The path to wealth for a physician is actually pretty simple. Now mind you, this doesn’t make it easy. But it is simple.
And with this said, I have to admit that I am guilty.
Just like a lot of blogs, I’ve been guilty of going into the weeds. I am here to apologize. To my own surprise, I’ve discovered that I really enjoy personal finance. So…I like the weeds. But what I don’t want to do is give the impression that building wealth as a physician is difficult or requires going into the weeds.
Building wealth as a physician and especially being able to retire comfortably on your terms as a physician do not require immense knowledge, studying, or even passion for personal finance.
Let me repeat, you do not need to be like me.
Building physician wealth via the no nonsense approach
I’m going to list out the steps sequentially:
- Choose a specialty that you like
- Find a job that you like
- Save 20% of your pre-tax income (If you can do this as a trainee, great! But definitely you need to do this as an attending)
- Pay off student debt within 5 years
- Invest in broadly diversified stock, bond, and/or real estate index funds (maximize tax advantaged accounts first)
- Work for 25-30 years
- Enjoy life knowing you have a secure financial plan (in other words, your overall well-being will improve now that you’ve cared for your financial well-being)
That truly is it.
Is this really all we actually need to do?
As a physician, you will be making income in the top 1-2% of the country. By saving at least 20% of your income, you create a stock pile of “seed” money.
You can then use this “seed” money to stop any interest that is working against you (by paying off debt quickly and aggressively) and start getting interest to work for you (by investing in index funds).
By investing in index funds, you are approximating the market without relying on a crystal ball to predict the stock market. This has been shown to be impossible time and again.
By doing this for 25-30 years, you are using the magic of compound interest to build a nest egg large enough for you to live comfortable on during your retirement.
This should be incorporated into a written financial plan to help keep you on the course.
Even before you reach the point of retirement, I am willing to bet that you will find yourself feeling better and even enjoying your work as a doctor more. Once I came up with a plan, I found that I was able to focus on patients more along with the reasons that I went into medicine and love plastic surgery.
Financial well-being improved my overall well-being and helped make me a better doctor.
The same will happen to you.
What about steps 1 and 2?
I am by no way inventing this strategy with this post. Many others have discussed and advocated for it, helping me in the process.
However, most descriptions of this investment strategy start at step #3.
But I actually think that steps #1 and 2 are pretty much necessary and required to be successful with the following steps.
Well, if you are stuck in a specialty or job that you don’t like or enjoy, you will be hard pressed to stay and work for 25-30 years. That just doesn’t seem palatable.
This is why a lot of doctors pursue Fast FIRE, or an accelerated path to financial independence so they can stop working as physicians. To each is own and I will never judge anyone that feels this way.
However, my hope is to help physicians achieve financial well-being in order to practice on their own terms. A majority of financially free doctors would be able to implement real change in the healthcare system to patients’ benefits.
Therefore, I really emphasize steps #1 and 2.
The argument against this basic formula for physician wealth
Of course there are detractors of this basic approach.
There are those who argue that index funds do not give as high of a return as other vehicles like real estate. Many say that you should not pay off debt quickly and instead invest the money for a greater return – a form of arbitrage.
Then, as mentioned above, there are the group of Fast FIRE advocates. They favor advanced wealth building strategies to get to financial independence (FI) as soon as possible. Usually it is because they want to be out of medicine. But there are many other reasons, all valid, as well.
The last and most valid reason is if you are later in your career and do not have enough saved for your retirement. At this point, you may need to be more active in your pursuit of an adequate nest egg.
But the bottom line is that if you are early in your career, want to just do your work as a doctor, enjoy your life, and set yourself up for financial success, these strategies are just not necessary.
Save 20% of your income and invest in index funds throughout your working career. The earlier you start, the better.
Why don’t I just follow this strategy?
It’s true. I don’t just follow this strategy.
I love my specialty and my job. I’m paying off my debt aggressively. I invest in index funds of stocks, bonds, and real estate through REITs.
Yet I also invest actively in real estate with a goal of creating large cash flow and taking advantage of tax benefits. I created a physician side gig with this blog and my course.
It’s like I said, I really love this stuff. I find it interesting and fulfilling. It’s also become something that my wife likes as well. So it’s another hobby/interest for us to share and bond over.
