Low Income Doctor in a High Cost of Living Area

By James M. Dahle, MD
The White Coat Investor

Editor: No matter what your income is as a doctor, it’s best to live like a resident (at least until you’ve reached some level of financial freedom). However, this is even more true for low income doctors, especially living in a high cost of living area. Jim shares all the dos and don’ts for doctors in this situation in this post, originally published on the White Coat Investor.

Note: Anyone looking for financial freedom should make sure to attend the FREE (virtual) Financial Freedom Through Investing in Real Estate Conference. The dates for the conference are 10/9 through 10/11. Seriously. It’s free. Click here to register.

Low Income Doctor in a High Cost of Living Area 

I’ve had readers asking for more advice tailored to low earning doctors in high cost of living areas. I’ve given some general advice (and ranted a bit) three years ago in a post titled Financial Advice For Low-Income Doctors. I thought it would be useful to expand on that subject a bit.

You Can Have Anything You Want, but Not Everything

I often tell groups of docs that they can have anything they want, but not everything and not right now. For a highly paid doctor, you probably can have everything (within reason) that you want eventually.

But for a low earning doctor in a high cost of living area that simply isn’t true. You’ve got to recognize that up front. Your decisions are going to be comparing what you want a lot with what you want most. Don’t even bother thinking about stuff you only want a little.


I probably ought to get this out there early in the post. The best financial decision a doctor in a low-paying specialty in a high cost of living area can do is to move. Well, maybe marry a back surgeon. And then move. While I recognize this is not a great option for many, it should be seriously considered by all (the moving, not the marrying for money).

I’m continually astonished that there are any pediatricians or preventive medicine doctors at all in the Bay Area or Manhattan. By moving you are likely to get a higher salary, a lower cost of living, and a lower tax burden. There better be something you really like about that area if you’re going to trade all that for it. The best part about having low-paid doctors leave an area? Those who are left behind can now demand better compensation! It works even better for high-paying doctors, as evidenced recently on the WCI Podcast about the urologist with a 7 figure income.

Should Medicine Be Your Hobby?

Here’s another radical thought that should at least cross your mind — maybe medicine shouldn’t be the primary provider of your income. The lower your income, the easier it is to learn how to do something else that will pay you more.

This was a serious issue for me as I built WCI. Not only was I in a relatively high-paying field (at least on an hourly basis), but I was in a solid partnership where I was making more than the average in my field. Every time I looked at what I could make doing something else it never made much sense to do it. That was part of the reason I kept working full-time while doing WCI full-time + on the side. I couldn’t justify to myself (or my family), despite its potential, leaving a pretty good income on the table to pursue it.  Now I suppose medicine is a well-paid hobby for me.

If you’re a pediatrician making $150K a year, maybe pediatrics should be a well-paid hobby for you. Maybe you get into real estate or dry cleaning or plumbing or consulting or whatever. Don’t kid yourself that all doctors make more than all (insert whatever career field you wish here). It just isn’t true. I canyoneer with a gentleman who describes himself as a janitor. But it takes spending a few days with him before you realize this “janitor” has 200 employees. Maybe you should make your money as a janitor and see kids in clinic on the side. Or maybe you should send your spouse to work as an engineer or a software developer or whatever and YOU should be the one working part-time or doing the stay-at-home parent thing.

You’re Not a “Rich Doctor” and Never Will Be

One of the biggest obstacles for many physicians is overcoming the expectations of their friends, family, spouse, and even themselves with regard to their lifestyle. Society assumes because you’re a doctor that you have a high income and that you are wealthy. Many people assume those two things go together, but regular readers of this blog know that is far from being true.

When you are making less than $170K and living in an expensive city you cannot pretend you’re a one-percenter because you aren’t. You might not even be a ten-percenter. If you’re in the Bay Area, you’re competing with dot-com millionaires for housing in good school districts. In Manhattan, it might be people working in financial services driving up the prices. Even in places with booming economies and a moderate cost of living (Denver, Salt Lake, Austin, etc.), this effect is true, although not as extreme.

While there are a few doctors in my neighborhood, there are plenty of C-suite executives, private equity folks, successful salespeople, and various entrepreneurs. But when you combine a low physician income with a high cost of living area and the ever-increasing cost of medical education, you’ve got a recipe for a middle-class life. You need to either accept this mathematical fact or make adjustments that actually change the math.

The Math

In case you aren’t familiar with the math, this is the way it looks.

  • Gross Income: $150K
  • Taxes: $40K (huge variability here of course, but this figure is from Paycheck City – married, standard deduction, 2 kids, in California)
  • Student loan payments: $39K ($300K at 5% on a 10 year plan)
  • Mortgage: $43K ($800K 30 year mortgage at 3.5%)

That leaves $28K to live on, or about $2,333 a month. Note that there isn’t any money allocated to retirement or college savings in that budget. Looks pretty desperate, huh?

