Many people think doctors are rich. While many physicians have high salaries, I can tell you firsthand that a lot of doctors are not as rich as everyone thinks. Here’s why:
1. Med School Debt. Like other young professionals, many doctors have student loans. But unlike undergrad, medical school is expensive. In fact, most med students take out at least $30,000, per semester of medical school. The average medical student loan debt is over $240,000 by the time we graduate and this balloons to over $300,000 by the time we finish training and account for the interest that has accrued. It’s a lot harder to become rich when you start off with a net worth of negative $200,000 or $300,000 after graduating from medical school.
2. Prolonged Schooling. Doctors spend many years in school. Many of us start school at age 5 and don’t finish all the schooling and training needed to be a doctor until we are in our late 20s or 30s. Because of this prolonged schooling, doctors don’t start earning money until much later in life. While people in other professions have full time jobs with benefits and guaranteed salaries in their 20s, many doctors are living off of student loans. This means we can’t earn money, save money, or invest money in our twenties like many other people can. As a result, we have a delayed start to building our net worth.
3. Residency and Fellowship. After medical school we spend years in additional training working as residents physicians in which we are paid an average of $60,000 a year to work 60-80hours per week. In other words, we are full-time doctors, with full medical licenses getting paid a little more than minimum wage per hour. And this is mandatory. Every practicing physician must go through residency. The length of residency depends on the medical specialty, but it ranges from 3 to 7 years. Once residency ends, many physicians go through additional training called fellowship which means they spend another 1 to 3 years getting paid this lower rate.
4. Specialty Hierarchies. There are wide variations among physician salaries after residency. Pay can range from $120,000 a year to $600,000 a year and beyond. The amount of money a physician makes is heavily dependent on one’s primary medical specialty. Specialties that do more procedures (like surgery and radiology) tend to generate more RVUs (revenue value units) which results in higher insurance reimbursement rates than specialties that do fewer procedures like family medicine and pediatrics. Specialties like plastic surgery and dermatology that are more cash-based and offer cosmetic services tend to generate higher salaries as well.
5. Taxes. Once doctors finally finish training and start making higher salaries, they are often in the highest tax brackets. This means a large chunk of their earnings is deducted from their pay before it ever hits their bank account. Unlike many of the rich, who are able to shield a lot of their income from taxes by making real estate investments or business dedications, many doctors are employed as W-2 workers which is taxed at a higher rate. Along with higher tax rates, and fewer tax shields, doctors are often phased out of many of the subsidies that benefit the middle class and are ineligible for tax breaks and refunds enjoyed by the rest of the population.
6. Overspending from Delayed Gratification. After spending many years in school and training, doctors have a great deal of delayed gratification. Many of us want to buy a home, start a family, purchase a new car, take a nice vacation, and make other large purchases. After so much delay, it can be hard to resist the urge to do all of these things at once. Many physicians finance expenses, take out debt, and purchase things before they have all the money needed to do so. This exponentially increases the debt we already have and delays our ability to build wealth.
7. Mid-level Influx. Physicians cannot ignore the impact of mid-level providers. While nurse practitioners and physician assistants are valuable providers who can help increase access to care, they have been used by healthcare corporations as a cheaper alternative to care. Although physicians and mid-level providers are both immensely valuable, the influx of mid-levels has decreased the job options and lowered the pay range for some physicians. For example, instead of hiring two physicians to work in an urgent care, a company may instead hire one doctor and one mid-level provider.
8. Big City Saturation. Physician salaries vary widely in certain parts of the country, but not in the way one might think. In most jobs, people in larger cities get paid more to compensate for the higher cost of living. The opposite tends to be true in medicine. Because larger cities usually have more entertainment options and educational opportunities with large hospital systems that have more jobs for physicians in niche specialties, many doctors want to live in or near a major city. This creates physician oversaturation in these areas. Because the supply of doctors is so large in big cities, the demand for doctors in those areas decreases which results in lower salaries. As a result, doctors tend to get paid less when they move to larger cities. Along with taking a pay cut to live in a desirable area, many of these big cities often have a higher cost-of-living and tax rates which further decrease a physician’s take-home pay.
9. Lack of Financial Literacy. Despite our intelligence and skill when it comes to medicine, many physicians are never taught about money. Physicians spend years in school, often without ever having a salaried job, then go through residency where they are overworked and underpaid. They then finish training with a massive pay increase and zero guidance on what to do with their money. Many physicians spend too much too soon, and fail to save or invest enough of their income to build wealth over time. Unfortunately, many who doctors who seek professional help by hiring a financial advisor are often taken advantage of. Many are charged high prices for bad advice and are often tricked into purchasing inefficient financial products or investing money in subpar ways which further delays their journey to building wealth.
Thus, doctors aren’t as rich you may think. Some of it is our own fault, some of it is a system failure that impacts us greatly.
Tell me, what are some reasons you think doctors aren’t as rich as everyone thinks? Do you have any ideas on what we should do to overcome these hurdles?