Written by: Corey Janoff
Many doctors and prospective doctors ask the question: are doctors rich? The general public assumes that doctors are rich, because being a doctor is a considered prestigious job that requires a lot of hard work and training and most prestigious jobs that require a lot of hard work and training pay good incomes. However, having a good income and being rich are two different things.
Earning a nice income is great for helping you accumulate wealth. But it only works if you use it productively. If you spend all of your income, you aren’t going to accumulate much wealth. If you save all of your income, you will rapidly accumulate wealth (but is that necessarily considered rich? More on that later).
Today, I’m going to walk through some things doctors (and others) should consider in order to be rich.
Income versus Net Worth
One of the things I alluded to in the beginning was the difference between income and net worth. Income is how much you earn, typically on a yearly basis. Net worth is the sum of all of your assets, minus all of your liabilities. What you own, minus what you owe. I believe one’s net worth is a better indicator of their overall wealth.
In the book, The Millionaire Next Door, the authors split people into two camps: Prodigious Accumulators of Wealth (PAW’s) and Under Accumulators of Wealth (UAW’s). They found through their research that doctors are some of the worst accumulators of wealth based on their income. What that means is, when compared to others who earn similar incomes, doctors tend to have a smaller than expected net worth.
Schoolteachers on the other hand, tend to be some of the best accumulators of wealth compared to others who earn similar incomes. They often have higher than expected net worth.
Earning a high income can translate into having a high net worth, if you make accumulating wealth a priority. Even if you earn a modest income, you can accumulate a decent sized net worth if you prioritize saving over spending.
All else being equal, the schoolteacher who saves $10,000 per year will end up with a greater net worth than the doctor who saves nothing. #Math.
The doctor who makes saving a priority will have the ability to accumulate wealth rapidly and amass a rather large net worth over time. Many doctors entering practice today should be able to achieve a net worth upwards of $10 million by the time they retire, if they choose. It won’t be easy. Sacrifices will have to be made along the way. But it is very doable.
You may think $10 million is way more than anyone would need in retirement. Adjusted for inflation, $10 million 30 years from now is the equivalent of $5 million today. $5 million today will allow you to live on about $200,000 per year (before taxes) for the rest of your life, with minimal risk of running out of money. No guarantees of course. For many people, that is more than enough. Some doctors though are spending $25,000/month after taxes, which means $200k/year isn’t going to cut it. Some of you reading this will need more than $10 million in the future to support the lifestyle you want to live. Start saving now.
How Rich Are Doctors?
This is a loaded question. How rich are doctors, or are doctors rich really depends on the individual.
If you are looking at a typical resident, resident physicians are some of the poorest people on the planet. Actually, they are the poorest people on the planet. I can’t think of any demographic that consistently has a smaller net worth than resident physicians. The average resident I talk to has a net worth of negative $250,000. Negative. The homeless person asking for change on the sidewalk is worth more than the average resident physician!
How can this be?!
Student loans. Currently, the average medical student graduates with a student loan balance upwards of $200,000. That will grow to an average of around $250,000+ by the time residency/fellowship is complete. The longer the training period, the bigger the student loan interest gets.
There are some exceptions. Some residents are fortunate enough to not have any student loans. Others have spouses with good incomes and start attacking debt aggressively while in training. Some even find ways to live as frugally as possible and put a dent in their student loans during the training years.
Most doctors, though, have a negative net worth until a few years into practice. A few years into practice, many doctors are able to pay down some of their student debt, build up some money in retirement accounts, and likely have a little bit of equity in a house.
How quickly one goes from negative to positive depends on how much they want it, and how much they earn. If you earn $400,000/year, you can make faster progress than someone who earns $200,000/year. Again, math.
However, I know people earning $200,000/year who are making faster progress than people earning $400,000/year! #Priorities. If you spend all of your money, you will be running in place.
The doctors further along in practice are likely to have higher net worth’s than those just starting out. More time to save and pay off debt.
Medscape actually did a pretty solid survey of almost 20,000 doctors on physician wealth. You can see the findings in their Medscape Physician Wealth and Debt Report 2019. It’s well laid out in easy-to-view slides.
Their findings? About half of physicians surveyed have a net worth under $1 million. Half are over $1 million (with 7% over $5 million).
It’s also no surprise that the higher earning specialties tend to have the highest net worth’s. Younger doctors tend to have a smaller net worth than older doctors.
There are a lot of interesting slides in from the survey findings. I encourage you to check it out.