How to Make a High COLA Work

Okay. We’ve forgotten about getting rich, now we’re just trying to have a reasonable middle-class life and a dignified retirement. But even to do that, we’ve got to change the math. We’ve already mentioned three ways to change the math. The first was to move. The second was to marry someone who makes more than you do. The third one was to get a new career so you can still afford to practice medicine. But there are more.

# 1 Boost Your Income

I often hear doctors lament the fact that the average surgeon makes twice as much as the average family doc. What I never hear anyone lament, however, is that there are family doctors who make three times more than other family doctors. The intra-specialty variation in pay is far more impressive and fascinating to me than the inter-specialty variation. The New Jersey Family Doc who posted one of the comments that caused me to write this post noted how he had finally gotten his pay up to $190K. Well, there are family docs out there who start at a level of pay above that. Why do some get paid more? Lots of reasons (and methods for increasing it).

  • Be a hospitalist
  • Do urgent care
  • Own the practice
  • Hire advanced practice providers
  • Hire employee physicians
  • Take more call
  • Cover a nursing home on the side
  • Improve your payor mix
  • Add a particularly well-reimbursing procedure–sigmoidoscopy, laceration repairs, I&Ds, vasectomy, OB, culposcopy, joint injections, botox
  • Add evening or weekend hours to the clinic
  • Shop around for a higher paying job every year or two (if nothing else it allows you to negotiate a raise)

# 2 Cut Your Taxes

If my discretionary income was $2,333 a month you better believe I’d be an expert in the tax code and I wouldn’t be paying a bloody red cent more than I needed to. I’m always amazed how many doctors have no idea what the difference is between a deduction and a credit, Schedule A and Schedule C, an allowance and an exemption, etc. If I were paying more than 20% in taxes on $150K in income, I’d be looking all over the place for that low hanging fruit. (In this hypothetical case, it’s likely itemizing so I could deduct all that mortgage interest and state income taxes.)

# 3 Get Rid of the Student Loans

This hypothetical doc is paying something like 33% of his gross income in student loan payments. Getting rid of that debt frees up a ton of income that can be spent or saved. How do you get rid of student loans? Ideally, you get them forgiven or have someone else pay them. If your salary is only $150K, $300K in forgiveness is like 3 years of net income. Are you SURE you can’t find a job you can stand for a few years that qualifies for PSLF? If you’re only making $150K anyway, the military, VA, or Indian Health Service may start to look more and more appealing.

But even if you’re resigned to paying your loans off yourself, refinancing them to a 5-year variable loan and living like a medical student (not just a resident) until they’re gone seems appropriate given the dramatic impact it will have on your financial life.

I favor the “scorched earth, gazelle intensity” approach to the “20-30 year payment plan” approach. The interest rate you get on the lengthy payment plan is so high that the payments aren’t all that much lower anyway. Plus, even if you get IBR/PAYE/REPAYE forgiveness after 20-25 years of payments, that forgiveness is taxable at your marginal tax rate. So unless you’ve got some cash on the side, you’re still going to be in debt even after getting that forgiveness. And don’t think it’s going away just because you retired. They garnish Social Security to make your payments.

# 4 Get Housing Under Control

Perhaps the hardest thing about a HCOL area is that you feel like you need to buy a house ASAP because housing in that area has always appreciated at a good rate, but you can’t buy anything and be anywhere near the rules of thumb that financial bloggers throw out (like my own “Keep your mortgage to less than 2X your gross income”). You’re not going to get much of a house in the Bay Area for $300K. You might get an old 1000 square foot rancher in a bad part of town for twice that. But you’ve got to figure out something. It might be renting. It might be buying a duplex and renting out the other side. It might be living in a crummy part of town or having a long commute.

You might be able to stretch my rule of thumb a bit (perhaps to 3-4X gross income), but realize that comes with a longer working career and fewer luxuries (cars, vacations, etc.) along the way. There is a very real cost of spending that much of your income on housing.

Things You Cannot Do

There are a few things that you simply cannot do if you are making <$200K and living in a high cost of living area.

