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Catching Up with Prior Guests: 2024 Edition

December 16, 2024 by Jill Hoffman Leave a Comment

Emily published the first episode of this podcast in July 2018. This is the 223rd episode, and over the last six and a half years, the podcast has featured over 300 unique voices in addition to my own. For our last episode in 2024, we are catching up with the guests from Seasons 12 through 14, and a few from earlier seasons as well. The guests were invited to submit short audio clips to update us on how their lives and careers have evolved since the time of their interview, as well as to provide their best financial advice if that has changed since that initial interview.

Links mentioned in the Episode

  • PF for PhDs Podcast Hub
  • PF for PhDs Subscribe to Mailing List
  • PF for PhDs Excel Spending Tracker
  • PF for PhD Website
  • Emily’s E-mail Address
  • Sam Hogan (from PhD Home Loans): Season 2, Episode 5; Season 5, Episode 17; Season 8, Episode 4; Season 13, Episode 1
  • Dr. Tina Del Carpio: Season 6, Episode 10
  • Dr. Gertrude Nonterah (from The Bold PhD): Season 8, Episode 6
  • Dr. Alana Rister (from Science Grad School Coach): Season 10, Episode 4
  • Dr. Jay Zigmont (from Child Free Wealth): Season 12, Episode 1
  • Dr. Inga Timmerman (from Attainable Wealth Financial Planning): Season 12, Episode 3
  • Dr. Haley Sanderson: Season 12, Episode 4
  • Brittany Trinh (from Beyond Your Science Podcast): Season 14, Episode 4
  • Host a PF for PhDs Tax Seminar at Your Institution
Catching Up with Prior Guests: 2024 Edition

Teaser

Jay Z (00:00): What do I do if the path I’ve bet on, the money disappears? It’s just one of those things you gotta think about in which probably nobody wants to think about and that’s a reality check.

Introduction

Emily (00:16): Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs.

Emily (00:47): This is Season 19, Episode 9, and today I am featuring many guest voices! I published the first episode of this podcast in July 2018. This is the 223rd episode, and over the last six and a half years, the podcast has featured over 300 unique voices in addition to my own. For our last episode in 2024, we are catching up with the guests from Seasons 12 through 14, and a few from earlier seasons as well. I invited them to submit short audio clips to update us on how their lives and careers have evolved since the time of our interview, as well as to provide their best financial advice if that has changed since our initial interview. You are going to hear a common theme throughout many of today’s audio segments. The audio clips in this episode are ordered by when the original episode was published. If you’d like to circle back and listen to any of the previous interviews, you can do so in your podcatcher app or at my website, PFforPhDs.com/podcast. To keep up with future episodes, please hit subscribe on that podcatcher and/or join my mailing list at PFforPhDs.com/advice. You’ll hear an update from me first, followed by the rest of the guests. You can find the show notes for this episode at PFforPhDs.com/s19e9/. Happy listening, happy holidays, and happy new year! See you in 2025!

Dr. Emily Roberts

Emily (02:23): Hi! This is Emily Roberts from Personal Finance for PhDs. I am of course the host of this podcast and you hear from me in every episode! My update last year at this time was a bit of a downer, and I’m pleased to report we’ve had a much better year overall in 2024. Some personal highlights from this year included: living and working from my parents’ house for a month over the summer and meeting my new nephew, vacationing in Hawaii for the first time, attending Family Camp in Sequoia National Park for the third time, camping with my daughter’s Girl Scout troop several times, including a Roar & Snore at the San Diego Zoo, seeing Hamilton in Los Angeles, and becoming a regular at Orange Theory Fitness. My husband and I also purchased our very first new car, an electric vehicle, and are enjoying having two cars at our family’s disposal. My daughters are doing really well in school and having fun in their extracurriculars. We’ve continued our family traditions of reading together—I’ve read 61 books so far this year—and playing strategy board games like Dominion and Ticket to Ride. Despite some personal health challenges, it’s been a great year.

Emily (03:40): As for Personal Finance for PhDs the business, I’m really pleased with how the year evolved. Over the summer, I revamped all of my live seminars to be true workshops, and my clients and audiences have responded quite positively. I believe this teaching style is more effective than my previous one, and the template spreadsheets and worksheets that I provide have been appreciated. My clients are also getting back to hosting me in person more so than in previous years, which is my preference by far. In 2024, I delivered workshops in person at Yale University, the University of California at Los Angeles, The Scripps Research Institute, the University of California at San Diego, Michigan State University, and Boston University, and all the engagements were delightful. I also attended two conferences, the Graduate Career Consortium in Philadelphia and the Higher Education Financial Wellness Summit in Pittsburgh. The business revenue and my income are up over 2023’s numbers, though I’m still gunning to get back to where they were in 2022. In 2024, my family has made great use of the manual expense tracker that I mentioned in last year’s update, which incorporates some of the principles I teach in my workshops. If you’d like to download the tracker, please register for the Personal Finance for PhDs mailing list through PFforPhDs.com/tracker/. Thanks for listening to my update! If you want to get in touch, you can visit my website at PFforPhDs.com or email me at [email protected].

Sam Hogan

Sam H (05:18): Hello, this is Sam Hogan. I’m the mortgage originator who specialize in graduate students and PhDs and Emily’s brother. I’ve given interviews on the podcast about various aspects of mortgage and home ownership for graduate students and PhDs in multiple seasons. Season two, episode five, season five, episode 17, season eight, episode four, and season 13, episode one. In 2024, I switched employers and I’m now with truist Bank. This has been exciting because truist offers a non repayable grant for down payment or closing cost assistance to low income borrowers in certain states that graduate students are perfect for. I’m currently exploring with them the possibility of extending doctor mortgages to PhDs as well as MDs. You can find more information about this in my mailing list or on Emily’s YouTube channel. In 2024. I also attended the National Post-Doctoral Association annual conference, which was great fun, and I plan to go back in 2025. If you happen to be there, please stop by my booth and say hi. On a personal note, 2024 has been incredible because my fiance and I had our first child, a healthy little boy named Grant. If you’d like to learn more about mortgages that I offer or have a question about the lending process, you can call or text me at (540) 478-5803 or email me at [email protected]. If you’d like to download a free PhD friendly mortgage guide that I wrote, you can find it on my website, PhDhomeloans.com. Rates are expected to keep coming down through 2026, so this is a great time to get in touch.

Dr. Tina Del Carpio

Tina DC (06:57): Hi, my name is Tina Del Carpio. I was a guest on season six, episode 10 talking about figuring out my life after a broken engagement in Los Angeles. I’m happy to report that last December in 2023, I finished my PhD and I started a job as a data analyst for the state, and I’m really happy with my job and with where I’m at. Um, the pay is not as good as it could be an industry, but I work fully remotely and that’s such a huge benefit to me. Um, the more important life update is that this past November I got married to my partner Tess and I still live in Los Angeles, but now with Tess and our three cats, Tuka, Gem, and Goose. So all is well here.

Dr. Gertrude Nonterah

Gertrude N (08:00): Hello Emily and the personal finance for PhD’s podcast team. And thank you for giving me this opportunity. My name is Gertrude Nonterah and I run theboldphd.com. I was interviewed, um, on this podcast in February of 2021. It was episode six, season eight, I believe, season eight, episode six, and we talked about personal branding and how to use that to land a job and also build a business as a PhD or academic. And since then I have continued to talk about personal branding and have the opportunity to speak at over 20 universities in different countries on the topics of personal branding, career change, and also my own career within medical communications and the biotech space. My best financial advice for early career PhDs is to really begin to think about investments early on, right? I am in my early forties. I turned 41 this year and a part of me wishes I knew what I knew now about investing when I was in graduate school because it’s only recently in the past, let’s say five years, that it has occurred to me that in graduate school I could have been putting away $20 here and $10 there and I could have actually started building investments at that time. Instead, I started in my thirties, which was later than I hoped, but it’s still better to start than never to start, right? And so if you are starting out your career, use your career as a launchpad to start funding investments. Learn about the different investments that are out there and how you can get started with them. You know, do your due diligence and start building wealth because it’s going to compound over time and every year you don’t invest, you are losing money, but every year you do invest, you are compounding it and, and that’s what’s exciting about investing. So that would be my best piece of advice for early career PhDs. If you wanna find me, you can go to my website, it’s theboldphd.com. You can also find me on LinkedIn, Gertrude Nonterah PhD.

Dr. Alana Rister

Alana R (10:19): Hi, I’m Alana Rister and I was on personal finance for PhDs Season 10, episode four. I am the founder of science grad school coach and when I was on the podcast, I talked about how I had worked through grad school in order to pay off about $13,000 of student loan debt from my undergraduate loans. Since then, I have become a full-time data scientist in a Fortune 500 company and I have been able to actually pay off an additional $40,000 of my undergraduate student loan debt. At this point, with my current plan, I’m about one year from actually having all of my student loan debt paid off, and when I graduated, I graduated with about $70,000 of student loan debt. My best financial advice moving forward, especially from the experiences that I’ve had since um, graduating grad school, is while you’re in grad school, start thinking about retirement, especially if you’re in the US and think about the different accounts that you might want to work with. Then when you’re in grad school, you typically have a lower income. So if you have any bandwidth within your income to set aside for retirement, you’re going to have, um, certain tax advantaged accounts in the US that you might not be able to fully use whenever you are fully fledged into a job, um, your income might be too high. So I really wish I would’ve taken more advantage of retirement and wouldn’t have that stress on my income now. Um, looking forward to trying to retire within the US at least. If you’re interested to find me, you can look at my YouTube channel @scigradcoach. Thanks again for having me and letting me share my update.

Dr. Jay Zigmont

Jay Z (12:22): Hi, I am Jay Zigmont. I am the founder and CEO of Child Free Wealth, a financial planning firm dedicated to serving child free childless folks. My PhD is in adult learning from the University of Connecticut and I joined the podcast on, let’s see, season 12, episode one. It talked about the garden and the rose and how do dual career couples, figure out the balance between the trailing spouse in the other job and the balance between those two. In the time since then, uh, as any good PhD, I spent the time doing a lot of research and writing. Uh, really excited. At the end of this year, I have a new book coming out, the Child Free Guide to Life and Money. It’s been interesting working with publishers and working through the process and it’s gotten super interesting because of politics. Let’s be real this year, been a lot of discussion about the childless cat ladies and the good, bad and ugly goes there. Uh, it it’s, it’s one of those things when you’re writing about a topic and you’re like, Hey, I can help a lot of people, but you’re not always ready for the politics, the judgments, the social media. I dunno, I’m learning all that. I think my big advice because of the season we’re in right now for PhDs is you need to think about a backup plan if you’re funding goes away. And that sounds a, I mean that’s always been the case. What happens to grant money? But right now when we’re talking about federal funding or departments possibly not existing and the changes, it’s tough. You know, my wife and I have had to have this discussion ’cause her work is in food insecurity and, uh, all of it’s federally funded or most of it is, and it’s one of those things like, oh, what do I do if the path I’ve bet on the money disappears. Luckily for us as a couple, we’re at a good financial place. We don’t have any debt, you know, we’ve got a emergency savings, we can do different things, but it’s just one of those things you gotta think about in which probably nobody wants to think about, but it’s a reality check. You can find me online, childfreewealth.com. You can buy the book anywhere you like. Uh, always love go to independent bookstores and on all the socials at @ChildFreeWealth.

Dr. Inga Timmerman

Inga T (14:46): Hello professors and new PhDs. My name is Inga Timmerman and I was in season 12, episode three. I’m a financial planner who works exclusively with other academics and I’m also an academic. And the best advice I have for new PhDs and this advice has changed since the last time I talked to Emily is that instead of focusing on long-term financials, focus on the intermediate term. Plan your life in the two to five year increments rather than what’s going to happen 20 years down the um, road. What I’ve noticed more and more in the last few years is that professors no longer stay in the same academic job for for the entire career. They move a lot more, they quit academia a lot more. So focusing on the best financial decision for the next two to five years ends up being better long term than trying to guess where you’re going to be in 20 years. The newest thing I have is, um, a brand new podcast for academics is going to come in January, 2025, it’s going to be called Academics and Their Money. And I hope to have all of you as my listeners. If you need any more financial advice, please visit my website at attainablewealthfp.com.

Dr. Haley Sanderson

Haley S (16:01): Hi, I am Dr. Haley Sanderson from episode four, season 12. I’ve been pretty busy since my episode was taped. I finished my two year postdoc at the Vaccine Infectious Disease Organization at the University of Saskatchewan. At that point, I reached the five year limit for postdocs, but before my contract ended, I landed a permanent job as a bioinformatics programmer at agriculture in AgriFood Canada. So I finished my postdoc and then two weeks later I started a job with the federal government. Um, and that job pretty much doubled my salary. I also had my own BioMAT bioinformatics freelance business for about a year. Uh, my mental health has also improved steadily over the years and I haven’t had a major psychotic episode in years and I’m just a lot happier now. Um, right now I’m working on training for promotion at work, um, enjoying the stability that the job I have now provides and saving to buy a condo close to my family. My best financial advice for early career PhDs is to avoid staying in academia for too long and maybe even avoiding postdocs altogether unless you’re learning a new skill that’s transferable to other sectors. Um, try to avoid getting stuck in the academic job market because you can be successful in a lot of different places and always look for how your skills can be used and how they can be more valuable elsewhere. Uh, thanks. Bye.

