Pediatrics is often used as an example of a poorly paid specialty in the physician financial blogosphere. When people want to use an example of a doc on the low range of the income scale, they reach for a pediatrician despite family docs and internists having similar incomes and some docs (occupational medicine, public health, preventative medicine, military medicine etc) having even lower incomes. Maybe it is because there are so many pediatricians or maybe it's just tradition, but it is what it is.
I'm as guilty of it as anyone and I'm going to do it again today. Except for today, we're going to take a little bit different approach. Today I want to actually quantify the opportunity cost. I want to mathematically examine the argument that is often only alluded to.
How Much do Pediatricians Make? Average Pediatrician Salary.
Before we get into the numbers, however, I think a few things ought to be said. Any time I write a post about this and actually name a profession or specialty I get hate mail. “Why are you discouraging budding pediatricians/dentists/veterinarians/whatever?” I was even accused of being “anti-dentite” recently. So I want to be really clear about where I stand on a few issues.
- The average pediatrician income is $225,000.
- The average dentist income is about $200,000.
- If you can't live on $200,000, you have a spending problem, not an earning problem. My clinical income these days is less than that of the average pediatrician and we've never actually lived on more than that. I assure you it provides for a very nice financial life. New cars, boats, heli-skiing, European vacations etc.
- I think borrowing up to 1X of your future six-figure salary is a good investment.
- I think borrowing 2-3X of your future salary is a bad investment.
- Borrowing 3-4X+ of your future salary is stupid. Especially when that future salary is under $100K.
- The cost to become a physician is very similar across specialties, but the median income across specialties is very different.
- Intra-specialty pay variation is far larger than inter-specialty pay variation.
- The primary consideration for specialty/profession choice should be to do something you love, not only for happiness reasons but also for financial reasons since longevity of career has a larger effect on end wealth than annual income.
- A student who doesn't give at least some consideration to future income and lifestyle of their chosen career is a fool.
I think all of those stances are either clearly based in fact or that I can make a strong argument for my opinion. But there is nothing between the lines there, so don't try to find something and accuse me of it.
Is Being A Pediatrician Worth It? Measuring The Opportunity Cost of Pediatrics
Okay, let's get into the main purpose of the post. What does it really mean financially to choose a lower-paying specialty? Today, I want to actually quantify it. First, we're going to look at how much longer it takes to pay off your student loans and second, we're going to look at how much longer it takes to become financially independent. I think most readers will be surprised a bit by this exercise.
Let's start with a few assumptions. First, we're going to compare two doctors. One is an emergency physician making the median income of $350K and the second is a pediatrician making the median income of $225K. Both docs did a 3-year residency. Both docs left medical school with the median MD debt of $200K at 7% that grew to $230K during residency. Both are good WCIers who know how to live like a resident. They give themselves a little raise after residency, and will live on $60K a year until the student loans are paid off. At that point, the docs will save 20% of gross for retirement until they reach financial independence. We will also assume that all disposable income goes toward loans until loans are gone. That's not necessarily what I recommend, but is a simplifying assumption that won't make a huge difference. We'll assume incomes stay constant and that investment returns are 5% after-inflation. The emergency doctor will have an effective tax rate of 22% and the pediatrician will have an effective tax rate of 18%. Those are arbitrarily chosen and will obviously be higher than some docs pay and lower than other docs may pay. If you don't like my assumptions, make your own and run the numbers yourself.
Question # 1 How Much Longer Will The Pediatrician Have to Live Like a Resident?
Emergency Doc: Earns $350K. Pays 22% * $350,000 = $77,000 in taxes. Lives on $60K. $350K – $77K – $60K = $213K. $213K/12 = $17,750 per month going toward student loans.
Conclusion: The loans will be paid off in 13-14 months.
Conclusion: The pediatrician will have to “live like a resident” for 2 years instead of 1.
Question # 2 How Much Longer Will The Pediatrician Have to Work to Hit Financial Independence?
