Cover Story

FINANCIAL SURVEY

Young doctors face a steep climb

The going's not all that easy. But physicians under 40 are finding ways to hang in and move up.

By Brad Burg

Despite a tough economy and a changing profession, you might think young doctors' family income could at least keep up with inflation. A significant number can't even manage that these days, though, according to our latest Financial Survey, conducted in late 2000. Since our previous survey, in 1997, inflation has increased living costs about 8 percent, but our sampling of primary care physicians and cardiologists reveals that the median family income for doctors younger than 35 has stayed at $150,000. For those 35 to 39, it has dropped from $190,000 to $170,000.

More young doctors said they were worse off in 2000 than they were the year before. In 1997, that was the assessment of only 9 percent of physicians 34 or under and 15 percent of those 35 to 39. In 2000, the figures rose to 18 and 22 percent, respectively. To live a comfortable life, it seems, physicians may need more effort and determination than ever. Consider these comments:

• "You can get ahead if you work hard; I moonlight at an ER, and probably work 28 days out of 30," says Jonathan F. Busbee, a 36-year-old Thomaston, GA, internist.

• "During my first years out of residency, my wife and I did nothing but pay down debt—$75,000 in school debt, and two car loans," says Philip A. Schultz, a 36-year-old Bennington, VT, pediatrician who's married to a pediatric nurse. "By putting every penny toward them, we paid off $135,000 in 30 months."

• "I'm pleased with my earnings and my practice," says John D. Angotti, a 39-year-old Clarksburg, WV, internist who's among the higher-earners in our survey. "But to do well today, you really have to know your market—and how to negotiate, too."

What's causing the money crunch?

Several factors are putting the squeeze on young doctors. Six out of 10 are employees; in 1997, that figure was less than 50 percent. And almost half of doctors 35 to 39 still haven't closed the books on medical-school debt. Those who have, like 37-year-old FP Philip E. Siefken, of Indianapolis, often did so with help. "I work at a federally qualified health center," Siefken says, "so the government helped pay off loans." Internist Busbee's hospital employer paid $64,000 of his debts, since he's working in an underserved county. Relentless focus helps, too, according to Brendan M. Meyer, a 32-year-old ER doctor in St. Paul, MN: "I kept a big bar graph of the loan balance right on the wall, as a reminder—and we spent hardly anything for two years," he says.

Taxes take a big chunk of doctors' earnings—typically around $30,000 for those under 35, and $40,000 for those in the 35-to-39 group. Life gets costlier, too: These doctors are generally married, and most have dependents (a median of two). Almost 70 percent of physicians own a home by age 34, and 90 percent do by age 39. Fifteen percent of those 35 to 39 own their medical offices as well. Because owning such assets typically means owing, median debt is $200,000.

Changing lifestyles might also be affecting young doctors' finances. "I took a substantial earnings cut when I chose to work at a community health center rather than a private practice, but I did it to have more time with my family," says Siefken. "I don't regret it."

What do young doctors do to improve earnings?

We asked doctors what they do or plan to do to increase income. Among the answers: "Moonlight." "Work more hours." "Keep the office open longer." "Expand my side income from CME teaching." Some young physicians operate nonmedical sideline businesses.

Behind each answer is a different response to the changing face of the profession.

One Ohio internist left his position as administrator of the internal medical program in a small hospital. "Although the money was excellent, I left to avoid the pressures of that structured environment," he says. "What I'd really love is a solo practice, but I don't want the overhead and complications of that, either. So I have no office at all; I provide medical care at nursing homes, and my wife does the paperwork." He earns a comfortable $160,000.

Internist Angotti personifies the opposite response. As the vice president of his 16-doctor practice, he thrives on the complexities of managing today's practice: "I'm used to positioning my practice to do well. That's very feasible, if you know the bottom-line costs, the local players, and how to negotiate with insurers."

How do young doctors invest?

New to the world of finance, young physicians realize they're not investment mavens.

"When I touch individual stocks, they turn to muck," says pediatrician Jeff Maxcy, 40, of Glendale, AZ. He's not alone in lacking confidence. Many young doctors favor mutual funds, more so than older physicians. Nearly eight of 10 physicians under 35 who own stocks hold them through mutual funds; the figure is seven out of 10 in the 35-to-39 group.

Still, young doctors are sophisticated enough to be fairly diversified. Despite the dot-com gold rush, most have no more than 20 percent of their investments in high-risk areas. True, that's more than the 10 percent that's typical for older doctors. But younger physicians may feel comfortable investing more aggressively, figuring they can afford to wait out the market. "I took a $50,000 hit last year in my personal portfolio," says Angotti, "but I'm looking at a 20-year time frame, so I'm not upset."

Only 27 percent of the youngest doctors own bonds or bond funds, though the number rises to 43 percent among those 35 to 39. And 45 percent of all doctors 39 or under own other income investments, like treasuries, savings accounts, and annuities.

Two-thirds of young doctors use the Internet to monitor their portfolios, and almost three-fifths use it to help pick investments, yet only about 40 percent trade online. Forty-three percent turn to old-fashioned sources—financial planners or investment counselors. Of course, even seasoned advice may need a grain of salt; one North Carolina pediatrician says that her planner kept her ahead in 2000, but she noticed a "bias toward commission products."

