Can Doctors Be Filthy Rich?

The short answer is yes. 

The long answer is…it depends. 

Gone are the days where riches are a guarantee.  Physicians today are inundated with medical education debt.  Further, like other professions, physician salaries have been outpaced by inflation.  We are globally burnt-out from the demands of our job in a pandemic era.  To top it all off, we get a late start (compared to our non-physician counterparts) when it comes to reaching our earning potential.  We have to play catch up! 

For this reason, I have been reflecting on what it takes for the modern physician to become ‘filthy rich.’  Can doctors be filthy rich?  Here I list out the steps I think necessary if doctors want to live a life of luxury!

What is ‘filthy rich?’

Let’s first define how much money I am talking about.  Obviously being ‘rich’ is a relative term.  However, for the sake of this article, I think we need a concrete definition.  The most recent Medscape Compensation Report states the average annual primary care physician (PCP) salary is approximately $242,000.  The average annual specialist salary is $344,000.  If we think about how these salaries influence our expectations, we can develop an idea of how much money is needed to be ‘filthy rich.’

To make the math easy, let’s say the average physician across the United States makes approximately $250,000 (doing some serious rounding here).  After taxes, that physician ‘takes home’ roughly $160,000.  Keep in mind, in retirement we hope that all our student loan debt and mortgage debt is paid off.  This substantially frees up money as we withdraw during retirement. 

Now, let’s apply the 4% rule.  This assumes that we withdraw 4% of our retirement savings per year to live.  Our average physician wants her current $160,000 income to continue into retirement (assuming a 25-year retirement), then she would need to have approximately $4,000,000 in retirement savings to make $160,000 annually withdrawing at a 4% rate. 

That $4,000,000 is just to maintain her current lifestyle. A substantial sum… but I do not consider that amount ‘filthy rich.’  If we are looking for an amount where she can spend even more in retirement than she did while employed, then she will need more savings than that!  If she is able to save $10,000,000, then she will nearly double her nest egg during her 25-year retirement! She will also be able to spend double her monthly expenses.  Now that is filthy rich!  So…from here on out we will use $10,000,000 as our ‘filthy rich’ milestone.

Ok… how do we get there?

Live below your means

The first part of becoming filthy rich (especially for an indebted physician exiting medical school) is to live below your means!  I discuss this in detail in my post Common-sense Principles for Building Wealth.  The concept (often synonymous with ‘live like a resident’) is simple.  You need to live on less than you make.  In financial terms, your total annual expenses need to be less than your take-home (after taxes) pay. 

This seems quite simple, no?  That’s because, as a concept, it’s pretty straight forward.  The reality is that many individuals, especially physicians, struggle with this.  Physicians exiting training often feel the weight of delayed gratification.  They have their new attending salaries burning a hole in their pocket.  For years during training they brandished the badge of ‘doctor’ without the income to match!  With their new six-figure salaries, they are eager to have their lifestyle reflect their income. 

Fight this temptation!

If you allow your lifestyle to expand at the same ratio as your income, then you will be a physician living paycheck to paycheck.  This is where the term ‘golden handcuffs’ originates.  Your ability to save and invest enough money to build excessive wealth will be exponentially more difficult (near impossible) if you allow rampant lifestyle creep. 

Do yourself a favor and take the time to review your budget extensively.  Make sure you have money leftover at the end of the month.  Then make that money work for you. 

Don’t leave money on the table

In keeping with the previous paragraph, you need to have money leftover in order to save.  This starts with your retirement contributions.  First and foremost, the average human is terrible at prioritizing retirement savings.  I have advocated many times before that this process should be effortless.  How do you make this effortless?  You automate it. 

Many employers allow you to make automatic contributions prior to your paycheck being deposited into your account.  Further, some employers will give you a ‘match.’  A match is a certain percentage of money the employer contributes to your retirement savings per paycheck based on your contribution.  This acts as an incentive, or ‘nudge,’ to save.  According to Investopedia, employers (on average) contribute between 4-5% based on your contribution.  It is important to note that in order to receive the employer match, you often have to contribute an employer-determined percentage.  My employer, for example, says if I contribute 9% of my paycheck towards retirement, they will match 4%.  This means just by contributing 9% of my paycheck each month towards retirement, I essentially contribute 13%. 

It is critical that you not only save for retirement but you also know the contribution amount necessary to receive your employer match (if offered one).  If you are eligible for a match, it is foolish to not contribute enough to receive it.  That is leaving money on the table…free money. 

This does not even begin to address maxing out your retirement accounts from a savings perspective…

Save, save, save

It is important that you utilize every vehicle possible to save your money.  There are endless articles littered about the internet discussing what is the ‘best’ savings rate.  The answer is: whatever allows you to reach your financial goals! 