In this situation, we'll assume the doctors' FI number is 25 X 1/2 of their peak earnings, basically $4.375M for the emergency doc and $2.81M for the pediatrician.
Emergency Doc: Starts investing $350,000 * 20% = $70K/year in attending year 2. At 5%, that grows to $4.375M in attending year 30.
Pediatrician: Starts investing $225,000 * 20% = $45K/year in attending year 3. At 5%, that grows to $2.81M in attending year 31.
Conclusion: The pediatrician will have to work one year longer to become financially independent.
Question # 3 How Does That Change if the Two Doctors Have the Same Lifestyle?
Now, it would obviously not be very smart to try to live the same lifestyle as someone earning $350K if you were only earning $225K, but who says doctors are smart? In this example, let's consider what happens if the two doctors actually spend the same amount of money, both during their career and in retirement. Let's peg that at an arbitrary $144K/year on lifestyle. That's $12K a month. That pays for a pretty nice life. In order to preserve that lifestyle in retirement, they'll need something like $144K * 25 = $3.6M.
Emergency Doc: Earns $350K, pays $77K in taxes, spends $144K and thus saves $129K/year. At 5%, it will take 19 years (including the one spent paying off the loans) to become FI.
Pediatrician: Earns $225K, pays $40,500 in taxes, spends $144K and thus saves $40,500/year. At 5%, it will take 37 years (including the two spent paying off the loans) to become FI, almost twice as long as the emergency doc.
Conclusion # 2: A pediatrician family will have enough income that, if managed well, will provide a wonderful life during the career and still allow for retirement at traditional retirement age without ever feeling financially deprived.
What do you think? Did you put any consideration of income/lifestyle into your specialty choice? Why or why not? Were you glad you did or didn't? When, if ever, would you recommend against a lower-paying specialty? Comment below!
If you save 20% and live on the rest it is actually easier to get to financial Independence if you make less because proportionally less goes to taxes. However you nailed it by showing that you cannot live above your means.
More income= higher lifestyle. Who would have thought? 😉
As a Pediatrician in 37th year of practice I agree with your math, your logic and your general philosophy of living reasonably as a physician. Looking back over these years since starting med school; finding myself quite unexpectedly drawn to Peds; working through what for me was a tough decision—Academic Career or some “mixed thing”—[I went with the “mixed thing”” and it has been great for me]; “coming out” during residency and getting divorced; finding a career path that allowed me to be very involved in raising my two children and then “going back to school and further GME” after that; ……where did finances fit into all of that? Most basically, it was no fun whatsoever to have years when I “worried about money” ; “things” did not matter so much at all—-“experiences did, however”;—-and the irregularly-spaced but ever-so-necessary ‘rebalancing’ of priorities, energy, what felt most important and was it really me who felt that way or was I responding to some earlier ‘programming’ or somebody else’s values and goals?……
Bottom line—really appreciate your blog and your columns…..almost feel as if there should be a required course in financial planning and career evaluation in Year 1 of med school; then again in Year 1 of Residency and however frequently after that as is required to remain “financially sane”.
Thanks!
Ralph
I’m sorry, in what world is your tax rate going to be 22% or 18%? I’m assuming Florida or Texas where there is no state income tax. considering that there are a lot of doctors here that live in many states that may not be applicable although I have lived off of less than 60K for many years now.
I’m married now so my tax numbers are completely different, but they weren’t like that when I was single after residency. I was effectively paying around 33-34% if you include federal, state, local and self employment taxes/ social security etc. Then I also have 20% of my monthly income going into my retirement accounts, I have kept this because they grow at higher rates than my loans, which are 3.2% at the moment after refinancing. And I also have to pay a smaller chunk for benefits because I’m paying into a partnership, which should benefit me more in the long-run.
I haven’t heard of anyone being able to pay 10K or the ridiculous 17K per month for loan payments. I suppose it is possible if you have no retirement accounts, and somehow your accountant can save you an extra 10% in tax burden which is why I’m simply disputing these calculations.