Brittany Trinh

Brittany T (17:51): Hi everyone, my name is Brittany Trinh and I am the host of the Beyond Your Science podcast. I was previously on PF for PhDs, um, in season 14, episode four where I talked about deferring my graduate school acceptance to work on my finances. Since the last episode, I have now started my own podcast called The Beyond Your Science Podcast, where I talk about science, creativity, and entrepreneurship and what that looks like for people in stem. I also used to work with clients one-on-one and provided workshops on website design, but since then I have shifted away from that model and started working, um, more on the backend side of things where I am collaborating with Jennifer van Alstyne of the academic designer in team VIP days. And in a team VIP day, um, we work together to design a website in one day. In my episode, I shared some advice about using your skills to create extra income and I still stand by that. Um, so an a new piece of advice that I’d like to share is to make sure that, um, when you transfer your 401k from a previous employer, um, is number one, to not avoid it, uh, just call the company and they will help you transfer it into a Vanguard account. And number two is once it does hit your Vanguard account, um, make sure that it is sitting in an actual mutual fund or ETF and being invested and not just sitting in a money market fund. And I’m sharing this advice because this is something that happened to me recently. I was pretty avoidant about calling the, um, 401k company, but it was only like a 30 minute call. And then, um, when I finally did get it transferred over, I assumed it would just be transferred into a mutual fund. And I didn’t really know how the Vanguard website worked until recently and I have now learned that my funds were not being invested anywhere. Um, but you know what we learned from the experience and now I’m sharing that with you all. Um, so that hopefully you don’t make the same mistake. If you would like to connect with me, you can find me on LinkedIn at Brittany Trinh, that’s T-R-I-N-H or on my website brittanytrinh.com for more info about my podcast Beyond your Science and other website Design Tips.

Outtro

Emily (20:35): Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! Nothing you hear on this podcast should be taken as financial, tax, or legal advice for any individual. The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Dr. Lourdes Bobbio and show notes creation by Dr. Jill Hoffman.

Investing 101 for Your Post-PhD Job

August 26, 2024 by Jill Hoffman 2 Comments

In this episode, Emily interviews Dr. Scott Grissom, a full professor of computer science at Grand Valley State University and Certified Financial Planner with Socrates Financial Planning. Scott and Emily talk through the health insurance and retirement benefits options that may be available to PhDs in their first post-PhD jobs. Scott explains the tax benefits of investing via an HSA and/or a 401(k) or 403(b) and the factors that affect the choice of a Roth or traditional option. He also helps the listener overcome potential analysis paralysis by detailing the benefits of a target date retirement account.

Links mentioned in the Episode

  • Join the GRADBOSS community to attend Emily’s workshop Your Financial Orientation to Graduate School on 8/27/2024
  • Host a PF for PhDs Seminar at Your Institution
  • Emily’s E-mail Address
  • Dr. Scott Grissom’s Website: Socrates Financial Planning 
  • PF for PhDs Subscribe to Mailing List 
  • PF for PhDs Podcast Hub
Investing 101 for Your Post-PhD Job

Teaser

Scott (00:00): From day one. Let’s get that match and figure everything else around that. ‘Cause otherwise, as we know, we’re gonna be, have some inertia put in place and we say, I’ll do it later. I’ll do it next year. You probably won’t. So day one, do whatever you can to get that match would be what I recommend.

Introduction

Emily (00:27): Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs.

Emily (00:57): This is Season 19, Episode 1, and today my guest is Dr. Scott Grissom, a full professor of computer science at Grand Valley State University and Certified Financial Planner with Socrates Financial Planning. Scott and I talk through the health insurance and retirement benefits options that may be available to PhDs in their first post-PhD jobs. Scott explains the tax benefits of investing via an HSA and/or a 401(k) or 403(b) and the factors that affect the choice of a Roth or traditional option. He will also help you overcome potential analysis paralysis by detailing the benefits of a target date retirement account.

Emily (01:37): My colleague, Dr. Toyin Alli, recently launched a new community called GRADBOSS. Toyin is an expert teacher of grad school productivity and time management through The Academic Society in addition to being a lecturer at an R1 university, so she knows of which she speaks! I’m honored that Toyin has invited me to facilitate a workshop within the community this month! Join the GRADBOSS community to attend my workshop Your Financial Orientation to Graduate School on Tuesday, August 27, 2024 at 4 PM PT as well as access all the other incredible resources! Go to theacademicsociety.com/gradboss/ to learn more and join the community. I hope to see you tomorrow at the workshop! You can find the show notes for this episode at PFforPhDs.com/s19e1/. Without further ado, here’s my interview with Dr. Scott Grissom of Socrates Financial Planning.

Will You Please Introduce Yourself Further?

Emily (02:48): I am delighted have joining me on the podcast today, Dr. Scott Grissom, who is at a really interesting point in his career where he has two jobs right now. He’s a full professor at Grand Valley State University and also a CFP with Socrates Financial Planning, his financial planning firm. So we’re gonna talk all things investing today, which is really exciting. So Scott, thank you so much for volunteering to come on the podcast, and would you please introduce yourself a little bit further?

Scott (03:11): Sure. Excited to be here. Um, so Scott Grissom, a little academic background for the PhD folks, if that’s okay. So, for my whole life, I wanted to be an architect. So I went to college at Texas a and m University, all set to be an architect and be the next Frank Lloyd Wright. And by the junior year or so, I had, uh, discovered two things. One is that I didn’t like architecture as much as I thought I did, and two is I discovered these new things at the time called computers. So I got enamored with computers and one of the professors that I admired a lot, I had taken several courses from him. I still remember where I was standing at the time. He says, Scott, have you ever considered graduate school? I’ve seen the way that you work with your fellow students and you tutor them and you help them, I think you’d be really good as a professor. Well, I had not considered that at all until that moment, but the light switch went off, changed my career path, went to graduate school for computer science with the sole purpose of getting a job as a professor. And 32 years later, I am still a professor. So it, it’s been a great choice. Highly recommend being a professor for the rest of your life, if, if that’s an option for you.

Emily (04:25): And yet you’ve decided to embark on an, an encore career. And so can you tell us how personal finance, how money became a passion for you alongside of your career as a, as a professor in computer science?

Scott (04:41): Yeah, so as long as I can remember, I’ve been interested in my own personal finances, whether it be investing and reading books. When I was in college myself, uh, I used to get this thing called a magazine in the mail each month on this physical piece of Paper magazine, uh, called Kiplinger’s. And I would read the, I would be so excited every month waiting to see what information they would have about saving and investing and all sorts of stuff. And one, one week there was this article about this designation called the Certified Financial Planner Planner, CFP. Ooh, that would be fun, at least for my own self education. I would like to take those two years of courses and see where that leads. So that was around 2005. And after taking classes for two years and then passing a pretty exhaustive exam, uh, I earned the CFP designation mainly as a hobby. Didn’t really, really know where that would go, but then I started helping friends and family with their financial questions and then started to work occasionally with some small financial planning firms. But, and that passion sort of peaked and valleyed through my, my 25 year career as a professor. And now I’m to the point where I’m ready to move on. I’ve enjoyed being a professor, but for the next x years of my life, I’m ready to transition to probably just part-time, uh, helping, educating others much like you do in terms of, of their finances and especially as they get close to retirement, uh, what changes do they need to make? What adjustments, what questions do they have? So I’ve got another year as a professor, and then I’ll be transitioning to this firm that I just created about, uh, six months ago called Socrates Financial Planning, Socrates building on the way that I like to teach in the classroom using the Socratic method. So I thought that was a fun, playful, uh, name for me.

Finance Related Employee Benefits

Emily (06:31): Yes, very eye-catching as well. I love it. Um, so we have a real, um, treat today, which is to employ your teaching skills in the subject of investing. And even though you just said that, you know, your typical financial planning client would be closer to retirement, you know, when we were prepping for this episode, we talked about how, um, the typical listener for this podcast is gonna be very early on in their career, maybe currently in graduate school, currently a postdoc, uh, maybe in in their first job post PhD. And so we were thinking it would be really great for them to have some insight into how to set up those initial investments with their new employer when they finally get that 401k or the 4 0 3 B or similar type of retirement account, um, access. So let’s go into it. So very good for that newly hired employee. Looking at the benefits package for the first time, it can be overwhelming. What are they probably looking at in terms of potential benefits related to their finances?

Scott (07:26): Yeah, so probably the, the biggest benefit most people have to struggle with initially is the health insurance. Now that applies to us because if they have an option for what’s called a high deductible plan, which mostly they do nowadays, uh, that will have an important financial option available for you called a health savings account. So maybe we’ll come back to that a moment. And then the second one is what kind of retirement account do you have? And in the private workplace, that’s generally called a 401k, uh, in the public space, whether it’s hospitals or my case a, a university, they’re called 4 0 3 Bs, pretty interchangeable. Uh, and then just personally you might have a thing called an IRA. So all three of these retirement accounts are virtually the same. They’re a place for you to invest for the future, and there are generally some tax advantages to each of those, depending on what choices you’re trying to make.

High Deductible Health Insurance Plans

Emily (08:19): Okay, let’s dive into that a little bit more. Let’s start with the health insurance component of it. Who is a good candidate for choosing a high deductible health plan versus like a PPO is probably gonna be their other option, I would imagine. Um, and, and for also using that HSA if it can come with that H-H-D-H-P

Scott (08:38): <laugh>. Yeah. So hard to de- describe o- over, over this broadcast on, on what makes the best choice. Uh, just recognize with a high deductible plan, depending on whether you’re single or a part of a family, you’re agreeing to pay the first $2,000 of your medical care, maybe the first 4,000 thousand that’s called the deductible. So you need to have, uh, an emergency fund I guess, or enough, uh, fees also depends on your, um, your health. So if you’re somebody that’s pretty healthy and don’t anticipate seeing the doctor much, therefore you don’t need to worry about paying that deductible, that might be a good rationale, justification for getting the high deductible plan. Uh, and then it also just depends on locally and you, if you’re moving to a new city, you may not know, but picking what, uh, doctor option doctor networks that you have sometimes make a difference. So there, I would say talk with your, uh, human resources department or a colleague that you’re about to work with or a supervisor to see what choices they’ve made and why.

Emily (09:38): Yeah. So the trade off there for those who don’t know is gonna be a, a premium difference. So the monthly premium that you pay for like a PPO plan, for example, is gonna be higher or at least let’s say the overall portion. We don’t know, uh, how much the employer is paying versus the employee in, in, you know, general. But that overall premium is gonna be higher for like a PPO. It’s gonna be lower for that high deductible health plan. But like you said, you have to be prepared to pay out of pocket for a higher deductible, $2,000, $4,000 versus maybe the PPO is 500 or a thousand, something lower than that. Um, and so you have to have some savings available to, uh, to do that in your own finances, should you need to access medical care. And that’s kind of where the idea of the HSA comes in. It, it sort of, um, nudges you in the direction of, oh, you have that high deductible health plan, well you better be saving in this HSA. But tell us more about how the HSA works.

Scott (10:26): Yeah, so it’s, it’s one of, it’s a very unique, um, savings plan in terms of what the federal government allows for you. So it allows you to save money going into the account, uh, tax free going in, but it’s also tax free coming out, which is highly unusual. So that doesn’t apply to the 4 0 1 Ks and the IRAs or even the Roths. So I really like the HSAs, the potential advantage, advantage that you have to save on your taxes from day one in your career. And so what that means is for every dollar that you put into this account, and it’s earmarked to be used for medical, so for healthcare to be spent this year or next year or 10 years from now, but all of that money is tax deductible off of your current income. And as we know, every dollar that you can shave off of your current income is gonna reduce your taxes. So that’s great for now, which is the way a lot of the retirement accounts work. But then later on, when you start to pull money out to pay for those qualified medical expenses, it’s not taxed there either. And that’s what’s different about the HSA. So HSA saves you now, it saves you later. It’s just a, a win win win when it comes to taxes at least. And as you said, there is this sort of incentive to put that money into this account because you know you’re going to have to spend it at some point this year, next year, five years from now on those deductible expenses. And so that’s why the federal government requires you to tie together. You first have to have this high deductible plan and then that allows you, it’s optional, but I would strongly encourage it to create this health savings account.

Emily (12:02): I’ve not had the, uh, reasonable option of signing up for a high deductible health plan with an HSA ever. So I’m, I’m sort of excited about this in a theoretical way. But, uh, my understanding is that if this comes through your employer, um, you actually save, not only on income tax going in, but also your, your FICA taxes, your payroll taxes, which is like, there’s like almost no other way you can reduce your payroll taxes. So that’s like really exciting as well. Um, in terms of more money in your pocket, more money in that account.

Scott (12:29): Yep. Once again. And you’re saving now and never taxed again on it, assuming you pull it out for medical expenses and it rolls over each year. So there, there’s another kind of a medical account called a flexible savings or flexible spending account that you might have options for. They’re probably a little antiquated now, but the potential concern with them used to be you had to spend it or lose it at the end of the year. So back in, in December then people started getting dental care and eye care and so forth to try to, to spend that money. But the HSA, you can literally, it let it run for 30 years. And so that’s why some financial advisors think of this as sort of a third retirement plan. ’cause we’re always going to have healthcare expenses. And so the longer you can invest it and let that build tax free, the more money in your pocket.

Emily (13:20): Yeah, I wanna kind of underline that point that you just made about the potential for the money inside the health savings account being invested for the long term, because that’s not something that I think people really did maybe 10 years ago with those flexible spending accounts that wasn’t an option. This is unique to the HSA, um, and so elaborate on that a little bit more, the power of of that option.

Scott (13:40): Yeah, and it’s something that I suspect a lot of people don’t take advantage of. So generally by default, you’re gonna put this into an HSA and it’s gonna be treated like a savings account or a checking account and probably not pay you much at all if, if even 1% and for money that you’re gonna spend three months from now, that makes perfect sense. You wouldn’t want to invest it because with investing, and let’s just generally talk about investing in stocks, there’s the concern that that money’s gonna go down in the short term. So, but if you are investing for the longer term, 4, 5, 8 years down the road, you’re convinced that you don’t really need that money out of the HSA that you can pay for these, these medical expenses out of pocket, then the longer horizon that you have, the more options it gives you. And then you can now invest in stocks and mutual funds in your HSA, just like you would in these other accounts such as the 4 0 3 B and 401k.

