As med students continue through their training, they will need to choose a specialty before applying for residencies. It’s a huge decision for a number of reasons. Not only does your specialty dictate the types of patients you’ll treat in the future, it also has a major impact on your lifetime pay.
Find out what impacts physician pay the most through residency and into practice, then you can weigh those short-term factors with long-term financials when choosing a specialty.
When you’re a resident, all interns at the same healthcare facility start with the same salary — regardless of specialization. But your residency income, while indirectly influenced by specialization, is actually most affected by a host of other factors.
The primary factors that actually affect residency pay are:
Institution and location: Residencies are federally funded by Medicare. Each healthcare institution can distribute those funds as they wish, with part of them being used for teaching staff and part of them being used for resident salaries. Higher earning facilities typically offer larger starting salaries to attract applicants. You’ll also be likely to earn more in an area with a higher cost of living; but of course, your living expenses like rent and utilities will also be higher. Some facilities in expensive areas will offer cost of living stipends on top of the resident salaries, also to attract applicants.
Numbers of years in training program: Each year of your medical residency comes with a pay raise. That means, the longer you train, the more you earn. For instance, the average first year resident earns $56,150 while the average eighth year resident earns over $75,000. That’s almost a $20,000 difference. But it’s also important to note that a longer training program means fewer years earning a full-time salary as a qualified and specialized physician.
Some medical specializations are in greater demand than others, which can result in a higher salary once you’re board certified. According to The DO, some of the most in-demand positions include:
Notably, you see Family Medicine on this list, which is perennially one of the least paid specialties, so demand doesn’t always track with higher salary.
So we pointed out how residency pay can vary with training programs but what about over a lifetime? To figure out the true financial impact of the pay gap between the highest paid medical specialties and the lowest, let’s take a look at five, spread out over a range of average salaries. Let’s assume that each hypothetical doctor starts their residency at the age of 30 and retires at age 65.
Years in Residency/Fellowship
Lifetime earning potential (pre-tax)
Even with a longer residency program, higher-earning specializations clearly lead to greater lifetime earnings. But there are other financial considerations to account for as well when determining the true cost-benefit of a particular training program.
Taxes. The more you earn, the more you’ll pay to Uncle Sam (and your state, if you live in one with income tax). For 2022, married earners filing federal taxes jointly that bring in between $178,151 and $340,100 are taxed at the 24% marginal rate. Those earning between $340,101 and $431,900 have a 32% marginal tax rate. And those earning $431,901 to $647,850 have a 35% marginal tax rate.
Here’s a breakdown of the effective tax payment each year for each specialty we’re focusing on. This, of course, doesn’t account for any tax deductions or tax-deductible retirement contributions, but still gives a sense of the extra tax burden for high earners.
Effective Tax Payment (pre-deduction)
As you can see, before deductions, an orthopedist owes over four times as much in federal taxes as a pediatrician. However, their after-tax income is still over twice as much.
Investment growth. Those tax numbers can be misleading when trying to figure out the cost benefit of different specialties. That’s because when you earn more, you can invest more. When you put that money into tax-advantaged retirement accounts like IRAs and 401(k)s, you’ll lower your taxable income.
And if you use a sizable chunk of those earnings towards retirement, you’ll build a much larger nest egg. You’ll have more to spend during retirement and could even retire sooner if you choose.
Let’s look at an investment example using the aforementioned medical specialties. Let’s assume each person invests 20% of their average salaries each year for the number of working years we established above for each specialization. We’ll assume an average 6% rate of return each year.
Specialization w/ total # working years
Estimated Portfolio Value At Retirement
Orthopedics (30 working years)
Cardiology (29 working years)
Anesthesiology (31 working years)
Neurology (32 working years)
Pediatrics (32 working years)
Time to full earning potential. As you can see, a medical professional who consistently invests can actually overcome the earnings gap between different specializations. An anesthesiologist earns an average of $40,000 less each year than a cardiologist. But those two extra years in the workforce allows the anesthesiologist’s investment portfolio to overtake the cardiologist’s by more than $1.2 million.
Plus, in this scenario, the anesthesiologist pays over $12,000 less in taxes each year before deductions. That can either improve the household’s spending power or lead to even more investment opportunities.
Choosing an orthopedics specialization is the clear winner from a financial standpoint, given that the average salary is more than double that of a pediatrician. And while the training program takes an additional two years, the earning potential is more than enough to make up for lost time.
The bottom line is that your residency pay is not affected by your specialization; instead, you’ll need to consider individual offers from institutions when comparing residency income. However, there are definitely huge gaps in earning potential as you enter your full-time career.
The highest earning specializations, like orthopedics, are less impacted by an extra couple of years in residency. But choosing a specialty that has a smaller margin of income potential can be seriously impacted if you have to spend an extra two or three years in residency, as we saw with cardiologists.
Luckily, managing your money is just as important as earning it. No matter what type of specialty you choose, you can steer your finances into a better position by budgeting, investing, and making a conscious effort in how you spend and save.
Panacea Financial, a division of Primis. Member FDIC.
You are leaving Panacea Financial, and being directed to a third-party site that is not maintained, owned or operated by Panacea Financial. Panacea Financial does not control and is not responsible for the site content or the privacy or security practices of third parties.Please select "Continue" below!