The Top 5 Ways Doctors Lose Their Money
As physicians, our high incomes allow our finances to be relatively resilient. Though we get a late start given the duration of our education and training, once we reach our income potential, we have the ‘wiggle room’ to make some poor financial choices and recover. This is our financial superpower. However, Medscape published their Physician Wealth and Debt Report for 2023, and it can help us better understand where our money goes, how we live, and where we lose. After spending time scrutinizing the data, I think there are five takeaways that every physician should know. These are the 5 Ways Doctors Lose Their Money.
Table of Contents
The Top 5 Ways Doctors Lose Their Money
1. Lack of Retirement Savings
You don’t miss the money you don’t see, right? Unfortunately, this may be the most significant way to lose money for many physicians. This largely occurs when it comes to a lack of retirement savings. Though net worth by age has not been published since 2019, Medscape published data that looks at net worth based on age in 5-year increments. For ages 60-64, 65-69, and 70 and older, nearly 25% of respondents had a net worth of less than $500,000!
To put this into perspective, on the most recent (2023) Wealth and Debt Report, the average physician income was $299,000. Now, please keep in mind this includes all physicians. So, there are outliers on either end of the income spectrum. However, this means that one in every four average physicians surveyed, who makes a gross salary of nearly $300,000 annually, decades into their career, still has not saved/invested enough to have a net worth less than double their annual income! This is a baffling and sad statistic. As further data will show, this is likely multifactorial but largely a product of poor prioritization of retirement savings, amongst other things.
The Math
Let’s do some overly simplistic math to make a point. Doctor A and Doctor B are identical. They each completed their training at the age of 32, are married with children, and are the only income earners in their households. They each make the average gross physician salary of $299,000 annually. Neither of them has any retirement savings—zero.
Doctor A maxes out her 401(K) annually. Using current 401(K) contribution limits for 2024 ($23,000), Doctor A contributes $1,916.67 to her retirement savings monthly ($23,000 annually). This does not factor in the possibility of an employer contribution. Thus, if an employer contribution exists, they will likely contribute less of their income annually to max out their retirement account.
Doctor B decides not to max out her retirement savings. As such, she contributes only $608 monthly or $7,296 annually to them.
The Graphs
Now, using the overly simplistic math I mentioned and assuming a real rate of return of 6% compounded annually, then by the age of 60, Doctor A would have saved approximately $1,575,598.34 for retirement. Doctor B would have only $499,981.10. For this (again, overly simplistic) example, we assume the contribution limit remains stagnant at $23,000 annually. This does not include the ‘catch up’ contribution limit of an extra $7,500 for employees over age 50, either. You can see how Doctor A could amass even a larger nest egg if she maxed out her catch-up contribution limit, starting at 50. Below are graphs that demonstrate Doctor A and B’s savings over their 28-year careers:
Doctor A’s Investment Growth
Doctor B’s Investment Growth
Remember the miracles of compounding interest to make things sink in even more. Doctor A has saved $23,000 annually for 28 years. In reality, that is only a total of $644,000 out of her paycheck. The magic of compounding interest at a 6% real rate of return created the other $931,598.34. Doctor B only put away $204,288.00 of her money throughout her 28-year career. Even with the miracles of compounding interest, she only accumulated $295,693.10 in the market.
By not maxing out her retirement, Doctor B has a net worth of less than $500,000, missed out on $1,075,617.24 worth of retirement savings and, subsequently, $635,905.24 in interest. Unfortunately, (according to the Medscape survey), one in four physicians over the age of 60 are like Doctor B. My heart breaks over this statistic.
Sometimes, the money we don’t see can be the hardest to appreciate. I used this incredibly simplified example to make a point… If you don’t save/invest early and often, your ability to amass significant wealth over the course of a long career plummets. Don’t be like Doctor B.
2. Making Bad Investments
Though our profession is full of intelligent and driven individuals, we are not day traders, and we should not be. Our background is not in finance, and the average full-time clinician does not have the free time to intricately track and follow individual stocks. Further, all the data suggests that very few, if any, individuals can consistently beat the market. Period.
