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By Dr. James M. Dahle, WCI Founder
Net worth and physician income threads are popular on many financial forums, and ours is no exception. While these always produce a biased sample of people who have done or who are doing particularly well, it's always fun to peek into the financial details of others. There was a recent thread that I found particularly interesting because it contained two physicians with a mid eight-figure net worth. I asked them both if they would be willing to participate anonymously in a blog post about mega-wealthy doctors and they both agreed.
Typical doctors make $150,000-$500,000 per year and start their careers with a negative net worth. If they are good with money, they will pay off their debts, build wealth, and typically retire with a net worth of something like $2 million-$8 million. Take a look at this:
You will see that at retirement age, 15%-22% of doctors have more than $5 million, and one-quarter have less than $1 million. The majority of docs are in between those two figures. When I run into a doctor that has built a net worth an order of magnitude higher than the average doctor, I find it rare and interesting. These doctors are not only in the 1% of Americans, but they are likely in the 0.1% of doctors! While most of our audience will never be in this situation, most doctors who are there never imagined they would be, either. All we talk about here at The White Coat Investor is the money problems of high earners, and we've always tried to be a safe place for even the very wealthy to talk about their financial issues. So, we occasionally have posts like this that discuss them. I hope you enjoy the interview with Drs. “Jones” and “Rodriguez.”
Career and Net Worth Progression
Tell us about your career and net worth progression over the years in as much detail as you feel comfortable.
“I worked as an employed doc after finishing residency, and I made a typical physician income. It took us seven years to pay off the student loans and to reach a net worth of $1 million. The first million was the hardest. The second million came in four years. The third in another four years, and then things started accelerating.
In my early career, my full-time work was as an employed physician. However, I eventually started a small, part-time side practice. Over time, I started hiring other physicians to join the practice. We were a single-specialty practice for a number of years, and then the opportunity came along to bring in other specialties. Eventually, things accelerated tremendously, and the practice grew into a large multi-specialty practice. My income rose significantly, and the value of the practice became substantial.
In 1984, my net worth was $16,000. By 1990, when I became an attending, it was $166,000. In 1997, I became a millionaire and, in 2001, a multi-millionaire. In 2010, I was worth about $4 million. In 2015, my net worth was over $7 million, and then it really took off as the business grew:
“I graduated from medical school in 1981, having had my schooling paid 100% by the WICHE program. I spent three years in a surgery residency with a salary that started at $16,500. By moonlighting at urgent cares and ERs, I accumulated $11,000 and managed to avoid debt. I then spent the next three years in a plastics residency, earning $30,000 my chief year. I continued to moonlight. I joined a multi-specialty clinic in 1987, earning a salary of $125,000 per year with a 10% bonus. My net worth at that point was about $100,000, which was still all in cash when the 1987 crash hit. I subsequently invested all of my 401(k) and taxable investments into a Mutual Series (now Franklin Templeton) fund run by Michael Price.
By 1993, I had become a millionaire. I bought my first house for $500,000 in cash, and I was regularly buying $5,000-$10,000 lots of individual stocks. I remember my winners were Home Depot, Johnson & Johnson, Microsoft, and Pfizer. There was a sordid mix of als0-rans and losers, too.
Prior to the 1999 crash, my net worth was $3.5 million. I lost about 30% in that crash but used the opportunity to get out of domestic and foreign actively managed funds and put it all into the Vanguard 500 Index Fund. By that point, I had found Jack Bogle and really didn't like the tax inefficiency of those active funds. In 2010, my net worth hit eight figures. The 2008-2009 crash hurt me, but 2000-2010 were my highest earning years (peaked at $1.2 million in the early 2000s but probably averaged $500,000 per year during my career). I kept shoveling it into equities regardless.
By 2015 when I retired, my net worth was $18 million. I sold my practice for $500,000. In 2016, my father died, and I inherited his $4 million bond portfolio. By 2020, I was up to $36 million, and as of 2022, I am at $44.35 million.”
As you can see, Dr. Jones had an entrepreneurial interest and built a multi-physician practice that struck it big, while Dr. Rodriguez simply had a very high physician income and continued to invest over many years. There are many roads to Dublin.
Next question: How is your net worth divided up and what does your investing portfolio look like?
“We have $7 million in tax-deferred accounts and $5 million in a taxable investing account. Our asset allocation for this $12 million is 70% stocks and 30% cash and bonds. We also have $12 million in real estate, including our $3 million, mortgage-free personal residence (5,000 square feet in a VHCOL locale that would probably only be worth $500,000-$1 million in a lower cost of living area). We have $9 million in leveraged investment real estate. It has a value of $15 million and $6 million in mortgages. Rents and equity value rise each year, and it yields a generous annual cash flow.
The practice value per the CPAs who specialize in healthcare practices is around $28 million, but this would be for a sale to private equity. As we have more money than we will ever need, it is doubtful that I would sell to private equity. More likely, I will want to sell to the docs who I work with for a more modest price so that they can continue the good work that we do without outside interference. Although I am the sole owner of the practice, I treat the docs as if they are partners. Last year, I gave out several million dollars in holiday and year-end bonuses.
- Liquid investments: $12 million
- Real estate equity: $12 million
- Practice value: $28 million
- Total net worth: $52 million”
“My portfolio is 75% stocks, 20% bonds, 5% real estate. Eighty-five percent of my equities are in the S&P 500, and the remainder are in individual stocks. Right now those include: HD, MSFT, JNJ, PFE, WMT, KO, INTC, T, BDX, BF-A,
HON, IEX, LHX, MDLZ, NEE, SONY, WM, WTS, XYL, and ZBH. The bonds are in a PIMCO muni ladder of 60+ bonds with maturities of 1-12 years. Schwab/PIMCO manages those for 0.24% per year. About 1% of the portfolio is in cash, and I have $50,000 in gold coins for the apocalypse. My two homes Zillow at a little under $2 million total. I don't really plan to get any less aggressive as I age; I'm a big believer in an equity-heavy portfolio.”