Emily (14:40): Yeah, it’s really like, I think you mentioned this earlier, like a supercharged form of an IRA, like an even better form of an IRA. But you have to be prepared to pay for those medical expenses and save it to the HSA on top of that. So it’s really a personal finance and budgeting kind of challenge, but a very, very powerful tool if you can harness it,

Scott (15:00): Right? So at the very least you would want to contribute enough for your deductible each year. So even if you don’t wanna invest in the future and your little leery of building a large account of 15, 20, $30,000 in this HSA, if nothing else, remember that very first dollar that you save is saving you permanently on taxes. So if you’ve got a, a deductible of $2,000 and you’re pretty predictable that you’re probably gonna spend about $2,000 this year on healthcare, then at least put that much into your HSA and if it hovers above and around close to zero because you’re putting money in it and taking money out, you’re still getting a great tax advantage from that.

Traditional Retirement Savings Vehicles: 401Ks and 403Bs

Emily (15:41): Yeah, I love it. Well let’s talk about those more traditional retirement savings vehicles, the 401k, the 4 0 3 B. Can you tell us generally like what’s the advantage of investing for your retirement through your employer? And then we’ll talk a little more about traditional versus Roth.

Scott (15:57): Okay. Uh, so as I said, 4 0 1 Ks are just the names generally for private companies and 4 0 3 Bs for public companies slash universities and healthcare. Uh, historically they’ve been what we call pre-tax. So I put money in and I get to remove that from my salary this year, which is gonna save on taxes this particular year. So let’s suppose I’m in the 20% tax bracket and I put in a thousand dollars. Well that’s gonna save me $200 this year on taxes, but eventually I’m gonna take that money out presumably during retirement and then it will be taxed then. So that’s one of the, the advantages is the tax advantage is that we’re going to have a tax advantage this year. It’s gonna build tax deferred and then eventually we pay our taxes. But one of the new features that these companies now are allowed to provide somewhat new is a Roth component to this 401k. And now we have the option of do we pay taxes now and put that into what’s called a Roth account or a 401k Roth, but it’s never taxed again, much like the HSA, so you can let that ride for the next 30 years and hopefully make lots and lots of money off of your investments and then they come out tax free. So that’s one of the choices you’re just gonna have to make is if I have a Roth option for my 401k, do I put my money in there now or do I use the more traditional approach? The second key I think, um, question is, is your employer providing a match or not? And they often do, uh, and it’s often tied to how much you put in. So they might say, we’re gonna match the first 2%. If you put in 2%, we’ll put in 2% or we’ll put in 50% of how much ever you put in of the first 6,000. So either way, whether you’re gonna put 2000 in on your behalf or 3000 or 8,000, you really wanna take advantage of that ’cause that’s in the business we call that free money. And then you’re going to invest that going forward. You’re not paying taxes on it now. Um, the employer’s putting the money in so it’s not coming outta your paycheck. So if your employer does provide a match, be aware of, put as much money as you can in that affects that match.

Emily (18:17): I have also noticed sometimes with these employer provided plans that have a match or maybe not even a match, but a baseline amount that they’ll put in for you. Sometimes universities do that sort of thing. Um, they’ll have like a vesting schedule. Can you explain how people should understand the vesting schedule?

Scott (18:33): Yeah, so normally what that means and, and it’s case of as you said, it’s the employer putting money in on your behalf less so of the money that you put in. And they’re going to as a way to try to keep you employed there as long as possible. Say we’re gonna put $10,000 in each year for you, but you can’t pull all that money out if you were to leave employment. So over the next four or five, six years, uh, on a sort of degrading uh, feature, we’re gonna decide how much of that money do you get. So you’ll have employers say, this year I’m vested. Well that means that this year if I were to leave or get fired or whatnot, then I would at least get all the money that’s in my account. Up until that point it might look like I’ve got $50,000, but 20,000 of that might not leave with me if I choose to leave. And general, as you said, it’s generally the what, the money that the employer puts in any money that you put in is generally what we would say 100% vested immediately.

Should You Ever Pass Up On The Employer Match?

Emily (19:34): Okay. And so I’m thinking about a person who is just starting out and they’re looking at this benefits package and they see that they have a match available to them, so exciting. Um, but maybe their personal finances are not totally in great shape yet. When should they pass up that free money and work on other areas of their finances? Is there ever a situation where that, where you would advise that?

Scott (19:57): I wouldn’t think so. I mean, so let’s suppose you’ve gotta put in 4% of your brand new paycheck that you’re excited to get and that’s going to entitle you to matching and you’re leery to say, but could I use that 4% for something else paying off student loans or paying off credit card debt? Well that might be an appropriate use of it, but I would be more inclined from the psychological perspective is let’s just commit to that 4% and then learn how to carve out additional savings from our new paycheck to pay for that other debt. I mean, debt would be the only reason. I could see why you wouldn’t want to get that initial match. And even then I would really encourage you to, from day one, let’s get that match and figure everything else around that. ’cause otherwise, as we know we’re gonna be have some inertia put in place and we say, I’ll do it later, I’ll do it next year, you probably won’t. So day one, do whatever you can to get that match would be what I recommend.

Emily (20:52): Yeah, I really like that advice. A great point about the inertia, like when are you really going to make that change if you don’t make it right from day one? Um, and if you are really excited about getting that match and you’re really hating, let’s say the credit card debt that you’re in, maybe because of your move to your new job or whatever the case is, um, just use all those, uh, well, they’re probably negative feelings, but use them to energize you <laugh> to get that debt paid off while you’re still contributing to that retirement account and getting the match. And hey, then once the debt is paid off, you can increase that retirement contribution rate above the match level, let’s say

Scott (21:26): After celebrating and going out to dinner or, or something that you paid off your debt. So

Roth Vs. Traditional Retirement Accounts

Emily (21:31): Yeah, that’s awesome. Okay, still thinking about that new post PhD employee, um, let’s say they have a Roth option and a traditional option within their retirement accounts, what are the factors that go into making that decision? Which way to go?

Scott (21:46): So it generally comes down to taxes. And so as we said that traditional, um, contributions to 401k are tax, um, deducted this year. So you save on taxes this year, let’s suppose 20%, whereas the Roth contribution, you don’t save on taxes this year, but it goes in and you never pay taxes again. So the question becomes do I wanna save on taxes this year, maybe saving 20% depending on where my income is or at the, when I start to retire and I pull money out, do I want to pay taxes then do I have any insight 30 years from now that I’m gonna be paying less or more tax rates than I am now? And we don’t have a crystal ball, so we don’t know that for sure. But the general understanding is that the lower your tax rate is now probably a pretty good chances 30 years from now when you start pulling money out, your tax rate’s gonna be higher. So that puts you in favor of using a Roth. Now, uh, it’s less like, it’s less helpful to you to save 15% on taxes now, which is the Roth scenario, rather than to wait 30 years from now and pay 2020 5% coming out, which is the 401k option or the traditional 401k option. So I would say, what’s the general recommendation when you’re starting off, that’s generally the best time to do a Roth because you’re generally making less income than you will in the future. And it also give you a much longer runway the next 30, 40 years to invest that money and have it accrue, uh, tax free, which is a, a really great option.

Commercial

Emily (23:24): Emily here for a brief interlude. Would you like to learn directly from me on a personal finance topic, such as taxes, budgeting, investing, and goal-setting, each tailored specifically for graduate students and postdocs? I offer workshops on these topics and more in a variety of formats, and I’m now booking for the 2024-2025 academic year. If you would like to bring my content to your institution, would you please recommend me as a speaker or facilitator to your university, graduate school, graduate student association, or postdoc office? My seminars are usually slated as professional development or personal wellness. Ask the potential host to go to PFforPhDs.com/financial-education/ or simply email me at [email protected] to start the process. I really appreciate these recommendations, which are the best way for me to start a conversation with a potential host. The paid work I do with universities and institutes enables me to keep producing this podcast and all my other free resources. Thank you in advance if you decide to issue a recommendation! Now back to our interview.

Roth Vs. Traditional Retirement Accounts

Emily (24:42): Let’s project forward a few years, maybe 10 years. So this person is no longer a fresh new PhD graduate in their first job, but they have increased their income somewhat over time. Is there a tipping point that you would say or is it just for every individual? Where do you see your income potential going?

Scott (24:58): Yeah, that’s a much trickier. Um, but let, let’s play that, that scenario. So some, some of my colleagues will say, um, if collectively, because we’re talking about, I’ve been saying federal tax rates, but it also applies to state income tax, if that’s indeed, um, it, it, uh, applies to your state. So in my state of Michigan I pay about 4% and if I’m in the 24% tax right rate for a federal plus the four is 28% combined. That’s where I’m wondering am I gonna pay more or less than that when I retire 20 years now or 30 years from now? And so I hear people talk about this magic, not magic number, but just sort of rule of thumb about 30%, anything less than 30% taxes. Now it’s probably a pretty good bet that when you’re pulling money out later, you’re gonna end up paying more than that. So somewhere in that range, 25 to 30% is, is sort of this borderline category. Anything more than 30%. So if you’re very high income earner right now, you probably want to take advantage of saving taxes now because you might be in the, the 34% tax bracket or even higher and you’ll likely be taxed less than that 30 years from now. But we don’t know for sure. So all these choices, it just sort of depends. You make the best decision you can at the time and then don’t look back, don’t worry, you made your decision, it’s over and what happens, happens.

Emily (26:22): Yeah, definitely don’t use the uncertainty around where will my tax rate be in retirement as a reason to not get started, right? Like just jump in with whatever option you think is best at the moment. That’s okay, keep going at that. And my philosophy around it is kind of to want to get to retirement with a mix of Roth and traditional so that I can do some tax optimization on the backend. So as long as I have big pools of money in both of those types of accounts, by that point I’ll be pretty happy. I’ll add in one other anecdote, um, sort of about how I made this decision earlier on in my career when I could see, um, where my tax rates were going. So I post PhD was living in the state of Washington, which has no state income tax, but I knew that I aspired to move to California, which has could be a high state income tax rate. And so I used that view into my own personal aspirations in my future to say, okay, when I’m living in Washington, that’s a great time to use the Roth. And when I move to California, that’s a great time to switch to traditional assuming no other changes in my, you know, overall income.

Scott (27:22): Very good, good idea. Now let’s talk about those, that bucket that you mentioned. So when people retire, it’s nice to have options and so there’s considered, there’s sometimes considered three buckets of Roth, which has already been taxed, 4 0 1 Ks which have not yet been taxed. And then there’s a third category that we haven’t talked about. We call that a taxable account. And that’s just where you’re doing extra savings. So out aside from these retirement accounts, and if you have sizable amounts in all three of these buckets, they’re probably not gonna be equal and nor should you necessarily aspire to that. But if, if you’ve got some money in each of those, as you start to pull money out during retirement, as you said, that gives you some flexibility, uh, to control your tax rates so you can start pulling some money out of a Roth because it’s not gonna be taxed at all, some money out of your 401k ’cause it is gonna be taxed and then have some money in your taxable. So how do you manage that? How do you end up with three buckets? Well, we’ve talked about early on maybe you start with a Roth for retirement and then throughout your career maybe you start to transition it, there’s gonna be perhaps some tipping point, maybe not, maybe you just wanna do Roth all in and that’s perfectly fine as well. But in that mid category, that 15 years that we were talking about, you could get to the point where you put half in Roth and half in a 401k, so there is no right or wrong or it’s not a binary decision. And that would allow you to con uh, to continue to build in all three of those buckets.

What Exactly Should I Invest In?

Emily (28:49): Perfect. Let’s talk about another decision that has to be made when you’re contributing to that 401k or 4 0 3 B, which is what should I actually be invested in <laugh>? Because the 401k or the 4 0 3 B is not synonymous with the investments that could be inside of it, there’s gonna be some choice about what exactly you wanna be invested in. So help that you know, fresh PhD with that first job, help them think through that choice of what exactly should they be invested in.

