This should be just as compelling as the upcoming installment of Star Wars.
Real World Repercussions and Recommendations
I tried to make this realistic. In the real world, most plumbers probably don’t start saving for retirement when they’re 19, even though it confers them an advantage that would last 27 years. And Gwendolyn probably wouldn’t max out her IRA as a resident, or save as much as she’s supposed to once she’s in practice as a plastic surgeon. I did choose a glamorous, high earning specialty to emphasize the point that even the high earners aren’t immune to the effects of lost years of income. A general practitioner would have much fewer years of training but probably would take longer to surpass the plumber’s net worth unless they were thrifty.
Here’s a major point. If someone capable of excelling as a physician, someone as intelligent and motivated as Gwendolyn, decided she cared about financial independence early and realized that becoming a plumber or electrician could get her there, she’d be one of the FIRE bloggers I write about who retire before 40, and she probably would have become a master plumber, topped $100,000 in income by 30, created her own company, sold it, and be much better off than the example here. A wealthy female plumber entrepreneur blog basically writes itself.
The other thing to consider is that this study described income and net worth. It did not address how much either party made per hour, but for the purpose of calculations, I assumed the plumber made a typical plumber salary for 40 hour weeks. Gwendolyn probably worked 1.75 times as much as a resident before reaching 34. I’m sure you’ve heard about Dr. Ben Brown’s argument that, hour per hour, teachers make as much as physicians over the course of their career. There’s even a pretty well conceived figure to back it up, and while I take exception to many of their assumptions, I did find it shocking that the cumulative hourly wage would even be close. Teachers have the whole nine hour day thing going for them, and summers off. I may expand this case study to include hourly wage, but I have the sneaking suspicion that plumbers are better off.
- Compare yourself to Gwen. She was pretty financially savvy to start investing in residency and save 20% of income while paying off loans. If she hadn’t started her Roth and only saved $20,000 per year towards retirement while paying off loans, she wouldn’t match the plumber’s net worth until 65. And the plumber’s retirement is mostly be tax-exempt (in a Roth IRA). She would have to pay taxes at her current income tax level on that money to use it.
- Start saving towards your retirement as early as possible–having a Roth IRA before college would be great, and maxing it out starting in professional school (definitely by residency) would make a huge difference, mitigating most of the advantage that tradespeople have until their 40s. Before you finish training and maybe even for a couple years later, live like a personal finance blogger and pay down the debt aggressively while maxing your retirement accounts.
- If you’re considering medicine or dentistry or pharmacy just for the money, don’t. Waiting until you’re 46 to be rich if it is your primary goal is unnecessary.
- In my opinion, society should reconsider the mantra that every 18 year old needs to go to college to have a chance at success. Many, many college graduates don’t earn as much as they would had they become a plumber or electrician, at least not for a long, long time. If someone went to undergrad with Gwendolyn and had her undergraduate debt load but ended up in a job that paid $50-75,000 instead of a job that pays $450,000 like Gwen’s, they may never have that moment where their net worth crosses and surpasses their plumbers.
- I was definitely wrong in my flash judgement of my folk band plumber team. Even if they aren’t as intrepid as the example in this case study, there is no way they accumulated the debt that I have and are decidedly “wealthier.”
Note: I did some fairly complex calculations to make this scenario as realistic as possible. If you think you notice a mistake, please let me know so I can either correct or explain it.
For more straightforward calculations, with less control over variables but infinitely simpler math, I recommend you try out The Opportunity Cost of Medicine at Future Proof MD. You’ll notice that I got different results than he did in terms of break-even point. His scenario compares a college graduate who starts work at 22 with a medical professional who starts saving at 26. He accounts for education debt by assuming it will be paid out of expenses, which is true. I tried to control for that by having our plumber save more at a younger age since debt isn’t an issue, and comparing net worth instead of total retirement savings.