THE DOCTOR HOUSEHOLD
The average doctor household. Your household makes $300k/year with 2 kids and a partner to support. You have $300k of student loan debt on a 10-year repayment term and a $700k mortgage. You have to pay for most of your conferences and MOC’s.
Pricier household. You have expensive car payments and spend more money paying for services to maintain your properties and household due to lack of time.
Late start in life. You started earning a decent wage around age 30. You started learning about your finances later in life because of this later start. And since your colleagues live more luxurious lifestyles, you’re sort of caught spending a little more.
Your are double-punished with taxes. You pay somewhere around 40% of your income towards taxes. You are phased out of many deductions and credits. You are targeted heavily by shady financial sales people.
Generous spending for family. You likely will save & pay for your children’s higher education. They likely attend more costly institutions and you are quite a bit more generous when it comes to donations and financially helping out your extended family.
Your job mandates a reliable lifestyle. You likely live in an expensive part of the country, located fairly close to major hospital systems. You pay more for a reliable car and you hire the better contractor.
You spend more time on your job than figuring out your future. You spend quite a bit of your time reading medical journals, teaching students, checking work-related email after work and worrying about patients you’ve seen during the day.
Lawsuits and stress. You have a lower life expectancy than the average person living in the US. You will have dealt with a major lawsuit in your career which could have dragged out for years.
The government taketh but doesn’t giveth. You qualify for very few government social services and the reverse stigma likely will prevent you from using them even if you qualified.
Social Security needs you. Social security won’t pay you a proportional rate based on your lifetime earnings. Your higher income will also be depended upon by lawmakers to make sure retirees are paid.
Job security and suicide. You are at far less risk of being fired but at much higher risk of suicide, depression, burn-out and being taken advantage of.
Incredibly specialised employee, good for only one job. You don’t have the slightest clue what you would do if you couldn’t practice medicine again. Your skills are so specialised that you’d be as marketable as a high school graduate if you were left without your medical license.
Uncle Sam thanks you for your disproportionate contributions. You aren’t part of a union and there is no interest group that is worried about your welfare. You are considered fortunate, lucky and privileged. Any financial holes will be plugged with taxes aimed at your high-earning household income – jokingly referred to as doctor taxes.
Your investments have far fewer years to grow. You likely will lose out on a lot of compounding interest on your investments because you’ll be spending the first 2 decades of your career paying back debt, with very little money available to go towards investments.
Children are expensive, especially when you just started paying back all that debt. The most expensive times in your children’s lives will coincide with your heaviest debt burden years and your lowest income years.
Moving costs a lot of money, you’ve done a lot of moving. You are more likely to move locations and accrue the relevant costs between high school and college, college and medical school, medical school and residency and then again from residency to your first job. Oh, and you’ll switch jobs sometime in your career.
Your family depends on your even more than Uncle Sam. You are more likely to become the responsible household to care for elderly parents. Your time and your resources will be taxed to take care of family members, especially parents.
THE AVERAGE US HOUSEHOLD
The average US household situation. You hold a job that you got out of high school or perhaps transitioned into sometime in college. You do not have a higher education degree. You have the same size household as the doctor above, you’re making $55k per year. You don’t have a lot of expenses when it comes to maintaining your job.
Much less lifetime debt. Your household owes an average of $20,000 in student loans and your home either cost $200k or you are renting. You & your family likely perform the majority of your household maintenance and can do most repairs yourself.
You’re much more likely to get raises than a doctor. You’ve moved up the ranks in your job gradually, increasing your salary by much more than the rate of inflation year after year.
Unions are here to protect you. You’re likely part of a union. You know that for your industry to suffer mass layoffs would take an act of god. You aren’t worried about losing your job – at least not until you’ve met multiple times with your union rep and boss.
You get a tax break because you earn less. You’re paying around $8k/year in taxes, or 15%, and you can save a much higher proportion of your income in retirement accounts.
