What’s unique about the two physician/two high-earner couple?

In short, why did I start this blog? What makes the two physician couple unique?

Extra debt
The average graduating medical student in 2015 had a debt load of $207,000, according to the AAMC.  Assuming a tuition increase of about six percent per year (our medical school averaged eight percent per year), in 2017 this would be $233,000. If this medical student, like us, deferred her loan repayment through a four year residency, she would finish residency with an average debt load of $308,000 (assuming a 7% average interest rate). Given that some medical students graduate with zero debt (or close to zero debt) because of family support or military or other service obligations that pay their tuition/living expenses, this is probably a misleadingly low number. I couldn’t find the number, but I would assume the median figure is considerably higher than this.

One could logically deduce then that the average two physician household would then carry a debt of about $616,000 per year upon finishing residency (or potentially considerably higher, as noted above). This is a staggering debt load – and sadly is only increasing with time. As noted in an earlier post, when my wife and I met with our financial advisor (who meets with most physicians in my 200 plus-person physician owned practice) coming out of residency he had never met a couple with more debt than we had. Next time I see him I’ll have to ask if that is still the case.

Extra income
If the hole that we start with is indeed twice as big, at least we have large shovels with which to dig ourselves out, as the White Coat Investor is fond of saying. Of the thirteen physicians at my hospital in my practice I am the only one with a working spouse and certainly the only one making in excess of $250,000 per year.  As I plan to outline in a future post about our financial plan and how we manage paying down debt, saving for retirement and lifestyle, currently a lot of our gross income goes to paying down debt – $17,000 per month ($13,000 of which goes to student loans). Eventually, this extra income will pay off our house (and all outstanding debt) by age 40 and should fund a comfortable retirement (and college/postgraduate education for our kids) by age 50 if we choose to retire early.

Keeping our eye on the big picture

We also have a lot more pretax retirement savings available. I fully fund a $54,000 per year corporate profit sharing plan through my group practice and my wife has a standard 401(k) that she funds to the $18,000 limit. Because we bring home more money we pay for medical expenses out of pocket and can use our HSA as a stealth IRA.  We have the capital to do annual Backdoor Roth conversions to the maximum allowable $5,500 each. Rather than wasting time trying to beat the market, because we have a high savings rate and stable income (and a long time horizon) we can invest 100% in equity index funds using a simple investment allocation as espoused here.

Tax issues
Of course this extra income comes with (disproportionately) higher taxes. The marriage penalty (also explained well by one of  my favorite sites Financial Samurai) cost my wife and I a painful $29,000 last year. We have paid AMT each of the past three years.

Our combined federal and state effective tax rate was 37% in 2016. Our marginal tax rate was a staggering 49% – a decision that really comes in to play when deciding if it is worthwhile to pick up that extra call in December.

Childcare issues
Because we both have busy practices with the requisite demanding schedules we require a nanny for childcare (yes, again a subject of a future post). This is a luxury that we think is not only beneficial for our children, but also necessary given our hours. It also means that we have certain obligations as a household employer. We must file all applicable federal and state nanny tax forms (and register as an employer). We pay payroll taxes, FUTA tax, and workers compensation taxes – all of which cost us thousands of dollars per year. But after a massive daycare failure when we first started working as attendings (and no family in town), we quickly realized a nanny was the only feasible way for us to work full-time. We have been lucky enough to find two outstanding and experienced nannies and our kids have benefitted but it is certainly costly and burdensome.

Emergency fund
Two physician households probably do not need to follow the conventional wisdom in regards to having an emergency fund equivalent to six months of living expenses, given the high earning potential and stable income that each partner provides. We currently have three months of expenses set aside in a high yield (at 1.2% this seems like an oxymoron) savings account. Since at this point the majority of our expenses go to debt repayment, this number will go down over time allowing us to have more money invested in our brokerage account and less sitting in a savings account that doesn’t even keep up with inflation. More important than this small sum of money is the stability that having two breadwinner incomes provides. An unforeseen medical leave or prolonged maternity leave is easily weathered versus a household totally dependent on one income.

