Still Working Full-Time? Then It's Time to Get to Work

January 19, 2011
Setu Mazumdar, MD

Everywhere I go I see unhappy doctors -- all they do is complain about rising malpractice premiums, more paperwork, declining pay, and 60-hour workweeks. This includes doctors who've been practicing medicine for several decades. My question is: "Why are you still practicing medicine full-time?"

Everywhere I go I see unhappy doctors -- all they do is complain about rising malpractice premiums, more paperwork, declining pay, and 60-hour workweeks. This includes physicians just emerging from residency and physicians who’ve been practicing medicine for several decades.

All of these complaints are legitimate, but one question I always have in my mind when speaking with physicians in their 50s is, “Why are you still practicing medicine full-time?”

I keep hearing these physicians talk about the “golden age” in medicine. I don’t know what that means, but I assume it has something to do with making more money than they do now.

Suppose you’re a 55-year-old physician and you’ve been practicing medicine full-time for 25 years. If you absolutely love it, that’s great. It’s your passion so go for it. But for the rest of you -- the majority, I think -- who are in your 50s, who experienced that “golden age” in medicine and who are still practicing full-time must have failed miserably in your financial planning.

What do I mean by this? Let’s say you graduated from residency in June 1985 and started making some money. Suppose you socked away on average $25,000 per year in the U.S. stock market each year for the past 25 years, starting in January 1986. The U.S. stock market, as represented by the S&P 500 index, had an average annual return of 9.9% in that period. So over 25 years your investment portfolio should be at least $2.5 million.

And that’s with putting away only $25,000 a year on average. Bump that amount up to $50,000 every year -- which is an entirely reasonable and attainable amount for a physician to invest every year -- and you should have at least $5 million in the bank.

Even if you invested only in bonds you’d have about $1.7 million by saving $25,000 a year, and nearly $3.5 million saving $50,000 a year. (I base this on the U.S. aggregate bond market index.)

How many of you have anywhere near that? Sure, a few you might, but I’d bet that the vast majority of you don’t. And I also bet that the reason you’re working full-time right now is because you realize you didn’t save enough and invest well from the outset of your careers.

Common reasons why people in their peak earning years have portfolios of relatively little value are:

1. They spent every penny they made.

2. They didn’t save enough because they overspent.

3. They took way too much risk and got burned.

4. They hired a commission-based financial advisor, who put them in inappropriate investments.

5. They invested in speculative investments, such as restaurants, limited partnerships, or hedge funds, and those investments tanked.

Physicians who made these mistakes suddenly feel trapped by their current situation. Unless you jump up and down in joy every time you go to the hospital or when you’re on call, it’s time to crack the whip and get moving on your investing, because the next 25 years are going to be a challenging environment to practice medicine to say the least. And if the chatter I’m hearing is accurate, I don’t think you want to practice medicine full-time until you’re 80.

This week's financial prescription: If you’re a mid-career physician working full-time, start saving as much as you can immediately.