With their high incomes, physicians often have the excess capital needed to invest. In a portion of the Physician Wealth and Debt Report (2023), physicians responded to the prompt, “Where Physicians Experienced Financial Losses.” 36% of the physicians participating in the survey reported bad investments in the stock market. Later in the data, physicians provided free-text examples of their bad investments. Here were the most common offenders:
Lack of Portfolio Diversity
One common avenue where physicians lose money to poor investments is a lack of portfolio diversification. An example may be an overly aggressive investment portfolio (i.e., invested in 100% domestic stocks only). The takeaway is that you should determine your stock-to-bonds ratio based on your risk aversion, age, expected retirement age, and market volatility. However, unless you are young, being 100% invested in stocks, though likely beneficial in the long term, may prove risky as you approach retirement.
Single Stock Investing
Lets face it, betting all your chips on a single stock is a huge gamble. One physician responded they “bought $250,000 of Amazon stock at its peak.” Ouch. This is a case and point that, though a successful stock, betting the farm on any single stock is risky. It is why I and many others advocate for index funds and a well-balanced and diversified portfolio. You will not get rich overnight but you will win in the long run.
Real Estate
Real estate can be a very lucrative investment, too. However, it is a business and should be run as such. If not by you, then a trusted representative on your behalf. One physician wrote: “We bought a second home to allow my newly married offspring to get started. They ended up divorced and very neglectful of the home. We had to pay for repairs and finally sell it.” This is not how you want your investments to go. Though I have some great articles on real estate investing options, make sure you understand what you are getting into and the repercussions of who you work with.
Cryptocurrency and Other Speculative Investments
Though it feels like cryptocurrency plasters the news, at the end of the day, it is a highly speculative investment and is currently not regulated by the Securities & Exchange Commission (SEC). When writing this post, Bitcoin had reached a new high. This makes it more enticing, but many have lost their nest egg investing in such unregulated and speculative assets. Physicians have significant incomes, but many have suffered catastrophic losses betting on Crypto. It is OK to take chances, but don’t compromise your financial stability on speculation.
3. Practice Losses
Coming in third place behind ‘bad investments’ is practice losses. Medscape published that 11% of physicians surveyed suffered losses related to business problems, reimbursement changes, and a change in practice situation. Let us explore this:
Declining Reimbursement, Rising Inflation
One physician surveyed summed it up nicely: “Overhead is killing doctors because reimbursements are going down and inflation is going up.” Now, over the past year, inflation has slowed, but it has overwhelmingly reached record highs over the past few years. To this physician’s point, self-employed physicians have largely suffered from battles over reimbursement from insurance agencies while navigating record inflation. Though most physicians remain employees, it has largely affected physicians across the board.
Mismanagement of Finances
One physician wrote, “I just discovered my manager embezzled $1 million over the last eight years.” Now this is likely an outlier, but still a problem nonetheless. Mismanagement of practice finances and white-collar crime can decimate one’s bottom line. Live and practice below your means, hire trustworthy individuals (as best you can), and pay your taxes. This will not cover all your bases, but it is an excellent place to start.
Job Loss
I wanted to include job loss here. Expected or unexpected, it can lead to substantial cash flow loss and decimate a family’s ability to maintain stable finances. 4% of physicians surveyed experienced financial losses related to job loss. For this reason, we encourage all physicians to keep an emergency fund that houses three to six months’ total living expenses. Job loss can be brutal, and the job search process can drag on. Make sure you guard against the unexpected with an appropriately funded emergency account.
4. Divorce
You knew it was coming. At number four, 3% of respondents reported divorce. Divorce can mean financial catastrophe for all comers, not just doctors. However, for high-income earners, it can drastically and permanently hamstring their ability to save, invest, and reach financial independence. I have said it before, and I will say it again: Your marriage is your most important financial asset. This is not meant to belittle a healthy marriage’s emotional, psychological, and physical importance. It is all those things, too! However, given this article is about how doctors lose their money, understanding the financial ramifications of divorce is essential. Long story short, invest in your relationship like your life (and wealth) depends on it! It very well might.
