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I think I'm kind of screwed

September 3rd, 2006 at 11:23 am

...unless I'm seriously proactive about this wealth-building business.

That was what was running through my head during most of "The Millionaire Next Door".

To start off, I'm a gal. Big disadvantage, right then and there, in terms of earning potential. The statistics show that women earn 50% - 60% of what men earn (p. 181), regardless of field or level of experience. Fabulous. Oh, and I live longer, so I need to save more for retirement. Double-whammy. (Not complaining about the longer life expectancy, just... makes things marginally harder.)

Next, many millionaires are self-employed entrepeneurs. That's something I'll never be. What am I? An academic. A research scientist. One of those chronically underpaid thankless professions fueled by love and passion rather than monetary returns. (Again, not complaining about my chosen profession, just... this is a statement of fact.)

Right now, I'm making a little over $30K/year (pre-tax) as a technician. If I stay in academia, I'll need to spend five to six years in graduate school, getting my doctorate. During that time, I'll be living off an extremely low stipend ($20K/year?), and possibly getting more into educational debt.

After I graduate, I'll be floating around, doing postdoc after postdoc for around the same salary as I'm making right now. None of the postdocs in my lab are saving for retirement. I'm the ONLY ONE. Granted, most of them are foreign nationals, but even the ones who are here for good are putting off contributing to their 403(b)'s.

And then if you're incredibly lucky, you might land a position as an assistant professor. Your salary jumps to, oh, $65K/year. But by then, you're 35, at the very least. And if you don't get tenure after a few years, you must leave your university, move on, and start all over.

And this timeline hurts, financially. A lot. The book states:

"For all high-income earners (those earning at least $100,000 annually), the relationship between education and wealth accumulation is negative. High-income PAWs are significantly less likely than UAWs to hold graduate degrees, law degrees, or medical degrees." (p. 74.)

Why? Because:

"Well-educated professionls get a very late start in the earnings race. It is difficult to accumulate wealth when one is in school. The longer one stays in school, the longer one postpones producing an income and building wealth." (p. 74.)

It doesn't help that professors don't even earn in the "high-income" category.

So where does that leave me? Totally screwed, financially, if I choose the academic path. Either I aggressively save and invest now, during my two years of employment before grad school, and hope that time is on my side enough to grow this seed money, or I bust. It doesn't matter if my dream career is to be a successful research scientist. I'm not exactly willing to starve for the privilege of having my name on landmark papers published in Science or Nature. Am I?

Alternatively, I can put off graduate school for longer--until I'm 30 or so--and earn during my prime saving and investing years. I feel like the more I earn now and invest, the better off I'll be. I need to find the formulas and crunch the numbers for some concrete projections, but this seems to be the case.

I can also give up academia, and go into biotech. The salary there is $65K/year to start, although I may need a Master's to qualify for those positions. Then, I'll have a good ten year head-start on the folks heading down the professorial path, and that's a significant difference.

None of this even *begins* to take into account a possible family life. I don't even want to think about it.

But tons of people who are in this field *are* making it, right? And I know I don't necessarily need to measure my success by whether or not I make it to millionaire status--because honestly, what would I *do* with all those assets--but I'd really prefer to have too much than too little.

Damn, this is going to be harder than I expected.

19 Responses to “I think I'm kind of screwed”

  1. LuxLiving Says:

    Mimi - I love that you are kicking these ideas around while you are younger and can still make some slight to major route changes IF you want too!

    Too much over too little wins every time in my book! YMMV.

  2. ima saver Says:

    I will agree with the book. My dh and I did not go to college. We started working and saving money early. I bought my first house at age 21 and paid it off at age 32.My husband and I lived on under $20,000 a year and now live on about $50,000. I guess you can say we are PAW's!

  3. boomeyers Says:

    My husband is a recruiter for the "slide jobs", like for Quest Labs. Their males and females make quite equally and they are always going for the Fellows and catching them even before they are done! You can start at pretty good! Maybe save the academia for after you start your home and hearth? Just a thought.

  4. LuckyRobin Says:

    Have you read The Automatic Millionaire? It has some great charts in the back that show the value of starting early and let compounding do the rest. You may be surprised at what your $10K can turn into and if you aggressively save the next 2 years you may be far enough ahead in the game that you can do what you want and not what pays best. Check it out for yourself and see where to go from there. I wish I'd read that book at your age instead of at 36.

