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After the Match: Are You Really Joining the One Percent?

Cook, Thomas MD; Taylor, Jay MD

doi: 10.1097/01.EEM.0000453161.39534.84
After the Match

Dr. Cookis the program director of the emergency medicine residency at Palmetto Health Richland in Columbia, SC. He is also the founder of 3rd Rock Ultrasound (http://emergencyultrasound.com). Friend him atwww.facebook.com/3rdRockUltrasound, follow him @3rdRockUS, and read his past columns athttp://bit.ly/CookCollection. Dr. Tayloris the director of finance education in the department of emergency medicine at Palmetto Health Richland.

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From the time you receive your medical degree, society will consider you a member of the somewhat villainous one percent. You will feel a sense of financial freedom in the near future that few Americans ever experience. Right?

Not really.

How does one actually become a member of the one percent? Most would classify this as an annual income that is in the top one percent. Right now, that number is just more than $332,000. It's not a guarantee that every emergency physician will make this amount, but most residency graduates will be close to this number. But is that amount of annual income really going to qualify you as rich?

As it turns out, about one in eight Americans will have at least one year over the course of their working lives where their income is in the top one percent. That's 16 percent of everyone. This phenomenon can occur not only by having a good year, but also by unusual events such as an inheritance. These folks are not really even close to the one percent. (http://bit.ly/1pcO49e.)

The trick is to keep it going, and as you would predict, far fewer Americans can manage this. Only one in 100 of the people who make a top one percent income in a single year can sustain this for more than a decade. Fortunately, as an emergency physician, you have the potential to do this for up to 30 years.

How do you feel about this? Surely you are going to join the club, right? Not necessarily. The true value of wealth is how your income is generated. High salaries are nice, but they attract high expenses, one of these being income taxes. Other factors come into play, too. A $300,000 annual income in South Carolina is a lot different from the same income in Boston, New York, or San Francisco. You might be scratching to be in the top five or 10 percent based on income in those locations, and typically those regions pay lower salaries and have much higher taxes and housing costs. Still, you have a lot of money coming into your life, but are you really in the top one percent of wealthy Americans? The short answer is no.

The best metric for true wealth is likely net worth. If you take what you have and subtract what you owe, how much do you have? A resident has a dismally low net worth, especially when you consider student loan burden and new home ownership. His value is the potential income he can make in the future. But what number do you have to hit to be in the one percent based on net worth? That amount is roughly $8 million. To get into the top one percent in your 40s, you only need $6 million. But in your 50s, you will need nearly 10. (CNBC; http://cnb.cx/1ni94tG.)

Once someone gets into this club, they tend to stay there. They will derive most of their future income from something most physicians will never contemplate during their lifetime called capital gains. Instead of paying a very high income tax, these folks pay a very low rate of tax on income derived from investments. This is how folks with lots of money still manage to pay much lower effective tax rates than everyone else (and why this tax rate is often a controversial political topic).

Most emergency physicians will not come close to being in the top one percent of net worth even if they put in 30 years of seeing patients. Regardless of the public perception that you are very wealthy, you are not financially rich by any means, and you will have to work very, very hard for the money you earn. Through it all, remember that regular savings and compounding interest over time are the only way to grow wealth.

Real wealth for most people is not related to income or net worth. Instead it is characterized as meaningful work that you enjoy and strong relationships with family, friends, and colleagues. Stockpiling every sliver of gold that passes through your fingers during life will not provide you with a happy life full of wonderful memories.

The trick is to find the balance between these two extremes, and this requires practice and the experience that life brings. Make no mistake: You will waste money, and people will try to take advantage of you by offering various financial products. Ask your attendings and alumni what they do to mitigate those effects. Listen carefully to their experiences, and seek the advice of trusted financial professionals accustomed to working with physicians.

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© 2014 by Lippincott Williams & Wilkins