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So You Want To Be A Broke Doctor?

At around 6:00 p.m. every day, I look forward to getting that phone call, the one from my husband saying he’s on his way home from the hospital. Taking care of 7-month-old twins isn’t for the faint of heart but then again neither is being in the 4th year of a 5 year MPH/MD program.

Of course tonight, as it sometimes happens, I got a text instead of a phone call. “I’m going to assist in one more surgery then I’ll be home,” he said. He’s currently on an OB/GYN rotation and has loved every single minute of it. He comes home absolutely elated every day, so I know it’s important for me to be as agreeable as possible and encourage him when he wants to stay longer or do extra work.

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So, I text back, “No prob! I will put the twins down.” I thought the little exclamation point I added to the text really helped cover up my disappointment. As if he read my mind, another text came through, “So sorry,” he said, “Kiss the babies for me. Remember, it’ll be worth it.”

Although “It’ll be worth it” is a common phrase medical school students and residents tell themselves during the 18th hour of their shift, an increase in medical school costs and a decline in physician reimbursements indicate that financially speaking, it might not be as worth it as many people perceive. Certainly the privilege of taking care of other people is worth it, but in order to pay back medical school loans, catch up on lost investment time, and keep up a particular image, doctors can easily find themselves… well, broke.

Medical School Costs

In the last decade, the cost of attending medical school has risen considerably. My own husband recently crossed the threshold of owing $300,000 since he added on an extra year to his education to receive a master’s degree in Public Health. He also attends an expensive private school and utilizes dependent loans for our two children. Thus his experience is not the norm. Still, as indicated in the chart below published by the Association of American Medical Colleges, most medical school students graduate with well over $150,000 in debt, and that figure slowly rises as each year passes.

cost of medical schoolWhile the cost to receive a medical education is high, many students and the population in general are under the assumption that the costs are justified given the high salary physicians typically receive. Yet, physician compensation has been on a sharp decline as well.

Physician Compensation

Never before has physician compensation been so hotly debated or under attack. Journalists have written article after article saying that physician pay needs to be cut in order to accommodate the Affordable Care Act. The thing is, physician compensation has already been cut over the last 10 years.

Think about it: not many people would continue to do the exact same work every day for less and less pay. If you’re an engineer and your boss said, “Over the next 10 years, we’re going to slowly decrease your pay incrementally. I hope you understand,” you would tell your boss to go take a hike.

However, because physicians devote up to 15 years of their lives to rigorously train for their professions, they aren’t exactly keen to stop being doctors and switch to engineering as an alternative just because their pay is being cut.

Below is an example of the change in physician reimbursement for some common surgical procedures.

physician compensationThe roots of this salary decline go back even further to the 90’s when managed care companies started transforming the face of medicine. HMOs gave patients less expensive healthcare, but they also restricted the free market and physicians, who began to see their patient base and income change.

HMOs gave physicians significant pressure to join so they didn’t lose their patients to another physician down the street. This started a history of third party managed medicine. Today, many hospitals are purchasing private practices, and insurance companies rarely increase disbursement rates. Also, physicians will be most affected by Affordable Care Act (ACA), which will highlight the physician shortage in our country and possibly change physician income yet again. Of course, we won’t know the long term effects of the ACA on the medical community for quite some time.

I’m not going to solve those problems in one article, and although I could write about insurance companies, lobbyists, Medicare, and the ACA until my fingers bleed, I instead want to focus on helping physicians and their families deal with the present issue of their finances and offer some guidance on how to deal with these seemingly daily changes in their future.

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It Comes Down To the Individual

I mention medical school costs and decreasing physician compensation because those are the issues that people highlight when they argue why physicians deserve the salaries they have in order to play financial catch-up. High pay certainly helps physicians to afford their loan payments and malpractice insurance costs; there’s no doubt about that. Yet, people rarely talk about why physicians are making loan payments for 30 years with those high salaries and why so many of them seem to lack the financial education that is integral to having a successful career and eventual retirement.

There’s an even more abstract problem that goes even deeper into the very fibers of who physicians are as a community. The perception of physicians needs to change, and very few people have taken note. Many are still harkening back to older times when physicians were very well paid, pillars of their communities, respected, fully trusted, and rarely sued. In an effort to be a part of that, doctors today – especially newly minted ones – try to buy the homes, cars, and clothes to go along with this outdated perception. And, when a physician breaks the mold and drives an old pick up truck into the parking lot (as one of my friends did), they get made fun of in the doctor’s lounge by other doctors. This is a small but true example of how many physicians feel pressure to project a certain image.

In order to combat this, physicians and their families have to adapt to a world that is changing. The worst thing we can do is stick our heads in the sand, intent on living life like physicians’ families before us. More importantly, in order to adapt, we have to know where we stand in the first place. That’s why establishing a baseline and doing a few diagnostic tests are so important in medicine and in financial matters.

Avoid the Broke Doctor Syndrome

So, if you’re reading this and you are a part of a medical family or any professional family that takes a tremendous amount of time and tuition expense to achieve, here’s how to avoid the broke doctor syndrome. Most importantly, it’s time to stop thinking about living like “like doctors” and instead start living like people who take home $150,000-$200,00 a year after all expenses are taken out. A handsome salary, no doubt, but not one that can afford a nice house, car, boat, and exotic vacation all at once.

While many physicians claim there was no time to learn about finance during medical school and more claim to not have the time now to devote to it, I’m here urging you now to make the time. If you’re too busy to devote time to learning more about finance on your own, work with a financial planner like one of the many at Personal Capital. There are many pitfalls to DIY investing if you don’t have the time, interest, or dedication to managing your money. Spend more time doing what you love to do and are an expert in doing.

The more physicians project the image of immense wealth, the more the public will be resentful and jealous of that (real or imagined) wealth. These perceptions do play a central role in the future of healthcare. After all, if doctors look like they have too much, what’s to stop the legislature from passing laws that reduce their incomes? Live within your means and avoid projecting wealth that you don’t have.

Making My Own Image

I’m endlessly proud of my husband. It’s hard to describe how grueling the last few years have been on our family. It’s a level of intensity that many people recognize on the outside but very few actually experience for themselves or second hand as medical school or physician spouses.

The thing is, I do want all of this to be worth it for my husband. He’s 30 years old, and as a somewhat late bloomer to medical school, he’ll be 36 when he is finally a full fledged doctor. That’s pretty late in life to start making a decent income, pay back what will by then be $400,000 worth of debt (since it’s actively accruing interest as I write this), raise two children, and eventually send those two children to college.

Unlike most doctors who utilize the entire repayment period of their loans, I do not intend to spend 30 years sending in those loan payments. If we can live on $50,000 a year or more during residency then we certainly can live like that for a few years post residency, taking all of the excess income and putting it towards our loan balance.

As it stands now, my husband has one more year of medical school then between 4-7 years of residency depending on which specialty he chooses and if he decides to do a fellowship. When he graduates, we hope he will be able to bring home at least $150,000 per year if not more. Keep in mind that he has not aggressively invested in the last five years because he’s had no income, so he will need to play “catch up” on his retirement funds in addition to paying off his loans. 

I estimate that if we are vigilant, do not enhance our lifestyle too much, and buy a modest home, we could pay off his $400,000 worth of loans in 10 years. As part of this goal, we will be looking at different incentives, like practicing rural medicine, in an effort to speed up the loan repayment process. If we make this repayment goal of 10 years, my husband will be around 46 or 47 years old, just in time for us to send our twins to college.

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Catherine Alford is an award winning personal finance writer who contributes to several online publications. She received a B.A. from The College of William and Mary and an M.A. from Virginia Tech.
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This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

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