Lots of government programs out there to ensure your success. You have access to various government programs and likely are taking advantage of at least one assistance program.
SS has got your back. You’re not too worried about your share of social security because you know that higher wage earners will be responsible for paying it forward.
A job loss always sucks but you are more marketable. If you lost your job you would have a far higher selection of jobs and you would easily qualify for unemployment benefits. Your household’s operating budget being lower makes it much less likely that you will be unable to afford your pre-unemployment lifestyle.
Less moving around means more family support. You likely will have your children at a younger age, earlier in your career, and will less likely have to move for your job, allowing you more family support and therefore considerable savings on childcare.
ARE YOU OPERATING YOUR HOUSEHOLD BASED ON YOUR 5X HIGHER EARNINGS?
As a doctor, the downside to comparing your income to someone making far less than you is that the way the tax system and social structures are set up the numbers don’t translate proportionally. You can’t get an accurate picture of spendable dollars by comparing an income of $50k to an income of $300k.
The advantage of a lower income is that you can work from the bottom-up approach. You spend the least amount possible and your expectations are lower while you’re living in a country where even the lowest earning households can afford luxuries and freedoms unprecedented in the history of the world.
When you’re among the highest income earners, there is such an intense pressure on you that you naturally live from the top-down approach. You look at your wages and see what you can spend it on. Being frugal or curbing your spending is considered unpatriotic, cheap and ungrateful by those staring at your budget.
Because your expenses are so much higher, because your household items require much more expensive upkeep, because you are taxed at much higher rates and because your tax-deferred savings are limited, your higher-income’s buying power is completely obliterated.
By the time you factor in the extra debt and that you started out later in life you are definitely behind in the game. By the time you’ll realize this you’ll likely be age 50, that’s when you’ll ramp up your savings and your income, while others are ramping down.
Cancelling ER shifts and surgeries isn’t like calling out sick at the DMV. Because your work affects lives, you likely shell out more money for a reliable car, replace tires sooner, pay for AAA, hire better contractors to prevent unexpected plumbing issues and pay more for nannies who are reliable.
Because you’ll need more money in retirement to run your higher-expense lifestyle, you’re affected much more aggressively by a tanking economy. During crashes your Wall Street investments lose a lot of value and your home, which you were hoping to downsize, will have lost a lot of its equity.
The number of times a physician household moves should alone wipe out the average family. Moving is very costly and with every move you are giving up one of your most powerful resources, your social resource. You no longer have family/friends nearby who can help out with childcare.
A MORE REALISTIC PERSPECTIVE
I am not arguing that doctors should make more money, it’s fine if you believe that but I don’t think it will make a difference. My rad-onc buddy makes $1.25 million a year and his wife makes $300k. They drive 2 very expensive cars and live in a home worth about $5 million. I think their dining table set costs more than any car I’ve ever owned.
Once a physician household finally becomes debt-free, their income can be have real momentum in shaping that household’s financial picture. But too often we try to pay off debt at the same time as saving and are left with making a minimal dent in either venture.
Based on taxes, resources, debt burden, the way our careers work, how much others depend on us, and societal pressures, it’s better to consider our income equal to that of a $50k household-income for the first decade after residency.
If you can think of your income as having a purchasing power of around $50,000 per year for the first decade of your career then you can come out far ahead. You can still have the million-dollar home and the fancy cars, but they won’t be purchased on future dollars but on income that you’re willing to trade for such luxuries.
2 replies on “Doctors Make Good Money, But Don’t Let The Zeros Fool You”
Probably one of your more depressing posts. A good reminder of how little we make (especially those of us in Primary care) and how much ground we have to make up. Since when did it take 300K to run an American physician household? I never imagined it… I still can’t believe it
Dude I know, it’s sad when you think about the math. On a long enough time horizon Doctors fare well but that means we’re gonna have to remain in our careers, at our jobs well into our 60’s. I say, pay the debt off first, live simply, build up the savings and at least have the ability to work the way we want, when we want.