need to try to hit it out of the ballpark. All eyes are now on Step 2, rec. letters and the name of the med school… an oh, connections, if you have them 🙂
Sorry if this is a basic question, but it’s never been clear to me what the suggested 20% saving rate is based upon and what it includes. Is it based on gross income, after tax income, or the net pay after all deductions (like health care, social security/medicare taxes, etc)? So let’s say I have a gross income of $200k and that I put in $17,500 in a 403b and $17,500 in a 457b. Does that mean I have a 17.5$ saving rate?
He means 20% of your gross savings. For a $200,000 income, 20% would be $40,000. So yes, if you contribute $17,500 each to a 403b and 457b, your savings rate is 17.5%
It’s just a rule of thumb, and worth exactly what you pay for it, but I view it as 20% of gross.
Interesting post. Looking forward to following the replies. -Jon w Contract Diagnostics
I’ll let WCI respond more completely but the 20% suggested savings rate is based on gross income. My question, on the other hand, where does the employer match and the $$ put towards a defined benefit plan (i.e., pension) enter into the equation? My take would be that the employer match is gravy (and shouldn’t be counted towards the 20%) but the money that I’m paying towards the pension should count. Any other opinions?
I’d count both. The match is just part of your salary in my view.
I would like the “low income” physician who asked this question to please post a detailed budget of his monthly expenses. I live very comfortably on $40,000 a year of real living expenses (rent, food, gas, utilities, entertainment) and an additional 10 to 15 grand a year on travel and vacations. The rest gets saved and invested. I bet this person has a spending problem and doesn’t even realize it.
I did this but the post is currently filtered.
I believe that comment is found further down in the comments.
Actually I had a second post that actually broke down my pay into categories with some fluff added to it as well. The gist though was this:
Gross Pay: 160K
Taxes/Medicare/SS: 27K
Retirement Savings: 8K (plus 8K match)
Vacation/Rainy day savings: 10K
Mortgage/Taxes/Ins/Alarm: 29K (I pay over, about 12.5 payments a year, my home cost about 2x my salary)
Cars/Gas/Insurance: 16K (I overspend and am working on correcting)
Life/Disability/Health/Dental: 4.5K
Electric/Water: 4K
School Loan: 5k
Cell/Internet/Cable: 2.8k
partial week daycare: 3.5K
Difference is about 50K, or 10K more than you.
I know you may realize this, but in case you haven’t looked at your expenses with a critical eye…..I’m seeing about $30,000 per year you could slice from the list your list in about 3 months, and you’re right – the car problem is the biggest. Perhaps a 40% less expensive house as well? I’ve made double the salary and spent it all until I got serious, now I earn less on purpose and still save massive amounts by living frugally and intentionally. Fortunately we’ve both got enough time to catch up on missed years…..
OK, that’s the challenge from myself (and others below). What path will you choose?
I guess this is an old post but just for new people reading this – I’m in a dual physician household making >$500k/yr and our mortgage and car expenses (which are just gas and maintenance) are less than this. It can be done and we are super comfortable and happy even though we could have bought much *more.* It also has made saving so much easier, and we don’t feel bad splurging on little things.
I’m wholeheartedly disappointed with this post. I read it with great anticipation from the title, but then… I don’t know what happened here. There are certainly some hints of truth here, but I guess if you don’t get it, you just don’t get it.
I’m curious what you were hoping to see in this post.
I know I was hoping to see something useful in the post myself. Not just oh, poor little low income docs, I and no one else feels bad for you. And you compare to a PA or NP. Wow, thanks. It’s just sort of a slap in the face. And just because you went into such and such a specialty and because insurance reimburses more for your services does not actually make your contribution to the patient more valuable. Heaven knows I’m right. I make sure that my patients entire well being is watched from every aspect. I truly take care of them. I don’t just wam bam do one aspect of their care and wash my hand to “f/u with the PCP.” Thanks for this lack of collegial respect that I assumed that other doctors would at least have for primary care. We all went to med school and passed all the steps and killed ourselves years in residency. Two additional years in fellowship or whatever doesn’t make you 2-3 times the doctor I am. This is where people get the idea that doctors have god complexes. This is what gives us a bad name. We go to school for the patients to help them. I have clearly realized that I am way to idealist. That is not what is about at all.
Sorry you were unable to find anything useful in the post. That wasn’t the intent.
I agree with you, Amy.