Ha ha. Your comment makes me chuckle. It reminds me of that saying–“People saying: “It can’t be done,” are always being interrupted by somebody doing it.”
As an attending civilian physician (granted married) I had an effective tax rate (yes federal, state, and payroll) of around 15%. Even now with a far higher income than any doc I know I only pay 36%. So I’m amazed that you go to 33-34% on a doc income. That’s really, really high.
As far as the docs throwing $10-17K at student loans a month, I’ve met plenty. I’m sorry you think it’s “ridiculous.” I’ll pass that on to them. Imagine a doc making $420K/year (and there are many.) That’s $35K/month. You don’t think those folks can put $10K toward loans, pay another $10K in taxes and live off a mere $15K? Heck, we don’t spend $15K/month and we’re buying everything we can think of that might possibly make us more happy.
At any rate, dispute all you like, but realize that these calculations are accurate for docs just like you all the time.
Also thinking commenter may be either confusing “marginal” vs “effective” tax rates or forgetting that all the discussed incomes would have long since “maxed out” the Soc Sec taxes so they should only be considered in effective not marginal. And have a smaller effect as income grows beyond the upper limit.
This is a stupid exercise. Why not compare it to a teacher earning $40k? Their time to financial independence is the same assuming they can control their lifestyle to their income and can retire off half their income.
I believe that is one of the main points. The website name should be enough to explain why physicians are compared and not a teacher. It may not enlighten you, but it might really help some others make more informed decisions.
Take a breath, Dave.
You might have missed this paragraph:
The idea was if two people wanted to spend the same amount, and one chose a lower paying specialty than the other, what does that mean in the end? If that isn’t an interesting thing for you to read about, I’d encourage to stop back by tomorrow when we talk about something else. Take what’s useful, leave the rest.
Man. Tough crowd.
this Is not a fair comprarison. Teachers have access to traditional pension systems and SS will play an outsized role in their retirement planning.
It is now clear to me that WCI hates all pediatricians and teachers. I’m going to send a Twitter barrage about his clear hatred for such a wide swath of people.
Outside of my sarcastic humor, I enjoyed the post. Thanks!
In scenario 3, should you consider that the pediatrician’s time horizon in retirement will be much shorter? If s/he is already 65ish at retirement, one might imagine a lower FI number than the ER doc retiring after only 19 years of practice. The portfolio doesn’t need to last as long and government benefits will be kicking in to supplement.
It actually doesn’t make a huge difference. There is very little difference in how much money is needed to sustain a 25 year retirement vs a 50 year retirement.
I’m in Psychiatry, so no skin in the game, but the illustration does broadly apply to lower paying specialties, one of which is Psychiatry.
I’d like a do-over. I did not save enough. I did not pay down my loans quickly (took me 8 years to pay back mine and my wife’s total of $120,000).
I only saved the max into a 401K for about 10 years while paying back these loans. Back in 1994, this was a paltry $9250 a year. I did accumulate a small defined benefit pension from 2001-2011, but that required no saving.
I don’t know exactly when I bought your book, but it seems like it was in about 2013. Soon after, I took over my own investing, ramped up my savings, optimized my side gig, made and have socked away $80,000 a year since 2015.
Anyway, my time to FIRE has accelerated, but I made a lot of decisions that have slowed it down: Built a big house in 2003. Put my 4 kids through 12 years of private school each, did not save enough early enough for their college expenses, and spending too much. I still have a shot to retire from full time work at age 58.5.
I suggest young doctors follow your advice, read your book and take your course…when they are 25, instead of 50 like me.
Yes, the truth is doctors can screw up a lot and STILL retire early and well. I almost chuckle when I get emails from 40 years olds who feel it is too late.
By the way, the book was published in February 2014.