  5. Dido Says:

    Mimi, With your time horizon, you are *hardly* screwed. If I recall correctly, you are trying to save more than 10,000/year for retirement, yes? If you do that for 5 years and can manage an 8%/year return (which is a very conservative estimate...traditional estimates of stock market returns are 10-12%/year, but I'll give you a conservative estimate because of the short time frame. At the end of 5 years, you'll have about $58,666 and you'll be, what, 27? Plus if I recall, you already have about 8000 in Roth IRAs, so those will have appreciated $11,755 in 5 years given the same conservative 8%/year return assumption. That gives you about $70,421. If you never invest another penny but leave that money invested at 8%/year for 35 years and retire at the grand old age of 62, you would have a nestegg of $1,0411,987. And given your mindset, I'm sure that even if you take a few years off of retirement saving to get through grad school and get your career started, you'll be back to it. If you want another million in addition to the amount mentioned, save $13,678/year for 25 years, again using the very conservative interest rate. And if you save more or returns over the time frame are back to the 10-12% stock market typical level, you'll have that much more.

    You may or may not want to eventually go into academia. It has its upsides and its downsides. (FYI, I am a "failed" academic, having landed on the adjunct track after not publishing enough and "perishing" at a research university). You have time to decide, and with the tech career possibility, plenty of options. Yes, women traditionally don't do as well as men financially OR in terms of academic career success (although I count among my mentors and their peers at least two women who are Presidents of major research universities). But the time advantage trumps all. You are hardly "screwed."

    By the way, since you are quantitatively oriented, you might want to get a business calculator (I like the TI BA IIPlus for $35) and learn how to do "time value of money" calculations. Very useful for making these kinds of projections.)

  6. amberfocus Says:

    LuxLiving: If you told me, even a year ago, that I'll be taking money into consideration when planning my trajectory, I would have told you that you were insane. Part of me still can't believe that I'm "selling out" like this. Where the heck did my optimistic idealism go?? I can't decide if I've wisened up, or become horribly cynical, because I, too, now want "more than enough for the sake of financial security", rather than "enough to survive on but still be happy".

    ima saver: Well, my family considers education to be one of the best investments one can have, so they're really pushing me to get my doctorate ASAP. It does increase your earning potential, although it does so at the cost that is discussed above.

    The problem with academia is that there isn't enough funding or professorial positions to support the research of all the graduating doctorates. But it is still crucial that research gets done. I think the work environment really needs to be made more favorable for research scientists. Otherwise, the field might lose even more talent.

    boomeyers: My concern with pursuing academia after I've established my "home and hearth" is the lack of stability. I've seen two professors I know with families get denied tenure, and have to move on. You cannot count on settling down.

    And there is also the issue of discrimination against women in the academic sciences who have families, because it is seen as a conflict of interest. Most women scientists marry male scientists, but most male scientists marry housewives. So males scientists can have families because their wives will care for them. But women scientists don't have stay-at-home-husbands to care for their children. And they get denied tenure because they're not seen as productive enough.

    LuckyRobin: Actually, I have read Automatic Millionaire. It's sort of why I feel a sense of urgency when it comes to saving for retirement early. I remember being amazed at how much difference starting early makes, and thinking that I don't want to squander my early years. I'll have to check the charts again (or find the formula so that I can generate the chart myself based on my own parameters). I would love to see what I need to do in order to have enough to do what I want for the rest of my career, rather than what pays best. Doesn't everyone, after all?

    Dido: Wow, fabulous calculations... Thank you. It's exactly what I wanted to know--that is, how much would putting off grad school now and spending a few extra years in the workforce help me in reaching my retirement savings goals. If it looks live five years might be enough do it, then that is quite reasonable, since it's only three more years than I'm currently planning to take off. Heck, if I go into biotech after two years and kick up my salary for three years, I'll even be able to fully fund my house fund. It's selling this delay to my parents that will be hard, heh.

    ~mimi

  7. baselle Says:

    Calculations like those, and that I was sick of science at the end, were what got me out of academia. I did manage to put some retirement money away during my postdoc (hmmm, I was above average there).

    One little realization I made about their UAW, AAW, and PAW calculation, which I figured that you would appreciate. Their calculation about net worth is (age*salary)/10 is a linear function. But most of the strategies for increasing net worth like buy and hold, compounding interest, etc is slightly exponential. It means that for many of your saving years you will look like a UAW or an AAW. You only "turn" into a PAW as your savings round that curve and turn exponential. It means save, spend conservatively, stay the course and don't freak out. I should blog about this....

  8. amberfocus Says:

    Lots of people I know are disillusioned with academia, including the two previous techs in my lab (they both went on to biotech as opposed to grad school), as well as my father. Too much competition, pressure, and politics. I could go on for ages on this topic, but it's probably off-topic for this blog.

    Re: the [_]AW calculations... After discovering that I fell way short of PAW (and even AAW) on both my current salary and my college work-study salary, I realized that I needed to interpret their net worth calculator "in spirit", so to speak--as in, you should be saving at least 10% of your income every year, which I think I'm doing okay on. The time it takes for your investments to experience exponential growth makes sense, too--thanks for pointing that out!