With the boom of the Financial Independence, Retire Early (FIRE) movement, there have been many discussions on how to reach FIRE early and successfully.  For individuals (like physicians) with high incomes, it is encouraged to save approximately 20% of your net income each fiscal year.  Let’s continue with my example above… 

If I contribute 9% of my take-home pay to my retirement account annually, my employer will match me 4%.  This means I am saving approximately 13%.  If my goal is to save 20% annually, then I need to save an extra 7%.  Often, this is as simple as contacting your employer’s benefits administrator and asking to increase your contribution by 7%.  This would allow you to save a guaranteed 20% annually.  Unfortunately, for high income earners, 20% savings usually exceeds the maximum contribution limit you can make to many retirement accounts annually. 

The next step is to determine where else you can store that 7% savings (or more).  For years that has been in other retirement accounts and vehicles.  These vehicles include Backdoor Roth IRAs, Spousal Backdoor Roth IRAs, HSAs, 529 Educational Savings accounts, or just plain after-tax investment accounts.  As we move forward, it is unclear which of these savings strategies will remain the best option.  However, for now, it’s important to know what savings rate allows you to achieve your financial goals and in which vehicles you should house those savings. 

Pay off your debt fast

Another aspect of building significant amounts of wealth is eliminating debt.  You cannot have overwhelming assets if you are overwhelmed by substantial liabilities.  Your student loans… get rid of them… fast. 

A quick disclaimer here.  I understand that many are actively pursuing (or planning to pursue) Public Service Loan Forgiveness (PSLF).  To the individuals who believe this is the best route for them, I support it.  Make sure you are in the correct repayment plan and make sure each and every month’s payments are certified in the eyes of your lender.  This way, after the appropriate amount of certified payments, you will (hopefully) be debt free!

To the rest of my readers (me included) who have another plan of attack.  I previously wrote why we chose to refinance our student loan debt (twice) over pursuing PSLF.  This decision was not one we made lightly. Between our financial plan, our financial goals, and our debt aversion, this was the right choice for us.  We are currently on track to pay off a combined household medical education debt of $670,000 in 5 years! Don’t believe us, just check out how we graph our loan repayment progress!

One of the many reasons we have found financial success in our lives is because we are so debt averse.  Now, not everyone feels the way we do regarding debt.  There is also a significant opportunity cost that accompanies our decision to aggressively eliminate debt.  To the individuals pursuing PSLF, they are able to funnel the money they would otherwise spend on loan repayments towards savings and investing.  These individuals have a leg up when it comes to the miracles of compounding interest.  There is value in that, but it does not overcome my insatiable need to be debt-free. 

Avoid making stupid purchases

Look, until you are ‘filthy rich’ there are some things that, flat out, you just shouldn’t do.  One of those is making stupid purchases.  Things like a second home (i.e. not an investment property), buying an expensive sports car, thinking you can beat the market day-trading, gambling, etc.  Your time and money are too important in the ‘accumulation’ phase of wealth-building to throw away on pointless things.  Cars depreciate in value the second you drive them off the lot.  Second homes, if not used as investment properties, will be a significant tax burden and rarely get used.  Picking single stocks or ‘day-trading’ is possible for a select few, but that generally is poor utilization of time and money for physicians.  Just index the market with mutual funds and move on.

Much of generating significant wealth is about being smart and patient.  However, a small portion of it, is about not being down-right careless.  I cannot wait for a time when you have the wealth to make luxury purchases. However, unless you have already reached ‘filthy rich’ status, then I suggest you avoid wasting your money on items that will not bring you sustained joy. These items only delay your ability to reach your financial goals. 

Find a career that is sustainable

Your primary income will be one of your most important assets during your wealth accumulation phase.  You must work to protect it.  That may seem simple, but it is more complex. 

Protecting your income is also about protecting your well-being.  It is not only about maximizing your take-home pay.  It is important to make sure you feel valued in your position.  Do you feel like you are making a difference?  Is your hard work acknowledged?  Are you able to find internal validation and avoid the rat-race? 

Finding a work environment that supports you financially, mentally, and emotionally is important.  You may get paid 6-figures a year, but oftentimes these work hours are not sustainable.  If your career is the most effective means of wealth accumulation, you need to prioritize an environment that prevents burnout. 

Previously, I wrote an article on The Pros and Cons of Academic Medicine.  Here I discussed my recent decision to pursue a career in academic medicine.  There were big trade-offs I had to consider.  One of them was reimbursement.  I am making significantly less in academics than I would in the community.  However, my wife is also a physician.  We have children.  There is much more than money that motivates me professionally.  Making sure I have a schedule that allows me to see my family is integral to my happiness.

