By Dr. Jim Dahle, WCI FounderQ.
Have you ever thought about doing a post on oversaving? I realize most docs probably have the opposite problem, but I bet there is a subset of the FIRE crowd that this may apply to. Does this ever come up in all the interactions you have?
A.
It was no surprise to see this question come in as a direct message on the WCI Forum, rather than an email or Facebook message. Nothing against Facebook, but the level of sophistication seen among WCI Forum members is often significantly higher than those who stumble on to the Facebook page or shoot me an email. You see, many docs on the Forum DO have an over saving issue whereas in the general doctor population only a tiny percentage face this “problem.”
A website like this, and particularly a forum, are magnets for “hobbyists” who live and breathe this financial stuff. Go ahead. Think of the doc you know who knows the most about personal finance and investing. Has she heard of The White Coat Investor? You better believe it. Heck, she's probably got a list of items she disagrees with me on. So if there were ever a place that would concentrate over saving physicians, it's here. That's just natural. The more you think and worry about finances, the more likely you are to be here. You read more, you ask more, you comment more, and you probably even help others more.
Defining Oversaving
So let's define oversaving. Oversaving is when you have “enough” to meet your financial goals but are still working, saving, and limiting spending. Despite having won the game, an oversaver is still playing. If “enough” is 25X what you spend in a given year, and you've got 50X and a full-time job, you're oversaving. If your 529 has sent you a letter telling you that you can't contribute any more to this 529, you're oversaving. If your HSA would pay for you to spend the rest of your life in an acute care hospital, you're oversaving. However, oversavers really need to be divided into two categories, the content and the neurotic.
The Content Oversaver
In the red corner, wearing the white trunks, we have Dr. Content. Dr. Content is 55. He paid off his home a decade ago and thanks to an inheritance, a paid-for medical school education, an early start, and some natural frugality, he has a $4 Million nest egg. He loves his practice and can't imagine doing anything else. He admits he'd probably even do it for free a couple of days a week. He and his wife spend $120K a year, go on international vacations and both of their cars are less than 5 years old. They have a paid-for boat parked at the dock in front of their paid-for lake house. He commutes 5 miles in a truck that he also uses to tow the boat and she drives a Tesla S. The kids are nearly through college already. He works four days a week, 8 hours a day, and never takes call. He maxes out his 401(k) each year “because I hate paying taxes” and they do Backdoor Roth IRAs each year “for the kids.”
Dr. Content isn't working any more than he wants to. He can't think of anything else he could spend money on that would make him any happier. He donates as much as he wants to charity each year and has plans to donate more at death. What's the big deal that he's still saving money and has more than he needs? It's his life and his money, so who are you to criticize?
The Neurotic Oversaver
In the blue corner, wearing the speckled shorts, we have Dr. Neurotic. He is also 55 and doesn't really like his job, but he is very worried about the state of economic affairs in the world. His investor friends refer to him as a perma-bear. He has a couple of million put away, but a large percentage of it is invested in Treasuries and gold. He would like to drive a Tesla but still drives his 2004 Camry because he feels like he can't afford the Tesla. He plans to use a 2% withdrawal rate when he retires because he wants to be “really, really sure I don't run out of money”. He plans to continue his 40% savings rate right up until he retires “probably at 70 because that's what the hospital bylaws mandate.” He takes on his partner's call shifts in order to make some extra money, despite his teenager and pre-teen begging him not to so they can go on a vacation for the first time in years.
Dr. Neurotic, despite significant wealth, is NOT spending money on stuff that he admits would make him happier. He is also delaying retirement despite feeling burned out and disliking his job. In fact, he is actively doing things that worsen his burnout (such as picking up additional call.) This is what unhealthy oversaving looks like.
The truth is that none of us oversavers (and I'm certainly guilty as charged here) are a true Dr. Content or a true Dr. Neurotic. We're all some combination of the two. But the more we can move toward Dr. Content and away from Dr. Neurotic, the happier we and our families are going to be.
What do you think? Are you an oversaver? Do you lean more toward Dr. Content or Dr. Neurotic? Has that changed over the years? What advice do you have for an oversaver?
For myriad reasons, despite all the discussion of physician burnout and FIRE, WCI is making the point that, FI aside, few physicians are actually RE.
