Can Physicians Have Cool Cars and Houses and Still Retire Early?

Amongst people who don’t work in medicine, it’s a common misconception that all doctors drive expensive luxury cars and live in big, fancy houses.

But as a physician, you know that’s not always the case.

Perhaps you know a few physicians who are always driving the newest Cadillac or speeding off to their fabulous weekend vacation home in their brand new Benz. Yet, just as many physicians are perfectly content driving a Chevrolet, Mazda, or Subaru.

Some physicians choose to live modestly so they can save more money and retire early. Others prefer to splurge on cars, homes, and luxury items that lower-income earners only dream of.

So the question is this:

Can physicians have cool cars and houses and still retire early?

The good news is:

Yes, it is possible to find the happy medium between spending on luxury items and saving enough to retire before the age of 65.


How Should Physicians Spend Their Money?

According to the Bureau of Labor Statistics, the average full-time worker in the U.S. earns $51,428 per year. Physicians make more than four times that amount, earning an average annual salary of $208,000.

Most people making over $200k per year don’t have to face the everyday financial struggles that people earning $50k per year do.

But that hefty salary does have one downside:

The temptation to spend more.

The more you earn, the easier it is to spend money on big homes, lavish vacations, and luxury cars. When you have it, spending it often feels like the right thing to do.

Yet despite earning more than four times what the average person makes, physicians also have more expenses than most other professionals.

Physicians have to pay for a slew of different insurances, including malpractice insurance, which other types of professionals don’t have to take into account. Younger physicians have it even harder, as they often have massive student loan debt and medical school loans to pay off.

High-earning physicians have the unique opportunity to live a modest lifestyle and invest more into retirement or save the minimum and enjoy a more luxurious lifestyle while they’re working.

As a physician with a high salary, you have options. With a bit of know-how, there are ways to buy a brand new car that you’re proud to drive and purchase a great house that you’re excited to call home.

It’s all a matter of learning how to spend, and save, responsibly throughout your career.

Are you just getting started in your medical career? Read: The 3 Biggest Financial Mistakes New Doctors Make


At What Age Do Physicians Retire?

The typical retirement age in the U.S. is 65, but for physicians, the average retirement age is closer to 69. Some physicians prefer to work well into their 70s, while others choose to retire early. That choice is usually based on a variety of factors.

Some physicians retire early as a result of burnout. Sometimes it’s because the physician has saved money, invested wisely, and been proactive in maximizing contributions to retirement accounts. Often, it’s a combination of both.

Physicians in the following specialties tend to retire earlier than most:

And it’s not because they chose not to buy a luxury car or a big home. It’s because they planned accordingly — and you can too.

Discover: Everything You Need to Know About Physician Retirement


How to Budget and Plan on a Physician’s Salary

Concentrated focused Afro American female freelancer holding phone in one hand and making notes with pen in other while planning budget and calculating bills, sitting at desk with papers and gadgets

The way to enjoy the finer things in life and plan for early retirement is to budget your income accordingly. Between taxes, insurances, and retirement savings, here’s how much you should put aside before you decide how much you can spend on a car or a home.

Taxes

As we all know all too well, how much we earn is nowhere near how much money we bring home. The best way to calculate your budget and determine how to spend and save is to consider how much you put into your pocket every year after taxes.

Everyone knows the saying “the more you make, the more they take,” and for physicians who earn a high annual salary, “they” take A LOT.

For 2021, the tax brackets are as follows:

  • Individuals with a taxable income of $164,926 to $209,245 will pay a tax rate of 32%
  • Individuals with a taxable income of $209,426 to $523,600 will pay a tax rate of 35%
  • Individuals with a taxable income of $523,601 or more will pay a tax rate of 37%

Based on these current tax rates, most physicians will have to relinquish at least 32% of their income to the IRS. So if you earn the average physician income of $208,000, file as a single person, and take the standard deduction of $12,550, you’ll only put about $133,000 in your pocket.

All of a sudden, that $200k+ salary isn’t as impressive …

Insurances

For physicians, life insurancemalpractice insurance, and disability insurance are a must. Before you blow all your expendable income on a new car or home, make sure you’re putting the correct percentage of your salary into each of these insurance options.

Disability Insurance

Most physicians spend between 1% and 4% of their annual income on disability insurance premiums.

The cost of disability insurance varies based on:

  • How much coverage you need
  • Your selected benefit period
  • The elimination period you choose
  • If you opt to add riders

For more information on disability insurance, read our Definitive Guide to Physician Disability Insurance.

Malpractice Insurance

On average, most physicians spend 3.2% of their annual income on malpractice insurance, which equates to approximately $7,500 per year. The majority of physicians pay between $4k and $12k per year for malpractice coverage. But physicians in specialties at greater risk for a malpractice claim, such as surgeons, spend between $30k and $50k per year.

The amount of coverage you need, your specialty, and the state in which you work are all factors that can affect the cost of malpractice insurance.

For more information about budgeting for malpractice, read our Full Guide to Medical Malpractice Insurance.

Life Insurance

While there is no specific dollar amount of life insurance coverage that one must take, experts generally recommend having a policy that provides coverage in the amount of 10-15 times your annual salary. For the average physician, that would be between $2 million and $3 million in coverage.

Salary alone isn’t the only thing that determines how much life insurance coverage you need. Whether or not you have dependents and how much outstanding debt you have are also factors.

