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A Specialty That Pays Well May Actually Cost You

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Medical students face an array of choices in regards to what specialty they ultimately decide to pursue.

Although one should never pick a specialty based solely on monetary rewards, money can play the role of a tie-breaker when there are two closely matched specialties under consideration.

We have all heard that specialists in the medical field typically earn more than the generalists (which creates a wage gap). However, all is not lost for those medical students who choose to enter a primary care/generalist residency.

One of the great principles in finance is that of compound interest. The one variable that makes compound interest so powerful is time. Throughout the course of history, investors are typically rewarded financially by staying the course and letting compound interest do its magic. Exploiting this time benefit can indeed create a favorable arbitrage for a particular individual.

How does this financial principle apply to medicine?

Most lower paying specialties/generalists have shorter residency training lengths. A typical generalist residency (such as pediatrics or internal medicine) is three years in length. Conversely the highest paying specialties typically have the longest post-graduate training.

Residency training in these medical specialties typically adds one or two years more to this (Orthopedics and Radiology for example are 5 year long residencies).

So can a generalist make up some financial ground with this "time arbitrage?"

Assumptions in the following calculations:

  • The physician and his family will continue to "Live like A Resident" which I made out to be $50,000 gross income/yr ($46,500 after taxes)
  • For tax purposes all individuals were filing under married filing jointly.
  • Used $497k gross for Specialist Salary (Orthopedics)
  • Tax burden $139,237
  • Used $212k gross for Generalist Salary (Pediatrics)
  • Tax burden $40,000
  • Total investable income (Gross - Tax - Net "Live Like A Resident" Salary) was divided by 12 and invested in monthly increments.
  • Specialist could invest $25,900/mo
  • Generalist could invest $10,500/mo
  • Assumed a 7% rate of return compounded monthly
  • Physicians were debt-free at time of finishing residency (I know a highly unlikely scenario, but I did not want to add more complexity to the calculations).

Generalist / Specialist

Year 1 $130k / $0

Year 2 $270k / $0

Year 3 $419k / $321k

Year 4 $580k / $665k  

Year 5 $752k / $1.03m   

Year 6 $936k / $1.43m

Year 7 $1.13m / $1.86m

In the above scenario, the generalist is actually financially ahead of his or her specialist counterpart for more than three years. However, this financial headstart rapidly disappears as the sheer magnitude in salary difference is too much to overcome. Even with a two-year handicap in investing, the specialist quickly catches up by the second attending year salary (four years after the generalist starts). It does pay to have a big shovel to dig with.

An interesting point is that even the generalist can accumulate a million dollar portfolio seven years out of residency if they continue to live like a resident for that long (which is definitely a tough ask). Again, one should not choose a medical specialty solely scanning down a list and choosing the one that pays the highest. Although it may seem counterintuitive, there are situations where choosing a higher-paying specialty can result in an overall decreased lifetime earning.

If a physician is unhappy with his or her medical practice because the specialty was ill-suited, this can accelerate burnout and prematurely end a medical year.

It is far better, both financially and emotionally, to enjoy a longer career in a lower-paying specialty that is enjoyable than to have a shortened career in a high paying specialty that provides no satisfaction.

Illustration by Jennifer Bogartz

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