In this article, I want to explore the question: is being a doctor worth it from a monetary point of view? And if it is worth it, how much is being a doctor worth?
If I ask you to think of a high paying profession, what is one of the most popular answers that come to your mind? Doctor. Physician. Those are very default answers that do not take too much thought.
Before I can supply the answer to “is being a doctor worth it,” I will first explain how I arrive at the conclusion. This way, you can see if my answer if reasonable or not.
Calculating the Value of Being a Doctor
I want to compare exactly how much more money a doctor will make compared to an average college graduate. I want to factor in the cost of medical school tuition, residency, and ultimately salary as a doctor.
My background is in business, more specifically in finance and accounting. So I will be doing some financial calculations, such as net present value (NPV), compounding rates, etc. The calculations could be a bit confusing if you never had exposure to this kind of stuff before.
If you want, you can scroll down to the last paragraph. You can find the answer to “is being a doctor worth it” there.
But if you feel like you can follow me, and I’ll try to make it as easy as possible for you to follow me, continue reading.
Making Some Assumptions
So let’s define some of the assumptions I am going to make.
- The tuition to go to medical school each year is $30,000. The amount will remain the same each year. In reality, tuition (at least for my school) is increasing at a higher rate than inflation. For 2012 – 2013, tuition will rise 5% to almost $35,000 per year.
- An average college graduate will make $40,000 per year for the rest of his or her life. This seems pretty fair. Some college graduates will be working as baristas in Starbucks while other will work as engineers in Boeing.
- I estimate the tax rate to be a flat 25% for someone making $40,000 per year. Therefore, the after-tax pay is $30,000. Each year, there is an opportunity cost of $30,000. If you did not go to medical school, you can expect to take home $30,000 each year. So the after-tax amount will be added to the tuition every year. It will also be subtracted from the salary earned as a resident and as a doctor.
- The interest rate for the cost of medical school, which consists of tuition and after-tax salary (opportunity cost), is 6.8%, compounded monthly. I based this on the rate of the unsubsidized Stafford loan. There will be no subsidizing of the interest because as of 2012 – 2013, there is no more subsidized Stafford loans.
- Salary during residency will be $40,000, the same as an average college graduate. Residency will last for 3 years, the minimal amount of time to complete residency in family medicine.
- Salary after residency, as an attending, will be $150,000 per year. That is a fair amount for a family medicine doctor. You can argue that more than half of the people specialize and make more than $150,000. I will counter-argue that people who specialize make more, but their residency is longer. So the cost of medical school will have more time to compound. Without doing any calculations, I will say that the specialty’s higher pay with a longer residency has the same financial benefit as the general medicine’s lower pay with a shorter residency.
- I estimate the tax rate to be 33% for someone making $150,000 per year. The higher tax rate is due to the higher salary. So each year, you get to pocket $100,000 as a doctor, after taxes.
Setting Up the Amortization Table
With that being said, here is how the amortization table is set up.
Figure 1 – Is Medical School Worth It 1
Row 1 basically represents your four years of medical school. Let’s assume that you will start medical school in July 2012. Your loan and your opportunity cost will begin on 07/01/12. If you take a look at row 1, you will notice that you are taking on 8 semiannual loans. Your yearly cost to attend medical school is $60,000 ($30,000 for the tuition and $30,000 for the after-tax pay opportunity cost). Therefore, your semiannual cost to attend medical school is $30,000. I did not include the cost of living because that is a cost you would be paying regardless if you were in school or not. And I am trying to make this model simple.
Row 2 represents your time in a 3 year residency. You will be making a salary as a resident, but that is the same as the amount you would make with a college degree. Therefore, your salary is canceled out by the opportunity cost.
Row 3 represents your salary as a doctor who is done with residency. Your after-tax pay as a doctor is $100,000. But if you subtract the after-tax amount of $30,000 you would have made without a MD or DO degree, you are left with $70,000. That comes out to $5,833 per month.
Row 4 is just the last payment you would make to complete the cost of a medical school if $5,833 was used to pay down the loan and opportunity cost each month.
Interpreting the Amortization Table
Basically, with my assumptions (which I believe are quite fair), it would take you 13 years to catch up financially to a college graduate who did not go to medical school. So if you started medical school when you are 22 years old, you will finally catch up to your college buddies by the time you are 35 years old.
So for each year after you have caught up to your college buddies, you will be $70,000 ahead, as long as you continue to work. I estimate that you will enjoy about 40 years of excess salary. (You catch up finally at age 35. Since medicine is supposed to be a life-long dedication, you decide to continue working until you are 75, which is roughly the average life expectancy of a person living in the US. That comes out to 40 years, with an excess of $70,000 per year. You weren’t thinking about retiring, were you? What do you think? Is being a doctor worth it now?)
An extra $70,000 per year does not sound too bad right? No, it does not. But what is that worth in today’s money? Basically, I want to know the net present value (NPV) of the excess salary. Let’s assume an interest rate of 5%, compounded monthly. That is the rate of return an average college graduate without financial knowledge should get on his or her investments.
Figure 2 – Is Medical School Worth It 2
Figure 3 – Is Medical School Worth It 3
If you take a look at “figure 2 – is medical school worth it 2,” you will see that the future value (row 2) of an extra $5,833 per month (or $70,000 / 12 months) is the same as the future value (row 2) in “figure 3 – is medical school worth it 3.” From that future value, you can calculate the net present value (row 1 of “figure 3 – is medical school worth it 3”).
With that being said, the financial benefit of becoming a doctor is $634,922.65, a bit more than half a million dollars.
Is Being a Doctor Worth It Financially? The Answer Is …
The answer is that being a doctor does have financial benefits. But it is not as much as you think. You will be around $600,000 better off compared to the average college graduate. Maybe it is just me but an increase of $600,000 in net worth does not exactly strike me as being rich. And you must take account of the following factors to determine your answer to “is being a doctor worth it”:
- You will work your butt off. I had more free time when I was working 60 hours a week than right now in medical school (at least for the second year).
- Your life will revolve around medicine. You will need to take Continuing Medical Education (CME) credits to stay up-to-date.
- You will re-certify for the boards in your specialty every 7 to 10 years. The examinations will never end.
- You will work until you are 75 years old. If you work less, your financial benefit will likewise decrease.
On the bright side, since there are so few doctors, especially primary care doctors, you will never be out of a job. At least a medical degree is not like a law degree. You can still get ahead financially with a medical degree. The same cannot be said for a law degree.
So bottom line is the road to wealth and riches is not through medicine, unless you are currently unemployable without a medical degree. Being a doctor won’t make you a millionaire in today’s money. And that $600,000 amount is subject to change too. If you can make more than $40,000 per year straight out of college, your financial return by being a doctor will decrease. If you are bright enough and hard-working enough to get into medical school, you could probably do pretty well in another field too. If tuition increases while doctors’ salaries remain the same, your financial return will decrease. If doctors’ salaries decrease, your financial return will decrease. If you retire early, your financial return will decrease.
Is being a doctor worth it for me? From a monetary point of view, I say, “No.” Why did I pursue medicine? I am hoping that the rewards of working with patients and being able to make a difference for the better would make being a doctor worth it. I’ll let you know my final answer in about 10 years.
So is being a doctor worth it for you? Only you can decide the answer.
This article is part of the Money in Medicine series. Click on the link if you want all the money-making secrets available to doctors.