What got me was the comment that I should remember that I’m in the neighborhood of other professions such as engineers, pharmacists, attorneys, etc. It felt like shaming me for not being “satisfied” with my current situation. This comparison ignores the basic difference financially between medicine and most of those in these other fields…opportunity cost. Most in those fields have had 8-10 years of additional benefit of compounding interest and investment growth. If you can put away 20% of $150K starting age 22-25, rather than putting away 20% of -50K to +50K from the age of 22-33 (I’m pediatric subspecialist), you will have a huge head start. Making up for lost time is a big part of the challenge.
And, any article about finances that mentions the “satisfaction of providing care being equal across lower and higher physician specialties” as a positive for lower income specialties appears to be grasping for straws. Quite honestly, I am tired of hearing “oh, but you take care of kids, that must be so rewarding” just about every time I am having a conversation about the challenges of practicing medicine.
There’s probably a lot of truth to the fact that some of the reward in medicine (and probably more in some specialties than others) is non-financial. If you just want the cold hard cash, there are easier ways to do it for someone smart enough and willing to work hard enough to do medicine well.
I agree with you wholeheartedly and I was going to say so – you said it perfectly. thank you.
Low income doc here. I agree with WCI on most points and am not complaining about my income level.
My biggest issue has been #1 – student loans. Including my wife’s undergrad student loans, we are chipping away at $260k – now 200k of loans. With a single income in the low $100k, this amount is major drag.
For our income/budget …
~$145 gross last year working full-time (with newborns in hospital) and part-time urgent care. We (family of 4) live on $45k per year (rental, food, gas, etc), $35k towards loans, $18k taxes (12% last year), invested $12k (Roth and 529 – need to increase). The remainder went to charities and building up our emergency fund.
I’m not complaining, but it sure will be nice when the loans are paid off.
“There will always be someone who makes more than you and has more than you. If you would instead spend your time looking at the 99.9% of those who have ever lived who make LESS than you, you would probably be a lot happier.”
Nice entry; and this, honestly, is the big picture, IMO. I’m one of those ‘low paid’ primary care; we make considerably less than the averages you list, essentially by choice – we went to a small, poor rural area, eventually sold out to ‘big medicine’ (that was a mistake), got squashed, and have since moved, doing clinic only, but…. self-employed. Not much pay, but I enjoy working every day. My saving grace – I lived far below my means in my early, better earning years, and while I still hadn’t figured out investing, I’ve done well enough to be comfortable. Your advice in this installment is spot on. Thanks.
Awesome Rant! I Love it.
Regarding questions about 20% savings rate, in my calculations it is a rule of thumb and a simple goal to at least put people in the ballpark. Your personal circumstances may require a different % and good habit to review annually. But mathematically it is a simple 10% for pre-retirement goals + 10% for post-retirement expenses.
I’m a family doctor. I had lower scores, I didn’t hussle as hard in the various rotations and I wasn’t willing to do the extra years in residency for a specialty. I happen to like being a family doc which is irrelevant to this post (great post by the way). I knew what I would be getting paid as a family doc and so I live a little more conservatively. If you are on the lower spectrum of earners in medicine you should not even be looking at the 300k, 400k, 1Mill earners in medicine. And you shouldn’t feel sorry for yourself. If your patients look at you like you’re a baller then let them. If others think you should be driving a bentley couple let them.
A few comments:
1. I think it’s clear comparing MDs make more than the avg American household. However, I think many MDs who cry sour grapes are comparing themselves to their peers. i.e. the college friends with the MBAs who started making 6 figures when they were still in residency.
2. You say that you don’t feel bad for doctors who make a low income. I don’t think a general pediatrician should make as much as a neurosurgeon. I also know life is not fair. However, I feel that unless all MDs advocate for the lower paid MDs to get better reimbursement the dearth of people going into primary care will worsen.
3. One thing that you did not mention is moonlighting. Many doctors with low paying specialties can really hustle making 100 bucks an hour. For those with heavy loan debt this may be the way to get out from under it.
4. ALL doctors (but especially the lower paying ones) need to understand a little about the business of medicine. How we get paid, RVUs, malpractice, contracts, etc. I run into a lot of peds residents who have a “learned helplessness” and have resigned themselves to low pay so just take whatever job comes along. However, if you are saavy you will be less likely to be taken advantage of. (Also there’s more to a job than money. A job that pays WAY ABOVE the norm should also be looked at suspiciously since there may be a reason for this).
