One of the worst statistics out there is revealed by a graph comparing the net worth of doctors at different ages. Unfortunately, Medscape apparently stopped collecting (or at least publishing) “age” with this data a few years ago. The last survey to do that was in 2019 and looked like this.
A quarter of doctors in their sixties are not even millionaires. The previous year’s graph was even more stunning: 11% to 12% of doctors in their 60s didn’t even have a net worth over $500,000, and only 48% of doctors over 65 were multimillionaires. This is terrible. Net worth is the measure of wealth: everything you own minus everything you owe. We’re not just talking about your retirement nest egg. We’re talking about everything: your bank account, your investments, your retirement accounts, your home equity, your cars, clothes, jewelry, everything. Less than half a million dollars after more than thirty years of physician salary.
Hopefully, given recent investment returns and home appreciation, these numbers look better today than they did in 2019. But they need to look dramatically better before I can feel any reassurance. I mean, bad things happen to people, right? Perhaps a doctor has had several divorces, each time splitting his wealth and income in half. Or they became prematurely disabled, but were never able to obtain disability insurance due to medical problems. Or they have been scammed out of a huge amount of money.
But that doesn’t happen to half of the doctors, sorry. The reason doctors don’t build wealth is because they don’t do steps 2 and 3 of this incredibly complex wealth building formula:
- Earn a lot of money
- Don’t spend a lot of money
- Take the difference between what you earn and what you spend and invest it sensibly
Yes, it’s that simple.
How many doctors should retire
How much should a doctor have when he or she retires? In 2023, the average doctor earned $363,000. The average doctor is no longer in training in their early thirties. Let’s say an average career lasts 30 years. If you save 20% of $363,000 ($72,600) for your pension in the first year after your residence permit and earn 5% real (after inflation) on it, you would after 30 years
=FV(5%,30,-72600) = $4.8 million
in your nest egg. Plus the value of your house and all your belongings. It should probably be $6 million, right? You can spend 80% of a doctor’s income ($290,400 per year or $8.7 million total) and still end up with $6 million. That’s how it’s supposed to work. This is what financial success looks like. Even if you don’t start saving anything for retirement in the first five years, you should still have some savings
=FV(5%,25,-72600) = $3.5 million.
That fits well with the status of a multi-millionaire. And these are all real numbers. I mean, if you start today, the nominal amount you get in your savings account will be much higher. It will be at least eight figures. So yeah, if you’re left with six figures, you’ve really screwed up.
How does that usually happen? It happens because doctors live from hand to mouth. I know it’s hard for the average American and even a medical student or resident to imagine a doctor spending their entire $400,000 income, or even a $200,000 income. But I assure you it happens all the time. It’s not even that difficult. It actually takes a little discipline to save, regardless of your income. You need to tell ‘Present You’ that ‘Future You’ is going to need some of that money.
More information here:
Real-life examples of how WCIers live, worry, and withdraw money during retirement
How Much Money Do Doctors Actually Need to Retire?
The possibilities of compound interest
Albert Einstein is said to have said that compound interest is the eighth wonder of the world. It can certainly create some magic over the years. Look up your household income and expected career length on this chart and compare how you’re doing.
At most physician household incomes, multimillionaire status (in today’s dollars) should be achieved within 10 to 30 years. If you’re not on track to do that, it’s time to make some changes so you can. Here are some possible adjustments you should make.
#1 Negotiate a better salary, change jobs or make your practice more efficient: Income matters, and it’s easier to build wealth with a higher income.
#2 Get a written spending plan: Know where your money actually goes, make sure it’s spent in line with your values, and spend 20% of your gross income on retirement.
#3 Make your money work as hard as you do: Are you taking advantage of available tax-sheltered accounts such as 401(k)s, 457(b)s, Backdoor Roth IRAs and HSAs? Are your investments intelligent (low-cost, broadly diversified index funds or well-managed real estate)? Are you taking enough risk, or is it all cash or bonds? Are you inundated with bad advice or ridiculous fees?
You can do this. Hundreds of thousands of doctors have gone before you, and they don’t work smarter or harder than you. The combination of a little financial literacy and a little financial discipline goes a long way when combined with a doctor’s income.
If you need extra help planning for retirement or have questions about the best way to save your money in tax-sheltered accounts, hire a WCI-vetted professional to help you figure it out.
What do you think? Are you ahead or behind where the chart says you should be? Will you retire as a multi-millionaire? Why or why not?
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