Medicine for Money Part 2: How much is $200K/year?

In Part 1 of this series, How much do doctors make?, we saw a wide variety of figures. A career in medicine neither guarantees nor limits you to an income of $200,000 per year, so we’re going to work with that figure as it’s neither excessive nor out of reach.

How much is $200K/year? The short answer is $8000 a month, for a doctor with sizable student loans.

The average debt for graduates of medical school is reported to be between $150,000 and $200,000, depending on the source. Many recent graduates cite much higher numbers, so again, this is a somewhat worthless approximation.

But, if you had education loans of $200,000 paid on a 20-year repayment plan, your monthly payment would be in the neighborhood of $1520 (…anpayments.cgi). Assuming a debt of $250K, your monthly payment would be around $1900 (…anpayments.cgi). Hilariously enough, that calculator says:

It is estimated that you will need an annual salary of at least $229,002.00 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 1.1. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $152,668.00, but you may experience some financial difficulty.

If your debt is $300K, it suggests you need a salary of $275K to comfortably make payments over 20 years. Let’s just call the monthly payment amount $1600 for a debt amount close to $200K. If you wanted to pay it off in 10 years, you would have to pay $2300 per month.

Assuming you want to save the most you can for retirement, you’ll max out your 401K by putting in $16,500 of your pretax income each year. This will lower your taxable income in this hypothetical from $200K down to $183,500. If you maxed out an IRA each year it would be another $5,000 per year. If you owned your own practice (or another business) there could be different contribution limits and tax implications; we won’t go there in this hypothetical.

Your new pre-tax income is $183,500. The marginal tax bracket for federal income tax on that amount ranges from 18% – 25% depending on whether you file independently or with a spouse ( Well call it 21% for the sake of easy calculations. Tax burden varies by state, but the average is just under 9% (…fo/09STUDY.pdf), so we’re at a total tax rate of 30%.

0.3 * 183,500 = $55,050 paid in taxes. You’d be left with $128,450, but keep in mind you’ve already put $16K away for retirement.

This comes out to $10,704 per month. If you decided to max out a Roth IRA (instead of the traditional IRA that I mentioned above, but did not include in any calculations) that would require another $417 per month, leaving you with $10,287 per month.

Take out the loan payment of $1600 discussed above, and you have $8687 per month. For the 10-year repayment plan, taking out $2300 drops you down to $7987 per month. Your mileage may vary tremendously here, depending on your regional cost of living and the lifestyle choices you make.

Just for example, if you tried to buy a million-dollar home, with a 30-year mortgage at 5.5%, your monthly payment would be around $5978, leaving you with $2009 per month to pay for cars, gas, groceries, utilities, “saving for your kids’ education,” and whatever other expenses you have. Take the same mortgage terms on a $500,000 house and your payment is about $3000 per month depending on property taxes and home insurance (…alculator.aspx). That could afford you a very comfortable house in many parts of the country, but I wouldn’t expect it to go far in NYC. Either way, you are left with about $5000 per month.

Assuming you’re willing to put $1000 per month toward a car or cars for you and your family (leaving you with $4000/month), you could afford $56,000 worth of vehicle (…nt=120&pmt=290). This could be one fairly nice car, 2 x $23,000 cars, or any other combination. If you’re willing to put $2000/month toward cars (leaving you with $3000/month for everything else), you could afford $108K worth of car. You could also put that extra money into a larger mortgage, so this is well past the point where the breakdown becomes highly individualized.

Basically, making $200K per year with a debt burden of about $200K, after maxing your retirement contributions and making the minimum monthly payment on your loans, you would be left with around $8,000 per month for mortgage/rent and living expenses, investment, or to otherwise allocate as you please. As has already been mentioned, you can live comfortably but this won’t afford you a lavish lifestyle of vacation homes and Lamborghinis.


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