I agree. There is wide variation in what FPs and pedatricians make. Owning a business is generally going to bring you more money than working for someone else. I also agree that MDs (and others) need to advocate for better reimbursement for primary care and other cognitive specialties. It’s ridiculous that I get paid way more to put in 3 stitches than to evaluate an 83 year old with altered mental status.
(WCI: Sorry for the double post — I accidentally posted outside of your quote below and this comment didn’t make sense without the context)
Just some perspective for those coming out of residency —
Owning a business generally helps because you can control expenses and no one is skimming off you. However, expenses are not the only part of the income equation — you also have to be able to negotiate your contracts (i.e. income) and this is not always possible.
This is particularly important in competitive areas where you may not have much negotiating power as solo, small, or medium sized group. For example, in my area in metropolitan SoCal, the large groups (read: university and foundation model practices) have contracted rates that are literally 2x what most of us in private practice make. Why? Because they have large doctor groups and they have emergency service which insurance companies need. For those of you that don’t do your own coding, that means that for the exact same service rendered, 2 docs who can have adjacent offices will get paid different amounts from the same insurance company for seeing the same patient. Now that 70% “employed” vs 60% “business owner” overhead doesn’t seems so bad. These typical overheads are from my specialty, but the same concept applies to any field of medicine.
There are obviously many other benefits to owning your own business, but this is an often overlooked aspect of the “business of medicine.”
Agee 100%. I was employed for almost 2 decades by a hospital that was swallowed by a megacorporation 7 years ago. I was chief of my section. I left because I could no longer practice high quality, safe care in that setting, no matter how hard I advocated. I’m in solo private practice now just 3 miles from I used to work. For the same 99215, the corporation was getting over 4x what the private insurance companies are paying me for the same code, provided by the same physician. I’m learning that being the small fish is very hard; but, because I want to be able to provide the best care I can for my patients, it has to succeed.
Great Post. That is all.
I still feel that most docs earning <200k are living at capacity in terms of their spending. Because most want to live in desirable areas with good schools. This results in home cost of 300k-600k. Then there are student loans, 2-4 kids, cost for their care, etc. That 200k gets eaten up very fast.
That’s why you have to prioritize. Where I live, a comfortable house in a respectable school district can be had for $200,000-$300,000. Where I grew up, that would be hard to find for under a million. Want to live in an expensive area? Want a specialty you find fulfilling? Want to do humanitarian work with the disadvantaged? Want to have time to be more than your job? Want to go to an expensive school? Want a short residency? Want to avoid military or public health service? Want to have lots of kids? Want to have a stay-at-home spouse? Want to drive a fancy car? Want to go on exotic trips?
As a doctor you can do any of these things, but, even if you find plastic surgery your calling and excel at it, you can’t do all of these things. You have to decide what is most important to you and know that you will be making trade-offs on the rest of it, no matter what your specialty.
I agree that the person asking the question indeed has a spending problem. Your house is either too big, or is located in the wrong part of town. Many say they can’t leave because of family. In reality they are sacrificing their future and their kid’s future for the sake of being close to other relatives. Your cars are too nice, and you live way outside your means if you can’t put away enough to retire. If someone making 50K/year can retire with 7 figures, there is no reason you can’t do it either.
I just re-evaluated my base budget and expenses are 75K/year. And that includes school loans and a mortgage. Both my cars are paid off with no other debt. There is no reason why you can’t have a similar budget. This leaves plenty of money for retirement, fun family vacations and an occasional toy.
Based on my little experience I notice that most physicians throw away the most amount of money on 3 things.
1) New car every 3 years.
2) Too expensive of a house bought too soon in their career with a physician loan therefor $0 down
3) New electronics.
Does the above sound like you?
Obviously some mistakes were made. They were your decisions and choices in life. But alas, not all is lost. You may think you are being stretched thin, but you must look at your expenses and see why. I promise you that 150K-200K/year is actually plenty of money. You are young and can choose to make a change. I know you can do it because I have seen others who have. The choice is yours and your wife’s. As PICU MD pointed out. You can’t have it all and must decide what is important to you. My advice is to create your yearly and monthly budget and see where all your money is going. You may have to move, you may have to sell a car and buy something cheap for a few years. You may have to stop buying a new iPhone or iPad every year.