Many physicians retiring today can likely support a comfortable lifestyle if they have between $2-5 million saved up. Less than $2 million? Definitely manageable, but they won’t be able to live a stereotypical doctor lifestyle.
Comparing Yourself to Others
Comparing yourself to others can prevent you from ever feeling rich. Odds are, you’ll never be the highest paid doctor in your area. It’s unlikely that you’ll live in the biggest house in your neighborhood. You probably won’t ever have the fanciest car in the doctor’s parking lot at the hospital. You’ll have friends who take cooler vacations than you. Some of the doctors you know will have better looking spouses than you. You won’t ever have as many Instagram followers as one of your fellow physicians. Your kids won’t be the best athletes in their school, or get the best grades, or go to the most prestigious college.
Maybe you’ll check one of those boxes, but for the rest, someone else will have you beat. You have to be careful when comparing your life to others. It’s very challenging not to. We’re human and we judge our success relative to others. Watching Usain Bolt running by himself, it’s hard to tell how fast he runs. It’s only when you have him run next to other really fast people that you see how freaking fast he really is.
When it comes to personal finances though, you have to be careful comparing your life to someone else’s. Really, you can take personal finances out of it – be careful period when comparing yourself to others. For one, it’s unlikely you’ll ever have the full context when comparing your finances to someone else’s (unless they’re giving you every last detail about their money and life). Secondly, what’s important to you may be different than what’s important to them.
How Do You Define Rich?
Rich is a relative term. If you have $500,000 to your name and live in a third world country, you can live like a king. Some people do that. They earn their money and move abroad to a low cost of living country and live a comfortable lifestyle. For the purpose of this blog post though, let’s assume most doctors in America want to reside in America indefinitely and live comfortably by American standards.
Geographical arbitrage is a real thing. The third world country example above is a rather extreme version of it. However, the amount of money required to feel rich in San Francisco, CA is a much larger figure than the amount of money required to feel rich in Memphis, TN.
Some people would define rich as having more than those around them. As discussed a minute ago, that can be detrimental to overall happiness, because odds are you’ll never be the richest person around.
Others may define rich as being able to have all of the important things that matter to them in life. Think about that for a moment. Having all of the important things that matter to you.
If you ask most people what is important to them, you’ll often get a common set of responses. Family, health, etc. Having a ton of money usually doesn’t appear on that list.
I have some clients who have more money than they know what to do with, yet refuse to upgrade their lifestyle and spend it. We’ll beg them to take a more extravagant vacation, fly first class, or replace their 20-year old car that is held together with duct tape. They’re completely content with what they have and the way they live their life.
Finding a way to be content is key. If you really focus on what makes you happy, you start to realize how unimportant a lot of the other stuff is.
How Much is Enough to Feel Rich?
To round things out here, many doctors, especially ones in the back half of their career will be rich by most metrics. According to a Federal Reserve study, the median net worth in America is about $100,000. After several years in practice, most doctors will surpass that mark. Over half of physicians have a net worth above $1 million, whereas only 3% of the general population has a seven-figure net worth (according to data in that Medscape study referenced earlier).
The average doctor earns about five times as much as the average American. Compared to the typical person in America, doctors tend to live in bigger houses, in nicer neighborhoods, drive nicer cars, stay in nicer hotels, wear nicer clothes, eat nicer meals, and drink more expensive wine/whiskey/whatever.
However, doctors don’t compare themselves to average Americans. Doctors compare themselves to other doctors. Want to start feeling richer? Drive through a blue-collar part of town. Better yet, go live in the blue-collar neighborhood. Send your kids to a public school where half the students get free lunches and can’t afford to go to Hawaii for spring break.
Keeping up with the Joneses works both ways. If everyone in your new neighborhood drives a beat up car with at least 100,000 miles on it, you’ll feel embarrassed driving your leased Mercedes.
See? Comparing yourself to others can really mess with your head.
The point of this post isn’t to make you feel bad for being fortunate. Far from it. I had two objectives: 1) give you some actual numbers on how rich doctors are. And 2) encourage you to ignore everyone else and focus on you.
Don’t worry about everyone else around you. Focus on you, your goals, and what’s most important to you, and you will be able to live your richest life.
I bit the bullet and started an Instagram account. Follow me @coreyjanoff.
Disclosures: Examples are hypothetical and for illustrative purposes only. Investments involve the risk of loss, including total loss of principal. Consult with your financial or tax professional regarding your specific circumstances.