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.
1. North Dakota $455,000
2. Texas $453,000
3. Mississippi $441,000
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.
1. Texas: $453,000
2. North Dakota: $445,396
3. Mississippi $420,300
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:
- Texas $424,284
2. North Dakota $418,696
3. Mississippi $397,260
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.
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.
State Income Tax
Once again it becomes clear that the only income that matters is after-tax income.
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
48. Hawaii $223,673
49. Iowa $222,517
50. Oregon $221,032
1. Tennessee $215,508
2. South Dakota $214,668
3. Wyoming $212,460
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.