Is an MD Worth It?

Is an MD financially worth it?

Eight years. It takes an average of eight years of post-graduate work to become a doctor. More than eight if you want to be a surgeon or anything else highly specialized. I remember when this dawned on me when I was in college. It meant I wouldn’t start my career until I was in my thirties. I remember wondering if I would be better off just graduating from college and finding a job with a bachelor’s degree. I would avoid a mountain of debt, I would have income immediately, and I could start saving for a house, kids, etc.

So is an MD financially worth it? I want to emphasize the word ‘financially’, in order to avoid arguments about the difference of stress between fields, or how medicine is a ‘calling’ and people shouldn’t care about compensation (which is crazy and a topic for a future post).

To answer this question I compared the lifetime savings of an emergency room doctor and a chemical engineer straight out of undergraduate school. I am assuming that neither has undergraduate debt (also a future topic). Both the emergency room doctor and the chemical engineer are extreme super savers and debt haters. They have decided to only spend $50,000 post taxes on their living expenses, including housing. The remainder of their take home income is invested, with an average return of 7%. The doctor wants to be freed of their student loan ball-and-chain as fast as possible, so they pay it off on a two year plan, which takes $12,789/month, leaving them $233/month to save during those two years

So who ends up with a larger cash stash?


*The ER doc completed a 4 year residency, and did not pay anything on loans during residency, letting interest accrue at 6.8%.  You are welcome to use this image elsewhere, just make sure you provide a link back to this page.  

Enter the naysayers:

  1. “7% is a ridiculous return on investment (ROI) and is not attainable!” Actually, long term investing in the stock market generally yields about a 7% return. Emphasis on long.
  1. “Those average incomes aren’t realistic!” The doctor income came from the Association of American Medical Colleges, and the chemical engineer salary came from the bureau of labor statistics. But if you really dislike the numbers, just run your own and comment below. The concept remains the same: The MD comes out millions of dollars ahead by never growing into their income and maximizing their disposable income.
  1. “Are you saying that doctors should be expected to save over $150,000 a year? That’s ridiculous and never happens!” No, I am not saying that all doctors should live off $50,000 a year for the rest of their lives. I’m just pointing out the possibilities. By forcing the doctor and the engineer to have the same living expenses, it provides a better comparison for their net worth potential. Furthermore, it’s really not that ridiculous, at least not for the first 3-5 years after residency. This provides the doctor a bolus of disposable income that can be used to pay off $288,000 in loans in only 2 years, and get a start on retirement accounts and a down payment on a house. The real beauty of this is that the doctor is already conditioned to living off of $50,000 during residency (a little less actually, because you have to take into account taxes during residency). Thus, if the doctor in residency can find happiness in their financial situation during residency, it will be much easier to maintain that standard of living for just a few more years. It is much easier to delay increasing your standard of living than to decrease your current standard of living.
  1. “But you made so many other assumptions and left out so many important details like insurance and disasters and blah blah blah.” Yes, I did. This is not supposed to be a road map of your future financial life, but rather a simple demonstration of the power of maximizing your disposable income. See a theme? If every reader were to gain one concept from this blog, I hope it would be “Maxmize your disposable income by lowering your living expenses!.” This simple lesson allowed this fictional chemical engineer to become a millionaire by the time they were 46, and the doctor by the time they were 41.

So let’s take a step back from this admittedly extreme example of super savers and debt haters. What happens if the doctor and engineer follow a more common rule of thumb and invest 20% of their post tax income, with the doctor paying off his loans over 15 years?

In this case, the engineer would be living off $59,376 per year ($4,948 per month), and investing $14,844 per year ($1,237 per month). Their final cash stash at 65 is $2,963,398.

The doctor would be paying $2,540 per month on student loans, leaving them with $134,522 per year ($11,210 per month) for living expenses. Investments would be $41,253 per year, or $3,437 per month, yielding a cash stash of $4,545,846.

This second scenario of investing 20% of post tax income still puts the doctor ahead of the engineer, but only by $1,582,448, compared to the first scenario where the doctor pulled ahead by $9,969,008. But the craziest finding is that the engineer in the first scenario actually beat the doctor in the second scenario by $290,185!!!

So is an MD financially worth it? If solely based off final net worth, the answer is: it depends. Your final net worth can be small or staggering, depending on your ability to maximize your disposable income. If you compare the net worth of the doctor in the first scenario to the net worth of the doctor in the second scenario, the difference is over 10 million dollars.

I have presented extreme examples. I am not advocating that we pledge to live off $50,000 per year until we retire. But the math is clear. If we learn to be happy and live on less, we will come out millions ahead. At the very least, this exercise has provided me with the assurance that it’s possible to pay off my debt in a matter or years, as long as I develop a strong set of financial abs now.

10 comments on “Is an MD Worth It?”

  1. Vanessa Reply

    Great post!

    I’m wondering what the numbers would look like if you included the ~7% interest that med students pay on their loans. Since we have to pay this interest in med school and residency, this adds a significant amount to the final debt load. I know you mentioned it in the “naysayers” part of the article, but I’m wondering if you happened to run these numbers with that adjustment, since it seems like it would be fairly easy to factor in.

    As you showed, the benefit is huge as physicians get older. I think one challenging thing is being in your 30s with so much debt and such a small income and trying to decide if you can afford a family. The timing of the money presents presents some problems there, even if the end amount is so much more.

    Also, as a first-year med student, it’s nice to get this picture of the long view – makes me less panicked about all the money I’m taking out!

    • Mr. DebtAnatomy Reply

      Awesome points Vanessa!

      I updated the caption on the image to reflect that interest accrued on loans at 6.8%. I assumed that the medical student had a total debt load of $220,000 at the end of medical school, which theoretically included the interest that had accrued during those school years. The $220,000 then grows at 6.8% for four years during residency to top out at $286,225.

      The time value of money is interesting, and adding a family (which I will personally be doing) will definitely influence spending decisions. Over the coming years it is possible (and likely), that Mrs. DA and I will add on to our family. I plan to chronicle how raising children affects our budget and saving goals. Until then I can only conjecture 🙂

      Thanks for your great points! Hope your Christmas Break is awesome!

  2. Jacobobo Reply

    Really enjoyed the post and the healthy perspective on “first world problems” and living within one’s means. FWIW, I know a few enviably happy families raising wonderful kids on a budget comparable to a resident’s.

    • Mr. DebtAnatomy Reply

      Glad you enjoyed it! And the families who live happily on such a budget have definitely figured out some of the “secrets” of living a full life. That is definitely one of the goals of this blog. Thanks for your comment!

  3. MrPT Reply

    Wasn’t sure what to expect when reading this, but I’m really glad I did! Well written Mr. DA, and it comes off with a very positive message in an era where there are few to be found about the financial situation of doctors as well as the habits of today. Now to see if my future 30-year-old self will have this much self-control…

    • Mr. DebtAnatomy Reply

      I’m glad the positive vibes were evident! When I was a pre-med I combed through student doctor network forums and other blogs, and the majority of the stuff I read was doom and gloom. Quite depressing. The goal here is to face our financial reality with a dose of optimism, and develop a healthy financial mindset now, so that we don’t go bonkers and take out car payments on a porsche the first time we get a real paycheck. Thanks for commenting!

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    • Mr. DebtAnatomy Reply

      Great post! Love your site.

      For charts I just looked up different apps on the mac app store. A lot of them come with templates that make it easy to mix and match. I actually can’t remember which one I used though. I can’t find it on my computer at the moment (it’s been a while since I made a chart). Keep up the great posts!

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