Despite such overall similarities, doctors' individual investing styles vary widely. Mark E. Ellis, a Concord, NC, anesthesiologist, directs his own investments, based on a newsletter's advice—"and I've been beating the S&P 500 for years." Still other doctors are like 35-year-old FP Michael Cochran of Crockett, TX. Though he puts $750 into custodial investment accounts monthly for his three children "before paying any other expenses," he leaves most investment decisions to a money manager.

Overall, how did younger doctors do in a down year? In the youngest-doctor group, gainers and losers tied, with about 40 percent in each category. But in the 35-to-39 group, 46 percent were down and 33 percent were up. In both groups, about one out of five doctors held steady.

Do young doctors save enough for retirement?

Almost 30 percent of all doctors 39 or younger target 65 as time to take down the shingle—or hand in the ID badge. Eighteen percent are aiming for 55. And three-quarters of young doctors expect to be millionaires by 65; indeed, 60 percent expect to have $2 million or more.

Though such goals are reasonable for most, reaching them will take some work. Nearly one-quarter of young doctors don't have a pension plan—and of those who do, around 60 percent have 401(k)s, which limited individual contributions to $10,000 in 2000. (The figure will be $11,000 next year.) In fact, probably not coincidentally, $10,500 was the median retirement plan contribution for doctors 34 or under last year.

For slightly older doctors, the figure was a bit higher, and not until physicians reached their 40s did their median contribution reach $15,000. That was half of what many other types of plans allowed.

Among all young doctors, the median accumulation within a plan was just $50,000.

Plan rules can complicate matters for young physicians as employers, too. "A 401(k) would have cost me a fortune in contributions for staff," says internist Jonathan Busbee. He's among the 14 percent of young doctor-employers who use a SIMPLE plan. "I put $6,000 in that, and the practice puts in the same—and I have individual IRAs for myself and my wife, which means $16,000 in all," he says.

Still, qualified plans aren't the only way to achieve tax-favored savings. Traditional IRAs allow tax-deferred growth, and Roth IRAs permit tax-free growth. Young doctors are well aware of these options: Among those 34 or under, 43 percent have traditional IRAs; 30 percent have Roths. In the 35-to-39 group, the corresponding figures are 60 and 22 percent. (Some IRAs may represent rolled-over funds from earlier plans, not new savings.)

Insurance investments get tax breaks, too, so they're often touted as retirement-savings vehicles. Nearly 80 percent of physicians under 34 have policies, as do nearly 90 percent of those 35 to 39. Median coverage is around $500,000 for both groups.

Three-quarters of all doctors 39 or under buy term coverage, which has no investment component, but some do favor cash-buildup insurance, such as variable life and variable annuities. "My $100,000 variable annuity was up 5 percent this year," says John Angotti. "Given the dip in my retirement plan, it's the reason I wasn't talking to the pigeons out on the ledge."

Do young doctors spend carefully?

Almost 70 percent of those 34 or younger saw increased income in 2000, as did just over half of those 35 to 39. In fact, one-quarter of the youngest group saw an increase of 50 percent or more. Not surprisingly, almost two-thirds of the youngest group spent more last year, too, as did over half the second-youngest.

In fact, it's not hard to get off the fiscal tracks. One FP from Arizona says that after she furnished her new home, her plastic debt topped her mortgage payments. Her new goal: "Spend less, and limit use of consumer debt." Most young doctors, though, say they're already budgeting reasonably. One Louisiana FP states her motto emphatically: "Save, save, save!—to pay off every debt."

Many a young doctor does go into hock to have a roof overhead, of course, and sometimes it's a pricey one. Brendan Meyer, the St. Paul ER doctor who tracked his education loan payments with a wall chart, recently moved to a $600,000 home. "It's in a lakeside community," he explains, "so it's great for the kids, and we can spend less on vacations." One Arizona couple, both physicians, bought a million-dollar house last year. But extravagance is relative: Their combined income is $400,000, and they don't have children.

Few young doctors are cruising around in Porsches; the median cost of their priciest car is $25,000 for the 34-and-under group, and $30,000 for doctors 35 to 39. Indeed, many young physicians pride themselves on holding on to older cars. "The only car I ever bought new is my '88 Toyota—which I'm still driving," says Indianapolis FP Philip Siefken.

Most doctors' "extravagant" purchases wouldn't horrify anybody's in-laws. Pediatrician Jeff Maxcy jokes that he "dropped $6,000 on a construction job"—a replacement bridge in his mouth. Pediatrician Philip Schultz listed the "Hooked on Phonics" reading program, a modest $300 splurge. A California FP owned up to spending $4,000 on jewelry, but it was less an extravagance than an investment in a new partnership: He bought an engagement ring.

Medicine doesn't provide a safe ticket to the good life as often as it once did and young physicians need to be more financially alert than ever. "With money matters, the most important tactic is learning to plan," says one Midwestern FP. "We tell our patients that good health doesn't take care of itself. We doctors should remember that good financial health doesn't, either."

The author is a former Senior Editor of Medical Economics.

Income isn't climbing as fast

What young doctors owe

Two-earner couples

What type of retirement plan?

How much life insurance coverage young doctors have

 

Brad Burg. Financial Survey: Young doctors face a steep climb. Medical Economics 2001;16:82.