How delaying your post-PhD career can cost you +$500K

One of the things that really messes with PhDs as they’re coming to the end of their degrees is that the academic job market is great at keeping people in perpetual limbo. The year-long job cycle means that you spend months and months waiting on results when you could be building a career. And when they come back negative, it’s just in time to start next year’s cycle again.

Today I want to argue that, financially speaking, there are good reasons not to delay your entry into the real world at the end of your PhD. And delay is exactly what a lot of students do, jumping into post docs, visiting positions, and exploitative sessional lecturer jobs to try to keep the dream alive–all with the hopes that a tenure track job may emerge.

Let’s do some quick post-doc math.* ( I’m going to vastly oversimplify these numbers–so some finance nerds may want to hold their breath or feel free to yell at me in the comments.)

Let me introduce you to the financial decisions of Chris 1 (AKA me), Chris 2 (the anti-me), and Meg (because I don’t know).

Chris 1

Chris 1–me–is 34 years old. I finished my degree in the spring and work full-time. Let’s say I want to retire at 65. Imagine my average earnings for my career are $100,000 a year. And I’m going to put 15% of my income away for retirement.

That’s 31 years putting an average of $15k a year away.

Let’s use this number of $15k a year to crunch some investing numbers, even though it’s an oversimplification. (You won’t put $15k a year away, you’ll put 15% away, which is very different. But we need a dollar figure to make the investment calculator work.)

If I invested $15k a year in the market with a roughly 7% return (which is what the S&P 500 has historically made after inflation), by the time I was 65 I’d have: $1,571,924.84**

Chris 2

Let’s say that there’s another version of Chris who stays in academia. This Chris (AKA “Chris 2”) is chasing the dream, so instead of entering the job market at 34 he takes a 2-year postdoc that pays $45,000 a year. The post-doc is in Wisconsin, so by the time he moves there and lives off that pitiful amount of money, he’s probably not saving anything for retirement.

Now let’s say that after that Chris 2 spends two more years in a visiting professor position in Boston making $65,000 a year. Not terrible, but still probably not putting much away for retirement–especially living in Boston. Because of the costs of moving, lost income between the post-doc and the position, refurnishing a house, etc. etc. etc., Chris 2 still doesn’t save anything.

Finally he gives up and leaves academia or, heck, maybe he gets a great tenure-track job.

The outcome is the same.

By the time this Chris 2 settles down to a well-paying job he’s 39 and has no retirement savings.

So he starts investing.

Let’s say, just to keep it simple, that this Chris also makes $100,000 a year between the ages of 39 and 65. And lets just say he puts aside an average of $15k a year into investments.

Using all the same calculations, this Chris 2 will retire with $1,057,617.64. That sounds like a lot of money today, but in 26 years it will feel like a lot less.

I hope the post-doc and visiting professor positions were good. Because they cost Chris 2 a a cool half-million dollars in wealth.

Notice this… those 5 extra years of $15k each–$75,000 total–that Chris 2 doesn’t put into retirement savings translates into $500, 000 in lost wealth in retirement.

Time can be either your friend or your enemy.

Meg

Let’s add one more person to this mix. We’ll call her Meg. Meg finished her PhD when she was 29. Like Chris, she earns an average salary of $100,000 a year. She invests an average of $15k a year at 7% a year return.

At 65 years old, Meg has $2,293,267.28. Although she entered the marketplace 5 years earlier than Chris 1, she makes $722, 000 more than he does.

Meg invests $150,000 more than Chris 2 does (10 years x $15k). But she ends up with $1,235,650‬ more than him. That’s the beauty of time and investing.

These numbers are for illustrative purposes. I have purposely oversimplified them to get the point across. You can repeat them with different income levels and investment return rates (some will argue that 7% is too high or too low), but the point is the same.

When it comes to building wealth, time is your friend. Your PhD can have a modest rate of return in terms of earnings, but it doesn’t do much good if you wait forever to get into the job market—academic or non-academic.

*NB I am not a financial expert or planner. I have a PhD in Religious Studies. DO NOT TAKE MY FINANCIAL ADVICE AT FACE VALUE! Educate yourself and/or get help from a professional investment manager (preferably one who doesn’t work for a bank).

** I used Edward Jones’ relatively simple investment calculator. There are tons of these—including compound interest calculators—online.

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