I am a primary care pediatrician, don’t feel too sorry for us. I think the rest of you are crazy for not doing pediatrics. I have no pager and sleep in my own bed every night and I get to hang out with your kids while you’re dealing with adults all day (there is plenty of great pathology too). Live in CA (not LA or Bay Area but not cheap), started with 342k in school loans (warning to pre-meds: don’t have a 3.3 undergrad GPA or you’ll only get into one med school. In med school I was AOA, guess I’m a late bloomer), and still plan to retire at 60 at the latest (mostly because of the golden handcuffs I have on). I do drive an old civic that is showing its wear, but that’s ok. I am not, but many of my colleagues are, married to high income professionals. In my group two 80% pediatricians married to each other are making >400k/year.
Of course if I hadn’t read WCI my 3rd year in residency I’d probably not be feeling so positive…
Also Peds. Agree that anyone who doesn’t go into Peds is crazy! We have the best job ever. We get to play with kids all day. And at 47, we have a $2.8 million net worth, hubby has been SAHD for 10 years, and the kids are in private school. I’m not retiring any time soon. Because I love my job! I had 11 days off in May, for vacation +CME. By day 6, I was telling random strangers in Hilton Head that I liked their baby.
You guys crack me up. I’m on a vacation right now with a pediatrician. He loves it too and is making a good living (much more than the average pediatrician.)
I would urge you to reconsider military medicine as a “low paying speciality”. Yes, final incomes are usually lower than civilian counterparts, but not only do military physicians graduate without debt, the ones who go to the military school actually make about 50k per year on top of no tuition in medical school. Then residents make 70k-100k depending on location. Plus GI benefits for kids. Plus free health care. And also the income is taxed differently. Also, a good chunk of people stay in that “low paying speciality” for only a few years until moving onto a civilian job. So a military surgeon only takes a few years of paycut to do this. Unless they love it and stay in, but there are other reasons besides money to do that. Obviously, there are a lot of other things to consider with a military career than money, and it shouldn’t be done just for the money or people will be miserable, but military docs don’t get all that shortchanged in salary, at le as st
I was a commissioned officer in the USAF for 11 years, including four on active duty. I am VERY familiar with what military docs get paid. Even if you include the ability to graduate with much less debt, the tax benefits, the pension, the higher resident pay, and the other benefits, your overall pay is still much lower. If that isn’t completely obviously to you, then you need to run the numbers yourself.
I absolutely agree that you should not choose military service for the money and that sometimes you may even come out ahead in the military. But to say it isn’t a low paying specialty? Give me a break.
When I was active duty, I made $120K all in. Meanwhile, the AVERAGE emergency physician was making $225K. I could have paid off a lot of debt, paid a lot of taxes, and bought lots of benefits with that extra $105K/year. Now the average emergency physician makes $375K and if I was working as hard as I did in the military, I would expect to make $500K+. Meanwhile, military basic pay and BAH/BAS has barely risen with inflation and ISP hasn’t changed at all.
No, military medicine might be the ultimate low paying specialty. A new captain isn’t even making $60K in basic pay.
https://www.navycs.com/charts/2019-military-pay-chart.html
Military medicine is VERY speciality dependent on the financials of the first 4 years and lower paying specialties make out much better. I actually think the financials for some specialties work out better now than 10 years ago since residency pay hasn’t changed much and military pay has. My wife and I made nearly $20-30k more per year during residency than our civilian counterparts. As a military pediatrician, I make about $40-50k less than civilian average but got $200k+ in tuition benefit, $80k more in med school stipends, $75k more in residency pay, and maybe $6-8k/year savings in health insurance and see 25-40% fewer patients per week than a civilian.
Also – residency in the military – my residents here in Hawaii make about $50K more per year than the surgery residents at Univ Hawaii. And that difference is almost entirely tax free.
Most of them don’t “live like a resident” and invest the difference, but those who do have a head start that takes years to catch up in terms of “after tax” income.