    I do wonder what the multivariate-based equation version of the calculator is, though. I bet it's more accurate.

    ~mimi

  9. Dido Says:

    Mimi, Here are the basic Time value of money equations. There are two basic variations: time value of a lump sum, and time value of annuities, where an annuity is an evenly spaced series of equal payments--e.g., your monthly rental payment is an annuity.

    I. Lump Sum Calculations
    a. Future Value of a Lump Sum
    FV = PV(1+k)n

    where PV = present or current value, FV = future value, k is the interest rate expressed in decimals (e.g., 5% interest is k=.05) and n is the number of periods.

    Simple example: $100 invested in a 5%/year bank account in one year FV = 100*(1.05)^1 = $105, in two years = 100*(1.05)^2 = 110.25, etc.

    b. Present Value of a Lump Sum PV = FV/(1+k)*n

    you'd use this if you know the future value you want and want to figure how much you need to save. E.g., if you want $1,000,000 to retire in 40 years and you think you can earn 8% interest, PV = 1,000,000/(1.08)^40= $46,031 invested today at 8% will be worth one million in 40 years.

    The equations for annuities are hard to read when I type them out here...

    here's a site that has them written out better than I can.http://www.frickcpa.com/tvom/

  10. amberfocus Says:

    This is exactly what I was looking for! I'm going to be spending some quality time with these equations in the very near future.

    ~mimi

  11. Dido Says:

    glad to help..the versions on the site I referred you to are better; I see a couple of superscript indicators missing in what I wrote out and can't edit once posted.

  12. Great to be Debt Free Says:

    Okay, I skimmed all the responses, but I do have this word of advice regarding putting off grad school. Think long and hard before you put it off until later. Life can easily change so much that it is either WAY later or mayeb never.

    I am 33. Last year, I decided to go back to school and work on my Masters/PhD in philosophy so that I could teach at a college level -- and becasue it was a lifelong dream. Well, it was difficult for me to even get accepted into a program -- and forget assistantships. Do you want to know why? Because I am too old! Really! The retiring professor who I spoke to revealed that it was a huge factor against me. I am too old and interested in teaching instead of research and writing to earn the school critical acclaim for years to come. Da*n I hate the politics of academia.

    So, if you really want to pursue the education. Do it. It will be harder later. A lot harder. No, your life wealth may never add up to what others have, but if you have enough, does that really matter? Okay, that's probably way more than 2 cents. I wish you luck! Smile

  13. amberfocus Says:

    Great to be Debt Free: You make a great point. There does come a time when getting into grad schools becomes increasingly difficult. And I'm worried about that, myself. The longer I'm out of "the loop", the less competitive I am at the top schools that I'm interested in.

    (My parents also want me to speed it up because they're afraid that I'll be too old to have babies by the time I'm done with school. Urg.)

    I'm 21 now (turning 22 before the end of the year). If I stay at my current position for two years (and put away $20K total into retirement), and then switch to industry for another two years (and put away $30K into retirement), I'll be 25/26, and have enough in retirement to earn a million by age 65. That should be enough.

    If I get into grad school then and put the petal to the metal, I can get my doctorate by age 30. Okay, probably early 30's. And then it's back into the workforce for me, hopefully with a higher salary.

    As for teaching philosophy, I assume you're looking at liberal arts colleges? Because they place a greater focus on professors who are teacher-scholars. Maybe you can capitalize on the teacher part.

    I studied philosophy (and the humanities) for the majority of my college career at a liberal arts college. It is really, really tough to make it, even without the age factor. I saw two great professors of mine denied tenure. Although I know one of them ended up the chair of the philosophy department at his new institution, so there's still hope. Smile
    best,
    ~mimi

  14. drew1980 Says:

    Actually, I agree with the above post. Going to grad school later in life is far more difficult. Especially when you consider this: in 6 or 7 years, you might have a family.

    It's easier to juggle a job & school when you don't have anyone else to take care of. You'll also have plenty of years ahead of you to pay back the student loans.

    I'm also going to go out on a limb and suggest that you consider getting an MBA. Something tells me you might really like it (perhaps an MBA in Health Care management?).

  15. amberfocus Says:

    I just had another idea. I can apply to grad school at the end of two years, and then defer for two years. I'll still be a young applicant at age 23 (plenty of people take a year or two off after college), but still get the opportunity to prep for retirement while time is on my side.

    The reason why I'm concerned about having enough money in retirement before I go to grad school is because I'm still not 100% sure if I want to go the academia route. I want to have this insurance that even if I change my mind and drop out or change fields, I'm still set for retirement, I haven't wasted too much time.

    As far as having a family goes, I have my doubts that it'll happen. I'm just not sure my relationship (if it somehow revives itself and survives the year, heh) is heading in that direction. I just don't know how I can take something so uncertain into account.

