Every Buzzfeed writer out there will tell you the same thing- it is all about the headline when it comes to hooking readers. And by god, I have done it again with this beauty. For you nimrod’s* out there who need explaining to, this title is obviously a play on the best-selling financial book Stocks for the Long Run by economist Jeremy Siegel (UPENN product)…because this blog post includes a discounted cash-flow analysis of doctors’ earnings. Aaaaaaaaaanyway, on to the “fun.”
Besides the fact that I like making excel models (don’t blame me, my mom dropped me on an abacus as a baby), this post was triggered this past weekend when a good friend notified me of his acceptance into a medical fellowship program. Though I knew he was applying, somehow I was struck by how odd it seemed to have friends still in “training,” waiting for their professional careers to begin. Upon review, I realized that I actually did not know a single fully-practicing doctor in my peer group, despite graduating almost eight years ago. Despite laying the odd-egg, none of us are spring chickens anymore and that seemed like a long time to put off earning that top Doctor Dollar, so I wanted to dust off the ol’ “Alt-O+C+A” (that auto-adjusts column width btw), and see for myself what it meant.
One last caveat – I know analyzing other folks’ earnings is not a good recipe for making/keeping friends so let me throw in the obligatory note that I know there are many very good reasons to become a doctor other than money and I am grateful so many choose the profession. I know my life’s work to date hasn’t exactly earned me a spot with FSM in the afterlife (if you need to ask who FSM is you aren’t going to be there either, so don’t worry).
The Method: (entire model with all assumptions linked here)
I went straight up discounted cash flow (DCF) on this biatch. For those unfamiliar with this approach, the very simple version is that you take money earned in future years and discount it back to what it is worth today. So for example, presuming you can get a 10% return in the stock market, $1.10 one year from now is worth $1 today.
The assumptions and sources for my model were:
- How much does medical school cost
- Note I have not included interest on medical school loans since that is just deferring payment, so if the interest rate equals my discount rate it is the same as paying the full amount during medical school
- How long do doctors train by specialty
- How much are doctors paid in residency/fellowship, upon first starting to practice, and mid-career by specialty. I ended up cutting the analysis by three groups:
- Top Tercile (third) Earning Doctors – Assumed 7 years of residency/fellowship. This is mostly surgeons/radiologists and some specialists.
- Mid Tercile Earning Doctors – Assumed 5 years of residency/fellowship. Mostly non-surgery specialists.
- Bottom Tercile Earning Doctors- Mostly pediatric, family medicine, and internal medicine.
Lastly, I needed to compare these discounted cash-flows to some alternate career path. Presuming our would-be doctors are smarter than the average bear, I picked the national median average for engineers as a comparable occupation. What the WSJ says that looks like is:
- $60,000 salary out of college
- Ramp up to $105,000 salary 20 years into your career
As a side note, I was shocked this average was so low, but that is what living in San Francisco for five years will do to you.
The Madness (The Results):
I charted the results as the post-tax, cumulative earnings, discounted to present day (2015) dollars. Other than medical school, there are no expenses included in this analysis since the point is to see the difference in cumulative post-tax earnings between a doctor and an alternate profession. Since both have to buy food, rent, etc., that is a wash between the two and I can just focus on earnings after I account for medical school. (PLEASE CLICK TO ENLARGE)
I would love to have folks leave comments on whether the results surprised anyone but these are my key takeaways:
- It takes a long time to get back to even: Since higher paying specialties require more years of training, I found it interesting to see that they all breakeven (relative to the alternate profession) around the same time, at 18-21 years. That said, ~20 years feels like a long time to me since that means you are hitting 40 before you actually have more money than you would have in an alternate life being a middling engineer likely working a 9-5, 5-day-a-week existence.
- I want to be a top-tercile earner or the alternate engineering-role: Obviously easier said than done and there are many work-life consideration I have not factored in- but based on the pure monetary options here, existing in the 2nd and 3rd tercile of earners “only” gets you $200k-250k more 2015 dollars across your entire working career. Unfortunately nowadays that only pays for one incremental kid’s private college tuition and/or a nicer house in exchange for decades of study/hard work and professional rigidity. While perhaps still not for me, I can see the lure of almost doubling your cumulative post-tax lifetime earnings and getting $600,000 more 2015 dollars, which puts you in the “Mercedes out front, nice house, kids-go-to private-school” camp .
Is this common knowledge? Do pre-med’s factor this in?
In my estimation: No. Heuristically it rings true that “doctor” is thought of as among the best-paying occupations in the world. I went to a Jewish pre-school, trust me, it starts early. Upon doing a little research, it appears that doctors themselves enter the profession with that same impression. A recent survey by Medscape indicated that almost half of all doctors regret going into medicine, with pay (especially in light of recent cut-backs) being a primary driver of that displeasure.
In addition to many pre-meds perhaps not having the clearest view on the monetary outlook of their careers, my impression has always been that choosing to be a doctor has a huge amount of preselection bias. By that I mean that you already have to be somewhat wary when a profession requires people to essentially opt-in at the age of 18. Additionally, if it is the type of profession which young children are familiar with and can start to identify with at an early age, it only increases the chance that they become fixated on it to the exclusion of other options. By contrast, no small child has ever wanted to be a “alternative payments-platform salesman” or an “educational-tech operations specialist” or a “mid-cap private equity associate.” One piece of evidence for this is the inordinate number of doctors who have at least one doctor parent. A NYT article cited a Mount Sinai physician who found that one third of residents had a doctor parent and estimated the national average to be closer to 20%.
Some readers may be doubting my subjectivity since every over-wrought analysis arrives at a conclusion which seemingly reaffirms the decisions I personally have made in life. I promise there is a very good reason for this. Believe it or not, I actually think through my life in the nerdy, utilitarian, overly-egged-pudding manner which my blog maps out. I am sure my ex-girlfriends can attest to how attractive that is in a man.
Again, no dis-respect to all the doctors out there, between my Indian genes, idea of “red-blooded American fun,” and riding a motorcycle, I likely will need you guys at some point.
*for you dedicated readers who made it to the bottom of the post, I have a mediocre trivia morsel for you to regurgitate to friends: Nimrod is actually an Old Testament king renowned for his hunting prowess. Hence Bugs Bunny referred to Elmer Fudd as “Nimrod” in cartoons, which has historically been mistaken as an insult, and thus nimrod is often used today to mean “stupid or dense.” Again, very attractive of me.