And I like the idea of being able to practice medicine because I want to, not because I have to. I’ve always found I’m happier when I’m doing something because I want to, not because I have to.
Ok, fair enough. Now give me an example of how this basic strategy works
First, a few assumptions.
- You are graduating training and becoming an attending at age 32, like me.
- Your income is the physician average from the 2020 Doximity compensation report of $383,340
- You have a student debt to income ratio of 1:1 (similar to my situation)
- Your index fund investments will make 5% after tax, after inflation in return
- You plan to work for 30 years, until age 62
With an income of $383,340, you will save $76,668 each year with a 20% savings rate.
Let’s say you really pay off loans aggressively by putting all of your savings rate towards loan repayment. You will then pay off your loans in about 5 years ($76,668 x 5 years = $383,340).
Now, after 5 years, you put all of your savings into index funds according to your asset allocation and rebalance yearly. In 25 years, your nest egg will be:
=FV(5%, 25, -$76,668, 0, 0)
With a 4% average yearly withdrawal rate in retirement, this nest egg will give you an annual “salary” of $146,365 in retirement!
Now, everyone’s expenses are different and people may have various estimates of what they will need in retirement. But you can certainly live a very comfortable life with over $146,000 a year.
Now, imagine what you could do with a savings rate of 41%. That’s what mine is right now. After figuring out this math, it became a lot easier to save more!
Aside from saving, you can also increase your income through feasible physician side gigs.
For instance, you can sign up for medical survey companies like these ones that I use and start getting paid right now for your medical expertise!
As you can see, no matter your situation, building physician wealth is well within your grasp!
More information about some of the concepts discussed within this post are found below:
- How to calculate how much you need for retirement
- Why index fund investing is the way to go
- How to set your asset allocation and rebalance
- How to create your own written financial plan
- An introduction to real estate investing
- How to keep score of your wealth with net worth
What do you think? What strategies do you use to build wealth as a physician? How did you decide which to use? Did I miss any important points? Let me know in the comments below!
15 thoughts on “The 7 Step Basic Formula for Wealth as a Physician”
Love your articles! I’ve done much of what you have suggested over the last 18 years. I’m a plastic surgeon in solo private practice. I totally agree with aggressively paying off debt as soon as possible. That includes mortgage(s). I know, I know, some say not to, but I sleep better at night not having an office and home mortgage over my head if things go south (like they did this year). I also agree with your first two steps. Why go through the torture of premed, medical school, residency and fellowship training only to NOT do what one loves? That’s insane! I love being a plastic surgeon for many reasons and can’t see myself doing anything else. A big part of my retirement plan is to not retire. I love to work and I don’t have a date or age in mind to retire. I’m just going to keep working until I no longer wish to or can’t. I’ve told the staff at the hospital I’m NEVER leaving. They’ll have to drag me out. I’ve also branched out with two other part time jobs. I work at Sonobello a day or two a week and love it. It might work out well in later years if I want to just work very little. I am also a Navy Reservist and do the usual “one weekend a month, two weeks every year”. Military service can be good for physicians as there are usual yearly retention bonuses ($30-75K depending on specialty) as well as a pension if one stays in for 20 years not to mention VERY cheap health insurance (Tricare), which is only about $257 a month for me and the whole family.
Thanks and Happy Holidays,
Thank you David! I love your philosophy! I feel so lucky to be able to do what I love. I don’t want to give that up. But like you said, I sleep better knowing I have a plan and other to be doing it because I want to, not because I have to. Congrats on all of your success and thanks for following!
awesome post man. btw, I love diving into the weeds! don’t feel guilty man! I think you actually make the weeds easily digestible for somebody who is learning personal finance for the first time 🙂
While your article has some value you omitted three basic tenants of building wealth-one spouse, one house and one job
Definitely helps but even that will come up short if other basic financial principles aren’t followed!
Nice article but if you consider 2.5% inflation, the $148,000.00 in the year 2050 is only equal to about half that in today’s dollars. I’m not sure any of us are looking forward to a retirement with that sort of annual income.
Thanks for reading Paul! Inflation is super important to consider. I factor this is in the formula with my estimated rate of return of 5%, which takes 2-3% off for inflation. So the expected retirement dollars are “after inflation dollars”!