Jan 7, 2010

Is Grad School Worth It? Financially Speaking.

I've been obsessed with the idea of applying to / going to grad school lately. Not for the earning potential post graduation, but for the chance to focus on an area of study and build up my skills so I feel like an expert in an area (at least until those skills are out of date.) But then I wonder... financially speaking, is grad school worth it?

Really what I need to look at is how much I will have when I retire. I figure I should have at least $1.5M in my bank account when I "retire" (although I plan to work at least part-time well into retirement, but at this point I want to be able to travel and freelance and not have to worry if I get sick and can't work.)

At the moment, if I can live up to my quasi-frugal savings plans for the year and maintain my current job and occasional freelance income (say $70k per year pre tax) and save $20k each year, according to the compound interest calculator if I start with $30k today and save $20k a year for 30 years at a modest average interest rate of 3% I will have $1.052M in savings by the time I'm 56 and $1.65M by the time I'm 66.

It almost seems silly then to add in the cost of grad school, which will put me into debt and for many reasons, not guarantee I will make more than I am now later and certainly will not allow me to comfortably save $20k anytime during or after graduation from a graduate program.

Additionally, if/when I have children, it will also become increasingly difficult to save $20k per year, if not impossible. This variable could effect both the non-grad school and grad school potential scenarios. And since my 27-year-old boyfriend refuses to work a full time job or put an ounce of his occasional earnings into a Roth IRA, it's likely that I'm saving for the both of us and our families. Which makes that $1.65M, esp with inflation, seem like a few dimes and a penny.

That brings me to wondering if I should just keep living like I'm living now for the rest of my life. No kids (they're expensive.) Roommates. A small room. Living in an area where heat isn't necessary. Cheap bills otherwise. Saving $20k per year. Cutting back when needed to make that possible. Retiring single at 66 with $1.65M (some of it would be taxed, of course, but that's still not bad.)

Then again... why should I be living life to save for retirement? I can't imagine ever wanting to fully retire -- I see my grandmother at 80 spending her days in the casino and I think if I had the mental capacity she does at 80 I'd be working. I might be limited in my job choices but still, I'd be working because I don't want to be the type who just sits around and "enjoys" retirement.

Going to grad school is probably an easier choice when you're making $35k or less. But once you're making $70k it's a hard trade in. I'm looking more and more at MBA programs (my career counselor seems to decided that I should consider this path and is in awe of my knowledge of social networking and certain aspects of the tech business) but I don't know. I don't see myself ever really following an MBA path -- working 100 hours a week, traveling more than I'm staying... I could do that maybe for a few years but not my whole life. How much more can I really earn with an MBA vs. 2 more years of experience that I can gain through my current or next job? Alas, these days I'm liking numbers a lot more than I used to... and I think I'd like studying applied math. I like spreadsheets.

The debt truly freaks me out. People go into debt all the time for school but I don't know if I can. Partially its because I don't know if it will actually be worth it for me to go to grad school. It would probably make more sense to give a loan to someone more focused than I am and more dedicated to getting a high salary, pay for THEIR grad school, and earn interest on that... then for me to go to grad school.

And, anyway, I read that in 25 years a dollar today will be worth $.32 which means that my $1.65M when I'm 66 will not be enough to get me through retirement (unless natural causes like stabbing myself help me reach those goals.)

How much are you saving for retirement? How much do you think we will need to retire in 2050?


Anonymous said...

I found you through fivecentnickel - and I wanted to respond to the comment you made about not being able to have enough time for grad school if you have kids. Then I see you have a whole post on the decision of whether or not to go to grad school.

first - kids or not, anyone can do it. I had two very little kids when I applied to grad school AND I was working a full time job. AND I had a third while IN grad school - popped her out and came back to give a presentation the next week. You can do ANY thing you put your mind to. And the job - you don't have to "trade" it in for grad school. You CAN do both. Others may think you're crazy, but it doesn't matter what others think, now does it? Don't let others tell you what your limitations are.

Secondly - I understand your point about the salary issue. Upon entering grad school, I was already making more than the grad students were being offered at graduation. I didn't plan to do anything different with my degree than what I was already doing - just wanted more knowledge. And I kind of viewed the degree as "insurance" in case I did lose my job or had to relocate. Yeah, others thought I was crazy for seeking a masters degree with no plan to switch jobs, but again, I didn't care what others thought.

Now on the finances. Have you heard of "auditing a class?" It's where you get to sit in a class for the whole semester, same as the other students, you just don't get credit towards a degree. The benefit is, you pay a reduced rate (sometimes nothing) for the class. If you truly are interested in just learning, and don't care about getting the piece of paper at the end, check to see if that's an option at the university you are looking into (and you can still list the classes you audited on your resume). In my case, I wanted the degree, so I paid for it out of my own pocket (saved, then paid. NO student debt. It was hard, and I had to make sacrifices, but it was worth it to me!). It stunk that there were no grants/scholarships available for part time students - had I gone full time, I could have gotten it all paid for - I even got a call from the dean offering full paid tuition if I would change to a full time student and work some hours in their office (researching and/or tutoring), but I couldn't quit my job b/c I was (and still am) the "breadwinner" in my family. So I understand your money delimma. But at the same time, I am jealous of your options. Considering grad school BEFORE having kids gives you so many options! If your employer allows you a flex schedule, you can be a full time student AND keep the full time job!

But bottom line, I would say, don't let the money be the focal point of your life (do you know how hard it is for an Accountant to say that?). Respect it (which you obviously do), but don't worship it. Do you really want to retire single with no kids? What fun will all that money be then?? And make sure you don't have regrets (I've never heard anyone say they regret getting more education!)

Good luck in whatever you decide. I am sure you'll let us know!


(PS - have you looked into the job of Actuary? You can play with math and spreadsheets all day long - and get paid very well for doing it! Sometimes I wish I had known of that option when I was in college...)

Anonymous said...

second post to actually adress your question at the end (sort of)...Your retirement plan sounds a lot like ours. We are fortunate to live somewhere where expenses are relatively low, so a salary of $80K goes a long way (the link FCN provided says I would have to make over $140K in NY). We are saving about like you, with the goal to have about $1.2 million in retirement by the time I am 55 (and additional funds in taxable accounts). But for us, retirement goals aren't just about saving a butt-load of money, but about making sure our expenses are low enough so that what we saved goes a long way (lots of traveling we want to do!) We have no debt except for the mortgage and we plan to pay cash for everything, including cars, from now on. The mortgage will be paid off before I am 42 (in 8 years!), just in time to pay for kids' college (although we are saving for that now also). I want to be proof that you can still reach your retirement goals with kids in the picture. Yeah they are expensive - but worth every penny (this coming from someone who, when 20, thought she never wanted kids!) But that bf of yours, let's just say you have a heck of a lot more patience than I have!! My hubby stays home b/c he takes care of the kids, cooks, cleans, and does the laundry. If it weren't for that, you better believe he'd have a job or his a$$ would be kicked to the curb!! Girl, if you plan to marry him, you better build the financial picture together - don't assume you are just going to carry him through.

Sharon (again) :)

Julie said...

I think inflation is definitely important to worry about, but you probably account for it already by assuming a low interest rate of 3%. Most people assume growth of 5-10%, so when you account for 3% inflation, that goes down to 2-7% growth, which is exactly your assumption.

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