Life insurance/disability insurance
Likewise, the two high earner household with two breadwinners is inherently less dependent on one income and therefore can reasonably have smaller life and disability insurance policies – and drop or reduce those policies at a younger age. I will cover our disability and life insurance coverage (and experience with our excellent agent) in a future post in more detail.

What are your thoughts? Any other key differences between the two physician household and everyone else?

Our story: where we started, where we are, and where we are going

Medical School

My wife and I met and fell in love in medical school. We each graduated from undergrad without debt thanks to scholarships, working, and help from family but we attended an expensive private medical school and graduated with a significant amount of debt – mostly due to the high cost of tuition, but also due to taking out the full cost of living expenses allowed and living more comfortably than we probably should have (a trip to Cabo San Lucas and a particularly lavish dinner at Fogo de Chao are among my more prominent memories). White Coat Investor didn’t exist when I started medical school and even if it did I probably would not have been a devotee as a 21 year old MS1. The couples match and dual residency interviews proved to be a grueling and expensive process – one that many physician couples know well. But the possibility of not  matching in the same city compelled us to interview broadly and rank many programs. Thankfully we were both hard workers and had done well on board exams and clinical rotations and matched in our second ranked combination of programs in an amazing (but expensive) city. In order to finance the couples match/interview process we took out a $20,000 private loan at 8.5% interest (>$40,000 by the time it was paid back after residency). Talk about ouch.

Residency

Residency was a busy time. We were finally making money! We elected not to sign up for Income Based Repayment for a few reasons. We were in a high cost of living city and did not have a tremendous amount of extra money. I was training in a high paying specialty and had no plans to work for a nonprofit and also had doubts about whether the Public Service Loan Forgiveness program would truly honor its commitment to forgive loans for those working for nonprofits for 10 years. My wife was in a primary care specialty and could have potentially benefitted from PSLF, but we did not pursue this option and instead put our loans in forbearance. It was painful watching the debt accumulate, but what choice did we have? We did a few things right, like funding our respective 401(k) accounts and benefitting from a modest employer match.  We avoided the numerous predatory financial “professionals” that our respective programs inexplicably sent our way: the Northwestern Mutual insurance agents offering to take us out to Ruth’s Chris Steak House but of course actually pedaling whole life insurance; “student loan advisors” offering to basically fill out simple IBR paperwork for you in exchange for a small $1,000 fee. Even as a financially unsavvy junior resident I remember thinking how much money would an insurance agent have to  make off of my future income to justify taking out an entire class of residents to a $100 per plate dinner? The whole thing struck me as a lot like a timeshare presentation. This instinct served me well. The fact my program director sent those emails to us and yet never provided any form of financial education for the residents is bewildering to say the least.

We rented an apartment and later a house in residency. We had the first of our three children, saved a small amount of money, and towards the end of residency I started to take an interest in personal finance and discovered White Coat Investor and eventually many of the excellent personal finance/investing books available. I took counsel in one of the few attendings at my program who had spent the majority of his career in private practice and learned as much as I could about the different practice models in my specialty, what groups to look out for in the region, etc. Our job search was much less expensive and much more fruitful than the couples match.

Prior to finishing residency (but while still young and healthy) we signed up for own occupation disability insurance coverage based upon our new attending contracts. We took out term life insurance policies with highly rated companies. Based on my new found knowledge and our new lucrative attending contracts we refinanced our student loans through Sofi at less than 4% each – a substantial savings over our Stafford and Graduate Plus loans that averaged a little over 7%.

Attending Life

We took jobs in the same region of the country that we did residency. I landed a partnership-track position with an excellent physician owned practice and my wife landed an employed position with a great physician-friendly practice. We have made a few mistakes in our first three years in private practice, but a lot more positive steps. I became a partner in my group, we have had two more children, and settled in our new community. Once a month, I update our debts/assets in Excel – a process that we find affirming. Our first month in private practice our net worth calculation read a shocking -$726,000. Three years later (in a couple of months) we will have a positive net worth.