Regarding debt to society, it does seem a shame to complete medical school and residency and then choose to be the stay at home parent, but how would you define the requirements for paying back society? I’ve practiced 20 years in a surgical subspecialty. Mid-50’s. 3 day weekend call at 54is way different than 34. Yes, maybe it would be great if every doc practiced to age 65, but I don’t think that’s realistic or appropriate. I submit that ones perspective on work and societal duty a couple of years out of training will change quite a bit a couple of decades out.
I have a couple of colleagues who have worked like dogs for years. They are in the same very high income portion of a very high income specialty. They are always in the hospital. Although, in principle, they share call, my typical weekend on call would have me running in to both of them. They must be making a fortune. They could probably save some money by selling those houses they never visit and just sleep at the office.
The older of the two is clearly burning out. Still great clinically, but always tired and trying to find someone else to help share the load.
That is not healthy and he will have to either cut back or quit earlier than he would if he kept a more manageable work style.
On the other hand, he is well past “early” retirement age and a lot of patients are better off because he has kept working into his mid 50’s.
Because of the intensity of the operations and their length, I doubt even the more moderate guy could go past 70. But he is likely to hold on longer.
Since society cares about quality as well as quantity, demanding 80 hour weeks or no time off would be counterproductive.
Interestingly, it is the younger docs in my division who split their weekend calls. We old folks just do it. Our oldest is 67 and still pounding out the work. Very high quality.
Work is annoying and we have been on the cutting edge of bureaucratic meddling. I share the common opinion that we could cut costs dramatically by firing all the people who jobs seem to be getting in the way.
But there are still patients who need care.
Let’s start with that 4% of revenue and investigate what an unsubsidized medical degree would cost.
Current tuition is about $61,000. Have to multiply that by 25 to get the price if that tuition you paid were the only revenue. Then add in fees, books and their estimate for living expenses. For four years.
Grand total: $6,284,080. That is what you would have to borrow.
That huge figure does not factor in all the tax exemptions that cut the costs and thus reduce tuition.
After which you enter your heavily subsidized training.
They make sure students have paid their bills before they give them their degrees. But that is far from having paid the cost of that education.
For those who went to cheapr med schools or that derive a larger share of revenue from tuition, do your own calculation. I would be fascinated to learn of a place where, tax exemptions ignored, someone paid the full cost.
Or even anything close.
That $6m+ number makes no sense as far as I can tell. If I understand what you are saying, it would take $6m+ of investments to generate enough cash flow from one year’s earnings to pay off 4 years of medical school ????
It has nothing to do with how anyone could afford to pay for an unsubsidized medial education. Essentially no one could.
It was just a calculation taking into account the current tuition and the fact that tuition covers 4% of revenue. If tuition had to cover the entire cost, then one would have to multiply the annual tuition per student by 25. Tuition currently a bit over $61,000. Times 25 gets you to $1,525,000.
For one year.
This is the biggest subsidy, so multiply that by 4 to get the degree.
$6,100,000.
In my other example I added in living costs, fees and so forth. Some are subsidized and some are not. I assumed none were subsidized so nothing got multiplied by 25. Just added in to reflect what the total cost would be. Let’s ignore those for now.
Real estate tax exempt. Using the number of square feet in the medical school plant, times the price per square foot of commercial real estate in the city, times the commercial real estate tax rate. That gives the annual value of the real estate tax exemption. Divide by the number of students and multiply by 4 years. $64, 604.
I have no idea how to estimate what the income taxes would be on a for profit operation with the same revenues. There would be deductions of course. How much the School saves in income taxes by being nonprofit I don’t know.
A lot of money.
Essentially no one could afford to become a doctor if they had to pay millions of dollars to get through medical school.
The only way the system works is that it is heavily subsidized. Someone who claims they had an unsubsidized medial education must have laid out millions to do so. More likely they are ignoring the actual costs.
I see, I previously missed your earlier statement above: “At my medical school tuition represents 4% of revenue. The rest comes from a large variety of sources including much more money in endowment income (the result of people gifting to the school) than tuition produces.”
So the average annual revenue of your med school is over $1.5m+ per student, and presumably expenses are a bit less. WCI is suggesting revenues at for-profit schools are 55k per student . Something doesn’t add up.
Teaching hospitals get a large amount of money from tax financed Medicare.
$1.5M per student per year is stupid. That doesn’t pass the sniff test. Give me a break. You’re suggesting my class of 100 cost $150M dollars per year to educate? You could pay 300 instructors $500K a year for that. I assure you we didn’t have 300 instructors, nor were they paid $500K a year. Maybe a total of 5 FTEs paid $200K.
