By Dr. James M. Dahle, Emergency Physician, WCI Founder
There are lots of differences that a dual high-earner couple faces in comparison to a single doc, a single earner couple, and a couple with one high earner and one low earner. Some are advantageous and some are disadvantageous. Let's go through a few of them and I'm sure readers will add in a few I forgot in the comments section.
Double Medical School Loans Means a Bigger Hole
One of the worst parts about being a dual high-earner couple is that you start out with a much more negative net worth. If the average med student graduates with $200K, the average couple may have $400K. That might be $600,000 by residency graduation, and that's average. If you're above average (which you are likely to be since you had no working spouse to help support you in school) that could be $800K or even $1 Million! That debt burden alone prevents many couples, who would prefer to have one of them stay home with the kids, from doing so. They simply both have to work in order to make the loan payments.
Dual Income Means a Bigger Shovel
Luckily, that bigger hole is typically matched by having a bigger shovel. Sure, you might owe $600K, but you also may earn $600K. Dual income couples can throw gobs of money at student loans every month. Imagine living on only one physician income and throwing the rest at the loans. Or living like residents. Or even like A SINGLE resident. A $600K loan goes away very quickly when you're throwing $30K at it every month. But here's what's cool. Even after the student loans are gone, that $30K can go toward paying off a house or reaching financial independence just as easily. That big shovel doesn't go away when the student loans are gone.
You Don't Need Two Doctor Houses
Doctors like to live in doctor houses and doctors and their spouses like to drive doctor cars and they like going on doctor vacations. But a two doctor couple doesn't need two doctor houses nor four doctor cars nor double doctor vacations. Like any other couple living together, you might get to save almost half of the living expenses!
Higher Childcare and Household Costs
Of course, that all goes away when you have kids. A one-earner couple saves all kinds of money on childcare costs. The stay-at-home parent also likely has more time to shop wisely, prepare food, care for the house and yard, plan vacations, and otherwise maximize the household economy. Two docs working 60+ hours a week will either not do those things well or have to hire them out. Child care is particularly expensive, and high earners lose out on the tax benefits of paying for it.
Higher Taxes for Dual Income Couples
This one is particularly painful. While for many people there is a marriage tax bonus when you get married, most dual-high income couples that get married face a marriage tax penalty. Not only does our progressive income tax system penalize higher-earning couples by making the entire income of the second earner taxable at the marginal income tax rate (or higher) of the first earner, but they also have to pay two sets of payroll taxes, for much less than twice the benefits. Upon realizing just how high this penalty is, many dual-income couples decide to have one of them stay home with the kids either full or part-time!
More Retirement Accounts
Another great aspect of having a second earner is the availability of additional tax-protected (and usually asset-protected) retirement accounts. While you only need a spouse, not a working spouse, to do a spousal Roth IRA and a family contribution to an HSA, other retirement accounts, such as a 401(k), require an actual second earner. This is especially useful if the retirement accounts offered by your employer stink. You can preferentially max out your partner's options and live off your earnings.
Complicated Residency Student Loan Management
Student loan management as an attending is pretty straightforward. If you're working for a 501(c)(3), go for PSLF. If not, refinance your student loans and pay them off over 2-5 years by living like a resident. It is also pretty straightforward for most single residents and residents with a non-working spouse—enroll in REPAYE.
But when you're married to another resident or a high earner, things can get really complicated, really quickly. REPAYE might be right. Refinancing might be right. In fact, even IBR or PAYE might be right, particularly if you elect to file Married Filing Separately. While filing MFS often increases your tax bill, it might also decrease your required IBR/PAYE payments, increasing the amount available for PSLF. If you are in this situation, this is a good time to get some professional student loan management advice.
Working the Benefits
Just like you can take your pick of retirement accounts, you can also take your pick of benefits. For instance, if you are self-employed and your spouse is a university employee, use the university health insurance.
Saving on Insurance
A lot of dual-income couples have asked me about their need for term life or disability insurance. While this depends on your individual situation and desires, one possibility is for each of you to serve as the other's life insurance and disability policy. Obviously, that won't help your kids much if you are both killed or disabled in the same accident, but you clearly have less risk than a single-earner couple. At any rate, you should be able to get away with less insurance than a single-earner couple.
As you can see, a dual-income couple has both financial advantages and disadvantages. Try to minimize the impact of the downsides and take advantage of the upsides to improve your financial situation.
What do you think? What did I miss? What advantages and disadvantages do you see for a dual-income couple? Comment below!