Net Worth vs. Time

The graph of debt vs. time has not been quite so smooth. We have had a few hiccups including selling the house we initially bought when we started our attending jobs and purchasing a more expensive house (but a much better home for us). We also financed a new car when one of our vehicles started to break down and became too unreliable. Even though selling our first home was never the original plan, we made the most of it by saving a lot of money on real estate commissions through a for sale by owner sale and netting $70,000 in profit thanks to a market uptick (fortuitous timing). We bought our new home for sale by owner and were credited the commission amount off the listing price. By our math we saved about $90,000 through this process and ended up with a home we plan to be in until the children leave for college.

Debt vs. Time

We meet once a year with a fee only financial advisor (the time for which is paid for by my group practice) to discuss asset allocation (a subject of a future post but exclusively low cost equity index funds through Vanguard), review changes in net worth and debt over the past year, and to discuss our plan moving forward. This advisor meets with most of the new physicians at my large practice. At our first meeting he told me that we had the dubious distinction of having the most student loan debt of any couple he had ever met with. At our last meeting he commented on how impressed he was at the progress of the turn around and how he was looking forward to our net worth vs. time graph starting to take on an exponential rather than liner curve in the years to come. At this point we don’t have a lot of questions for our financial advisor given my new-found interest and self-education in investing and personal finance but we still find the annual meetings to be a useful “state of the union” exercise.

The Future

Being a bit of a math nerd, I have fun playing with compound interest calculators and doing future value calculations to project our future portfolio. In order to be conservative, these calculations assume that we keep working at the same jobs for the same income and that our house does not increase in value.

Projections

I plan to update this post periodically to track our progress and share both our successes and failures in our pursuit to attain financial independence.

Share your story in the comments. What have you done well and what could you do better?

Physiciancouple.com: An Introduction

Welcome to our website. My wife and I are physicians in private practice. I became interested in personal finance later than I should have in life and therefore made some mistakes along the way. Since finishing residency I have become passionate about personal finance and educated myself on investing, debt repayment, and taxation. For all of the great financial resources out there (both online and in books), there is not a definitive one-stop-shop for two physician/two high earner households.  I intend to build this website into that and hopefully along the way build a community of like-minded individuals.

Future topics include:

  • Our story: where we started, where we are now, and where we are going.
  • Financial missteps we have made on our path toward financial independence.
  • Financial victories: what have we done right.
  • Starting attending life as a two physician couple: prioritizing retirement, debt repayment, and lifestyle expansion.
  • Debt repayment strategies for the two income household.
  • The role taxes play on the two high earner household.
  • Parenting in the two physician household: childcare options, part-time work, and more.
  • Avoiding financial predators: our experience dodging the leaches and financial predators disguised as financial advisors and insurance salesmen.

Note: I will have affiliate agreements with sponsors of the site, but I will continue to only recommend vendors and products that we have personally used and can vouch for.

Recommended Reading: Where To Start

Here are some books that have been helpful in our journey towards financial independence (I will update as I find more gems):

The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing
Where everything started for me in terms of my interest in personal finance. An excellent starting point for any physician interested in personal finance.

If You Can: How Millennials Can Get Rich Slowly: A newer e-book offering by William Bernstein (a retired neurologist). This is a great introduction to personal finance for anyone intimidated by investing. Dr. Bernstein’s other books and articles are also excellent. He writes in plain, common-sense language that is easily understood.

How to Think About Money: Another common sense book, written by long-time WSJ columnist Jonathan Clements. Eminently readable, this makes a great introduction to personal finance.

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy: Thomas Stanley and William Danko’s classic book that makes a compelling argument against lifestyle creep. A recommended read for the senior resident/junior attending.

A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing: Burton Malkiel’s classic, updated. I was initially intimidated by the size of this book and Dr. Malkiel’s academic pedigree but this is a readable and even entertaining look at investment strategy and why passive investing through index funds is a proven winner.

The Doctor’s Guide to Eliminating Debt: While conventional wisdom would tell you to invest as much as possible and forego paying off low interest debt, Dr. Cory Fawcett makes a compelling argument for the benefits of paying off your mortgage as soon as possible (along with all other debt).