I did not go to Yale, but they list tuition as 1.7% of revenue.
https://medicine.yale.edu/about/F%26F_2017-18-Online_330731_284_169_v1.pdf
I have no idea about how a for profit DO school operates. I don’t know whether the for profit schools actually are profitable. Could be. A very quick scan suggests they are still at the seed investment stage, hoping to become profitable with expansion of enrollment. If they can deliver a medical education and turn a profit at that price, good for them.
Since there are apparently 4 for profit schools in the US, all quite new, the vast majority of US physicians went to heavily subsidized not for profit med schools. And trained at conventional teaching hospitals. Again subsidized.
I realize it is not easy to get these numbers for some med schools since their financials are aggregated with the health system or university as a whole. Anyone who is curious can look it up for their school.
I’m amazed that you’re arguing that it really costs more than $55K a year to educate a medical student. I see this as an area so prime for disruption it’s hilarious. Most students don’t even want to go to class the first two years. They have a note taking service, use question banks, and read review books. Yes, there’s anatomy lab and histo lab, but the education would probably be better and certainly cheaper if it consisted of online lectures. That way the students get the best instructors for a particular subject no matter what school they’re attending. In this format, the first couple of years could easily be done for $10K a year. Adding students to a team that already has residents on it doesn’t add a whole lot of expense either.
Frankly, I think schools are just charging what they can get away with. I don’t think it has any relationship whatsoever to the actual cost of the education. And if you can get rid of a bunch of the expensive buildings by putting a lot online, you could make it dirt cheap.
At any rate, this is all a tangent to my main point, which is that just because a group of taxpayers decides to partially fund education doesn’t somehow obligate those who obtain that education to be slave labor.
Your math is wrong because you are interpreting the numbers wrong. The revenue in is not all used for education. My vet school tuition was a fraction of the money in. They also received grant money to put people’s names on a building, buy new chairs for the lobby, make glass art with lovely photos embedded in it, and make memorial gardens in honor of deceased owners. And research grant money that was counted as revenue but had nothing to do with my education. Along with revenue paid by clients for procedures at the teaching hospital. That went towards medical supplies and paying staff salaries. It is all revenue. That is not related to the cost of teaching a student. The students pay part of their education cost and the rest is subsidized but those numbers are not correlated with the revenue generated by the school. My school even received patent money – went back to research labs funding and graduate student funding. It did not help my education. I think I once heard a professor mention it was about half subsidized by an endowment and the state so around$100000 in subsidies for a $100000 paid vet education (this was based on tuition cost not the cost of also being able to eat and live).
Article linked in previous post:
DEAN BAKER co-director of the Center for Economic and Policy Research, a progressive think tank focused on economic policy
“we pay doctors — twice as much on average as physicians in other wealthy countries.”
“we pay an extra $100 billion a year in doctor salaries. That works out to more than $700 per U.S. household per year. We can think of this as a kind of doctors’ tax.”
“U.S. doctors get to legally limit their competition. As a result, U.S. doctors receive higher pay, and like anyone in a position to exploit a cartel, they also get patients to buy services (i.e., from specialists) that they don’t really need.”
“But if we want to stop paying a $100 billion premium for health care that doesn’t make us healthier, we’re going to need to overcome those political barriers.”
Of course, some may choose to challenge Baker’s analysis.
Baker also states the following: “doctors generally enjoy a great deal of respect in society, and Americans tend not to think of their high salaries as part of the health care cost problem.” If society wants to give doctors a pass on all this, so be it, but isn’t it then possible that doctors do owe something in return to society.
Article linked in previous post:
DEAN BAKER co-director of the Center for Economic and Policy Research, a progressive think tank focused on economic policy
“we pay doctors — twice as much on average as physicians in other wealthy countries.”
“we pay an extra $100 billion a year in doctor salaries. That works out to more than $700 per U.S. household per year. We can think of this as a kind of doctors’ tax.”
“U.S. doctors get to legally limit their competition. As a result, U.S. doctors receive higher pay, and like anyone in a position to exploit a cartel, they also get patients to buy services (i.e., from specialists) that they don’t really need.”
“But if we want to stop paying a $100 billion premium for health care that doesn’t make us healthier, we’re going to need to overcome those political barriers.”
Of course, some may choose to challenge Baker’s analysis.
Baker also states the following: “doctors generally enjoy a great deal of respect in society, and Americans tend not to think of their high salaries as part of the health care cost problem.” If society wants to give doctors a pass on all this, so be it, but isn’t it then possible that doctors do owe something in return to society.