Scott (29:17): Uh, well still first and foremost when we come to talk about investing, uh, the golden rule is called, um, diversification. So we don’t wanna put all of our eggs in one basket. So although it’d be really tempting to, to buy as much apple stock as you possibly could or as much Nvidia stock as you possibly could, uh, because that’s currently what’s hot, you want the risk of losing a lot as well. So how do we do diversification is we mainly, or most of us buy things called mutual funds, which are collections hundreds if not thousands of individual stocks for different companies. So that provides you that diversification and that’s what you will generally be given as an option. So for your 401k, normally you’re given a limited collection of choices for yourself. Those are often gonna be what we call mutual funds. And so you still have to make choices. So maybe it’s a choice outta 10 or it’s a choice out of 50, that can be pretty overwhelming. Uh, so my approach is to pick mutual funds that buy a little bit of everything. So these are called index funds and I know Emily, you’re, you’re a fan of passive investing as well. And so look for, uh, titles of these mutual funds that perhaps include index in the name, probably don’t call it passive, but they might say index. Uh, one of the keys when you’re picking out mutual funds is the expenses that they cost. So most people don’t realize, but you invest money in a mutual fund and each and every year the uh, management company takes a little bit out of that. Maybe it’s 1%, which would be super high or maybe it’s 0.1%, which would be pretty low. Sounds like pretty sounds like the same thing to most of us. 0.1% and 1%. What’s the difference? Well, it turns out 30 years from now, those build on themselves a lot. So when we’re given a choice of mutual funds, back to the original question is I wanna look for something that is an index slash called passive investing. And those generally have lower fees, which might be 0.1% or even less, uh, which is more money in your pocket, less money in their pocket, more money in your pocket. And that’s the win-win. So first choice, pick mutual funds that are indexes and then you might have to choose between, uh, do you want to buy stocks or do you wanna buy fixed income, which is, which is often called bonds. That’s probably a whole nother podcast. But, but the quick answer is most of us now have an option called a target date fund. And a target fund. Target date fund is perfect for somebody just getting started ’cause they don’t need to worry about the ins and outs of picking what percentage of stocks and what percentage of bonds someone else is doing that for you generally at a low cost. So if you have an option for a target date fund, they’re gonna have names associated with the year that you plan to retire. Now there’s nothing magical about it and nothing significant about it, but if you’re just getting into your career now and you’ve got at least another 30 years to work, 35 years to work, so adding that to 2025. So 2060 would be the name of a target fund that you might look for. Vanguard has these fidelity, uh, Schwab has all of these and all that tells you is somebody has decided what percentage of stocks and bonds. So I just looked up Vanguard’s 2060 target date fund and 90% is in stocks and 10% is in bonds. The longer that you have to invest the, uh, more volatility or the more ups and downs you might be able to stomach mentally stomach. So if you recognize, yeah, the stock market went down this year, it’s gonna go down. I can guarantee you that. I don’t know if it’s this year, I don’t know if it’s next year, but at some point the stock market’s gonna go down again. And if you’re okay with that, if you’re mentally prepared to say, I knew that was gonna happen, I’m gonna keep letting it ride, then because you have the luxury of going for the next 30 years, then it’s okay to have 90% in stocks. But as you get closer, uh, and this is what those target date funds do for you, is they start to reduce the stocks and increase the fixed income so that as you get closer to closer it might be a 60 40 split. So long-winded answer, sorry my professor is coming out on me, but what are your choices as a new employee? If you’ve got a target date fund, generally pick that.

“Safe” Investing Options

Emily (33:40): So sometimes I get questions when I teach about investing where the questionnaire says I want to start investing and I wanna use something safe. If one of your clients said that to you, I I’m nervous about the stock market, I wanna pick something safe, how, how would you coach them?

Scott (34:01): So safe generally means, um, lower return. So whether you’re buying bonds or treasury bonds, so safe means less likely to lose money, which is something that none of us want to do, but also less likely that you’re going to make much money. So over the next 10, 15, 30 years. Question is, can you afford to be conservative? Maybe you can, but I think there’s a bigger risk, a long term risk that if you’re too conservative, you put all your money. I mean the extreme would be you put all your money in a savings account making 0.1% and that’s gonna make you feel very safe. But 20 years from now, you’re gonna regret that because your money has not even kept up with inflation. So if inflation’s rising, if 3% every year, so it’s really a mental game, I understand that the concern about potentially losing money, but hopefully you overcome that and recognize that over the next 15, 20, 30 years you’re likely not going to lose money and you’re going to stay ahead of the game by investing in more what we would call more aggressive, not completely aggressive, but more aggressive investments as as, um, you pointed out.

Different Fee Structures of Financial Advisors

Emily (35:14): So something that I learned in our prep for this interview, um, is in your financial planning practice, how your fee structure works, which I really appreciated, but I want you to explain it, um, and explain why you think it’s advantageous both for you and for your clients.

Scott (35:30): Okay, well let’s back up and recognize that there are hundreds of thousands of people that call themselves financial advisors in the us. Uh, that’s not a regulated term. And so almost anybody can call themselves a financial advisor and they generally make money from three ways. Now we all need to make money so there’s no harm in that. Uh, one of them is that they make commissions. So they sell you products whether they be what are called annuities or insurance or stock plans and they make a commission off of that, whether that be 2% or 3% or 10%, perfectly fine, assuming that they disclose that to you and they’re recognizing, you know, I’m gonna make 10% off of you buying this $100,000 investment, but I think it’s best for you and that very well may be best for you. Then there’s a category called called fee only advisors. So they wanna avoid commissions with the potential of there being a conflict or at least the perception that there might be a conflict. And they’re generally gonna charge you for ongoing what we call asset management. And so the going rate is generally 1%. Now these are people that already have established accounts, maybe a million dollars. And so they’re going to pay their, um, fee only advisor 1% of that each and every year to manage their money and give them good advice and, and keep them on the straight and narrow. And then there’s a relatively new category that we call flat fee planning where we’re not interested in managing the money for that client, but we want to just give them some objective solid education advice and then the person can go back on their own for the next 2, 3, 5 years and then maybe come back for a refresher and say, how am I doing? What advice do you have me now? So I’m in that category, it’s called flat fee. So for a particular fee I offer a financial plan to clients that says if they’re starting out and or getting close to retirement and says, let’s take a look at all your finances, not just your investments, but let’s take a look at your insurance and your estate planning documents and a variety of other aspects. Let’s take a look at your goals and just do an assessment and objective assessment to see if you’re on track or not. So, so flat fee advising or flat fee expenses is the way I model my business useful for people especially just getting into investing because they don’t have a lot of money yet. And so the fee only advisors that charge 1% probably aren’t going to see you anyways. So that would be an advantage.

Emily (38:06): Hmm, yeah, especially if, um, you may have zero in assets under management to offer if you only have your 401k plan, for example, if you don’t even have an IRA that, that an advisor could even work with. So I really appreciate that flat fee, um, model. It’s actually when I sought out financial advising a few years ago, that’s the model that I went with for the advisor that I chose. So, um, I’m a believer in it now. It’s a little harder to stomach maybe upfront because you have to come up with hundreds or a couple thousand dollars maybe, depending on the advisor and the type of, um, package that you’re getting versus going to someone who makes money off commissions. Well, it seems like it’s free, but it’s really not free. And so just to recognize as you said that everybody in this industry is getting paid in some way or another, as long as you’re upfront about it, fine, then the client can choose how they want to pay for the service that they’re getting and their advantages and disadvantages to each of those models. But I really appreciate the model that you’ve chosen, so it’s great.

Socrates Financial Planning

Emily (39:01): And if someone listening, um, really likes your style, likes how you’ve taught us through this episode, wants to work with you or maybe wants to recommend you to someone else, how would they get in contact with you?

Scott (39:12): Yeah, so the name of the company is Socrates Financial Planning. So Socrates, because that’s the way I always taught in the classroom using the Socratic method. So Socrates financial planning, socratesfp.com is the website address and from there you can get an email or schedule a call with me or, or find more information about me, but socratesfp.com is the place to go.

Best Financial Advice for Another Early-Career PhD

Emily (39:36): Well thank you so much Scott, and I wanna conclude by asking you the question that I ask of all of my guests, which is, what is your best financial advice for an early career PhD? And that could be something that we’ve touched on already in the interview or it could be something completely new.

Scott (39:50): Yeah, I would come back to that notion of day one, start contributing to whatever plan you have, whether it’s the Roth or or the, the traditional plan certainly to, um, achieve that employer match that we talked about. 10% might sound like a lot to start saving right away, but I would recommend you, you strive for that if not higher, set that up from day one so that you just learn to get by on 90% of your salary. And that’s gonna do such wonders for you. 30 years from now, you will be so glad looking back that that was the best decision you ever made.

Emily (40:26): Well, Thank you so much Scott for volunteering to come on the podcast. It’s been a pleasure speaking with you.

Scott (40:31): Very good. Thank you very much.

Outtro

Emily (40:41): Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! Nothing you hear on this podcast should be taken as financial, tax, or legal advice for any individual. The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Dr. Lourdes Bobbio and show notes creation by Dr. Jill Hoffman.

What You Should Know about Money Early in Your PhD Career

July 29, 2024 by Jill Hoffman

In this episode, Emily shares the microinterviews she recorded at two higher education conferences this summer. The conference attendees, virtually all of whom work at universities and most of whom have PhDs themselves, responded to this prompt: “What do you wish you had known about money earlier in your career?” Listen through the episode for insights into the financial steps for which, should you take them now, your future self will thank you.

Links mentioned in the Episode

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What You Should Know about Money Early in Your PhD Career

Teaser

Lyndsi B (00:00): You don’t have to make one decision and have it be the right decision for the rest of your life. Like you can make changes at any point along the way and you are allowed to fail and like you can recover from failure.

Introduction

Emily (00:20): Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs.

Emily (00:50): This is Season 18, Episode 5, and today I’m sharing the microinterviews I recorded at two higher education conferences this summer. The conference attendees, virtually all of whom work at universities and most of whom have PhDs themselves, responded to this prompt: “What do you wish you had known about money earlier in your career?” Listen through the episode for insights into the financial steps for which, should you take them now, your future self will thank you.

Emily (01:20): The two conferences I attended were the Graduate Career Consortium Annual Meeting or GCC and the Higher Education Financial Wellness Alliance Summit or HEFWA. GCC is primarily attended by university staff members working with PhD students and postdocs in career and professional development. HEFWA is attended by university staff members working in financial wellness across undergraduate and graduate populations. These two conferences were excellent networking opportunities for me on top of the built-in professional development. However, there are plenty of universities who were not represented at these conferences. Would you please consider recommending my financial education seminars and workshops at your university? My most popularly requested events for the upcoming academic year are Your Financial Orientation to Graduate School, How to Prevent a Large, Unexpected Tax Bill on Your Fellowship Income, Expert-Level Budgeting for Graduate Students and Postdocs, and Demystifying Taxes for Graduate Students. Please direct an appropriate potential host within your graduate school, postdoc office, grad student association, etc. to PFforPhDs.com/financial-education/ where they can learn more. Thank you in advance! You can find the show notes for this episode at PFforPhDs.com/s18e5/. Without further ado, here are the microinterviews recorded at GCC and HEFWA.

What Do You Wish You Had Known About Money Earlier In Your Career?

Amy (03:03): Hi, I am Amy from Princeton and when I was in graduate school I wish I had learned more about investing and saving for retirement and sort of how all that works early in your career to benefit you later.

Sharon F (03:18): Hi, my name is Sharon Fleshman. I’m a senior associate director at Career Services at University of Pennsylvania. I think coming out of undergrad I basically took the salary, I was pitched <laugh> and that was it. So I wish I knew the implications of a starting salary across the years.

Evan W (03:34): My name is Evan Walsh. I’m a career advisor at Harvard Medical School. I really wish I knew that it only takes a little bit each week to put towards something. So every week I put money away into a travel fund. Each week I put money away towards retirement. Each money I put a little bit away towards just miscellaneous fees that I may incur and it’s all within my master budget that I now wish I would’ve known earlier that I like to do and that’s really helped me sort of save for trips and things for my future, things that I wanna prioritize, how I utilize my money. So I wish I knew earlier that your money is yours to spend the way that you want to.

Laura S (04:11): Hi, my name is Laura Stark and I work for Harvard University. I got my PhD many, many years ago and I wish that I had known that I should start saving for retirement even as a graduate student.

Briana M (04:26): I’m Briana Mohan, I am a program manager at MD Anderson Cancer Center. A lot of times we feel, I have felt that money is tied to worth and my value as a professional and there actually is no correlation at all so far as I can see. So I think that decoupling those two things so that then it’s a little bit more feasible to work with money and money questions and speak about them and grapple with them and not have it so tied to how much I’m valued or how much I am worth, I wish I would’ve known that earlier.

Alla M (05:03): So my name is Alla Mirzoyan and I’m from Florida International University and I wish I had known about credit in the United States and not to sign up for credit cards without really understanding the implications. I was an international student so I knew very little about how credit works, but I know better now.

Gina B (05:25): I’m Gina Bellavia from the University at Buffalo and what I wish I’d known about money earlier in my career is, well, particularly because I got a PhD but then I went a non-traditional route. I didn’t go into academia, so I guess it would’ve been good for me to know going that route that I might have to kind of go down in pay to, to then start a new trajectory and then work my way up again, which I guess it makes sense if you think about it, but I didn’t really think about it that way. So it’s taken a little longer to to build up I think by taking that less traditional route, but, but I’ve also had greater career satisfaction.

Manali G (06:03): I’m Manali Ghosh. I’m a senior academic recruiter at St. Jude Children’s Research Hospital and I wish I had known sooner to invest in stocks like s and p 500 earlier in my career.

Ivonne V P (06:16): My name is Ivonne Vidal Pizarro. I’m at the University of Tennessee in Knoxville. I’m the research consultant in the graduate school supporting postdocs and I wish that I’d known that if I could save more money when I was younger, I’d have more in my 401k now.

David C-B (06:30): Hi, David Cota-Buckhout. I am the assistant director of Alumni Engagement and Career Support at the University of Rochester’s Graduate Education Postdoctoral affairs office. I wish I knew that I should have paid off my private student loans earlier so that way the compounded interest wouldn’t have backed me with so much debt. And just recently I was able to get rid of those student loans and then free up over $13,000 of interest that I can now put towards other things.

Katie H (07:07): I’m Katie Homar from University of Pittsburgh and what I wish I knew about money earlier in my career was the importance of researching salaries and negotiation.

Alex Y (07:18): Hi, this is Alex Yen, a second year postdoc at Boston University’s professional development and postdoctoral affairs office. The thing I wish I had known about money earlier in my career, and I think especially in graduate school, is that open a high yield savings account as soon as you can and put just a little bit of money, even if it’s 20 bucks, 30 bucks a month. Just having that and knowing that it can, it’s a long term sort of savings space that will continue to accrue interest, will make you feel less anxious and look forward to a time when you can save more

Dan O-B (07:56): Dan Olson-Bang, Syracuse University. If I had known this, I would’ve been grateful. Uh, don’t take out loans during your PhD.

