The Biggest Mistake of Your Life 16

The title should really be:

“The Biggest Mistake of Your (Attending) Life”, but it didn’t flow as well, so I just cut out the attending part.

It ended up sounding click-baitish, but I think that’s ok.

What I have to say today will significantly shape your future.

So when you read this title, you may have some preconceived notions for what I meant. Perhaps you thought that I was going to say going into medicine was a mistake. This has been written about by CBS news before: $1 million mistake: Becoming a doctor back in 2013 and then was revisited again by Huffington Post: Is Medical School a Million Dollar Mistake? in 2015. You can read both of them at your leisure. For the lazy among us (like me), the TL;DR is that doctors are coming out with more debt than ever with relatively stagnant salaries. This, in combination with increasing dissatisfaction and “burnout” and you have a recipe for a good amount of doctors who would not go into medicine again. I was lucky.

While the above is important, it doesn’t really help you, the young attending. After finishing medical school and residency you have a debt to take care of and there are not many avenues for leaving medicine.

Is it possible to leave medicine? Sure. There have been many articles on the subject, such as this Medscape article from 2014. However, most of them require doctors to learn a significantly new skill and a “ramp-up time”, with the exception of hospital administration or physician advisor. You may have acquired some of the skills necessary for those positions during your time in clinical medicine.

However, that is not what I am talking about here. This is a Finance Fridays not a Medicine Mondays post.

Today I am talking about The Biggest Mistake of Your (Attending) Life.

People may think I am exaggerating here, but please bear with me:

You finish residency and start your first job in July. This period between July and December is the most important time period in your life as an attending physician (financially). You’ve been eating ramen for the last 10 years during medical school and residency while paying back some of your massive student loans (hopefully using RePAYE). You have been living month to month trying to decide whether this month you can buy the “good ramen” or “barely edible ramen”. Trust me, I understand.

At this point, what you really, really want is a more comfortable lifestyle. Completely understandable.

However, the single biggest mistake you can make is:

Not maximizing your 401k/403b and/or 457 in your first half year of being an attending.

You may be thinking to yourself… What? That’s it?

The answer is “yes, that’s it”.

This single change will shape how you view your finances/retirement for the rest of your career/life. Let’s crunch a few numbers:

Let’s say for January-June of your last half year of residency you received half of your resident’s salary, so like $25000 gross (of a $50k salary). Your first job starts July 1 (no breaks) and you work 6 months until the end of the calendar (and tax year) at a $200k salary, so you make $100k gross.

So your total gross income for the year is $125k gross. Not bad right?

For simplicity’s sake, let’s assume the first 6 months don’t matter and only focus on the last 6 months, from July to December where you were making your new $200k salary.

So from July to December, you will make about $10k a month net. That’s a lot considering you were probably making $3k a month net as a resident.

What is the “other scenario”?

However, you signed the contract for the job as a busy resident/fellow. There was this mountain of paperwork to fill out for the new job. In the middle of this mountain was this nondescript sheet about 401k/403b and/or a 457. There were some numbers about an employer match maybe. There was a list of 100 funds to choose from. You have to calculate how to maximize the $18k/yr in the pay periods left for the year… and… they needed all this stuff done yesterday.

You couldn’t be bothered with it.

“I’ll do it later” you say to yourself. “It’s only half a year anyways, I’ll just start contributing the next year” you think to yourself.

Please, please, please don’t do this.

An important reason for this is compound interest. I know if its power, and I still underestimate it.

Another important reason is taxes. A 401k/403b and/or 457 are the very few pre-tax options available to you. This is especially important to you because of your relatively high income for the rest of your career. You must remember that for many years in medical school and residency you probably weren’t putting away any money. You were just trying to survive and not default on your loans. (If you were putting some money away, great!) You are way behind.

If you miss this year, you can’t go back and put in money retroactively. This is even worse if there was an employee match that you didn’t capitalize on. That ship has sailed.

What’s the big deal Sensei, it’s “only $18k”.

Yes, “only $18k”… except it’s not. If you put away that $18k in year 1 as an attending and didn’t touch it all and just assumed 7% interest. It’s:

$137,020.59 in 30 years

If you put away $18k in a 401k/403b and another $18k into a 457  ($36k) in year 1 as an attending and didn’t touch it all and just assumed 7% interest. It’s:

$274,041.18 in 30 years

“only 18k” right? Not so little anymore right?

To be honest, even I was surprised when I put these numbers in. I had to check them again for myself. I put the numbers into 3 separate calculators:

$18,000 principal, $0 addition, 30 years to grow, 7% interest.

Go ahead and check yourself. I’ll wait.

Yup, still $137,020.59.

However, the monetary benefit isn’t the best benefit.

The most important benefit is that from the beginning you realize the importance of putting away money into a 401k/403b and/or 457. Just by doing this one thing you will have shaped your financial future by prioritizing retirement.

When we moved to Hawaii, my wife started working in August, so we had 5 months to maximize her 401k/403b and 457… and her annual salary is significantly less $200k.

However, the importance of maximizing these accounts is simply too important.

So from August until December of that year, my wife’s biweekly net pay check was ~ $500. Yes ~$1000 a month. We lived off predominantly my salary for that half year. This was the important thing because we realized that hey… we can live off just my salary.