My wife and I would rather rather drive 10 year old Hondas and have money to go on vacations and other experiences with friends and family, then to both be in a BMW and Lexus. After a few years of living like this, paying off your debt, you will find that you have extra money and will have more cash to buy some of those toys you desire.
You don’t walk out of residency a millionaire, but with proper planning and dedication there is no reason why you can’t be in the future.
I wish you the best of luck.
I have a spending problem but not as bad as you think. See response to GK above. I will attack your concerns in order however:
1) My house: My house cost almost exactly 2x my income. I live in probably the most affordable housing market in America (Ft Worth) The old mantra was spend less than 30% of your gross on housing. We spend less than 20%. We used a VA loan and I am locked in at 3.4% We did pay nothing down as I wasn’t willing to sacrifice our 20k in savings or our 40k in retirements funds. After living where the army told us to live for 7 years I thought my wife had the right to pick which house we would settle down in (and likely live in for the next 20-30 years).
2) My cars: I do spend too much on my cars. I rewarded myself with a 37K BMW when I lived in Germany after returning from Afghanistan. I have always wanted one, since riding around in my friends beater 2002 back in high school. I will probably own my car 20 years, it will be paid off in 3 and have less than 30k miles on it. Its more than I would like to spend now but it will pay off in the end. We will however never have two car payments again after this one is paid off.
3) My retirement. I save about 10% now. I could easily continue to save 10% and still have a seven figure retirement so I am not sure what your point is with that. You don’t need to save 20% to get to 7 figures. In fact 10% with no increase in pay and 30 years would get me to 1.3 million conservatively even without my other investments. Still my goal is 2 million by 60 and 15% would get me there.
4) Your base budget: Its a little better than mine, mostly due to cars. But my guess is you are older than me as well so I bet our budget is pretty close in 4 more years.
5) The only one of those 3 that even comes close to me is the house and I already addressed that.
6) Your advice: Is all very sound. I already do yearly and monthly budgets and as I pointed out to GK in the earlier post, I don’t feel like I am being stretched thin. I was merely making an observation on the difference in expense management.
I think the previous poster that said he was disappointed in this post has a similar view. He was hoping for a different look at how to attack debt from a different perspective and what he got instead was “suck it up, you chose your field”. We had a post earlier on a two doctor family that paid off 500k in 2 years. I wasn’t that impressed given their combined salary is more than I would make in 5 years yet several of the comments were pretty impressed by what I saw as remarkably easy to do.
I don’t fault physicians at all for the income but the WCI’s goal is to educate physicians on finance and investing but not all physicians are working with the same data points and therefore they don’t all need the same advice.
The problem with debt is it is generally straight forward to address. There is no magic formula. The only way to pay it off is to make more, save more, and throw money at the loans. There are a few more loan payback options for primary care docs and the lower your income the more likely you are to benefit from PAYE/PSLF, but that’s really about it. That’s partly why the loan issue is bigger than the salary issue in my book. $200K in loans is quite manageable on a $300K salary, but a huge burden on $150K.
Beau, regarding #3, I hope you realize that getting to seven figures is not necessarily an adequate goal. Assuming a fairly conventional 3% inflation rate and 4% inflation-indexed safe withdrawal rate, your $2,000,000 in 2034 will generate just under $33,000/year in 2014 purchasing power. Perhaps, with Social Security (whatever that looks like in thirty years) and any other resources available to you, that will be enough. Not so for me.
I believe the 20% savings rate should only be used for retirement purposes, not for pre-retirement splurges as one post suggested. Secondly, as my mom always says, “The root of unhappiness is comparison.”
I agree- 20% for retirement, okay to count company match if you include that in gross pay. Add on more to the 20% for college, next car you buy, etc etc.
Even the low end of a doctors salary (150-200k) should be plenty of money to live a great life and save 20% or more, take nice vacations, etc but that’s assuming you have little to no student loan debt. If you’ve got 100k or more in debt, that’s when making the low end kind of starts to suck.
I already told my fiancee who is now an Ms2 Btw! That she needs to specialize. She’s going to a state school but we’ll still owe 200k by the time she gets out. Imo, it doesn’t make sense to go that much into debt to only make 150k or somewhere in that range.
Financially and for your own mental health, PA or even nursing school is probably a better investment than an expensive med school and career as general practitioner. Obviously not as much prestige though..