Ryan U (08:05): My name is Ryan Udan. I’m director of the office for postdocs at UTM, the Anderson Cancer Center. As a long time trainee that did not make a lot of money, who navigated into a career path that I was ultimately happy in, it did take too long of a time to get to that career path that for me, I wish I knew about other career options that I would’ve been happy with earlier that paid better and earlier. So now I have a better understanding of all the other diverse career options that are available to people, not just for people with their PhDs, but for other types of professional degree programs that would’ve gotten me to a space where I was happy with my job and that I was making a lot of money more quickly. For example, I didn’t know about optometry field, I didn’t know about radiological careers and you know, the flexibility you have for, uh, uh, obtaining jobs more easily and, and many different places from small towns to big cities. And again, immediately after you get sometimes an associate’s degree, that stuff for me was a black box when I was training.

Giovanna G-M (09:14): Hi, my name is Giovanna Guerrero-Medina and I’m director of Diversity programs at the Yale School of Medicine and the Wu Tsai Institute. One thing I would’ve liked to know about money earlier in my career has to do with how much life costs and how there are gonna be times in your life when you will need to have extra cash because of health emergencies. Because you have to take care of family members who are sick. You have an emergency trip that you have to plan and so it’s important to have a, a fund or a a some money that is liquid that you can use in an emergency at some point in, in my life after my graduate school, my family had some emergencies and I also had some healthcare costs and it was really important for me to have that extra cash that I had saved and separated.

Bill M (10:15): Bill Mahoney. I’m the Associate Dean of graduate student postdoc affairs at the University of Washington. I’m also faculty in the School of medicine and I wish I understood a little bit better that making career decisions based on the next paycheck, the most money, it’s only part of the decision. You have to make it on what you love doing, the people you’re gonna support. And if you choose to stay in higher ed, you’re probably gonna not make as much money, but you’re gonna have a bigger impact on training the next generation of scientists and students to go on and do bigger and better things in uh, and improve the world.

Meredith O (10:44): Meredith Okenquist, Director of Career Management Villanova University. What I wish I knew more about was retirement planning at the very onset of my career and investing the full maximum percentage for my 401k.

Kirsten R (10:59): My name is Kirsten Ronald. I am the program manager of advanced degree career management at UT Austin. I wish I had known that you don’t need to go back to school to make a massive career change and I also wish someone had talked with me about the ROI of going back to school before I did it.

Colleen G (11:13): My name is Colleen Gleeson and I work at the University of Texas at Austin as an associate director for advanced degree employer integration. One thing I wish I had known about money earlier in my career is thinking about careers and jobs and salary packages and benefits in a way that like evaluates in the total compensation package and how invaluable it is to have employer paid health insurance and to have things like pay time off and something that forces you to invest in a retirement account or a pension to make you think about the future.

Marlene B (11:51): So my name is, uh, Marlene Brito, Dr. Marlene Brito and I’m the associate director of DEI at NYU Career Development Center. And what I wish I had known before I started a PhD was that you self-fund a lot of your activities as a doctorate student, especially if you’re a professional who’s going to school part-time, but sometimes even as a full-time student. So like save money for conferences, save money for research expenses because all of that cost thousands of dollars.

Melissa K (12:21): Melissa King, University of Mississippi, the best advice I ever received about money was when my husband and I married 13 years ago and my mother-in-law told us it doesn’t matter how much money you make if you spend all of it right? So knowing how to spend and how to save is by far the best piece of advice. It doesn’t matter if you make six figures if you’re, you’re spending all of it, right? Mm-Hmm. <affirmative>.

Lee T (12:46): Hi, my name is Lee Tacliad. I’m a manager of alumni and employer engagement at Scripps Research and what I wish I knew about money earlier was the magical effect of compound interest.

MaKenna C (13:00): Hi, I’m MaKenna Cealie. I am a graduate student at the University of Rochester. What do I wish I had known about money earlier in my career. So I had some great advice about learning to save and invest, but I think sometimes I took that too far. So I think it would also be important to kinda spend your money too as sometimes and enjoy your life. I read this great book Die With Zero and I think that was very helpful for me.

Dan E (13:26): Hi there. My name’s Dan Emmans. I am senior coordinator for student development and engagement at Harvard Medical School. Early on, get into the habit of putting 20% away and you’ll never go wrong.

Tamar G-C (13:36): Hi, I am Tamar Gaffin-Cahn. I’m the assistant director for graduate students at the Career Development Center at Emerson College. And one thing I wish I had known about money earlier in my career is put money away. Invest really early on, even if it’s just 20 bucks a month, invest early ’cause it will grow. I would also say to diversify where you’re investing and there are lots of opportunities of how to invest in uh, that’s connected to your values as well. So there are opportunities to invest in green energy, invest in programs that are good for the environment and good technology and things like that so it your money isn’t going to corporations that do harm to this world.

Bryan M (14:12): Hi, my name is Bryan McGrath. I do employer engagement over at Harvard Medical School. What do I wish? I had known about money earlier in my career that credit cards accrue interests and you should be paying more than the minimum each time.

Linda L (14:24): My name is Linda Louie. I work at the Lawrence Berkeley National Lab and I wish that earlier in my career I had known that retirement was a thing you needed to plan for <laugh>.

Jessica R (14:35): My name’s Jessica Roman, I’m the Assistant director of Graduate career Services at Stony Brook University and something I wish I would’ve known about money earlier in my career is how private loans and their interest works because I thought it was like public loans where you have the same principal and then I graduated and I got the bill and it was very shocking and I’m still paying that off, so I wish I would’ve known how that works so I would’ve made payments while in college.

Breanna G (15:06): My name’s Breanna Gallagher and I am a career coordinator at Oklahoma State University and what I wish I would’ve known about money earlier in my career is literally just the lingo of all of the money talk, being able to understand my benefits, being able to understand 401ks and medical insurance and being able to just understand what I was reading and signing, especially in a really tight window when you’re required to do your benefits in like 24 hours.

Aimzhan I (15:39): My name is, Aimzhan Iztayeva. I work as a program associate at the graduate School of the University of Minnesota. What I wish I had known about money earlier in my career is how investment works and also how taxes work with regard to money that you gain through investment.

Natalie C (15:56): My name is Natalie Chernets, I’m director of postdoctoral affairs and professional development at Drexel University. What I wish I knew about money early on is that higher education doesn’t necessarily mean more money in your salary, especially if you are an immigrant coming from another country. There are other barriers you have to think through to earn that salary.

Rowena W (16:14): Hi, I’m Dr. Rowena Winkler. I work for the University of Maryland, Baltimore County or UMBC in their career center as the assistant director for graduate student career development. So what I wish I had known about money earlier in my career is, especially as a graduate student, I, I’m an immigrant child, so my parents came here from the Philippines and I didn’t really know good personal finance and money management practices. I wish I had taken out loans or looked for more scholarships because as a graduate student in particular, I went into a lot of credit card debt just trying to finance my way through school. And so I wish I had known more about personal finance resources or funding options as a graduate student.

Mearah Q-B (16:56): My name is Mearah Quinn-Brauner. I work at Northwestern University. I wish I had known that sometimes it’s a good idea to spend money in order to have more money later in your life. When I was in graduate school, my mom tried to convince me to buy a house and I thought that that was insane. It was a crazy idea given how much money I had at the time, but it would’ve been worth figuring out so that I would have a house in Philadelphia now.

Diane S (17:24): Hi, my name is Diane Safer. I’m the director of career and Professional Development at the Albert Einstein College of Medicine where I work with PhDs and postdocs. I wish I would’ve taken the advice that I give to my students and postdocs right now and really negotiated for higher salaries and higher starting salaries right when I got the job because you can never really make it up once you’ve started a job and you’ve lost all your negotiating power once you’re in.

Mallory F-L (17:49): Hi, my name’s Mallory Fix-Lopez. I’m with Language ConnectED. I wish I would’ve known to charge for my work earlier in my career. I’ve done a lot of work for free <laugh>.

Emily S (17:59): So my name is Emily Sferra. I am the coordinator for career and Professional Development at the University of Michigan Medical School. If given the option to contribute to a retirement account you should contribute to a retirement account.

David B (18:19): Hi, I’m David Blancha. I’m a program manager at the OCPD at University of San Francisco. The thing that I wish I had known about money earlier, especially when I was a graduate student, is that when I was doing all of the math on my finances and what I might like need to live while I was in graduate school, all of those numbers would be wrong. Eight years later when I graduated I had no, I, no sense of adjusting for inflation or markets changing or anything like that. So I assumed the math I had done to live in a one bedroom apartment <laugh> in New York in 2015 is what I was going to need in 2022 and that’s absolutely not, not right. <laugh>.

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Emily (19:09): Emily here for a brief interlude. Would you like to learn directly from me on a personal finance topic, such as taxes, goal-setting, investing, frugality, increasing income, or student loans, each tailored specifically for graduate students and postdocs? I offer seminars and workshops on these topics and more in a variety of formats, and I’m now booking for the 2024-2025 academic year. If you would like to bring my content to your institution, would you please recommend me as a speaker or facilitator to your university, graduate school, graduate student association, or postdoc office? My seminars are usually slated as professional development or personal wellness. Orientations or very close to the start of the academic year would be a perfect time for tax education or general personal finance content. Ask the potential host to go to PFforPhDs.com/financial-education/ or simply email me at [email protected] to start the process. I really appreciate these recommendations, which are the best way for me to start a conversation with a potential host. The paid work I do with universities and institutions enables me to keep producing this podcast and all my other free resources. Thank you in advance if you decide to issue a recommendation! Now back to our interview.

What Do You Wish You Had Known About Money Earlier In Your Career?

Alexis B (20:37): My name’s Alexis Boyer. I’m assistant director of Graduate student career services at MIT. And I wish I had known the difference between a 1099 and a W2 and I wish that I had known that the skills that I was developing were worthy of being paid.

RC S (20:54): RC Stabile, uh, Vanderbilt University, director of trainee engagement and wellbeing. I wish I knew about investing, putting money in target date index funds and I wish I knew about high yield savings accounts earlier.

John M (21:10): Hi, my name’s John Miles. I’m the Chief Executive officer of Inkpath, uh, the professional development platform. I wish earlier that I had known that by spending my time working on Shakespeare and taking a very academic direction that I wasn’t counting myself out of decent salaries later on that I should be confident that time will reward you and, uh, you can indulge those academic perspectives, uh, without feeling like you are narrowing down your options for the future.

Zarna P (21:42): Hi, I’m Zarna Pala. I am the assistant director of the Biological Sciences graduate program at the University of Maryland. And I wish I knew, uh, more about investment and investing money in the right direction or any sort of like small investments which I, which I could have started early on, uh, as a graduate student, as a postdoc fellow, that would’ve been really helpful.

Anne-Charlotte M (22:08): Hi, I’m Anne-Charlotte Mecklenburg. I am the postdoctoral associate for academic support at the University of Maryland College Park. And I think something that I wish that I knew about money earlier in my career was just all of the different ways of like saving money and organizing money that I would need later in my career as a graduate student it was kind of like, okay, I have a stipend and it covers all my living expenses and I can’t really do anything else with it, so I just spend it until I don’t have it anymore. And now that I’m sort of moving into more of a mid-career moment, it’s like, oh, I have a retirement account through my university and I don’t really know how that works. All that kind of stuff that I feel like in other careers people kind of learn that kind of stuff closer to right af out of college. It’s something that now feels like a little bit delayed for me and now I feel like I’m a little bit behind. So something I wish I was thinking about before I needed it so that I’d be ready when I did need it.

Amy A (23:00): I’m Amy Aines and I’m with Championing Science. What I would’ve loved to have known more about is how to invest. I think I was conservative and I was okay with a 401k with someone else thinking about it, but it would’ve been nice to know for myself what that was about and how I could take advantage of the opportunity.

Gina D (23:18): Gina Delgado, director of doctoral and post-doctoral life design and what I wish I’d known earlier about money in general is not just knowing about money but not being afraid of being broke because I’m not afraid of being broke.

Beka L (23:32): This is Beka Layton. I am the director of professional development at UNC Chapel Hill and thinking back to when I was a graduate student, I think benefits life insurance 401ks and kind of how to balance life expenses with long-term goals and budgeting. I think that whole like black box of like, I don’t know any of those things was mystifying to me. So things I learned by accident along the way and wish I knew then.

Aurora W (24:02): I’m Aurora Washington. I am currently a postdoctoral research fellow at the University of North Carolina in Chapel Hill. And something that I wish I knew about finance when I was a graduate student is how to budget a little bit better and to manage my expectations because I’m a postdoc, postdoc don’t get paid well and so I wish I knew a little bit more about benefits in negotiating in Texas.

Sam R (24:29): Hi, um, this is Sam Ramosevac, I’m director, um, at the office of Postdoctoral and Mentor trainee program at Emory University. Uh, I wish I actually negotiated my salary and I think it’s really important at least to attempt to negotiate and get more money for the level of experience you have and you know, just at least to try.

Ian K (24:57): I’m Ian Krout. I am a postdoctoral fellow at Emory University. For me, being a postdoc, I went on a training grant and realized that I was losing some benefits that I had gotten as being an employee at the university. And so I actually began to ask questions to both my PI and the postdoctoral office about if this needed to be the case and if there was any way to get benefits and advocating for myself was enough to get those benefits brought back through a workaround at the university, which was really positive for my experience and helped me to still be able to save for retirement and not pay into my health insurance myself.

Jessica T (25:35): My name is Jessica Taylor. I’m a research fellow at ACLS and I wish I had known when I was a graduate student that you’re supposed to tip in hotels.

Natalia (25:44): My name is Natalia, I work for the University of Pittsburgh as a career advisor. Yeah, and I wish I, I had known that money would be able to buy me freedom of choice.

