A career in medicine: delayed gratification and opportunity costs

Shawn

— 11 min read

This is a post addressed to my younger self. I hope it is helpful to guide younger trainees who are considering careers as physician scientists. Additionally, I hope it can also highlight to younger investors--even those that are considering different career paths--the opportunity cost of not investing early.

Introduction

Aspiring premeds might contemplate a career in medicine for many reasons. Some are drawn to the possibility of research, others by the prestige, and certainly to some extent, all by the opportunity to help patients in need.

Still others are drawn by the high incomes. While this should certainly be an important consideration in any career decision, it should certainly not be your only motivation to pursue medicine. It is a long, grueling career path that will burn you out if you have no other driving factor, and your patients will suffer. And I will back this assertion with calculations that also highlight the opportunity cost of not investing early.

Global Assumptions

First, we start with some "global assumptions".

10.2%
3%
2.2%
40
20%
  • For nominal return of investment, we use historical returns from the U.S. stock market, which has returned approximately 10.2-10.3% on average since 1926 (as of this writing). We choose this cut off because Professor Kenneth French of Dartmouth has compiled an excellent data library beginning in 1926. However, a safer, more globally diversified portfolio or with bonds will have lower returns. While my default choice of 10.2% might seem aggressive, it is in fact lower than the 11.8-12.0% that the market would have returned since 2008 (when I started the process).
  • We will use an annual raise of 3% year-over-year, except when "changing positions" when applicable to each career path.
  • Historically, inflation has varied, but the Fed (FOMC) has officially targeted a goal of 0-2% since 2012 and has used such a target since the late 1990s. This was inspired by economists from the late 1980s and the initial adoption by New Zealand in 1998.
  • For years until retirement, we will use 40 years, which means that a 22-year-old recent undergrad will work until age 62. Actually, for someone pursuing an MD/PhD looking at a minimum of 14 years of training through fellowship, realistically, this would need to be extended longer.
  • Generally, it is recommended that you save 10-20% of your gross income towards investing. However, some movements such as Financial Independence, Retire Early (FIRE) will push this much higher (50-75%). Even if you don't intend to retire early (say, because you spent 14+ years in training), if you have the means and discipline to save early, check out how much of a difference this can make! Financial independence can mean more freedom to do the things you love, including continuing your scientific career.

Option 1 - A Non-Medical STEM Career

Let's look at what the path might look like outside of medicine.

$80,000
  • To be clear, an $80,000 starting salary straight out of college, especially in 2008, is much higher than the U.S. median income. However, it was also not unreasonable for an engineering grad from an elite university. This is representative of the path in chemical engineering (on the higher end), but lower than in tech or finance. If this seems a tad bit high, feel free to adjust downwards.
  • However, note that the calculations are also conservative in the sense that we assume that you will never get promoted--your remaining raises come from the annual raises set in the global assumption section above.

Option 2 - The MD/PhD and the Physician-Scientist Track

What about the track for the MD/PhD? Let's start with med school and graduate school.

0
$24,000
9
  • We'll assume no gap years prior to starting and nine years in the MD/PhD. Unfortunately, gap years are becoming increasingly common and duration of MD/PhD increasingly longer.
  • The starting stipend of $24,000 was typical in 2008.
  • I'll leave you with the option to invest during the MD/PhD. I strongly encourage investing early and you can see the difference below, but realistically, it would be difficult on that stipend unless you have another source of income or are independently wealthy from other means.

Next, we go to residency and fellowship:

$58,000
6
  • The starting stipend of $58,000 was typical for PGY-1 in 2017 (i.e. when the student would have entered residency in this scenario).
  • Length of residency and (optional) fellowship are quite variable depending on career choice. However, the MD-PhD programs outcomes study suggest that the majority of trainees opt for medicine, pathology, or pediatrics, with time to first full-time job implying that most of these opted for fellowship.
    As such, we'll use numbers and assumptions from medicine and oncology, the route I was drawn to as it offered the most exciting research possibilities with 80% protected research time.

The clinical instructorship is also becoming increasingly common after fellowship.

$120,000
2

Finally, we reach our first academic faculty position. These tend to be lower than typical in private practice:

$240,000

Here are the results:

Option 3 - MD Only

What if we consider a third option, that of the premed going into medical school straight into clinical practice?

0
$40,000
4
  • Here, gap years refers to prior to starting medical school.
  • Medical school starting tuition is variable throughout the country, and often dependent on in-state or out-of-state residency status. However, medical school admissions are so competitive that students generally don't have the luxury of choosing between different options. Although my medical school was tuition was covered by the MSTP, $40,000 would have been the yearly tuition (not including other expenses) for an out-of-state student.
    It is difficult to account for the precise cash flow or the opportunity cost of this tuition. The actual cash flow may be affected by federal loans, interest rate environment, and independent sources of wealth/income. However, under almost all scenarios, the expected returns of investing likely outweigh the interest rate. Furthermore, because money is fungible, we will treat as "opportunity cost of tuition" below the money that could have otherwise been invested in the stock market. This allows us to ignore the loan or interests made on that loan (i.e. we are not double counting).
$52,000
3
  • Again, the length (but not starting stipend) of residency and (optional) fellowship is dependent on the route chosen. I've set the default to 3 years based on internal medicine.
  • In this case, I've assumed no fellowship, allowing the trainee to become an attending more quickly. Adjust if appropriate!
$200,000
  • Salary taken here is from internal medicine compensation from the Medscape's 2015 Compensation Survey, rather than from academics. This would typically be higher as compensation is typically higher in the community and private practice, but note that this nominal figure appears smaller than the one above because it represents 2015 compensation rather than 2024.
  • Note that outside of academics, the difference in compensation varies even more dramatically across specialties and subspecialties.

This allows us to run the numbers:

Comparisons

How did our students do after 40 years, using our default assumptions?

  • Student 1, who opted for a non-medical job that paid an $80k salary immediately, will have accumulated $6.8M lifetime if they invested 20% immediately, even though their inflation adjusted-income never exceeded $108k.
  • Student 2, who opted for an MD/PhD, will have accumulated less than $5.6M lifetime, even though their inflation adjusted-income of $197k exceeds student 1. This is because they will take 17 years to get their first real job and they missed out on the early opportunities to compound their investments.
  • Student 3, who opted for an MD, will have accumulated $6.6M lifetime with an inflation adjusted-income of $220k. They do better than student 2 because they're able to get a real salary and start investing earlier, but not better than student 1 partly because of the huge opportunity cost of tuition. However, they would be able to pull ahead of student 1 if they can start investing more of their income.

Does that mean student 2 made the "wrong decision"? No, each person has to make their own decision, based on what's important to him or her. But I would advise a new trainee a couple things:

  • Don't do it for the money, or at least not for the money alone.
  • If you want to be a physician scientist, make sure you love science, medicine, and research.
    • Make sure you would still love science, medicine, and research even if success weren't guaranteed.
    • Make sure you would still love science, medicine, and research even if it came without the prestige or recognition, at a time when more people are becoming hostile to evidence-based medicine.
    • Make sure you would still love science, medicine, and research even if after devoting two decades to it, federal funding might collapse.

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