I honestly don’t know where all these $150k docs are. Here in Oklahoma, for BC/BE Internal Med/FP, I consistently see/talk to hospitalists and private practice at a bare minimum of $180k. Hospitalists are at minimum of $220k with many up to $250-275k with production bonus. If you’re willing to live 45 minutes (or more) outside of OKC or Tulsa, IM hospitalists are 275-300k and I’ve seen EM as high as $500k (12, 12-hour, night shifts per month).
I think it all comes down to student loan debt and where you want to live.
I admit I’m also surprised to see non-military docs in the $90-150K range, but they certainly exist, I assure you.
In the east coast metropolitan areas in pediatricians who start in the low 100s (110k to 130k). Unlike a lot of other fields in medicine often the higher salaries are in lower cost of living areas. I know folks who have taken jobs out west or in middle America and make close to 200k. However those that chose to remain on the east coast are stuck with lower salaries and high cost of living. Now you could argue that their choosing to live in a high COL area so they need to reap what they sow….
Location, location, location…
A starting Ophthalmologist salary (who WCI states above as a person of envy for an ER doc) in a desirable city is often times about 100K….Granted the ceiling may be higher but in city’s such as Chicago, San Diego and many east coast cities private practice ophtho salaries are much less than people think and it can take a LONG time to reach the 2-300K range. That same ophthalmologist living in a midwest smaller town can often start at 250K with cost of living being 1/3rd.
Hospitalists are completely different pay scales. Average FP in Texas is 145-185. 160 is in the middle. Incidentally I expect to be making closer to 175ish (185ish with match) next year. Top out for FP is about 220. Hospitalists start at 220k.
*** The numbers above are for employeed or grouped physicians who normally don’t pay their own malpractice and also receive benefits***
This is the exact reason why I moved from NY.
High cost of living + high taxes + lower income = working full time till I am 65-70
Anywhere else other than northeast and west coast
lower cost of living + lower taxes + higher income = semi-retire or retire at 55
To me it is a no brainer. But doctors feel they need to be in these great cities. “I can never leave New York” or “I can’t leave my family.” You make your choices and are forced to live with them. If you want to live in NY then expect to live paycheck to paycheck. But then don’t complain about your choices.
I totally see how it is much more difficult for lower income physicians to create the life they desire than it is for higher earners. We all want financial success, and that isn’t easily obtained on a lower salary. But, I guess it all depends on the lifestyle you desire.
Just recently becoming a high income physician, it has been so much easier to get a jump start on my debt and personal investments. I spent my first year out of fellowship in academics and I could barely see the light at the end of the tunnel on my student loans (120K) and mortgage (which was only 1.25x my income). I fully expected to be in debt for 20-30 years. That was depressing. The only tangible perc of academics was the awesome retirement plan.
Now, I have moved to a small town into private practice where I am a full partner in an Oncology practice and make 3x as much as I did in academia. My house is twice as expensive now. However, because we have lived fairly modest lifestyles (other than the house), I have paid off $50k in vehicle debt, am 6 months from paying off my student loans, and will have my mortgage paid within 5 years. I am investing about 20% of my income into index funds and sleep like a baby at night. I’m not trying to toot my own horn, I’m just trying to say that I feel empathy for the lower income physicians who probably work twice as hard as I do. My life is so much easier now than it was when my income was 3x less. A lower income really does make for more stress that someone with a higher income doesn’t feel.
I have a good buddy who chose academic Derm over private practice. Hearing him talk about trying to pay off his student debt, his mortgage, his kid’s private school tuition, and the occasional family vacations; makes me really want to force him to take a higher paying job. I know he could tone down his lifestyle some, but he really doesn’t live an extravagant one already. He gets frustrated that he has a 20 year debt-free plan when I have a 5 year one. I try to encourage him to atleast take the private practice job until his debts are gone. But, he states job satisfaction is his #1 goal. I reply back that ‘Life’ satisfaction is mine. Being debt free along with a large investment portfolio by age 40 sure does give more satisfaction than any job could.
MSOncDoc – This was me 5 years ago! Left an Academic practice in northeast for a private practice in Texas and have never looked back. Paid off my 300k in loans (between wife and I) in 3 years, bought house with 50% down and have a good start on my retirement portfolio. Even with all the extra work that a solo private practice entails, my overall stress level is soooo much lower. Hope to hold out for another 5 years or so before private practice dies off….
