Six Months of Part-Time Work. Or How I’ll Save $60,000 on Taxes in 2018.
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Today is Tax Day. To commemorate the event, I’d like to share with you how I plan to slash this year’s tax bill by upwards of $60,000, or nearly double what my salary was 13 to 16 years ago when I worked about three times harder as a resident physician.work quite a bit less.
I had been contemplating such a move for over a year. Time and time again on this site, I would sing the praises of financial independence (FI) and all the wonderful things you can do with FI to give yourself a better life. Why was I burning the candle at both ends, working full-time while spending much of my free time spreading the word online?
I didn’t have a good answer to that question, and I wasn’t interested in taking a step back from my online activities, so I decided to pursue working less in my anesthesia job.
I didn’t think a part-time position would be readily available in my current position, but I was pleasantly surprised when we were able to make it happen. My four partners were willing to work and earn 10% more each, allowing me to work 40% less.
The Financial Implications of Part-Time Work
Part-time work is admittedly easier to arrange in some situations than others. Factors that make such an opportunity more likely include being part of a large group, working in a shift-based specialty, and perhaps being an employeed physician.
If you own a private practice and have significant overhead, are part of a small group, or are in a specialty where long-term patient relationships are paramount, part-time work may be more difficult to arrange.
If you fall into the latter categories, I wouldn’t throw in the towel. Creative solutions may allow you to work less if that’s what you really want to do. Locum tenens physicians can help fill in the gaps. They won’t replace you (no one can replace you!) but many locums docs are quite capable. 50 / 50 job sharing may be an option — it works for The Happy Philosopher.
You may also have the option to sell or leave the practice and be a locum tenens provider yourself. That’s all I did the first two years of my practice, and it’s what Dr. Nii Darko of Docs Outside the Box does as a trauma surgeon to create a flexible schedule that meets his family’s needs.
Likewise, the financial impact of part-time work will vary depending on your situation.
On the other hand, it’s not unusual for a physician to be in a situation where a reduction in workload results in a disproportionately large drop in pay. Working 30% less while earning 50% less is certainly far from ideal, but that may be the case if you own a clinic, have employees, or have other significant fixed expenses related to your practice.
My Part-Time Work Arrangement
Again, I consider myself lucky to be in a situation where dropping to part-time was surprisingly easy. It’s not pure luck since one feature of anesthesia that attracted me was the flexibility of the schedule and lifestyle, but I’ll readily admit I had an easier time making this shift than most will.
Years ago, I worked exclusively as a locum tenens provider for the first two years after finishing residency, working hard most of the time, but I also took my first three-week vacation when I was less than a year into my anesthesia career.
My bride-to-be and I visited Iceland, England, Ireland, and Italy in one long trip. It was fantastic, but before long I started working regular jobs and it would be over a decade before I’d be off work for that length of time again.
For the last six months, I’ve had a three-week break nearly every month. My work schedule looks like this:
- Work four days (usually consecutive) at our outpatient surgical center. That’s about a 40-hour workweek.
- Work 72 hours at our hospital. Usually, at least half of the long weekend (Friday morning to Monday morning) will be home call, but weekends can be busy at all hours, particularly during the summer months (both of them).
- Enjoy the rest of the month off.
This schedule represents a 40% reduction in my clinical workload from my previous full-time schedule, which was admittedly designed to allow for a very reasonable work-life balance in the first place. Still, I’ve been quite happy tipping the scale more to life and less to work.
I now have a 40% lower salary than I did as a full-time employee. I still have full benefits, a feature that I’m told is provided for physicians working at least a half-time job in our health system.
Now, 40% less than a rural anesthesiologist’s salary is still handsome salary. Taking advantage of geographic arbitrage here in the upper midwest, a place where for some reason not everyone wants to be (horrendous cold and snow, funny accent, mosquitoes in the summer), we earn an above-average salary. According to Garrison Keillor, all the children here are above average, as well.
Rounding to avoid using my exact salary, let’s say I was making $400,000 per year before. Now I’m making $240,000. Let’s also say the benefits package is worth $50,000.
Effectively, my total compensation dropped from a value of $450,000 to $290,000. That’s a 35.6% reduction in compensation for 40% less work. If I were to work 50% less than full-time, earning $200,000 and receiving the $50,000 in benefits, that would represent a 44.4% reduction in total compensation.
In a previous post announcing my part-time employment, I did a detailed analysis of the tax implications. I learned that my after-tax pay is roughly 40% higher on the shifts I’ll be working as compared to the shifts I’ve given up. That’s another tick in the win column.
How do I come up the $60,000 in savings? Well, I expect to have online income that, when combined with my larger clinical income, will push me close to or into the 32% federal income tax bracket. Add on the 1.45% Medicare tax and a 9.85% state income tax, and my marginal tax rate on the $140,000 I’m not earning is 43.3%, resulting in a tax savings of just over $60,000.
