Your choice of medical specialty will impact your ability to build wealth. Some high-income specialists have a wind at their back that makes building wealth easy. Others face an uphill battle.
In general, doctors suck at becoming rich. We have consistently high incomes. Yet we struggle converting that income into wealth. We are the poster child of what not to do with money.
Income Does Not Equal Wealth
The fundamental problem is we spend too much of our income.
Furthermore, most doctors can’t even define net worth, let alone boost it to optimal levels. I give financial talks to physicians. Few in the audience can even define the terms. Even fewer know what their net worth is and have a system to track it.
You cannot improve something that you do not understand or track. Fortunately, our high salaries make up for our many money mistakes.
Income does not equal wealth. Income does not equal net worth. A high salary is not the same as being rich. Doctors, politicians, and journalists often confuse these concepts.
The Broke Doctor Next Door
The book The Millionaire Next Door spotlighted this weakness of doctors. The authors determined a formula for how much wealth you should have at each stage of life. Since it is based on salary and age, it falters a bit near age 30 for many doctors. Medical school incomes are nonexistent. Residency incomes are limited. Then at the end of residency compensation may shoot up 500% in one year. That pattern is rare in other fields.
How Much Money is Enough?
Once a few years out of training the formula is more predictive. They noted the few doctors end up being a PAW. A Prodigious Accumulator of Wealth demonstrates an ability to convert income into wealth. That formula is 1/10 of your age x 2 years of salary. So, a fifty-year-old doctor with a $300K income should have $3M. (50 / 10 = 5. and 5 x2 = 10. 10 x $300K = $3M). That is still a reasonable target, yet one that few doctors reach.
If I had to pick fixed numbers for saving rate or net worth, I would aim high. I would shoot for a saving rate of 38% of gross income. And aim at $5M in assets by age 50. Is that too high? Would you rather have too much or too little? And I’m not sure it is too much.
Save More Now
Given our high spending, high debt, and late-career start a higher saving rate make sense. 40-50% of us also face burnout. Reaching Financial Independence at middle age seems reasonable. Heck, I reached all those goals and money was a low priority for me. I chose a lower-earning specialty, took two huge voluntary pay cuts. One to go into academia and one to join a non-profit.
Along the way, I made dozens of stupid money mistakes. I also invested through three market crashes, and still came out fine. You can too.
There is no doubt that higher incomes make building wealth easier. Especially if you resist the hedonic treadmill of lifestyle inflation.
Medical Specialties That Build Wealth
Which medical specialists become rich?
Income should not be the only driver of specialty choice. But it should be part of the decision – especially if you have a lot of debt. When torn between two specialties consider the income differences for sure. Many of the generously compensated specialties have other benefits too. Some rank well in hours, clout, stress, and career flexibility. When I was in medical school I learned of the “RAP cartel.” RAP = Radiology, Anesthesia, & Pathology. Recently I learned about the ROAD. ROAD = Radiology, Ophthalmology, Anesthesia, and Dermatology. They are definitely all fields to consider.
Let’s look at how specialty choice and income give you an edge when building wealth. There are many income surveys out there. Many skew in some way. They have small samples, are self-reported, and show averages. A few doctors earning in the top 2% can distort the picture a lot. Better surveys report large data sets of actual W-2 data. They also include more than averages. Medians are a more reliable metric than the mean that is usually reported.
Bottom Quartile Income is Key
There is a metric that is even more stable and reliable than the median. I find the 25th percentile most useful. Shooting for that level of performance is a low bar. If that is solid, the rest is gravy.
MGMA reports the 25th percentile. Here are some specialties incomes at that level reported from data that is a few years old. The rank orders don’t change much year-to-year.
As you can see there is a big difference between the high and low earners. Of course, there is variation within those specialties too. But the biggest driver of income level is the specialty choice.
Low-Earning Specialties Often Don’t Build Wealth
The average of these lower-paying specialties is around $200K.
High-Earning Medical Specialties Build Wealth
The average of these higher-paying specialties is over $500K. Impressive. Especially since these are only the 25th percentile!
Medscape survey data help us look at physician net worths. There is not a complete disconnect between specialty income and net worth. Indeed there is a strong influence. Higher incomes correlate (and allow) larger net worths.
If you look at the list of physicians with lower net worths (under $500K) you will see a pattern. The lower-income specialties top the list. Those include Family Medicine, Pediatrics, Internal Medicine, and Rheumatology. High-income specialties like Orthopedics and Radiology make the bottom of the list.
Will You Have Five Million Dollars?
Only about 5% of physicians have a net worth over $5M. That number may seem high to some. But it isn’t. Given physicians’ earnings, many more should reach that level. Especially given that $5M won’t produce the income of a “physician lifestyle.”