Autumn A (25:55): Well, my name is Autumn Anthony. I manage the office for graduate student assistantships and fellowships at GW. I think it would’ve been really important for me to realize earlier that if you are looking to make more money, then you have to go to the organizations that actually have more money <laugh> and that when you are committed to the work that you’re doing and working hard and looking for opportunities to succeed in your work, just because of your commitment and just because of your hard work doesn’t mean you’re going to make more money. So you have to go where the money is.

Jessica V (26:33): My name is Jessica Vélez. I am the membership engagement and early career programs manager for the Genetic Society of America. And I definitely wish I had known that I do actually make more money than I think I do. And by creating a budget, that’s how I learned that I made more money than I thought I did and I signed up for a budgeting app at some point in my graduate career. Because of that, when I finished my PhD, I wasn’t able to immediately get a job, but I had enough money saved up from the budgeting I had done on a graduate school stipend to survive for two or three months without having to worry about unemployment because you can’t apply for unemployment as a graduate student <laugh>. So that was extremely beneficial and I’m glad that I finally learned that, but I wish I had learned that earlier for sure.

Melissa B (27:20): This is Melissa Bostrom. I’m assistant Dean for Graduate Student Professional Development at Duke University and I wish I would’ve known that investing for retirement didn’t have to be perfect. It didn’t have to be the best. I just had to get started with a small amount on a regular basis.

Chris S (27:35): Okay, my name is Chris Smith. I manage the Office of Postdoc Affairs at Virginia Tech. The importance of investing in special retirement vehicles, whether that be a Roth IRA or traditional IRA that have different benefits in terms of tax purposes, whether you pay them now or later. And it might be real benefit when you’re in your lower paying years to be in investing in or Roth where you’re paying the taxes now and then when you eventually retire, you don’t know taxes on that and all the compounding that happens over those 30 plus years of your career.

Jason H (28:06): I’m Jason Heustis, assistant Dean for Student Development Evaluation at Harvard Medical School. I’d say one of the things that would’ve been helpful to know in graduate school, similar decisions you’d make when you start getting a real paycheck, things like allocations for insurances, the different types of saving options, that type of thing would’ve been helpful for me to know earlier, right? Or to be prepared for those decisions so that I can do as much research at the time. That would’ve been helpful.

Anne X (28:30): Hi, my name is Anne Xiong. I’m from UC Berkeley Center for Financial Wellness. I wish I know that no matter how much money you have, you can start investing early.

Kelli W (28:41): I’m Kelli Wright from Wayne State University. I’m the financial wellness advisor there. I’ve been there since March of 2023. I’m an accounting background, so I’m really excited about this space and what I wish I would’ve known is the importance of saving, creating that healthy habit, of saving even $10 a month just where I would be at financially if I would’ve known that.

Charah C (29:07): Yes, my name is Charah Coleman. I work for University of California Merced, and I am the Financial Wellness Center program manager on that campus. I would say the time value of money. I don’t have any regrets with how I spent my money in my undergrad or even early grad school, but I wish I really would’ve invested earlier and given myself a leg up a lot earlier. Now I definitely have to invest a lot more aggressively and I have to cut a lot more expenses now than when I was starting off in my career. I, I definitely think having that awareness of the time value of money being aggressive at the front end, I think would’ve behoove me a lot better.

Beth H (29:49): Beth Hunsaker, MS. Uh, associate Director, financial Wellness Center, university of Utah. After my graduate work, I did take some time off to have kids and although that was a wonderful chapter of my life, I really wish I would’ve taken time to keep my network strong, to keep working on my skills because when it was time to come back for my career, which has to do with money, it was a little harder for that on ramping. And I think that there is a way to balance and do both, and I wish I would’ve focused a little more on that.

Roland K (30:27): Roland Keller Jr associate director of financial aid at Tulane University in New Orleans, Louisiana. One thing that I wish I would’ve known about a little sooner is the importance of credit. Credit is very important. It literally is life or death. So I would’ve wished I would’ve been more educated about credit

Darrel S (30:45): Darrel Stufflebeam, uh, a doctor in education from KU and I’m the new assistant director for Jayhawk Finances at ku. Uh, I wish I’d have known about the importance of starting early and compound interest and I did not have a financial background and my parents didn’t really have advice. So if I would’ve started a little earlier then I’d be much happier now, but I’m just spreading the word as part of my current job.

Khalilah L (31:12): My name is Dr. Khalilah Lauderdale. I am the Associate Athletic Director for student services at the University of Southern California. And earlier in my career, I wish I had known, um, concerning money more about how to buy a home. I was very green in our process and very reliant on my realtor resources, so that would’ve been helpful.

Nafisah G-B (31:35): My name is Nafisah Graham-Brown. I am a program administrator of a financial coaching program at SUNY WCC, that’s Westchester Community College. What I wish I had known about money earlier in my career was the value of retirement savings. Uh, unfortunately I was in a job where we were discouraged from taking part in the pension and retirement program mainly because the people that were talking to us also didn’t have much information or knowledge. So I guess the value of it wasn’t seen by most of us. And I guess the lesson is make sure you’re getting your information from someone who knows.

Aly B (32:13): My name is Aly Blakeney. I am an instructor of economics at Phillips Academy Andover. What I wish I had known about money earlier was honestly how important it is to talk with any significant other. If you have like a very serious prospect with them to talk with them and be like, Hey, where are we at in terms of money and debt? I think that will cause stress quicker than anything. And setting yourself up for future means also taking care of your financial wellness via your emotional intimacy wellness as well.

Tony F (32:45): My name is Tony Froelich. I am the financial literacy coordinator at the University of Tennessee at Chattanooga. What I wish I’d known earlier in my career about money is the power of investing in yourself. I always thought of saving as taking what was left after the month and that was my savings. So whether that was $10 or negative $50, pulling outta my savings account, but learning the lesson of taking that savings out of my paycheck first and putting that away and then spending the rest has been life changing.

Zach T (33:19): Yes, Zach Taylor, assistant professor at the University of Southern Mississippi, and what I wish I had known about money earlier in my career is saving it earlier in my career would facilitate a lot more time and that as I’ve gotten older, time is money and I’m now realizing how much more time money can buy you. And that has become so important as my parents have aged and as I have continued in my career where I feel like I have enough money now, but I don’t have the time, but if I had more money, I know I would have more time. So I think the relationship between time and money is what I wish I had known earlier in my career.

Lyndsi B (34:04): I am Lyndsi Burcham. I am the financial Wellness Program manager at the University of Pennsylvania. I think what I wish I had known about money earlier in my career isn’t even necessarily about money. It’s the fact that like you don’t have to make one decision and have it be the right decision for the rest of your life. Like you can make changes at any point along the way. And I think a lot of times when we’re having conversations about money with students, they’re so caught up in the fact that they have to do the right thing first. And oftentimes there is no right thing. And even if there is a right thing, it’s gonna change depending on your life circumstances. There’s a lot I could say about tactical information about like what is a credit score versus a credit report and, and knowing those kinds of things, but like the psychological component of it, which is you are allowed to fail and like you can recover from failure. I, I don’t think we talk about that enough and instead we instill fear in students that they have to do things the best way.

Peter B (34:59): Hi, I am Peter Bye. I am a doctor of music student at Indiana University and what I wish I had known about money earlier in my career is that sometimes it works out well and sometimes it doesn’t work out well and you kind of gotta roll with the punches and make adjustments constantly. It’s never something you figure out. You can’t solve it unless you’re like super rich, but you can make changes and slowly affect your, your situation hopefully in a positive way. Uh, so you kind of just have to roll with the punches until you hopefully get to the place you wanna get to.

Outtro

Emily (35:41): Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! Nothing you hear on this podcast should be taken as financial, tax, or legal advice for any individual. The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Dr. Lourdes Bobbio and show notes creation by Dr. Jill Hoffman.

This Grad Student-Parent Relied on University and State Benefits During a Tough Financial Period

December 4, 2023 by Jill Hoffman

In this episode, Emily interviews Dr. Laura Farrell-Wortman about her experience as a graduate student-parent at the University of Wisconsin-Madison. Laura started her PhD when her daughter was an infant, so she was very intentional about choosing a PhD program that offered strong health insurance and a childcare subsidy. However, with a $9k/year stipend as the only income for a family of three, Laura’s family relied on the social safety net for a couple of years until both she and her husband increased their incomes. Laura shares the financial mindset she relied on to get through that tough period of time. Laura and Emily also discuss how the shifting political winds in Wisconsin in the early 2010s detrimentally affected the power of the grad student union at UW-Madison. Today, Laura works as a staff member at the University of Arizona Cancer Center and is making up for lost time in funding her retirement and her daughter’s college education.

Links mentioned in the Episode

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  • PF for PhDs Podcast Hub
This Grad Student-Parent Relied on University and State Benefits During a Tough Financial Period

Teaser

Laura (00:00): I also think it’s important to keep in mind you know, if you’re, if you’re feeling sort of weird about getting those benefits, that government benefits aren’t just you know, for people who are poor or struggling I get government benefits all the time. I get my mortgage interest deducted, right? I get my student loan interest deducted. Those are government benefits. And no, trust me, every rich person is getting every government benefit that they can. So you get your government benefits too. You earned them and you’re eligible for them.

Introduction

Emily (00:36): Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs.

Emily (01:07): This is Season 16, Episode 7, and today my guest is Dr. Laura Farrell-Wortman. We’re discussing Laura’s experience as a graduate student-parent at the University of Wisconsin-Madison. Laura started her PhD when her daughter was an infant, so she was very intentional about choosing a PhD program that offered strong health insurance and a childcare subsidy. However, with a $9k/year stipend as the only income for a family of three, Laura’s family relied on the social safety net for a couple of years until both she and her husband increased their incomes. Laura shares the financial mindset she relied on to get through that tough period of time. Laura and I also discuss how the shifting political winds in Wisconsin in the early 2010s detrimentally affected the power of the grad student union at UW-Madison. Today, Laura works as a staff member at the University of Arizona Cancer Center and is making up for lost time in funding her retirement and her daughter’s college education. I’ve recently joined several different social media platforms, particularly for posting short videos. I’m using the next few months as an experimental period, after which I’ll focus only on the platforms where I’ve gained the most traction. So please give me a follow and engage with me there! You can find me on Instagram, YouTube, TikTok, Twitter, and LinkedIn at either PFforPhDs or Personal Finance for PhDs. You can find the show notes for this episode at PFforPhDs.com/s16e7/. Without further ado, here’s my interview with Dr. Laura Farrell-Wortman.

Will You Please Introduce Yourself Further?

Emily (02:53): I am delighted to have joining me on the podcast today, Dr. Laura Ferrell Wartman. She is the current assistant director for academic programs at the University of Arizona Cancer Center, but we’re actually gonna be mostly talking about her experience as a PhD student at the University of Madison. So Laura, thank you so much for volunteering to come on the podcast, and will you please introduce yourself a little further for the audience?

Laura (03:16): I did my PhD in interdisciplinary Theater studies at the University of Wisconsin Madison. I was a graduate student there from 2011 to 2017. And some of the really formative things about my time there was that I actually arrived to to grad school with a newborn. And so I think that’s probably gonna shape a lot of what we discuss today.

Financial Mindset During Childhood and Early Adulthood

Emily (03:42): Yeah, so a grad student parent and a unique kind of angle on this. Certainly for our conversation, the finances of that are very interesting as we’ll see as we go through. I should mention that Laura and I met at the Graduate Career Consortium annual meeting, and so it’s always a great time when I get to meet people face to face. And just from the first very few interactions that we had in the room that we were in together, I knew that Laura had to come on the podcast. So I’m really glad that , we made this happen. Okay. So let’s go back even before you started graduate school, actually. So let’s talk about like how you grew up and how, what, what your financial mindset was like during your childhood, your early adulthood, maybe through college and post-college leading up to this time when you were in graduate school.

Laura (04:26): Yeah. so growing up I grew up in a very high income area. I’m from Princeton, New Jersey. But due to a lot of specific factors within my family there was a real trend of scarcity in my childhood. And so I really grew up thinking that money was something that was very elusive. Something that was sort of to be afraid of and something where there was just never a sense that there was enough of it. And so I think that that is something that has really impacted the way that I view personal finance, and especially the way that I view my career because I know that stability and predictability is something that is very, very important to me. And that is sometimes at odds with working in academia, especially if you are not on the tenure track. And so that it very much impacted like the way that I viewed how I was going into my career.

Finances After College

Emily (05:30): So coming out of college, I understand you, you worked for some years right before you started graduate school. Is that correct? So talk to me about like your finances during that time and that decision to go pursue your PhD, especially as it relates to these, the mindsets and, you know, everything that was going on with you financially.

Laura (05:47): Yeah. Again, I think the, the time that I had spent working was very much related to both the sort of you know, desire for that stability but also my desire to continue the research work that I had started in my undergrad. So I, I really started to explore Irish theater and particularly Irish theater of this particular contemporary period when I was an undergrad. And I knew that I wanted to continue doing that. My sister had gotten a PhD. And so that really helped me to kind of see the possibility and see, you know, the, the things that I could do with a PhD. And so I knew that I wanted to, to pursue that. But first I was gonna need to get a master’s degree and a master’s degree in theater, just the, the ROI, the return on investment there is terrible, right? Um and so I got a job at the University of Arizona. I was an admin assistant and that paid for my master’s degree. So that was like, that was like fully a financial decision in terms of where I was gonna go for my master’s degree. And I do not in any way regret that. You know, I came out of that, I paid $25 a semester in tuition. I would highly recommend it to anybody who is looking to get a degree that maybe they don’t feel like they can you know, get that ROI in. But, so that was I was working in higher ed administration essentially, and really like working my way up the ladder while I was doing that master’s degree in theater. And that set me up really, really excellently in terms of you know, when I went into my PhD, I knew the possibilities in higher ed for somebody who has a PhD in anything. Um you know, there really is a benefit in higher education to just having a PhD. And I have noticed a big difference in terms of my career options after my PhD as opposed to before at the same institute. Being a full-time student and a full-time employee is really difficult. It definitely had a lot of financial benefits. I got married during that time and my husband was able to get a, a master’s degree paid as well. And so, you know, there were a lot of benefits to it, but it was I certainly don’t wanna sugarcoat it because it was very, very difficult.