5. Lifestyle Creep
Last but certainly not least, let’s talk about the financial repercussions of lifestyle creep. Physicians, after a long and arduous career, feel they have finally earned all the niceties the world has to offer. Part of this is a result of our delayed gratification. Part of it is likely societal expectations of ‘rich’ doctors. The reality is that physicians statistically carry six-figure student loans and credit card debt after training, impacting their ability to save aggressively, invest, and build financial security. Here is where lifestyle creep impacts physicians the most:
Too Much House
As physicians exit training, they often work to play ‘catch up’ with the rest of the world. Friends in non-medical professions have started families, expanded their homes, and moved to nicer neighborhoods. We want these things, also! This compels us to reach for our ‘forever home’ sooner rather than later.
According to an article published by the National Association of Home Builders (NAHB) from first quarter data from the Census Quarterly Starts and Completions by Purpose and Design, the median single-family square floor area was 2,261 square feet, with an average square footage of 2,469. The Motley Fool interpreted data from the Joint Center for Housing Studies that demonstrated that in the fourth quarter of 2023, the median home sale price in the United States was $417,700.
Using this we can assume that the average American is buying a nearly 2,500 square foot home for an average price of $417,700. Again, humor me as I am making this wildly more simplistic than the data suggest. Further, understand a significant interstate variation amongst average home size and cost. However, if we assume this, Medscape would suggest that 40% of primary care physicians and 53% of specialists surveyed live in homes of above-average size (>3000 square feet). 8% of primary care physicians and 13% of specialists live in homes greater than 5000 square feet.
If we assume that the average physician makes $299,000 gross income annually, and the average 2,500-square-foot home sale price is $417,700, then one would suspect that a 5000-square-foot home (or larger) would be roughly double the cost of the average home, potentially $835,400 or more. This does not factor in maintenance costs (some suggest 10% annually) nor the cost of furnishing a house of that size. This is dangerously close to a home that costs roughly three times a physician’s annual gross income,, which can strain physician finances secondary to high mortgage expenses.
I am not passing judgment, as many physicians can afford houses approaching $1,000,000 or more, depending on specialty and dual-income earnings. Yet, please do not rush into this decision before thoroughly evaluating your budget and future expenses.
Credit Card Debt
The final, and honestly most surprising, is physician credit card debt. Doctors have grown very comfortable with multiple credit cards. According to Medscape data, nearly 78% of physicians carry three or more credit cards. This should not surprise me in a country run on credit, but it does. The Credit bureau Equifax warns that having more than two to three credit cards open at a time can become unmanageable. Appropriately, Medscape noted that physicians do not feel the same way.
Credit cards can be useful tools for rewards and cash-back incentives when used correctly and paid off (in full) each month. If used incorrectly, however, these incentives can lead individuals (and doctors alike) to accumulate credit card debt, which has notoriously high-interest rates. Though physicians maintain high incomes, we are humans like everyone else. We succumb to incentives and societal pressures to spend. Monitor your credit closely and work to pay off your credit card in full before your monthly statement.
Honorable Mentions
There are easily more than five ways doctors lose their money. We often write about colossal student debt at The Motivated M.D. Many physicians exit training with six-figure debt, and some with undergraduate debt. However, with recent loan forgiveness, SAVE plans, and more available to student loan consumers, this seems like an article for another time.
Further, though it can prove helpful to seek professional advice regarding your finances, understanding the long-term costs of financial advisors utilizing an assets-under-management (AUM) reimbursement model can also hinder one’s ability to generate wealth long-term. I specifically excluded these to create a brief article while focusing on the most recent Medscape data for 2023.
Take Home Points
We all make mistakes. Regarding finances, money management is one of our profession’s knowledge gaps. Though physician finance has garnered more attention over the years, many doctors still appear to lack the basics needed to exit training adequately equipped to successfully manage their high incomes and build their ideal retirement.
I suspect our profession suffers from ‘too much, too fast.’ We spend decades studying and harnessing medicine and are suddenly thrust into society with a hefty paycheck and little knowledge of how to handle it. As such, we quickly expand our lifestyle to match our personal and societal expectations. We purchase a home, raise a family, and throw money at investments we understand little about.
This is why physician-targeted personal finance blogs like The Motivated M.D., Physician on FIRE, White Coat Investor, and more have worked to create helpful content for all healthcare professionals seeking to improve their finances. Further, great books, podcasts, and courses exist for those seeking to overcome their knowledge gap. As always…
Stay motivated!