Do not settle until you feel supported, acknowledged, and appropriately compensated.  You may not be able to ‘have it all’ (there are always trade-offs), but you should feel consistently happy with your career choice. 

Insure against disaster

Here I go beating a dead horse again.  This is just as relevant now as it was in many other posts.  Part of life is learning to deal with the unexpected.  Illness, injury, death, financial catastrophe, geopolitical catastrophe, war, you name it, disaster will happen in your lifetime.  It will happen to you.  Being prepared when hard-times find you separates those who stumble, from those who fall. 

This would not be The Motivated M.D.’s post if it didn’t highlight the importance of an emergency fund!  The first step to fending off financial difficulties is having an appropriately sized emergency fund.  This is generally anywhere from 3 to 6 month’s living expenses.  Keep these funds liquid, in a safe account, only for emergency purposes.  If you want to read more about the importance of emergency funds, check out Emergency Fund: Your First Financial Goal.

The next step towards protecting the financial well-being of you and your loved ones is to pick up life insurance and disability insurance.  Generally, I recommend term life insurance over whole life insurance (that is a discussion for another post).  I also recommend having an ‘own-occupation’ long-term disability insurance policy.  I feel less strongly about short-term disability if you already have an established emergency fund, but for certain circumstances they can be beneficial as well. 

Generate multiple streams of income

When I originally wrote the article titled The Importance of Multiple Streams of Income, I had no idea how influential it would be.  There really does appear to be something that resonates with physicians and other high-income earners regarding the importance of multiple revenue streams. 

It is true that physicians still make high incomes relative to the general population.  Yet, when you factor in the age that we reach our income potential, as well as our student debt burden, we really start the race towards financial success a mile behind everyone else.  Physicians (generally) are in their early thirties when they complete training and the average graduating doctor carries $215,000 worth of educational debt.  In a profession where we get a late start from such a negative net worth, generating multiple revenue streams is becoming a requirement. 

Now, you can still live a great life on a physician salary, but you will need more than your primary income to create generational wealth…especially if you are the only provider for your family. 

In my post addressing this issue, I comment on a few important streams of income.  They include:

• Primary income
• Spousal income
• Investments
• Real estate
• Blogging
• Social media presence
• Electronic products
• Medical surveys

These only begin to scratch the surface of opportunities available to you.  It is true that some require more time than others.  Use your passion to create something of value…then charge for it!

Own a business

The last aspect I will address applies to business ownership.  I recently read an article by the Financial Samurai.  He is a retired investment banker who achieved FIRE in his thirties.  Since 2009 he has been blogging about his thoughts on personal finance and financial independence.  He offers some insightful perspectives and has become one of the most influential personal finance bloggers. 

He published an article called Two Levels of Rich: One of Which Doesn’t Rely on Index Funds.  Here he professes why the very wealthy (not the 1%, but the 0.1%, and the 0.01%) are able to achieve such riches.  These individuals are ‘filthy rich’ largely because they own businesses.  In a capitalistic society, those that create businesses have opportunities to grow exponentially.  This is where the path to generational wealth lies.  If you read regularly about personal finance, you will often find no shortage of courses, e-books, guides, or investment opportunities.  There is a reason for this.  Even as physicians, our peers are realizing the importance of business ownership.  Whether it be real estate investing, creating a website, patenting an invention, or creating a start-up company, many of the individuals who create significant wealth start here. 

You should too.

If you are truly looking to rocket your finances to the stratosphere, you need to think bigger.  Think not only what your current primary income can afford you, but what can it empower you to build?  Do you have a passion for writing?  Have you always wanted to build a portfolio of real estate properties?  Do you have a skill you can teach and monetize?  All of these pose the opportunity for growth.  All of these pose the opportunity to make you ‘filthy rich!’

Take home points

Choosing to pursue significant wealth offers more than a high net worth.  It offers the ability to take control of your life.  It offers a personal freedom found nowhere else.  Being ‘filthy rich’ is about building an income that expedites financial independence, brings peace-of-mind, and opens the door to opportunities.  

I encourage you to consider the steps I mentioned above.  Save, invest, eliminate debt, find a career where you feel happy, and build a business of your own.  Physicians have a financial superpower.  Their high incomes allow them to play ‘catch up’ quickly.  Unfortunately, gone are the days where being a physician will guarantee you generational wealth.  Doctors looking to boost their earnings should consider putting on their entrepreneurial hats! As always…

Stay motivated!

The Motivated M.D.

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