    I haven't really thought about an MBA. I've only been learning about finances for, oh, a month? But who knows, you could be right! Smile I'll take a look at what that entails when I get a chance.

    ~mimi

  16. Dido Says:

    Interesting direction this is taking. One comment I have is that *everything* is more difficult as you get older, since life gets more complicated. I can well remember being your age when my total sum of possessions were a bed, one pot, a wooden spoon, one set of dishes and silverware, a clock-radio, a table & chairs, a sofa, and about 3 boxes of books, a flute and a camera. Life was simple! But...having kids is easier when you're young, to some extent getting into school *could* be easier when you're young, getting hired is easier when you're young because you're *cheap*.

    I will note that I have sat on graduate school admissions committees at a couple of universities, and I've never heard of age being considered as a criterion for admission. Of course, the oldest candidates were about 40--and those people *did* have a harder time getting hired in academia once they'd completed their degrees. They ended up combining their pre-grad school experience with their Ph.D.s and getting administrative/supervisory positions in non-profit organizations.

    For applicants in their 30s, their life experience was usually considered a bonus. I know that I'm not the only one who is a little bit wary of candidates coming in fresh from college. Compared to people who have taken at least some time off to work, those who go straight through seem more likely to change course. If you're applying to graduate school later, you're more likely to have tested the waters and to be sure that this is what you *really* want to do.

    One thing that definitely counts *against* grad school admission at a research university, and so in the sciences, is to have *teaching* be your main goal. What professors are looking for, in my experience, are students who will help them accomplish a lot of research and develop research reputations themselves, adding to the supervisory professor's luster. When I started my PhD program, my advising professor told me that she would not work with any student who wasn't intending a research career at a university--if I wanted to go the applied route, I should find another advisor. (Teaching alone as an option wasn't mentioned.) When I was a post-doc at Stanford, I remember walking into a professor's office to introduce myself, and, saying, "I'm a new post-doc here," the resonse was, "Not with ME, you're not!" because post-doctoral fellows don't add to the reputation of their advisor in the same way that grad students do--at least in my field, in the field, people are always aware that you were such-and-so's student, at least until you get into your 40s.

    So in my experience, it's not age, but stated career goals, that have a greater influence on grad school admissions.

  17. amberfocus Says:

    Dido: Thanks for your insight. I'm taking time off to work right now precisely to build experience and "credibility"--because otherwise, I just look like a young twerp who changed majors to biology her senior year, and happens to get good grades. I've talked to multiple professors, a career advisor, and a friend's parent who sits on a graduate admissions committee, and they all said I need research experience in a proper lab, much more so than I need course work.

    Hence, I'm taking two years off to work as a tech. If I'm lucky, I might even get my name on a publication. That's my hope, anyway, although I won't be holding my breath. There's already much competition over who gets to do what project and who gets credit for what results, and while there are nice folk in my lab, too, they usually aren't the ones who get their way.

    I don't think teaching is my main goal (I'll teach in grad school to see how good I am at it, I guess), although it's hard to say what *is* my goal. I'm still trying to get my specific research interest down, much less an extended career path. I really couldn't tell you if I want to be a teaching professor, research professor, work for industry, or completely change my research focus (although I'm very set on biology). Right now, my main concern regarding academia is the noncompetitive pay (not as important if I can get my investments set up early), competitive co-workers (I'm very easygoing and cooperative, so this attitude is a huge turn-off), and possibly also the politicking (the recent spat at MIT regarding Susumu Tonegawa intimidating Alla Karpova made me feel ill).

    If I can do fulfilling research while retaining some semblance of balance for my personal life, I think that's what I would like. And I think that's reasonable. But I'm not sure where I can find that, yet.

    ~mimi

  18. Dido Says:

    Good luck with the search. Academia is always somewhat competitive and political, but IS significantly more balanced at the teaching-oriented schools than at the research ones.

    Also remember that academia has sabbaticals for those lucky people in tenure-track positions. That's a good balancing perk in itself.

  19. Single Guy Says:

    I'll just throw in my experience here. After graduating with a BA I worked for 9 years before going back and getting a Master's degree. I don't recall any problems getting admitted, nor getting an graduate assistantship, though the assistantship didn't happen until my second semester back at school. And being older gave me some credability when I taught classes to undergraduates.

    I didn't have any children, so that wasn't an issue. But going from having some money to none meant I needed to be determined to finish as fast as I could. I called it my "vow of poverty". BTW, when you go back you can keep checking with the profs to see if they know of any company looking for part time highly educated help. I did that and within a few months I had a job that would let me have flexible hours to work on my classes and assistantship, and earned about 3 times minimum wage at that time. I could only do 20-25 hours per week, but they were happy with me, and the money meant I didn't go into (much) debt while I was in school.

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