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First-world problems are a frequent source of discussion here, and today’s post on dual high-income couples is no exception.
While it might sound amazing to have the earning power of two doctors, lawyers, engineers, professional athletes, or any combination thereof, there are some unique challenges faced by such couples.
When nearly half of one person’s salary is taxed and you’ve got $600,000 in student loans, between the two of you, maybe you don’t have it as good as other people think you so.
Cue the world’s smallest violin. This article from Dr. Jim Dahle originally appeared on The White Coat Investor.
There are lots of differences that a dual high-earner couple faces in comparison to a single doc, a single earner couple, and a couple with one high earner and one low earner.
Some are advantageous and some are disadvantageous. Let’s go through a few of them.
Double Medical School Loans Means a Bigger Hole
One of the worst parts about being a dual high-earner couple is that you start out with a much more negative net worth. If the average med student graduates with $200K, the average couple may have $400K. That might be $600,000 by residency graduation, and that’s average.
If you’re above average (which you are likely to be since you had no working spouse to help support you in school) that could be $800K or even $1 Million!
That debt burden alone prevents many couples, who would prefer to have one of them stay home with the kids, from doing so. They simply both have to work in order to make the loan payments.
Dual Income Means a Bigger Shovel
Luckily, that bigger hole is typically matched by having a bigger shovel. Sure, you might owe $600K, but you also may earn $600K. Dual income couples can throw gobs of money at student loans every month.
Imagine living on only one physician income and throwing the rest at the loans. Or living like residents. Or even like A SINGLE resident. A $600,000 loan goes away very quickly when you’re throwing $30,000 at it every month.
But here’s what’s cool. Even after the student loans are gone, that $30,000 can go toward paying off a house or reaching financial independence just as easily. That big shovel doesn’t go away when the student loans are gone.
Student Loan Refinancing Disclosures
You Don’t Need Two Doctor Houses
Doctors like to live in doctor houses and doctors and their spouses like to drive doctor cars and they like going on doctor vacations. But a two doctor couple doesn’t need two doctor houses nor four doctor cars nor double doctor vacations.
Like any other couple living together, you might get to save almost half of the living expenses!
Higher Childcare and Household Costs
Of course, that all goes away when you have kids. A one-earner couple saves all kinds of money on childcare costs. The stay-at-home parent also likely has more time to shop wisely, prepare food, care for the house and yard, plan vacations, and otherwise maximize the household economy.
Two docs working 60+ hours a week will either not do those things well or have to hire them out. Child care is particularly expensive, and high earners lose out on the tax benefits of paying for it.
Higher Taxes for Dual Income Couples
This one is particularly painful. While for many people there is a marriage tax bonus when you get married, most dual-high income couples that get married face a marriage tax penalty.
Not only does our progressive income tax system penalize higher-earning couples by making the entire income of the second earner taxable at the marginal income tax rate (or higher) of the first earner, but they also have to pay two sets of payroll taxes, for much less than twice the benefits.
Upon realizing just how high this penalty is, many dual-income couples decide to have one of them stay home with the kids either full or part-time!
More Retirement Accounts
Another great aspect of having a second earner is the availability of additional tax-protected (and usually asset-protected) retirement accounts. While you only need a spouse, not a working spouse, to do a spousal Roth IRA and a family contribution to an HSA, other retirement accounts, such as a 401(k), require an actual second earner.
This is especially useful if the retirement accounts offered by your employer stink. You can preferentially max out your partner’s options and live off your earnings.
Complicated Residency Student Loan Management
Student loan management as an attending is pretty straightforward. If you’re working for a 501(c)(3), go for PSLF. If not, refinance your student loans and pay them off over 2-5 years by living like a resident.
It is also pretty straightforward for most single residents and residents with a non-working spouse—enroll in REPAYE.
But when you’re married to another resident or a high earner, things can get really complicated, really quickly. REPAYE might be right. Refinancing might be right.
In fact, even IBR or PAYE might be right, particularly if you elect to file Married Filing Separately. While filing MFS often increases your tax bill, it might also decrease your required IBR/PAYE payments, increasing the amount available for PSLF.
If you are in this situation, this is a good time to get some professional student loan management advice.
Working the Benefits
Just like you can take your pick of retirement accounts, you can also take your pick of benefits.
For instance, if you are self-employed and your spouse is a university employee, use the university health insurance.
Saving on Insurance
A lot of dual-income couples have asked me about their need for term life or disability insurance. While this depends on your individual situation and desires, one possibility is for each of you to serve as the other’s life insurance and disability policy.
Obviously, that won’t help your kids much if you are both killed or disabled in the same accident, but you clearly have less risk than a single-earner couple. At any rate, you should be able to get away with less insurance than a single-earner couple.
As you can see, a dual-income couple has both financial advantages and disadvantages. Try to minimize the impact of the downsides and take advantage of the upsides to improve your financial situation.
What do you think? What did I miss? What advantages and disadvantages do you see for a dual-income couple? Comment below!
6 thoughts on “How Financial Planning Differs for Dual High-Income Couples”
Higher taxes are indeed painful for high income couples. I would argue, however, that when dual high incomes are involved, it can still be very lucrative on an after tax (and childcare) basis to have the second spouse work. Your comment about the taxation making the second job not worthwhile makes a lot more sense when the second earner is not high income.
I agree- you can see minimal after work $ if there is one worker making a lower income and you can see a big % of that go to childcare especially with more than 1 kiddo. But I assume even if both make a higher income, and you value your children having a parent as a full time caregiver/household manager and you see what one costs to higher, you may choose to stay home because regardless is expensive and there is non-monetary value for some in having a parent as the full-time caregiver for many reasons POF cites. Regardless, it’s a privileged place to be to be able to decide that! Especially if both are high earners. Not easy, but still nice to be able to have the decision (although I’ve seen many be able to make it work even on small incomes). Childcare is a tricky thing- I think making the child tax credit available every month might help families find more options that work for them. I think it would have for us when our kids were under school age (no physicians here though so maybe base salary was lower…but student debt was still a big factor)
very tough to stomach if you both earn 300k one of you is paying close to 50% in taxes maybe more depending on location. people will still claim you aren’t paying your fair share
There is no “fair share” except giving everything to the government back down to their own after tax earnings. It’s not really about “fair” but about capitalism and their visceral dislike of winners and losers in a free society.
That would have been the case for us. My wife could have worked as a registered dietitian earning $40,000 to $50,000 pre-tax, or maybe $25,000 to $30,000 after tax. That didn’t make much sense at all with two babies born two years apart — the cost of childcare would have taken most or all of her after-tax salary.
If she had the potential to earn multiple six-figures, that would have given us an additional six figures after taxes were taken out. That’s not awesome, but the extra income does move the needle in such a scenario.
Cheers!
-PoF