Personal Investment Options
Benefit Analysis of Obtaining a PhD
EGR 403 Team 5Jon Estanislao, Fady Mina
Muhammad Rahman,Oscar Villa
Scenario Overview
MAIN GOAL: To determine how beneficial it is it to receive a PhD?
Examine 2 career paths - Work for a single engineering company until retirement
- Work for a company while obtaining a PhD. Retire early from industry and work as a professor for a university.
Scenario Overview Option 1 (no PhD): $89,742 starting at beginning
of analysis Will work 30 more years till
retirement After retirement the engineer
will live off his savings and pension.
Option 2 (PhD): Pursue PhD for 3 years
- Receive stipend of $25,000/yr Returning salary $105,938 Will work industry until 55
(22 more years) Work for a university for 10
years
- Starting salary $65,000
Scenario Assumptions
Inflation rate is 3.5%
Salary increase is 2% / yr
Interest rate on savings is 8%
Analysis Techniques
Future Worth Analysis - To calculate the future worth of salary, savings and pension.
- Enable to compare earnings equivalently.
Uniform Annual Payment - Determine the equivalent retirement payment amounts received. Sensitivity Analysis - To determine how affected results are to change
PhD Option Work Earnings for PhD
$-
$20,000.00
$40,000.00
$60,000.00
$80,000.00
$100,000.00
$120,000.00
$140,000.00
$160,000.00
$180,000.00
30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55
Years
• First 3 years are stipend pay - $25,000
• From age 33 – 55 working industry w/ salary increase of 2% / year - Returning salary: $105,938 - Ending salary: $163,778
PhD OptionUniver. & work pension
$-
$20,000.00
$40,000.00
$60,000.00
$80,000.00
$100,000.00
$120,000.00
$140,000.00
$160,000.00
56 57 58 59 60 61 62 63 64 65
Years
• Working for University from age 56 – 65 - University Salary: $65,000
• At age 60 pension payments from industry begin
- Pension payment: $72,062
- Salary from 60 – 65: $ 137,062
PhD OptionLife earnings
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
30
32
34
36
38
40
42
44
46
48
50
52
54
56
58
60
62
64
66
68
70
72
74
76
78
80
82
84
Years
Sa
lary
ea
rne
d (
Pe
ns
ion
&
Sa
vin
gs
)
• Complete Retirement from work force at 66- Industry Pension: $72,062- University Pension: $13,000 - Savings uniform payment (20 yrs): $17,680- Total Retirement compensation: $102,742 / yr
No PhD OptionOnly salary for masters and P.H.D Vs age
$-
$50,000.00
$100,000.00
$150,000.00
$200,000.00
30
33
36
39
42
45
48
60
53
56
59
Age
On
ly s
ala
ry f
or
maste
rs a
nd
P.H
.D
Salary for masters degree Salary for P.H.D degree
• No PhD starting salary: $89,742
-2% / yr salary inc
-Ending Salary: $165,806
• Salary Difference: No PhD makes $354,357.27 more
No PhD Option
• At age 66 when both options are in retirement
- When both retired no PhD will be receiving $106,133.28 / year
• No PhD receives a total of $67,820.40 more during retirement.
Annual payment Vs age
$0.00$200.00$400.00$600.00$800.00
$1,000.00$1,200.00$1,400.00$1,600.00
Hu
nd
red
s
Age
sa
lary
+p
en
sio
n+
sa
vin
gs
salary with pension and savings for mastersSalary with pension and savings for P.H.D
Sensitivity Analysis: PhD – Response of Earnings to 5% salary inc yearly
Only salary for masters and P.H.D Vs age
$-
$100,000
$200,000
$300,000
$400,000
Age
On
ly s
ala
ry f
or
maste
rs a
nd
P.H
.D
Salary for masters degree P.H.D degree with 5% Inc in salary
Only salary for masters and P.H.D Vs age
$-
$100,000
$200,000
$300,000
$400,000
Age
On
ly s
ala
ry f
or
maste
rs a
nd
P.H
.D
Masters Degress w/ salary starting @ $94,742 P.H.D degree with 5% Inc in salary
With a 5% inc in salary the PhD makes a total of $720,506.46 more.
If Masters Degree starts with a salary of $94,742 instead of $89,742 the PhD with a 5% inc in salary still makes $475,718 more in total.
Sensitivity Analysis: PhD – Response of PhD to 4% Inc in salary savings
PhD 4% Inc in salary savings vs Original Masters Earnings
$-
$50,000
$100,000
$150,000
$200,000
30 35 40 45 50 55 60 65 70 75 80 85
Years
Sal
ary
ear
ning
s (P
ensi
on &
S
avin
gs)
Life earnings with 4% salary saved Master Original earnings
With a 4% inc in salary saved the PhD makes a lifetime total of $105,375 more.
Sensitivity Analysis: No PhD – Response of Savings to a higher interest rate
PhD 4% Inc in salary savings vs Masters with 10% Return on Savings Invested
$-
$50,000
$100,000
$150,000
$200,000
Years
Sal
ary
earn
ings
(Pen
sion
&
Sav
ings
)
Life earnings with 4% salary saved Master with 10% return on Savings
In total the Masters make $9,158 more then the PhD in life time earnings.
THE END