The Motivated M.D.
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Great article. However your example of the 401(k) maximum and the employer contribution allowing the employee to reduce her contribution to stay under the limit is misleading. The employee limit is unaffected by the employer contribution, for which the combined contributions in 2023 sum to 66,000 (how high one actually reaches is dictated by the individuals salary and the percentage match of the employer, so two people both contributing 22,500 — the one with the higher salary will ultimately have a higher total contribution due to higher contributions from the employer match). This is rarely explained and was actually years into my job before this was clear to me. I regret that I did not include it in my book on this subject and is one of the reasons I took it out of publication (among others)
The article is a good summary of financial events in the lives of many physicians. it’s however retrospective and spends little time on the common denominator of these negative events…. pointing out that the average physician has no time to learn how to manage and invest on his own although he has time to earn and enjoy a large income.
I suggest that it should be part of his pre and post education to learn the basics of money management and investment. If they don’t do that they are their own enemy. I practiced family medicine for 25 years and while on various bank boards I shuddered at the lack of business knowledge displayed by many loan applicants. You owe it to yourself and your family to learn about “money” early on. At the very least, be able to clearly understand the advice given to you by hired professionals.
Murray Zedeck DO
Chairman, Ret. Transflorida Bank
“higher trustworthy individuals”
Probably should be “hire”.
Great article though! THANK YOU!
Great catch! I guess my editing and Grammarly still can miss a thing or two! I appreciate the feed back and it has been fixed. I really appreciate you visiting the site and reading our work. Thank you.
Try medical commercial real estate to lose money when the hospital decides to park their latest physician practice in their building!
“bought $250,000 of Amazon stock at its peak.” Ouch.
not today. if he kept it, he would have made even more money. peak then, was the bottom today.
Great point. It just goes to show you that ‘Time IN the market is better than TIMING the market.’
While my husband was a resident at a hospital, we rented a second floor of a house. The landlord lived downstairs. He was my “millionaire next door”. He owned millions and was a mortgage backer of $7 million for a corporate CEO who wanted a summer house on a Jersey shore. He used to steal my newspaper and read it first before he tossed it up to the second-floor balcony. He was frugal. He looked at me and told me “You! Doctors ain’t rich. They are cash flow rich. If you are holding breadth s for the day he makes big money, stop. You need to start living like a regular folk. Don’t wait for that payout time. Don’t move into a big home. Whoever saves/invests money is rich. You pay back all the loans as soon as he starts making money.”
That advice from my landlord over 30 years ago helped us live very comfortably in our retirement. We are both in our 60’s. We paid off the house first using bonuses and his salary (that we treated as extra after what he used to get paid as resident). I shopped garage sales and secondhand stores for furniture and for my kids’ clothes when they were very young. We funded their college savings plans instead of spending money on their clothes.
Private Bank folks came over once in their beautiful suits and wanted to tell us how much we can borrow (a lot!) to get a big home and boat and second house, etc.). I shooed them away.
We did buy a house in a best school district in the area and our house is not small. We do feel the pain of that high tax but we already set aside for that expense for years to come. We used financial advisors every several years to make sure we are in the right direction.
We’ve made mistakes and we invested in a “single” stock once and lost over $100K but we figured that was a painful but never forgotten learning experience.
We are worth enough to continue our lifestyle. Even though I am told by financial advisors that I can afford to travel overseas in business class, I don’t. I enjoy looking at people who act as if they have tons of money and look down on us. My husband laughs and says they probably don’t even have half of what we have.
I personally know a doctor who just turned 70 who doesn’t have much in his savings. He married twice and got divorced twice. He is now married to a woman at least 15 years younger who sculpted her body and is a spender. Sadly, he will have to continue working for a while.
Live below your means and pretend you didn’t make that extra money. Don’t buy into “I deserve it now. I am a doctor” attitude. Save as much as you can. Then your savings will do the work for you in your retirement age. We know that. We are living that comfortable life now.
As per Warren Buffet low cost ETFs, live within your means, one house, one spouse and don’t move. From my experience stay away from full service brokerage they rip you off, trust no one, if it’s too good to be true it most certainly is, trust your instincts.