3% SWR (Safe Withdrawal Rate) from a $5M nest egg yields only $150K. And that is before tax if coming from a traditional retirement fund like an IRA or 401K. After a 30% income tax (24% Federal and 6% State) that is only $105K. The majority of physicians outspend this level. So shooting for $5M is reasonable. So which specialists get there?
The high-earning specialties fill the top of the high net worth list. Orthopedics, Plastic Surgery, Dermatology, and Radiology dominate the top. The bottom of the list is packed with lower-earning specialties. Like Internal Medicine, Rheumatology, Pediatrics, and Family Medicine.
Habits and inter-specialty variation is real. But specialty choice still is HUGE.
As a radiologist I am extremely fortunate to be in a specialty that has a higher income and better lifestyle. I made a lot of financial mistakes along the way but because of this income was able to claw back out and hit the goals you outlined before my 50th birthday.
It gives a lot of flexibility when you achieve FI and that gives a peace of mind that is priceless.
Xrayvsn recently posted…The Least Valuable Dollar
Xrayvsn,
I agree that a high income can help overcome a lot of other errors.
That’s true for all doctors, but more so for high-income specialists.
What should be the annual amount of money saved be for a 42 year old physician to have 5 M in assets by age 50?
That seems like a hard number to achieve
Oceanpearl,
It is a tough number to hit.
That’s why most don’t make it.
It wasn’t that hard for me though. Even given a modest salary in academia for 5 years and 10 years as a salaried employee of a nonprofit.
It depends on what you start with and what return you get. My specialty is near the lower end of the income spectrum, but I’m not a big spender.
Starting with $6K out of residency and getting 8% ROI would require $110K per year to reach $5M by 50. Not easy, but possible.
You can play around with FireCalc for free.
WD,
Not sure if your experience was similar, but in medical school we had zero exposure to the highest-earning specialties you list. In part this was likely due to a push to increase the primary care physician pipeline for our class, but in part it seemed that unless you knew you wanted to enter one of these specialties and hit the ground running from day one, you were at a competitive disadvantage.
My roommates in med school both zoomed in on ortho as their specialty of choice from the start, gearing their extracurricular activities and research to an application that was 4 years away while the rest of us sampled from our undecided positions.
I guess the savvy applicant would have things figured out in advance, and I was far from savvy at that time.
Ever feel like these big secrets of specialty-specific income passed you by?
Fondly,
CD
Crispy Doc,
We certainly get a skewed view of the world when training in a tertiary care center. We don’t get much exposure to cushy “lifestyle” specialties and too much exposure to those grinding it out.
I was aware of most of this early on though. I was interested in finance and did some research. I organized a club in medical school that brought in specialists to tell us about what their lives are like. I called it the Medical Specialty Series. We had panelists and pizza and that was awesome.
I also read a book by Steven Polk called The Medical Student’s Survival Guide. It was overly cynical but I learned what counts in the “real world” as opposed to med school academia.
I took a serious look at Derm, Path, Anesthesia, and others. I considered “personality fit.” And I wasn’t at the top of my class so getting into ophtho, derm, ortho, or radiology would be a challenge.
Again, money should not drive the decision. But there is no doubt that a high income helps make building wealth easier.
Hi! Thank you for this post. Every time I read a post like this, I end up wondering why physicians as a whole, continue to perpetuate these huge gaps? We all know that in medicine, we continue to have a significant gender pay gap and the huge specialty pay gaps that your post describes. Why does a male physician sign a contract knowing that he is getting paid more than his female colleague doing the exact same job? Why is it ok with the higher paid specialty physican that the general pediatrician resuscitating their child at delivery is making $88/hr? Are these huge disparities in pay between medical specialties truly deserved and something that should be continued or are they just the result of how the system was arbitrarily created years ago and something that should be reexamined for the betterment of both physicians and their patients?
SC,
You raise a lot of great points.
I don’t disagree. I wish I had more say in how our jobs and pay were structured. Many of the inequities are declining over time.
My medical school graduated the first female physician in the country. Now the medical school class majority is female. That sounds like some kind of progress.
In the meantime, I do all I can to advocate for my friends in primary care and for the female specialists in my group during contract/comp discussions.
Nice post.
I am firm believer in “income does not equal wealth”.
High-earning specialties make things easy but I still believe investing and saving early has much bigger impact in building net worth.
As hospitalist couple with below average physician salary ( and working only 12-13 shifts a month) we just crossed 3M net worth ( not including our fully paid residence)milestone in our late 30s, so yes, even physicians in so called “low earning specialties” can achieve FI with financial discipline.
KS,
Congratulations!
You are WAY ahead of your peers financially.
“It isn’t what you make, it’s what you keep that counts.”
Keep doing what you are doing.
I think shooting for $5M would be a great next goal.
As a penta-millionaire, you will be solidly financially independent and you can decide what changes to make then.
Thanks for your comment. I’m glad I helped you.
It works both ways since comments like this keep me inspired to keep plodding on.