Emily (08:04): So, because you had this long-term plan of getting the PhD, using the job, using the master’s as a stepping stone to get there, I understand during that time you were also saving up, right? And so you went into the PhD with some savings. Can you talk about how you did that or why as well?

Laura (08:19): That was around 2008, 2009. Both my husband and I were very lucky not to have lost our income during the financial crisis. I actually went on to write my dissertation about the financial crisis. You know, our, our income was middling. But we had very few large financial responsibilities. We had our rent, which was moderate. We had no current payments. We didn’t have children at that point. We, we just are frugal people. And so it was you know, we had a goal of, you know, putting money aside, not even really for any particular goal. I think for me, just having that savings, again, coming back to this idea of you know, that rug could be pulled out from under you at any point. So having, you know, liquid cash savings is something that just makes me feel better. So we had a a cash savings of about $30,000 by the time my daughter was born. And that was just from, you know, the jobs we were working.

PhD Admissions and Pregnancy

Emily (09:24): Okay. So let’s talk about the admission season. You mentioned that you had at least, you know, a couple offers, one unfunded, this one from Madison that you ended up taking because you knew at that time that your daughter was on the way. How did that play into your decision of where to attend? Like what factors were you looking at?

Laura (09:44): Yeah, so so being pregnant during admission season was very interesting. I did not do any visits because I didn’t want anyone to see that I was pregnant. Discrimination against pregnant people is a very real thing. And I was really concerned that I would be you know, deprioritized if they knew that I had a child on the way. So it was important to me to know you know, what the, the funding situation and what the daycare situation was in any area that we were planning to, to move. Madison happened to be the best overlap of those things. Daycare is extremely expensive in Madison. It was actually when we were looking in Manhattan because I had applied at a couple schools in New York. The, the daycare costs were essentially the same between Madison and and Manhattan. But the University of Wisconsin has a really comprehensive student parent support, well, system of networks really. And so that was what enabled me to get a PhD in a very real way. And so I think it wasn’t necessarily the top thing that I was looking at, but it was, it ended up being the most influential part of my graduate experience.

Emily (11:11): Wow. was this something that, I guess, I don’t know specifically like the timing of everything, but is this something that you were looking at at the time that you were choosing which schools to apply to? Or was it only by the time, okay, I’ve already applied to these sets of schools, now I know my daughter’s on the way and I need to, you know, evaluate how they’re doing on this front as well?

Laura (11:31): It was a little bit of both. There’s, you know, my, my specialty was Irish theater. There’s not, you know, a ton of schools where that’s going to be a strong focus. And admittedly, some of the schools that I applied to, it wasn’t a strong focus. It just was going to be a better you know, personal situation. But I think that there was a real you know, there, there’s sort of that cliche of like, you know, there’s never, there’s never the right time to have kids, and I think that’s very true. But for us it was like, well, we wanna, we know we wanna have a kid. I know I wanna get a PhD. I, I just think that these things can probably be true at the same time. You know, I was 30 going into my PhD which I’m, I, I’m, you know, really glad that I chose that point in my life to, to have my daughter. But I think, you know, it’s a, I think if people sometimes will try to time it out in ways that I think are never really gonna be, gonna be perfect. And so for me it was a, yeah, it was just kind of saying like, well, I want these two things in my life, and they’re just gonna have to, I’m gonna have to figure it out. And we did .

PhD Program Offer

Emily (12:47): Okay. So what else were you looking at in terms of the factors? We talked about the childcare subsidy, but like, what was your stipend offer, for example, and was that in line with what you were seeing at other institutions? I understand you looked carefully at the health insurance, so let’s talk about more like those other factors as well.

Laura (13:03): Yeah. so my stipend offer so I did, I did end up getting an offer of, of support from UW. This was in 2011. It was only $9,000 a year which is, I mean, it doesn’t approach a living wage. And again, I think that there are a number of different factors that go into that. I think, you know, part of it is that you know, in, in a lot of fields they have established minimums for you know, research assistants, graduates assistants and things like that. In, in theater that in the arts in general, that absolutely does not exist. And for state universities, that is also a difficulty. But yes my offer was $9,000 a year. The that did not include coverage of my fees. So I was still paying about a thousand dollars a year in fees. I was still paying, you know, reasonable but relatively market rate, rent to student housing on campus. So most of my money kind of ended up going back to the university. I, I did have really excellent health insurance though, which is again, to be attributed to the work of the union. Graduate students received the same health insurance as staff members and I didn’t know at the time how important that was going to become, but I was, I was diagnosed with a chronic illness my second year, and probably I would’ve had to leave grad school if my health insurance hadn’t been so good. So it was, it was very, really, really important, to, to have that health insurance.

Finances in Grad School With a New Baby and a Low Income

Emily (14:55): I wanna hear more about how you actually made the finances work, like, especially in this first year of graduate school. Okay. Like, you’ve got the new baby, you’re at a new place, you’re in student housing, like you’re not making very much money. You’ve got your husband to support as well, or, you know, your husband is factoring into this as well. So like, how did that go , especially like starting in that first year?

Laura (15:15): Yeah, it was, it was really tricky. My husband was looking for work but it was, it was really difficult to find. His background had been as an elementary school teacher and he had, he had done some work as like a paralegal. His, his main sort of goal and skillset was in horticulture. And that is what he does full-time now. But at the time, and in Madison it was really difficult to find those jobs. And so he, we also had this child, this infant who needed daycare, and infant daycare is just, I mean, my God, it is so expensive. So he was thinking, well, you know, I have this education background. Lemme see if I can just get a job working at a daycare and maybe that’ll be that’ll subsidize. Eleanor’s Care didn’t really work that way. He did get a job working in daycare. But essentially the money he made just, again, it went right back to the place where he was working because it was so expensive. And so there was no, there really wasn’t a benefit to, to that work. And he, he was able to sort of cobble together a couple of things, you know, sort of, sort of like temp work for that year. But for the most part, he was a stay at home dad. And so he was taking care of our daughter, and again, we were just using that like 25, $30,000 that we had in savings. So yeah, I would say we were living off of, I don’t know, like 35, 36,000 a year for that first year.

Emily (16:52): But not of income, right? Because that’s savings supplementing, yeah.

Laura (16:55): Yeah, yeah. So really it was like, yeah, that was, you know, like a few thousand bucks that I got from my TA work. And then just pulling it straight from savings. So in, in the next, you know, couple years when I was able to I got a a second job within the department working for the theater company of the department. My as my stipend went up a bit I got like a halftime TA instead of a third time ta. So I was able to get my income by the end up to, I think like 18, 19,000 per year, which felt it, it felt like so much money at the time, . And by that point, my husband had started working for the grounds department at UW Madison. And so you know, he was bringing in more money, but not, you know, a ton. Um and so we were, we were making it work, but there was, there was nothing going to retirement. There was nothing going to savings, there was nothing going to my daughter’s college fund, things like that. So we were we were definitely paycheck to paycheck but again, I didn’t have to take those loans for living. And I, I didn’t have to take out student loans to, to survive during that six year period, which is really, really helping now in terms of making up for those, those lost years of, of wealth building.

Emily (18:17): Yeah, let’s talk about that more in a second.

Commercial

Emily (18:21): Emily here for a brief interlude! I’m hard at work behind the scenes updating my suite of tax return preparation workshops for tax year 2023. These pre-recorded educational workshops explain how to identify, calculate, and report your higher education-related income and expenses on your federal tax return. For the 2023 tax season starting in January 2024, I’m offering four versions of this workshop, one each for US citizen/resident graduate students, postdocs, and postbacs and non-resident graduate students and postdocs. While I do sell these workshops to individuals, I prefer to license them to universities so that the end users, graduate students, postdocs, and postbacs, can access them for free. Would you please reach out to your graduate school, graduate student government, postdoc office, international house, fellowship coordinator, etc. to request that they sponsor one of my tax preparation workshops for you and your peers? I’d love to receive a warm introduction to a potential sponsor this fall so we can hit the ground running in January serving those early bird filers. You can find more information about licensing these workshops at P F f o r P h D s dot com slash tax dash workshops. Please pass that page on to the potential sponsor. Now back to our interview.

Using Government Benefits: Food Stamps, WIC, and Child Care Subsidies

Laura (20:12): Yeah, so because our income was so low we were eligible for, well, because our income was so low, and because we had an infant and I was within, you know, a a couple years of, of having given birth. We were eligible for a few different mechanisms. We were eligible for food stamps, we were eligible for WIC, which is stands for like Women and Infant and Children Support. And we were eligible for childcare subsidy from the state government. And so we did take advantage of each of those. We received, I wanna say like four or $500 a month in food stamps, which, you know, so that paid for like, all of our food, and that was so, so vital to us being able to, to, to make it work. WIC provided for for Formula I was unable to breastfeed after the first, you know, like couple of weeks. And so we, we had to have formula. But formula again is incredibly expensive. It provided for, you know, certain amounts and certain types of food. It was you know, more kind of staples, whereas food stamps is a lot you know, had kind of cast a wider net. And then for our daycare, once Eleanor ended up going to daycare, we were able to supplement UWs contribution with the state support. And so from there we were able to get our month, and that still didn’t cover everything for daycare, but we were able to get our monthly payment down to something reasonable.

Emily (21:55): And how long did you end up using those benefits for? Like as your, your income is increasing as your daughter’s getting older, like did those phase out over time?

Laura (22:04): Yeah, absolutely. We were on food stamps and wic for about a year. And actually that makes us essentially like the standard user of government benefits. The standard user of government benefits is white, and they were on it for about a year. And so I think that there are a lot of misconceptions about people who are relying on certain types of government benefits. But, but in truth, they mostly look like me. And it was something that we used in the short term until we were able to get our income to the point where we could pay for those things on our own. I think we used the state benefits for daycare for like two years.

Emily (22:47): Can you talk a little bit more about how, I guess maybe the decision or your like, willingness to access those benefits stemmed from your money mindset more generally in your experiences in your earlier parts of life?

Laura (23:03): Yeah, absolutely. So there were a number of things that allowed, allowed me to, to access those benefits and sort of allowed me to access them in a way that I felt confident about doing. I think it’s really important, first and foremost to say that I am white. And so, you know, being white and, you know, middle class essentially there was a lot less stigma about me using those benefits. And so I think that that is, is a barrier for a lot of people. I also had a working car and that is not nothing. So the ability for me to apply for those benefits to go pick up my WIC checks, because the WIC is like actual physical large checks, which are really embarrassing to use at the grocery store. And I had to go and get them but I didn’t have to use a bus in the, you know, Wisconsin winters. Um I had a flexible schedule. I was a grad student, right? I didn’t have to like tell my boss, Hey, I need to leave to get my, my food stamps. So there was a lot of privilege that went into being able to do that readily, easily, which is not to say it was an easy process. It was still a, you know, more of red tape and paperwork. But, but I made it work. And I think too that, you know, my, my feeling really was like, well, you know, I’ve you know, I’ve worked since I was 15. I’ve paid into this system. I, you know, if I’m eligible for these benefits, then I’m gonna take these benefits. And, and I still think that more people should have that mindset, right? Like, if you are a grad student right now listening to this and you are eligible for food stamps, go get food stamps. Like if you are eligible for food stamps, it means that you are at a level where you have a need, and this is just providing you with food. Like food, please go and do that. I also think it’s important to keep in mind you know, if you’re, if you’re feeling sort of weird about getting those benefits that government benefits aren’t just you know, for people who are poor or struggling I get government benefits all the time. I get my mortgage interest deducted, right? I get my student loan interest deducted. There’s all kinds of benefits that I get from, you know, having like, like a Roth IRA, right? I get tax advantages. Those are government benefits. And no, trust me, every rich person is getting every government benefit that they can. So you get your government benefits too. You earned them and you’re eligible for them. And so that was kind of the mindset that I, that I brought into that. And it, I’m not saying that it was always easy, you know, like I said, with food stamps or with EBT as they call it now, you get a card that looks just like a credit card and you, and you pay with that. And, and to me it’s a very dignified system when you’re actually using them. Whereas wic it’s like, I, I never had an instance of using the WIC checks where the cashier didn’t roll their eyes, didn’t sigh, didn’t sort of like give me a like, oh, great, now I gotta deal with these. And that is a real deterrent. Like, it was, it was embarrassing. And that is so unacceptable. So, so I think that there are ways that probably the government could make this a little easier, but they maybe aren’t inclined to. But yeah, I think that that was all wrapped up in, you know, again, feeling like, well, I’m a middle class white woman, I’m still going to use these.

Emily (26:44): Well, I do appreciate you talking about this like so openly. It’s something that graduate students are sometimes not aware that they can access these kinds of benefits, or in some places they actually might not be able to, even if their right income would put them at the right level because of their student status or because of the type of income that they have. So it’s certainly a state by state thing. But I really appreciate you speaking about how, like, how you thought about this at the time and how you felt like, yep, I need this, it’s a benefit. I’m gonna take it. Let’s do this even if it’s a little bit embarrassing. Because I do think that, like, like you said, you were only on it temporarily and it really helped you to move past the, the temporary income crunch that you all were in. I mean, you’re moving to a new place, you have a brand new baby, like yeah, a lot of people need help at that time of life, and you happen to access, you know, this these various social safety net aspects for that help. So anyway, thank you so much for talking about this. I really appreciate that.