  1. You cannot send your kids to private K-12 schools. You just can’t. The math doesn’t work. You need to live in a school district where the schools are at least okay. That might mean renting. So what. Do it.
  2. You cannot buy a 7-figure house, even if the bank says they will loan you the money and you have a down payment.
  3. You cannot save nothing for retirement. Even if you have to start out at only 5% of your income and try to “save the raises” over the years, you cannot just neglect this. Maybe you can put it off for 5 years while you pay off the student loans, but that’s it. No longer than that.
  4. You cannot drive a fancy car. The difference between a fancy car and a reliable 7-10-year-old car is about $6K per year. That $6K per year, invested at 8% over 35 years, grows to a million dollars. For a low earning doc in an HCOL area, that’s the difference between retiring with nothing and retiring a millionaire.
  5. You cannot vacation big. You can vacation frequently, but you cannot do it expensively. No heli-skiing. No European trips. Renting a motorhome for a week is a big splurge you can’t do every year. There are still road trips to Aunt Sally’s and camping.
  6. You cannot pay for your children’s college. You can probably help a little, but they need to understand that college is going to be primarily on them. They need guidance to choose an inexpensive school, maximize available scholarships, and work their way through their undergraduate educations.
  7. You cannot provide support for lots of extended family members. I once had a family practice colleague who had 5 or 6 other adults in the house (and a number of children), but she was the only one working. Doesn’t work with the math above. You’re not even going to get back to broke until you’re 35 or 40; how can you support 5 other adults?
  8. You cannot skimp on budgeting. Things are going to be tight, and they’re going to stay that way for a long time. A real budget, whether done on paper or using one of the handy new apps, is a necessity.

A Suggested Plan

Everyone’s situation is a little different, but here’s an example of a plan that could be followed by a low-income doc in a high cost of living area.

Step 1: Take a Higher Paying Job Than the Average One

Instead of $170K, maybe you now make $200K. At those income levels, even a little extra income makes a huge difference in reaching your financial goals.

Step 2: Get a Five-Year Student Loan Payoff Plan

You’ve got to get that monkey off your back. You really aren’t done with med school until you’ve paid for it. The only exception is if you did a three-year residency and are going to get the loans forgiven via PSLF. Then you can have a seven-year plan. Otherwise, five years max. If you literally cannot afford to do that (and with some student loan burdens I’ve seen that is a possibility), then you need to either move or change employers to one that you will qualify for PSLF with.

So let’s say our $200K earning doctor has $300K in student loans. What does the five-year plan look like? It looks like driving a Mazda 3 on two vacations a year and staying with family on both of them. It looks like a lot of spaghetti instead of eating out. It looks like only $10K going to retirement instead of $40K. Of course, you’ll want to refinance the debt, and probably into a five-year variable loan. Perhaps you can get it down to 3-4%. At 3.5%, those payments are $66K a year, or $5,537 a month. That’s a big payment, when your take-home might only be $144K, or $12,000 a month. But it’s only five years. After that, that extra $66K a year can go somewhere else. $30K of it can be redirected to retirement savings (which will further lower your taxes) and you can spend the rest on a much-needed lifestyle upgrade.

Step 3: No Buying a Home Until the Student Loans are Gone

That Mazda 3 is going to look pretty stupid in front of a fancy house anyway. But when it comes to buying a home, 5 years out of training, you’re going to need to get a good deal on it. Take your time with this. Even small percentages of a large amount of money are significant sums. Getting $40K off the price of your house is like an extra year of retirement savings. Will you have to stretch beyond a mortgage of 2X gross income? Probably. But hopefully, you can keep it to 3X. If you save up a $100K down payment and get a 3X $200K mortgage, that gets you a $700K house. Is it your fancy dream house in the best school district? Assuredly not. But guess what? You chose to live in an expensive area over having a dream house. This is one of the consequences.

Step 4: Maximize Career Longevity

After five years of living (and maybe even working) like a resident, you now need to focus on longevity. You are going to need a full career, 35-40ish years. You probably had to use a 30-year mortgage to pay for the house. You also will need more retirement savings than your peers in a less costly location. So you need to pace yourself and avoid burnout. Let your money do as much of the heavy lifting as possible by giving it time.

Forget about retiring at 50 or even 55-60. It’s not going to happen. Don’t believe me? Run the numbers. Remember that you not only got the usual doctor later start, but your start was five years later than that because you had to direct such a large percentage of your income at those loans for five years after training. So let’s say you get out of training at 32 and pay the loans off at 37. At that point maybe you have $60K for retirement. If your “number” is $3 Million, and you’ll only be saving $40K a year toward it, at a 5% real return you’ll be working and saving until age 67.

In summary, having an income of “only” $150-200K is hardly a death sentence. While you may not experience the “good life” of having money coming out of your ears like a higher-paid doc in a lower cost of living area who gets her finances under control early in her career, you’re still going to be much better off than the average family, even in your expensive city. But becoming financially secure is going to require avoiding costly mistakes, making trade-offs with real consequences, and exercising more discipline than many of your med school classmates had to exercise.

What do you think? How can a low-income doc in a high cost of living area still reach financial success? Do you agree with these recommendations? Why or why not? Comment below!



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