We never “moved up” to a two physician salary. So the following tax year we continued to live as we did, banking the extra money from my wife every month for a down payment on our house.

Now, let’s examine a different, and unfortunately, a probably still common situation:

Dr. Yoloswag starts a new job making $200k/year and opts not to use the 401k. “I’ll just enjoy my new salary” for this year, “I deserve it”, he says to himself. So from July to December, the ~$1k coming out of his paycheck every month is in his pocket instead. $1000 extra a month is a lot if you were only making $3k a month as a resident to start with.

$137,020.59 – $18,000 = $119,020.59

However, by not doing this, he has literally burned $120k. Just straight up thrown those dollars in a fire and walked away…

The problem is… he never knew those dollars would have existed. So it doesn’t hurt him. Ignorance is Bliss.

But that isn’t the worst part. Dr. Yoloswag is now accustomed to this extra money. Lets make the assumption that his student loans were still on RePAYE (based on residency salary) until the end of the year so he was still paying the same amount on his loans. So now he grosses $10k a month versus $3k a month and has an additional $7k a month of “lifestyle upgrades”:

He moved into a new posh apartment for $5k a month (up from $1k) and has a new leased M3 ($1k a month). Then he bought some new clothes, a new watch,  some new shoes and went on a few trips. Then add in a few expensive dinners a month and you burn through that $7k/month difference pretty quickly.

Now it’s January 1 and he has decided to start putting into his 401k… but he can’t. The student loans RePAYE has changed and he has to pay a significant amount more because of his increase in salary. Then the new posh apartment and the M3 lease cut into his monthly budget too much. He needs to cut out some of his other expenses, but he can’t.

He’s too accustomed. It’s hard to “go back.”

Rather than give up his new found comfortable lifestyle, his retirement plan suffers. And this happens for a few years, maybe 3 or 5 or even 10. Only then does he starts thinking about retirement, and he desperately needs to catch up. Most likely he will have to work longer to put away enough money to retire comfortably.

Don’t be Dr. Yoloswag.


Contribute to your 401k/403b and/or 457 in the first half year as an attending.

If you prioritize this one thing it will set the tone for how you prioritize your retirement.

Not “only $18k”. That initial $18k is ~$138k after 30 years of compound interest.

Don’t be Dr. Yoloswag. It’s hard to “go back”.


Agree? Disagree? Questions, Comments and Suggestions are welcome.

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16 thoughts on “The Biggest Mistake of Your Life

    • Sensei Post author

      This happens sometimes. The question is why aren’t you offered access to the 401k for your first year? Nonetheless, if you can’t contribute to a 401k your first year, then you just need to set aside whatever you think is reasonable into a traditional IRA (post-tax account). There is an additional option to create your own solo 401k plan if you are an independent contractor (paid with a 1099), but that is a topic for another day.

  • #LifeofaMedStudent

    Great post! I agree that setting the saving mindset is crucially important that first year. I’m 9months away, but already have a working budget planned – and man is it TIGHT. Planning to do full 401k, max a backdoor Roth, and pay the remainder of a auto loan. We may not even be able to live as nice as a resident that first year, HA!

    • Sensei Post author

      Great! Living like an even more poor resident in the first few months as an attending is even better. Once you set your auto-deduction for your 401k in January, you can re-evaluate where to put your money. Interestingly, once you have the mindset to be frugal, it tends to stick with you, and even be somewhat addictive. You will compete with yourself to save more money… which is good thing!

  • Raquel

    Hi Sensei! Really enjoyed the article but I can sadly say I wish I had read it at the time I completed residency, before I made all the mistakes of “Dr. Yoloswag” (no excuses but the company did not offer 401k). Fortunately, I started to learn about financial independence and since my husband is a physician as well we have been able to turn the table around and go back to basics! I wish to learn more for this new stage we are in towards the path of financial independence and maybe even early retirement

    • Sensei Post author

      Hi Raquel! Thanks for your comment.

      It’s ok! The most important thing is the realization that you need to make some changes. Better to have learned the lesson now as early in your career(s) as possible, rather than be Dr. Yoloswag at 65, trying to retire, but unable to.

      Just remember: Spending money isn’t happiness. Happiness is happiness. I subscribe to the “Buy experiences, not things.” mantra.

      If you have time, I would be interested in hearing “your story”. Shoot me an email at your leisure.

  • ChooseBetterLife

    It’s actually pretty common to not have access to a 401K for the first 6-12 months, but you’re right that it’s important to plan and save. Even if you can’t contribute to a 401K, you can still fund an IRA (or backdoor Roth if your income is too high to be deductible) or pay down those loans. Anything is better than a fancy car loan.

    • Sensei Post author

      Hi Julie! Thanks for your comment.

      While I can’t speak for everyone, in my (limited) experience, I think a lot of the physicians coming out will be joining a hospital organization, and will usually have access to a 401k/403b. Of course, this is also heavily dependent on specialty. For your specialty as an emergency physician, I think the current market (once again, in my limited experience) is to work for a private practice group which contracts with hospitals. As you alluded to, this usual prevents access to a 401k/403b until the following year.

      I guess the take home message is, even if a 401k/403b isn’t available to you… you should still live like it is, through whatever avenue is available to you. In this first 6 months as an attending, even if you can’t contribute, that is not an excuse to simply “spend that extra money.” As you said, “anything is better than a fancy car loan”.

      Thanks again!