Part-Time Work with Fixed Costs
If I were still working exclusively as a locum tenens provider, the math wouldn’t look so rosy. My benefits would represent a fixed cost rather than a fixed benefit. Let’s say working full-time as a locum, I could gross $500,000 with $50,000 in fixed costs to cover my benefits. That works out to the same total compensation of $450,000 for full-time work.
Working 40% less would result in $300,000 in gross income, minus $50,000 in benefits for total compensation of $250,000. Now I’m earning 50% less for a 40% lighter workload. Working half-time at 50% less works out to $200,000 in total compensation, or a 60% reduction in net income to work half as much after accounting for the $50,000 in fixed costs.
The math can look much worse for a solo practitioner with fixed overhead that could add up to tens of thousands of dollars per week. If you have to shut down the office while you’re away, the actual cost and opportunity cost of taking time off can be enormous. This is where more creative solutions to keep the practice running in your absence can be invaluable.
What Do We Do With Three Weeks Off Per Month?
That’s a great question! What would you do with three weeks off per month? It’s fun to think about, isn’t it?
October was our first month of partial freedom. I attended a couple four-day conferences in the latter part of the month — one for anesthesiologists and the other for bloggers.
My wife’s primary job has been to raise our young boys. Now that they’re both in grade school, she has done a little substitute teaching at their public elementary school, but it’s a very flexible position with maybe a few shifts a month if she’s interested. Our boys’ teachers and principal have been generously flexible, allowing us to disappear for a few weeks at a time as long as they stay in touch and get some schoolwork done while away.
In November, we took our first big trip, spending three weeks in Guanajuato. The getaway was a wonderful family experience. We learned some Spanish, explored Mexico’s central highlands, and spent all of our days together, rather than running in different directions as we so often do at home.
December brought the holidays, and we were able to spend ample time with family in two states. I was hoping to have a reason to travel to a decent Bowl game, but alas, my home team struggled in 2017, so I’ll have to wait for another year or ten for that.
January had me traveling twice as the Physician on FIRE. Early in the month, I flew to Florida to hang out with some awesome people at various points along their FI paths at Camp FI near Gainesville. I was off to New York City at the end of the month to see a few friends and witness the ringing of the closing bell as a guest blogger at the New York Stock Exchange. Such a cool experience, and I totally got on TV, lurking behind the talking heads on CNBC.
By February, we were overdue for another family getaway. I had registered for a four-day anesthesia seminar in Hawaii, and we decided to tack on another 19 days before and after, exploring three of the Hawaiian islands. It wasn’t a frugal trip by any stretch, but you can’t witness the grandeur of the Hawaiian mountains, beaches, volcanoes, and waterfalls without spending some dough. Money well spent.
I went straight from Oahu to Park City, Utah to be a speaker at the White Coat Investor’s Financial Literacy Conference in early March, and by the time I got back to work, I hadn’t been home in a month and hadn’t seen an operating room in about six weeks. To make up for lost time, I performed double duty with a busy work schedule in March.
Later this month, we leave for Honduras where we’re planning to spend a week relaxing in Roatan before spending a week on the mainland where the four of us will be volunteers.
Much of our travel is paid for via travel rewards points from cards like these.
I may not be working as much, but I’m clearly no less busy than I was before. I’m just busy doing more things I’ve been wanting to do, and less time doing the things I’ve felt I had to do. Financial independence has given us the freedom to make that choice
Is Part-Time Work a Viable Option?
I certainly recommend it for those who can afford it and find a way to make it happen.
How do you determine whether or not you can afford part-time work? That’s a personal and family decision; you’ll have to examine your current financial situation before deciding if a lighter workload makes sense for you. I can provide a little guidance, though.
If you’re in debt, early in your career, and rely on a single income, you’re not a great candidate for part-time work. Conversely, if you’re debt free and / or have a substantial net worth, are later in your career and have a second household income, you can start formulating a plan today.
Most likely, your circumstances lie somewhere in between. Some people work part-time from day one after residency and do quite well maintaining a favorable work / life balance in a full-length career. Others choose to make hay while the sun is shining, not knowing what the future of healthcare will mean for their livelihood.
If you fall into the latter camp, as I did, I recommend getting at least halfway to financial independence before considering a substantial reduction in your income. By the time you’ve got 12 to 15 years of expenses saved up, in most years your investments will contribute significantly towards your progress to FI, lifting some of that heavy burden off your shoulders.
A couple years ago, I wrote a post examining the effects of beginning part-time work at different points in one’s career. Unsurprisingly, making bank in those early years is key. Full-time income that has time to compound is instrumental in achieving FI or other net worth goals. The closer you are to your goal, the more flexibility you will have.
Have you worked part-time? How did you handle that transition financially? What do you do (or would you do) with the additional free time? I look forward to hearing from you.
Physician on FIRE has partnered with CardRatings for our coverage of credit card products. Physician on FIRE and CardRatings may receive a commission from card issuers.