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