Many people have been asking me how I can capitalize on the fact that I have a PhD. Many think it’s easy because it has been conveyed the message that if you have a PhD, then a well-paying job will be served to you on a golden tray. How large the paycheck will be is simply determined by field you picked, some say. You’ll make so much money you can’t even spend it at the same rate! Well… that is not my experience. Before you proceed, let me tell you that you should read this book (Affiliate link) regardless you are considering doing a PhD, you are doing or you did one.
I have seen many PhDs throughout my life. Most of my co-workers and many of my friends are PhDs. I work at a tier-1 university, where faculty members receive job offers from the industry almost on a monthly basis. Do you want to hear the cold, hard truth? Unless you are an uberly well-established researcher, or you do something of extreme interest to industry (which usually means driving manufacturing costs down), job offers will be average in terms of dough. This pertains to those who get offers, because many don’t. Getting a PhD is not that uncommon anymore. In the US alone, more than 54.000 PhDs were awarded in 2014. Some sources claim that the idea that PhDs struggle to find a job is wrong. Well, this may well be for some fields, but others it is the pure hard truth.
In Portugal, I know a bunch of people with PhDs. I know some who work as cashiers at the supermarkets, earning less than 600 bucks a month. The economy in Portugal is not that strong, and high qualified people are not well absorbed by the market. If they get a post-doc grant from the government (called “bolsas FCT”), they will be paid €17.760 (grants are not taxed in Portugal). From this, they have to pay for their health insurance (which is very low in Portugal as every citizen is entitled to use the national health care system at low cost) and build up their own 401k (or similar – usually called “PPR – Plano Poupanca Reforma”), as there is no employer to match your contributions.
The economics of a PhD vs no PhD
I want to retire in Portugal because it is simply the best country I know to live in (Croatia comes close – as I said before, I will do a post on Portugal vs Croatia at some point). Let us do the economics for Portugal. As I said, post-doc grants are €17.760/yr (which comes down to €1480/mo). There is no progression in the career whatsoever – grants remain flat (they are probably updated every now and then, to keep up with inflation.
I will assume we can live off €750/mo in Portugal until we are 30 years of age, and €1200/mo after that (I will discard inflation to refrain the math from getting nasty). This originates the following savings until the age of 40, compounded every year at 6%:
There is no progression at all on post-doc grants. This means that, at the age of 40, you’ll be able to buy a condo all cash, because you have $72.232 sitting in the bank! Such a great living…
Now, let us compare this post-doc position (for which you need a PhD…), with a standard 50k position, with:
- progression which translates into a 6% annual increase in salary;
- a 6% contribution towards a 401k, entirely from the employer;
- a 6% compound increase on the 401k.
As you can see in the figure, a post-doc will do almost as well as the 401k of a 50k position. It’s ridiculous. 🙂
The question now comes down to “can I still have the 50k (say 30k net) position having a PhD”? Of course! But we need to account for the 4 years (on average) you spend doing your PhD without being paid, when comparing to someone who starts working at the age of 23:
No big surprise here – they will be 4 years apart because the PhD will start working 4 years later.
Well, what if a PhD finds a company which really values having a PhD and gives him/her a 65k job (say 39k net, which represents 30% more than a normal 50k job), with the same 6% annual increase? Let us compare it with a 50k position of someone who starts working at 23:
In this case, they will have approximately the same wealth when they are 38-39, assuming the same conditions as above.
Wrapping it up…
The best scenario when you have a PhD is to end up with $15k more than a no PhD, at the age of 39. However, this means that you’re paid 30% more (!) than a no PhD (this also assumes that you started to work 4 years later and you saved no money while you were doing the PhD – typically the case). Now, how many employers do you know that would pay 30% much more just because you have a PhD? From my experience, most won’t pay that much more. On top of that, my experiments consider linear career progression, which is not typically the case. With a different type of progression, the breakeven point would be much after the age of 38-39.
My personal conclusion
A PhD is certainly not a ticket to wealth. Perhaps they are tickets to self-realization for those looking for constant intellectual challenges like I was 5 years ago. I personally don’t know wealthy PhDs and I am certainly doing better than the average PhD, in terms of wealth.
For me, the PhD was a means to attain self-realization. My degrees were not the biggest contributing factor for me to attain My Net Wortha net worth of 250k. I plan to attain considerable wealth through aggressive saving and wise investing. My PhD will certainly be useful down the road, but my general advice is not to do a PhD if wealth is a priority.