Is medicine a financially lucrative profession?
Compared to a good job offer out of college, maybe not.
It’s no secret that doctors earn substantial compensation. According to the Bureau of Labor Statistics, as of May 2019 the average income for a physician in the United States was $203,450. Anesthesiologists had the highest average income at $261,730 and pediatricians had the lowest at $184,410. Psychiatrists (my specialty) earn an average of $220,430. I personally know many colleagues whose incomes exceed this. In fact, many physicians can out earn the average CEO, who makes $194,850.
Therefore, the public perception that physicians tend to be wealthy is not unfounded. Of course, simply comparing average income between occupations does not tell the whole story. It is just as important to account for both the time and the monetary cost to obtain the training necessary to practice in that occupation.
Becoming a physician in the United States takes 4 years of medical school and 3 years of residency minimum (4 to 5 years for most non-primary care specialties). According to educationdata.org, the average medical school graduate has $241,600 of debt, accruing interest in the opposite direction of their net worth. While residents do get paid (the average resident salary was $61,200 in 2019), it is difficult to have any disposable income left for investments after debt repayment. Physicians cannot make meaningful inroads towards either debt repayment or investments until completing residency. When it’s all said and done, the average physician pays $365,000 to $440,000 towards their loans, including interest.
In 2007, when I graduated from college, I was offered a consulting job with a salary of $68,000 with benefits and a 401k plan. Of course, I did not take this job and went to medical school instead. Let’s assume that I did take this job, lived frugally, and invested $15,000 per year in Vanguard’s Total Stock Market Index Fund (VTSAX). From 2007 to 2016, which was the year I graduated from residency, this portfolio would be worth more than $269,000. By November 2020, this portfolio is worth over $550,000. This is not hypothetical projection. It is the actual performance of VTSAX over the past 13 years. While investing $15,000 out of a $68,000 pre-tax salary is challenging, I am not taking into account any employer 401k matching or any raises or promotions during this time either, so actually these estimates are rather conservative.
Now, I realize that not every college graduate can get a job with a starting salary at $68,000. However, graduates with STEM degrees from prestigious universities often can. These tend to be the same kind of people, at least academically, who would be competitive when applying to medical school.
Therefore, the true cost of becoming a physician is staggering. It is not just the crushing burden of tuition and fees which have far outpaced inflation, but also the opportunity cost of at least 7, but usually 8 to 10 years of not being able to meaningfully invest and take advantage of compound growth. I was fortunate to not graduate with $241k in debt. If I did, however, my 2016 self would have been over $500,000 behind in net worth compared to my alternate reality 2016 self who took the job straight out of college. I think it is not unreasonable to say that physician training costs anywhere between $300,000 to $700,000 when tuition, fees, and total opportunity costs are considered, depending on the medical student’s alternative job prospects coming out of college.
With that being said, a disciplined physician can pay off their debts quickly and eventually overtake a lower income-earner in net worth. However, this is by no means guaranteed. I supervise residents on a daily basis who have $200k, $300k, or even more in debt. Those are frightening numbers to think about. This is why I preach frugality ad nauseum. With such a high debt burden and delayed entry into the workforce, I fear that many residents will fall too far behind to climb out of the financial hole they dug.
Happy investing!