Agree with WCI that you should not join the military for the money, but if you do USUHS or HPSP for med school, then a military residency, live like a resident during residency and invest the difference, then stay in long enough to get the post 9/11 GI Bill (qualify year 6, stay in until year 10) and actually use it for an expensive 4 year degree for your spouse or child, you will financially be no different or sometimes slightly better off than your civilian counterpart.
Very dependent on specialty and cost of the medical school and even interest rates of the loans.
Wouldn’t that have been great to see 40% fewer patients. I would estimate I saw all of those 40% in the ED for you. It was not unusual for me to average 4 patients per hour all shift and see up to 6 per hour at times. That compares to 1.5 now.
Sometimes high earners need a reality check. I’ll notice on the facebook group every once in a while someone apologizing for being in a lower paying specialty before sharing their question or situation. Or there will be respondants who immediately tell said individual to “move to a low cost area” implying physician salaries will be higher. There is nothing to be ashamed of if you don’t surpass national averages for income. Just need to have a plan and stick to it.
I’m an Australia doctor so the the details may differ but I’m choosing psychiatry, another relatively low paying speciality. But I love it, I’m good at it and I chose it eyes wide open about the associated financial limitations. I know I’d hate coming to work very quickly if I were in a career path I chose purely for money and I’d burn out fast – even in the worst day in psych, I’m still enjoying it and my patients.
I also have the sneaking suspicion that finances will even out between me vs my peers in more lucrative specialties since so many of them are making unwise financial decisions. They might have larger margin of error with the larger income though.
As someone with very high USMLE scores I had, more or less, my choice of specialities. I chose pediatrics knowing that pay is usually less. Not mentioned in this post or the Wealthy Pediatrician post is the effect of sub-specialization on income. Even with the lower paying subspecialties, which are critically short in supply, many pediatric subspecialty jobs are in not for profit health centers that would allow the doc to qualify for loan forgiveness. As I’ve written in another comment section, pediatric physician reimbursement is largely Medicaid driven. States choose how much, as a percentage of Medicare, to reimburse for services provided under Medicaid. States also choose to reimburse for certain services or procedures on Medicare at rates greater than 100%. Some of the increased pay for specialties dealing with the elderly benefit from these improved reimbursements. No knock on the list of specialties that are considered top tier by medical students, but could you imagine if the best and brightest medical students were rewarded for choosing a specialty that got more to the root of health care problems? An improved reimbursement system that rewarded top notch blood pressure and diabetes management rather than cataract removal and hip replacements? An improved reimbursement system that rewarded medical homes and management of most problems in the office rather than the ED or the hospital? It is a huge inequity that has been with pediatrics since the beginning. Children have been viewed by society as disposable. Initial attempts in France to open children’s hospitals was met with laughter and disdain. Despite giving lip service to caring about children and their health, see what your state actually does regarding medicaid reimbursement. If your state is like most states, you will see something in the 50-60% range of Medicare rates. This is how they (State legislatures) could show that they care about children and want to draw the best and brightest to pediatrics by improving pay for those that choose to dedicate their lives to children. But children can’t vote and the elderly love to vote. The alternative to the fee for service model is capitation where hospital systems are provided a block of funding to provide healthcare. It’s okay if the amount is adequate to the task (which is a large task-usually exceeding 50% of all children in a state) but the same people that worried about rationing health care with the ACA are the same people that cut this block of funding when times get tough. Kids are often on the losing side of these decisions. The best and brightest are needed to care for them and advocate for them but maybe that’s just me rationalizing my poor financial decision to go into pediatrics (sarcasm doesn’t come across in text-the last part of that sentence is tongue in cheek).
Interesting historical information.
It’s funny I’ve precepted many students over the years and wrecked some of their financial futures. on the flip side I’ve mentored many residents and lead them to a career in peds critical care dramatically improving theirs. That being said as you say in point 8 the salaries for peds are all over the map. I know gen peds folks out west who make more than intensivists starting in NYC. Even in NYC the pay disparity between the academic centers and the smaller PICUs can be a 6 figure amount. Speaking personally, I feel blessed. I love what I do and get paid decently to do it. However, I know that’s not the case for everyone.
