Location, location, location

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America the Beautiful

Personal finance enthusiasts (nerds) like myself like to talk about geoarbitrage – taking advantage of the salaries, tax rates and cost of living in one area that make it easier to build wealth or retire compared to another area.

Geoarbitrage is the reason why I can own a Big Dumb House for less than a townhouse in San Fransisco or a 2 bedroom condo in Manhattan.  It’s the reason my residency friends who moved to California and Colorado haven’t paid off their student loans yet.

Today we are going to look at how geoarbitrage applies to emergency physicians and full-time side hustlers.

Emergency Physician Income by State

Every year the American College of Emergency Physicians publishes a salary survey in ACEP Now.  The 2016-2017 survey contained data for every state except Utah and South Dakota.  I was able to use a high tech survey tool (Google) to look up the average salaries of those states on salary.com

Obviously there are flaws with salary surveys.  A few outliers amongst a low number of responses can really skew the numbers.  These were also surveys of open job offers for new hires – which don’t always include lucrative bonuses.

Flaws aside, you can notice some regional trends.  If you want to move to Colorado, Utah or Idaho to enjoy the great outdoors, be prepared to take a pay cut.  Want to make money hand over fist?  The Gulf coast is looking pretty good.

Map - Average EM salary
New grads move to the Rockies to enjoy the outdoors. It’s a good thing because they’ll be living outdoors in a van down by the river.

Top 3:

1.  North Dakota $455,000

2.  Texas  $453,000

3.  Mississippi  $441,000

Bottom 3:

48.  Idaho:  $253,000

49.  Hawaii  $253,000

50.  South Dakota  $250,763

State Income Taxes

Looking at regional salaries only tells part of the story.  The only income that matters is after-tax income.  As you can see from this handy map from the Tax Foundation, marginal income tax rates vary widely from a high of 13.3% in California all the way down to 0% in 9 states (NH and TN only tax interest and dividend income).

I used this handy tax calculator and the ACEP salary data to calculate the after-state tax income of emergency physicians for each state.

Map - Average Salary after income tax

Top 3:

1.  Texas:  $453,000

2.  North Dakota:  $445,396

3.  Mississippi  $420,300

Bottom 3:

48.  South Dakota $250,763

49.  Idaho $236,562

50.  Hawaii $235,600

Living Expenses by State

Everyone knows that the cost of living varies widely across the country.  Real estate in California costs way more than Nebraska.  Food costs are higher in Alaska compared to Ohio.  The costs of fueling and repairing your car is higher in Honolulu than Detroit.

Accidental FIRE recently had a great post entitled The Cost of the Big 3 Expenses by State.  If you haven’t read it, you should go check it out.  He painstakingly poured through government data on the average cost of home ownership, food and transportation.  After crunching the numbers he came up with the average monthly cost of the “Big 3” for each state.

I then had the Herculean task of…..multiplying those numbers by 12.

Here is what the average emergency physician takes home after paying state income tax and paying for food, transportation and housing in each state:

Map - Average Salary after income tax and big 3

Top 3:

  1. Texas $424,284

2.  North Dakota  $418,696

3.  Mississippi $397,260

Bottom 3:

48.  South Dakota  $225,431

49.  Idaho $211,998

50.  Hawaii $196,564

There is a $227,720 difference between being an emergency physician in Texas vs Hawaii.  If invested at a conservative 5% for a 25 year career, that’s an extra 10.8 million dollars in retirement savings.  Somewhere in Maui an emergency physician is reading this right now and reexamining all the life decisions that led to this moment.  Somewhere in Dallas there is an emergency physician swimming in a vault of gold coins a’ la Scrooge McDuck.

Don’t mess with Texas.

I know what you’re thinking.  The average physician doesn’t spend the average amount on food, housing and transportation.  That may be true, but there is no rule that says you need to drive your Tesla home to your 6 bedroom house after picking up takeout sushi for the 6th time this month.

Full Time Side Hustlers

Let’s say I achieve My Morbidly Obese FIRE and I give up clinical medicine.  I decide that despite the curse of job satisfaction I’m going to give up the stress, liability and sleep deprivation of emergency medicine and focus solely on work from home non-clinical jobs.

I could easily work 40 hours a week Monday – Friday doing utilization review, disability review or telemedicine without ever having to leave the comfort of my house.  If I made $125/hour (a very realistic number) working 40 hours a week and took 4 weeks of vacation a year I would make $240,000 from my couch.  That number would be true whether my couch was in Miami, Seattle or Albany.

Work From Home
The internet is the great equalizer

State Income Tax

Once again it becomes clear that the only income that matters is after-tax income.

Work From Home After State Income Tax

Top 3 (9):

1-9:  There are nine states that do not tax earned income.  Texas, Tennessee,       Washington, Florida, Wyoming, Nevada, New hampshire, Alaska, South Dakota  $240,000

Bottom 3:

48.  Hawaii $223,673

49.  Iowa  $222,517

50.  Oregon $221,032

Living Expenses

Work From Home After State Income Tax and Big 3

Top 3:

1. Tennessee  $215,508

2.  South Dakota  $214,668

3.  Wyoming  $212,460

Bottom 3:

48.  New Jersey  $189,518

49.  California  $187,147

50.  Hawaii  $184,637

There is a $30,871 difference between working from home in Tennessee vs. Hawaii.  That’s 247 extra hours (30 extra 8-hour shifts) pay in the Tennessee doc’s pocket.  That Maui doc is saying aloha to a lot of hard-earned cash.

Location, Location, Location

You’re only as wealthy as the money you don’t spend. If you live in a high tax, high cost of living area, it will be much more difficult to achieve FIRE than if you live in a no tax low-cost of living area. There is also way less incentive to pursue work from home side hustles that pay the same regardless of where you live.

I like the beach, being warm and earning money. These maps tell me if I ever transition to full-time work from home jobs I should head to Texas or Florida. California and Hawaii are beautiful to visit, but not great for holding onto your paycheck.

When it comes to choosing a job and building wealth it all comes down to location, location, location.

What do you think?  Have you taken advantage of any of these factors when choosing a job?  Do you plan on retiring to a tax-free low-cost of living area?  Share your thoughts and comments below.


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15 thoughts on “Location, location, location

  1. I have been incredibly lucky that I ended up where I did without a clue about geoarbitrage at the time. This was probably the biggest reason my path to FIRE was much shorter than if I had chosen elsewhere. Plus I feel like I really gave up nothing as this place perfectly suits my lifestyle.


    1. Totally agree. Some jobs are less portable than others. Living near family is always important, but especially if you have small children they help you take care of. A happy relationship is more important than tax savings.


  2. I live in Alabama and only 20 miles from Tennessee. I have looked at Tn, Fla, and Tx as places to totally retire to. When you factor in all taxes including property tax Alabama is actually cheaper. Tennessee currently taxes investment income (I think there is a bill to change this) so this is worse than earned income tax. Florida and Texas have much higher property tax than I currently pay. I think Alabama pays you to live here.


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