Hopefully in 5 years I will be able to report that I accomplished the 5 year debt free goal. I told my senior partner that I can’t go stay at his beach house anymore because it tempts me to make a very unwise decision involving beach real estate. 🙂
I bet your senior partner would love if you never bought a vacation home but instead gave him a week’s rent for his beach house every year. But only if you can resist getting your own!
Just some perspective for those coming out of residency —
Owning a business generally helps because you can control expenses and no one is skimming off you. However, expenses are not the only part of the income equation — you also have to be able to negotiate your contracts (i.e. income) and this is not always possible.
This is particularly important in competitive areas where you may not have much negotiating power as solo, small, or medium sized group. For example, in my area in metropolitan SoCal, the large groups (read: university and foundation model practices) have contracted rates that are literally 2x what most of us in private practice make. Why? Because they have large doctor groups and they have emergency service which insurance companies need. For those of you that don’t do your own coding, that means that for the exact same service rendered, 2 docs who can have adjacent offices will get paid different amounts from the same insurance company for seeing the same patient. Now that 70% “employed” vs 60% “business owner” overhead doesn’t seems so bad. These typical overheads are from my specialty, but the same concept applies to any field of medicine.
There are obviously many other benefits to owning your own business, but this is an often overlooked aspect of the “business of medicine.”
Very low income doctor here. I am an optometrist(def don’t recommend this career) making 92.500 with 186K in student loans with the majority at 6.8% interest rate. What percentage do you guys think is a good amount to save-10 20%? Would you guys try to invest any extra income or pay toward student loan? Thanks for any help.
Unfortunately, with a student loan 2X your income, you’re going to have to really put a lot of your income toward that loan if you’re not working for a 501(c)3 (and thus can do PSLF). You may also want to look at the PAYE forgiveness program, but remember it is taxable forgiveness.
I am an ophthalmologist who employs several optometrists in a somewhat rural area, but I feel you could be making much more than that with the right job. Our optometrists are employed but have a lot of autonomy and don’t have to worry about scheduling, hiring, etc – paid on production but they can earn a lot if they see a lot of patients. Might be worth looking into other markets.
I am also an optometrist(def not a good return on investment). You mentioned the PAYE program. These are taxable forgiveness but do you not have to pay the capital gains tax of like 30 something percent once its forgiven in 25 years?
Great website BTW!
I don’t think you get the more favorable capital gains tax rates. I think you pay the higher ordinary income tax rates on PAYE forgiveness. PAYE forgiveness happens at 20 years though, not 25.
This is an excellent website and I liked this post and comments a lot. Most docs don’t have much grounding in business and many lack common sense. When I was a resident, a financial advisor lectured to a tired, post-call lunch group. He recommended living below our means, e.g. on 2/3 of one’s income, and on saving/investing the rest. He encouraged us to MAX out 401K and IRA contributions and to avoid luxury, profligate spending.
While a large number of residents train in medium/large cities, because that’s where academic medical centers are, the biggest decision one makes is where to live and practice, e.g. the geographic factor. One has to carefully examine the difference between price and value. This may be even more true for primary care MDs as well other specialties such as psychiatry. I know folks in those specialties who live in shortage areas or rural areas, and who make much more $$$ than their colleagues in pricier urban areas.
This site might be expanded to medical students as well as pre-meds. Knowing what I now know, if I were going into a primary-care field or psychiatry, I’d become a NP or PA. Salaries for those disciplines in Texas (where I live) start at $100K, higher in rural areas. One has to look at the loan burdens, the opportunity costs (e.g. lost income plus lost investments) of lengthy medical education and residency training, and the scope of practice w/r to career planning and finances. This is also increasingly true as AI develops advances in medical decision-making. Surgeons and sub-specialists remain a bit more immune to such pressures, but they have longer training pipelines.
The other key variable in today’s medical world is that there are many tandem medical couples, plus there are growing numbers of female medical graduates.
A growing number? Med schools currently have more women enrolled than men. That ship has sailed! In Honduras, it’s 60-70% women.
I commented above when this post was first published in 2014. Is Beau (the doc who wrote the email at the beginning of the article) still around? I’d be interested to hear an update 7 years later and see how things are going from a financial standpoint.
I think he’s still around, yes, but not sure there’ll be an update.
Excellent post, I’m currently a resident in NYC and after following WCI books and forums, I was able to set my lifestyle to be able to save 30% of our household income. Even as resident I feel our salaries are well much above of what >90% of mankind is living with. Most of us don’t have an income problem, just an expending problem.