What lessons did you learn during the bear markets of 2000-2002, 2008-2009, and 2020?
“When the markets tanked in 2000-2002 and 2008-2009, we did nothing. We just kept on working and invested on autopilot. In 2020, we did sell some stocks at the market peak in February 2020, because we thought things would be bad when COVID made it around the world. At that point, we were already overdue to adjust our asset allocation due to being closer to retirement.”
“I have treated bear markets as opportunities to trade out of mutual funds and individual equities and into index funds. I have never net sold out in a bear.”
Can you tell us about your spending? How does a doctor worth mid-eight figures live? Multiple houses? Boats? Airplanes? NetJets? Bottle service? What do you drive, and what is your home worth?
“In our younger days, we were very careful with our spending. We did buy a nice home in my second year as an attending and we took some nice vacations, but we always carefully optimized all of our financial decisions. We drove reliable cars that held their value well and that had low maintenance costs. We saved up for a 20% down payment on our first home and then traded up for a nicer home that was in foreclosure in the real estate crisis of 2008. Our current house has more than doubled in value from the $1.3 million that we paid when it was in foreclosure to a $3 million market value today. It is pretty fantastic that our original $100,000 down payment and the mortgage payments over two-plus decades have led to primary home equity of $3 million.
In more recent years, it had become clear that we were becoming quite wealthy. I had never previously counted the practice value as part of our net worth. When I was informed of the value of the practice, I was quite surprised. We decided to spend more freely. I also stopped covering nights, and I only work one weekend a month clinically now. We probably spend around $300,000 or so per year. Major expenses are expensive home projects, and we also splurge on exotic international and adventure travel. That $300,000 obviously does not count the high income taxes that we pay. These days, we fly first class, and we stay in the best hotels. We have his and hers Teslas, and we have two other nice vehicles for household help and for backup use. Despite the extreme level of wealth, we like to live like a successful doctor family, not like the Kardashians.”
“We currently own two three-bedroom homes, both in modest neighborhoods with great neighbors in Western states. We have three cars: a 2015 Honda Odyssey, a 2016 Honda CRV, and a 2018 Tesla Model S. I fly with United almost exclusively to get upgrades with silver status but rarely first class. I like to hike, ski locally, play my guitar, walk my three doodles, and drink beer and coffee. I used to do a lot of road biking, too. I haven't been out of the country in 10 years, but in the past, I have climbed Kilimanjaro and the Grand Teton, summited multiple Colorado 14ers, and done the Machu Picchu trail. I have two kids, one working in tech and a disabled one living with us. We probably spend $250,000-$270,000 a year, including taxes.”
Do you feel any obligation to give to others because of your wealth? How much do you give away each year? Do you plan to give away more at death?
“We give more and more to charity with each passing year. We divide our giving into categories of local, national, and international charities. We write big checks to a multitude of charities that do great work.”
“I donate primarily to the Wild Animal Sanctuary in Colorado. I buy acreage and adopt their rescues. I also donate to the Nature Conservancy. My donations are $10,000-$20,000 per year, which is perhaps inadequate. When I have to start taking RMDs in a few more years, I plan to give the entire thing as a qualified charitable distribution, so that'll be more like $100,000 a year. Those charities are also written into my estate plan.”
Estate Planning for High Net-Worth Physicians
You have enough money that if you do nothing, your estate will lose a significant amount to estate taxes. What does your estate plan look like? What have you done to reduce how much will go to estate taxes?
“We have an estate plan, but we chose not to follow the recommendations of the estate attorneys that would shelter many millions of dollars from estate taxes. They had proposed various trusts and other vehicles that would lock in estate tax savings. However, these efforts led to tons of complexity and hefty legal bills. When one spouse dies, no matter what we do, there is no tax owed. And the kids are already successful young adults living on their own. We don’t feel that giving many millions to each of our kids is necessarily all that healthy for them. So, we will pay millions in tax, and we are OK with that. There will still be many millions for charity and many millions for the children and for future grandchildren. We feel that is more than enough.
Looking back, we set out to be prudent with our finances in our younger years. We dreamt that if we worked hard, saved, and invested carefully, we might achieve a $10 million net worth by retirement. It is mind-boggling the level of wealth that we have achieved. Every day, we strive to spread a little bit of the good fortune and wealth that we enjoy to our colleagues, our community, and everyone that our lives touch.”
“Our estate plan was just updated with our attorney. We gift the maximum without requiring a gift tax return to each child each year (a combined $32,000 in 2022 for a married couple, $34,000 in 2023). My advisors encouraged me to form an irrevocable family trust with the current maximum estate exemption now, but I elected not to do so at this time. We do use revocable family trusts that I split with my spouse 50/50. That provides us a lot of discretion and simplicity and still avoids probate. Given our age, wealth, and aggressive investing habits, conservative estimates of portfolio growth will leave an estate well in excess of $100 million. My boys will get more than they need. After the first one of us dies, the survivor will begin gifting meaningful distributions to the charities mentioned above.”
Thank you, doctors, for being willing to be so open with your financial details. I hope readers enjoyed this interview as much as I did.
What do you think? How do you think your answers to these questions would differ if you were worth $40 million or $50 million? What has your net worth progression looked like over your career? Comment below!