Saving For Retirement: High-Income Edition

Please welcome Dads Dollars Debts in his post about why saving for retirement is harder for those with high incomes. 

Michael wrote a post the other day that got a bit of traffic via the World Wide Web. He discussed how high-income bloggers are ruining personal finance. Now I can’t say I agree or disagree with Michael. He makes some solid points that the American earning an average income cannot relate to a blogger making $100,000 to $500,000 a year. I agree with this point but I do think there is a benefit in hearing people’s stories. Particularly those like Mr. Money Mustache who has made it to the top.

I am a high earner (physician) and am in the 1% of income earners based on the 2013 Economic Policy Institute. So I am doing pretty well, but despite my income, I am not wealthy. To be wealthy based on this Fortune article you need $2.4 million. To be financially comfortable you
need $1.4 million. I am neither.

Additionally, my blog is by no means a home run. I have about 6,000 to 9,000 views a month. A far cry from the 100,000 to 400,000 views others receive in a month. Needless to say, my site is not breaking the bank.

That being said, today I want to talk to you about 4 reasons saving for retirement is hard for people making 6 figures, particularly physicians.

Many high-income earners have large amounts of student debt.

I personally came out of medical school in 2005 with about $200,000 in student debt. This was at a relatively low-interest rate of 3.65%. Those were the good old days. Students now are coming out with loans ranging from $200,000 to one orthodontist who has over a million in debt!

That’s a lot of money to pay back and is not easy to do, particularly as interest keeps accruing. Most medical professionals do not start paying off their debt until after they are done training in residency or fellowship which can be 3 to 8 years after medical school. In that time, interest from both college and medical school is building leading to a much larger amount owed then what was originally taken.

Even in my case, I came out with $176,000 in debt in 2005 but by the time I started paying it down in 2012, it had ballooned to over $200,000! So before I had a real job, I was already under a mortgage-amount of debt. Remember, compound interest is your friend or enemy depending on if you know how to use it.

READ:  7 Ways To Lower Your Property Tax Bill and Local Taxes

Most physicians do not make a high income until they are 29 to 35 years old.

If you are a physician you have typically gone to college, medical school for 4 years, potentially a master’s program, and finally residency and fellowship training for another 3 to 8 years. That is 7 to 14 years of training after college!

While your friends are earning $30,000 to $50,000 a year in their early 20s and possibly contributing to retirement, you are taking on debt. Congratulations!

Then you start working at age 25 or 26 for $45,000 to $60,000 a year and have to balance your large debt burden, rent, and general exhaustion from pulling 80 hour work weeks while learning a new trade.

Fast forward 3 to 8 years later when you have finished training, you are now somewhere in your late 20s to early 30s and still have not made more than the average American. You likely have not contributed to retirement, and are sitting on a few $100,000 in debt. Not an envious place to start your adult life.

There are pressures to keep up with the Joneses

Finally, you are done with training! You are 28 to 35 years old and are a full-time doctor! Congrats! This is a time to celebrate. You have years of pent-up spending. You have been dreaming of the fast car and a big house you deserve. Your colleagues who have been practicing
for 5 to 10 years all have a big house and a nice car. Why would you not do the same?

And this my friends is the biggest mistake doctors make when they get out of training. They go and buy a home that is bigger than they need, a $50,000 car, and maybe some other nice and expensive things. They do not think to save and pay down their debt and they do not account for the brutality of taxes.

Plus, their colleagues sit around and talk about the fancy and expensive things they are buying. It is hard not to be influenced by this conversation. I remember one conversation I had at a prior job. All of the doctors were talking about the 3rd or 4th expensive car they were buying. It sounded nice but I knew I had to get out.

READ:  Are You Ready for Early Retirement or Just Kidding Yourself?


Taxes are the final reason doctors can’t make progress in saving. Most pay about a quarter to a half of their income to the federal and state government.

For instance, If you are married and live in a no income tax state, then when you are earning:
● $60,000 you pay $8,529 in taxes.
● $250,000 then you are paying $54,000 in taxes.
● $400,000 that tax bill goes up to $98,810.

Brutal. Income taxes definitely take away from the progress on your path to financial freedom. That is why living in a no income tax state (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) is huge. I personally live in California and am paying 11% on my final bit of earned income.


So there you have it, despite the high income, it can be a real pain to make progress as a high earner. A quarter of your take-home pay goes to taxes, another chunk is going to pay back student debt, then there is the pent-up desire to spend and keep up with the Joneses.
Compound all of this with no real income by age 25-28 and no real savings until a few years later, it is easy to see how high earners have it hard.

Wealthy or not, saving can be a challenge, here are some great resources to fast track your savings.

Check out: 15 Frugal Tips That Could Save You Thousands and 10 Stupid Ways I Have Wasted Money
Also, don’t forget to send in your questions for 5-Minute Financial Lessons here.

About the Author

Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.

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