To learn more about how much life insurance you need, read The Physician’s Life Insurance Primer Series.

Additional Insurances

Physicians also have to pay for the typical insurance policies everyone else needs, such as health, auto, and homeowner’s insurance.

Choosing to buy a luxury sports car or a big, fancy house can make those premiums soar.

Retirement Savings

Before deciding what type of car or house to buy, make sure you’re saving enough for retirement.

There are many ways to save for retirement and build a robust retirement fund to enjoy in your golden years. From 401ks and deferred compensation plans to IRA and Roth IRAs, physicians should put at least 20-25% of their annual income into retirement investment accounts.

Let’s put a plug here for cash balance plans and also include a link to cash balance plans in every retirement article we have. The main retirement plan article and when to retire article should have this as a section so that it gets added focus

Putting additional money into varied investment vehicles, such as stocks, bonds, and real estate, can help you grow your retirement nest egg even more.

Physicians should also consider participating in a cash balance plan. If your employer offers this defined benefit plan, all contributed funds are invested in the stock market — at no risk to you.

See also: Your Full Guide To Tax Planning For Physicians


How Much Should Physicians Spend on Cars and Housing?

Taxes, insurances, and retirement savings can easily account for close to 60% of your gross annual income. Suddenly, your $208,000 salary is down to about $83,200 … and that $200,000 Bentley is getting farther and farther out of reach …

Budget analysts and financial experts recommend that your total annual housing costs be no more than 30% of your gross income. This includes your mortgage, homeowner’s insurance, utilities, and the cost of upkeep and maintenance on the property.

On the average physician salary of $208k per year, that would allow you to spend about $62,000 per year on housing, or $5,200 per month.

As for transportation, the cost of your monthly car payment plus auto repairs, routine oil changes, fuel, and insurance should total no more than 10-15% of your net income — or approximately $20,000 per year. This equates to about $1,600 per month on a $208,000 per year salary.

Learn more: The Pros and Cons of Paying Off Your Mortgage Early


What Type of Car Should a Physician Buy?

Exterior shot of Tesla dealership with cars in the lot

Doctors drive all different types of cars, so there is no shame in parking a reliable and affordable Honda Civic in the hospital parking lot. But it is understandable if you don’t want to pull up in the Kia Rio, or Nissan Versa, or Toyota Camry that you drove in residency or medical school.

The good news is that there is a way to drive a luxury car without having to splurge on an Astin Martin or a top-of-the-line Porsche. There are plenty of luxury car brands that offer amazing car models for less than $50,000.

If you’re in the market for a luxury car without the luxury price tag, check out the following:

  • Tesla Model 3
  • BMW 4 Series
  • Jaguar XF
  • Mercedes-Benz CLA
  • Cadillac CTS/CT4
  • Audi TT
  • Lexus ES

These are cars that physicians or any industry professional can take pride in and be excited to drive every day and for every occasion.


How Much Money Should Physicians Spend on Splurges?

Financial experts often talk about establishing a budget based on the 50/30/20 rule.

Under this theory, 50% of your income goes toward required expenses, such as:

  • Housing
  • Utilities
  • Transportation
  • Food
  • Insurances

20% of your income goes toward savings and investments so that you have a rainy day fund for unexpected expenses and a solid retirement plan in place.

The 50/30/20 rule also says to dedicate 30% of your net take-home income as “fun money” to spend on clothing, recreation, vacation travel, and hobbies. And this is where it gets tricky for a high-earning physician.

The amount of money you choose to spend on housing and transportation doesn’t automatically make that dollar amount a required expense.

For example, opting to make the monthly car payment on a $200,000 Bentley means you’ll spend considerably more than if you bought a $50,000 Lexus. So the more you choose to splurge on luxury items, the more that money cuts into your “fun money” budget.

It’s easy to blur the line between the portion of your salary reserved for “fun” and the amount reserved for required expenses. Physicians with high incomes need to be especially careful not to confuse the two.

Related: Car Buying for New Attending Physicians


Negotiate for Housing and Transportation Costs in Your Contract

Depending on where you work, you may be able to negotiate for housing and transportation costs in your employment contract.

This does not apply to employed physicians or self-employed physicians that own their practice (or part of a practice). But if you work locum tenens, a luxury car and a luxe housing rental can be a part of your salary negotiation.

Negotiating transportation and housing expenses is also possible for medical doctors that work for the U.S. military.

Will the federal government throw in a luxury car as part of your government contract?

That’s unlikely.

But reducing transportation and housing costs while employed by the military can enable you to save a greater portion of your salary. In turn, this makes it easier to afford those luxuries if and when you choose to work in the private sector.


Before you head to the dealership to buy a brand new 2022 Maserati Quattroporte, check your budget. Take the time to figure out how much of your income you have to devote to your taxes, insurances, and home.

Physicians do life-saving work and work long hours, so the desire to drive a high-end luxury car is perfectly understandable. But planning for retirement, making wise investments, and saving for your future are more important than having the newest, hottest car in the hospital parking lot.

That brand new car you buy today won’t be the latest, shiniest model on the lot tomorrow. Instead of putting yourself into a top-of-the-line luxury car, consider opting for a more affordable option from a luxury brand.

The more you save now, the easier it will be to afford that vintage Ferrari 250 GTO in the future.

Physicians Thrive can help with financial planning, contract negotiations, taxes, and more — contact an advisor now. 

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