One of the challenges with points 4-7 is that how much you pay for medical school maybe out of control. What if you apply 3 times and only get into an off shore school and you have your heart set on pediatrics? Or you get into that off shore school and academically you cannot get into one of the more lucrative fields? In the end you have to tough it out and pay (or do PSLF)
I’m curious you say above that you’ve never spent more than 200k a year (even with the heli-skiing, etc). A neat post would be the WCI budget to see how you live?
This year we’ll spend more than that. We’re doing a huge renovation right now! So I guess this year will be the first. My current “full budget” would just come across as a humble brag though, but one I posted a few years ago might be interest to lots of docs:
https://www.whitecoatinvestor.com/a-budget-without-payments/
This one is even older:
https://forums.studentdoctor.net/threads/an-emergency-docs-budget.817037/
At any rate, keep in mind what I’m not paying: No mortgage, No student loan payments, no car payments. Take those out of your life and you may find it relatively easy to spend as little as I do (which still feels like a ton to me.)
Hey,I was intrigued to see your figures…
Just my 2 cents… I am a general pediatrician in an academic center and I make 160,000. I do not know of anyone else in general pediatric who is making that much more– at least where I live ( Midwest). The most I every made was when I was a full time hospitalist and worked in an office part time and I barely went over the 210,000 mark. So, I am guessing your average pediatric salary that you use in the example may include specialists?
I like working with children, but have found instability with pediatrics that maybe other specialties don’t have. For that reason, I’m not sure I would encourage others to go into it. … For instance, this last year, I experienced a large institution (Ascension Health) completely shutting down the pediatrics department in the hospital, because it didn’t make money. They gave us 2 weeks notice. Bad luck, maybe… but when it takes 3-6 months to get credentialed other places, it makes for a stressful experience.
Agree. Wife is peds and trained in a large program. She has never, nor does she know of any classmates who have, made anything close to the reported median of $225k.
The opportunity cost of peds is that you are at higher risk of being abused by management and leaving medicine altogether as soon as you can/your spouse completes residency.
I thought this article was excellent, and I had mentioned a few similar thoughts in my WCI scholarship essay this year. As an aspiring pediatrician, I have been conscious about ensuring that I am borrowing less than 1x my future salary and doing everything I can to minimize the burden of loans, and preparing myself with strategies to become Financial independent as quickly as I can once I finish training.
22% taxes on 350k? That doesn’t seem right or I need a different accountant. Can you explain how did you reach at 22%..?
How to get your taxes to 22% on $350K I don’t know, but I can tell you that it is VERY possible. You may not be willing to do what it takes to get there though. I mean you could have a marginal tax rate of just 24% federal plus 1.45% payroll at that level with just a few deductions. Pretty easy to keep it < 22% effective with a marginal of just 25.45%. So let's say you are married with 2 kids, move to a tax-free state, are employed, get $56K into your 401(k) and $56K into you spouses 401(k) and have $50K worth of tithing, property taxes, and mortgage interest. Your taxable income is $350K - $56 - $56K - $50K = $188K. $0-$19,400 at 10% = $1,940 $19,400-78,950 at 12% = $7,146 $168,400-78,950 at 22% = $19,679 $188,000-168,400 at 24% = $4,704 That's a total of $33,649 in federal income tax. Add in 1.45% * 350,000 = $5,075 in Medicare tax and $132,900 * 6.2% * 2 (for your spouse) = $16,480 Total = $55,024 Divide $55,024 by $350K and you get 15.7%. But wait...those kids are worth something. So subtract something like $2K form those taxes. At any rate, you could pay another $24K in federal or state income tax and still not be paying more than 22% in tax. I doubt you need a new accountant. In fact, I wonder if you understand the difference between marginal and effective tax rates.