Grad Student Union at UW Madison

Emily (27:38): So you’ve already mentioned a couple of times the union, the grad student union at UW Madison and how it had negotiated for the great healthcare and like this parental benefits and all this stuff. Could you talk more about your experience with the union during the time that you were a graduate student and also how the overall political climate in Wisconsin at that time, kind of the interaction between those two?

Laura (28:01): Yes. So I, I think I’m gonna do that sort of in reverse because the political climate in Wisconsin sort of heavily influenced my experience with the union. So the year before I started at UW Madison, Wisconsin had gone through a major change with Scott Walker was the new governor. And he had grand designs on leadership of the GOP think we can all recall his presidential campaign. And so one of those was to remake the labor landscape in Wisconsin. Wisconsin has historically been a a very strong labor stronghold. You know, really part of that rust belt that was, was, you know, built and facilitated by unions in a, in a, in a lot of ways. And so new legislation in Wisconsin the year prior to my arriving essentially stipulated that unions had to disband and remake themselves and that there couldn’t be a requirement for dues and things like that. And so this was you know, anybody who’s done any sort of you know, organizational work with people understands that if you have to disband your membership and, and re-up, that is a ton of work. And that’s, you’re not, you’re never gonna get everyone back. And that, of course, was the point. So there were major protests of which graduate students at UW Madison were a really important part. But it meant that by the time I arrived, the union was really trying to reconstitute itself, and I think they deserve a lot of credit for how much work that was and, and the fact that they, you know, are still an ongoing institution within uw. So they deserve a lot of credit for that. But it did change the, you know, the leadership, it changed the the makeup of the union and it changed the resources of the union. Uh so the, the union was not what it, what it had been. And the university was thankfully, you know, still honoring the commitments that they had made to the union prior to that 2011 legislation. But it did change things. Unfortunately and, you know, it’s, it’s tragic that, you know, that was, that was the, the planned outcome and it worked. But it did mean that the, the union had less power. It had less people to do the important work and I believe it had fewer actually full-time staff members which, which really made a difference. And so my, my sort of experience with it was like the, it just didn’t have the legs that it used to. But I will say that you know, having any sort of union as a graduate student can be a powerful thing. There was one instance in which I you know, I had a TA job and I was being told that it was a requirement that I work beyond my contract. And I, it was really great to be able to say like, okay, well I, like, since I’m a union member, I actually can’t. So let me just go to the union and talk to them about this request. And lo and behold I no longer had to work beyond the confines of my contract.

Emily (31:44): What I’m taking from this is that you can’t be complacent about the benefits that are offered by your university and, and if there’s a union by the union, what the union has negotiated for, because like what I’m learning kind of as I talk to people in different states and people at different stages of the unionization like process is that like, like what you experienced in Wisconsin, like things can shift politically at the state level or at the national level, and that can really shift what happens at the university level and with unions or the formation of unions. And so it’s not something you can sort of take for granted. And you’re always gonna have to be responding to those like shifting wins, I guess . And so I, so I’m learning that like, just because there is a union doesn’t mean the union is safe forever, right? You have to keep advocating for yourself and keep organizing.

Laura (32:33): And I think that that is also true for universities. And I think that part of what frustrated me sometimes about our union and, and sometimes frustrates me in in general in terms of like, you know, the way that grad students can sometimes approach their relationship to their university is that there is a sense that the university has the resources to do everything it wants to do and just won’t. And that could not be further from the truth. This is something where, you know, having worked in higher education for my entire career universities are so much more hamstrung by a lack of resources by legislatures that are not supportive or maybe di you know, directly hostile and hamstrung by the need to consistently be getting federal grants. That it’s, it’s so much more complex of a, a situation than I think a lot of grad students that I worked with at UW wanted to acknowledge that this was not us against the university universities in general you know, the people who are in them, they are not here to get rich because we’re never gonna get rich working for a state university.

Emily (33:47): Mm-Hmm. And I think, I mean, your point is, especially I think well made for public universities that have to deal with these state level like issues again and their funding, but of course, all universities are dealing with the grant funding that you mentioned from the federal government and whether it’s there and in what amount and, and so forth. So thank you so much for pointing out. Like it’s not, it’s really not, especially I would say the individuals like at the lower levels working within universities, they’re not the enemies of the students. They’re not trying to work against the students. Like, we’re just all trying to survive within the system. Okay.

Impact of Financial Experiences in Grad School on Current Financial Life

Emily (34:20): In what way has your financial experience as a graduate student continued to affect your financial life to today? Like you mentioned earlier that you did not have any room in your budget for like retirement savings, for example, and so by the time you got out of graduate school, I’m doing some quick math. I think you were 36, so you can talk about that or any other ways that, that, that experience has still had like a financial effect on your life at the present.

Laura (34:44): So yeah, the, the, the period during which I was not able to be saving for retirement or saving for my daughter’s college education that so far has been the most impactful aspect of my finances. Again, I didn’t have to to take on those loans. And so you know, that my, my, my student loan payment has not really gone up. But the, I think it’s important for anybody who is in a PhD or considering doing a PhD to understand the opportunity cost that, you know, taking that time out of your life when you’re in your, you know, twenties or thirties, that is gonna be the most impactful period in which you can be saving for retirement because of compound interest. So the more that you can put away when you’re young, the less you’ll have to put away when you are older. Um and so, you know, know now that I am 42 and you’re right, I was in graduate school from 30 to 36. I am having to put more away towards retirement, and I probably will just have a smaller retirement nest egg. I am again, lucky to be in a university where in a state where I am in a pension system. So this is pretty rare to have a defined benefit pension. But the, the pension is not what it used to be. The pension will cover maybe 50% of my expenses in retirement which is great. I’m certainly not complaining. But it does mean that like I still have to, beyond the amount I put into the pension system, I have to be putting cash away into a Roth IRA. And that’s tricky because at this point I am I am saving for my own retirement. We’re saving for my husband’s retirement we’re saving for my daughter’s college education. So my daughter’s college education is also a strong determinant of where I work because the university I work for that is our local state university offers 75% tuition discount to the children of staff members. So that’s our college plan , right? Which is kind of rough. Like I, I was always kind of taught that like, you know, I had a lot of options for college and for my daughter that is not the case. And I think, you know, for, for Gen Z in general they’re much more savvy than us elder millennials are about these things at their age. But but it still means that like, okay, you know, the, the college savings that I do are aligned with the idea that 75% of her tuition will be, will be covered. Um and that again, is not you know, that was a, a very specific choice that I have made you know, to to to, to remain at a, you know, at a university where that is gonna be one of the benefits. So, you know, that’s also something where, that’s a decision that I made based on the financial situation I was in in grad school. At the same time you know, having the PhD has increased my, my earning potential greatly. And so even though you know, I am at a state university where I can just expect that the, you know, compensation is going to be lower than in the private sector I still am able to to make the kind of salary that allows me to, to save for all those things at once. But you know, there’s still you know compromises to be made. And that, you know, frugality that that my husband and I have always really, really had, has, has come in handy because I think it also can be very tempting, particularly for students who are coming right out of graduate school to have a lot of like lifestyle creep. And, you know, your, your paycheck gets bigger and so you’re spending more money. And I think the, the, the more that you can avoid that, the better.

Emily (38:42): Yeah, you really have to have that awareness right from that first paycheck they receive, you know, post PhD, post postdoc, that there’s a lot more on your to-do list financially that there probably wasn’t graduate school if you weren’t able to get to all those items like retirement and, and college savings and so forth. But I think your story sounds like pretty like par for the course, right? Like the PhD increased your earning potential, but you lost the, to a degree, the time value of money for the time that you spent during the PhD. And so there has to be, there’s the trade off, right? But then again, I’m sure you’re in a career that you find very fulfilling, and so there’s also that aspect of it. Yeah. Okay.

Best Financial Advice for Another Early-Career PhD

Emily (39:22): So Laura, as we wrap up, I’m gonna ask you the question that I ask all of my guests, which is, what is your best financial advice for another early career PhD that could be for a current graduate student, a prospective graduate student, like we’ve mostly talked about, it could be someone more at your current career stage, however you would like to take that,

Laura (39:40): You know, addressing PhD students and particularly PhD students who are going on the job market or are close to graduation. I really want to encourage you to keep in mind that you have a lot of options. I think that there are PhDs who will take a truly suboptimal offers like adjuncting that they do because they don’t feel that they have any options. And the truth is that with a PhD, even if, even if your job is not specifically in your field, my current job is not in the field of Irish theater. But you have options. And please don’t let academia make you feel as though you have a responsibility to, to take these sort of really terrible adjunct offers because that helps perpetuate the adjuncting system, frankly. And you have the ability to, to to have the same sort of self-worth the same sort of you know, fulfillment, even the same publication opportunities in some, in some cases without having to to stay in that subsistence situation. So just really, really understand your own earning power because no matter what field you are in, if you have a PhD, you have pretty significant earning power.

Emily (41:11): Hmm. And even pivoting outside of academia, like within academia, you feel like you’re a dime a dozen because literally your university is graduating like whatever, hundreds of PhDs each year and probably several even from your own discipline. And so you feel like, like you’re nothing. Some people might feel like they’re nothing special. But if you take your training and those translatable skills into another context, you will likely find that you actually have a lot to bring to that other context and that you can be paid very nicely for it. So thank you so much for that, the kind of like shot of confidence to those people who are in that at that point in their careers. So Laura, it’s been absolutely wonderful to have you on the podcast. I’m so glad I ran into you at GCC and thank you so much for agreeing to give this interview.

Laura (41:56): Well, thank you so much. I really appreciate It.

Outtro

42:04 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! Nothing you hear on this podcast should be taken as financial, tax, or legal advice for any individual. The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Dr. Lourdes Bobbio and show notes creation by Dr. Jill Hoffman.

Why and How to Increase Your Retirement Account Contribution Room

November 2, 2020 by Emily

In this episode, Emily presents why and how you should increase your retirement account contribution room. She gives a compelling compound interest example calculation that illustrates why you should start investing early in your career and reviews the types of tax-advantaged retirement accounts you might have access to and why you should use them if you can. If you would like to increase your available contribution room in tax-advantaged retirement accounts and you are self-employed, the last part of the episode is for you. You can open a tax-advantaged retirement account through your business, even if your business is new or tiny or unincorporated. Emily compared the three most popular self-employment retirement accounts and evaluated which is most advantageous for a solopreneur side hustler, as so many PhDs are, in a video training she recently added to the Personal Finance for PhDs Community. In this episode, she tells you about the training, what motivated her to create it, and how to avoid making the same mistakes she did with her self-employment retirement account. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

Links Mentioned in This Episode

  • The Personal Finance for PhDs Community
  • Whether You Save During Grad School Can Have a $1,000,000 Effect on Your Retirement
  • The Wealthy PhD
  • Personal Finance for PhDs: Podcast Hub
  • Personal Finance for PhDs: Subscribe to the mailing list
retirement account contribution room

Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

This is Season 7, Episode 9, and today I don’t have a guest but rather am going to tell you why and how to increase your retirement account contribution room.

I’ll give you a compelling compound interest example calculation that illustrates why you should start investing early in your career. I’ll review the types of tax-advantaged retirement accounts you might have access to and why you should use them if you can.

If you would like to increase your available contribution room in tax-advantaged retirement accounts and you are self-employed, the last part of the episode is for you. You may not be aware, but you can actually open a tax-advantaged retirement account through your business, even if your business is new or tiny or unincorporated.

I compared the three most popular self-employment retirement accounts and evaluated which is most advantageous for a solopreneur side hustler, as so many PhDs are, in a video training I recently added to the Personal Finance for PhDs Community.

In this episode, I’ll tell you about the training, what motivated me to create it, and how to avoid making the same mistakes I did with my self-employment retirement account. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

I highly recommend going through the training if you are looking for more retirement account contribution room. It might even convince you to start a self-employment side hustle for that express purpose. This episode is specific to the US and is not tax, legal, or financial advice for any individual.

Without further ado, here’s my episode, on why and how to increase your retirement account contribution room.

Why You Should Invest for Retirement Early in Life

To build my case, I need to start by showing you why you should invest for retirement early on in your life.

There is an example I use in my seminars that makes a big impression on at least a few people in the audience.

This is a compound interest calculation, and you can follow along with it and play with some numbers of your own using a compound interest calculator such as the one at Money Chimp, which is linked from the show notes.

Compound interest calculations model the exponential growth of money over time with a given rate of return. It’s a way of modeling the returns you can get in the stock market, for example, though this calculation has a steady rate of return and your rate of return on stock investments would fluctuate quite a lot year to year. It’s a good model if you’re calculating returns over long periods of time.

So here’s the example:

Let’s say you’re able to save and invest $250 per month. That’s 10% of a $30,000 per year stipend or salary. You have no starting balance with your investments, and your money gets an average annual rate of return of 8%. You do this over five years, for example while you’re in grad school or a postdoc.

After five years, you have contributed $15,000 and your money has grown to $18,369. That might not sound too impressive yet but just wait!

Now, let’s take that $18,369 and let it keep growing with an 8% average annual rate of return. You’re not going to add any more money to this particular pot. Let it ride for 50 years this time.

The balance in your investment account has now grown to $990,000. You heard me right! The money you contributed over just five years has, given enough time and a good rate of return, grown to just shy of one million dollars! This is the power of compound interest.

If you’d like to read this example for yourself and dissect it a bit, I’ve linked an article from the show notes about all the assumptions and so forth.

Here’s the takeaway point, though: Don’t discount any amount of money you are able to invest during grad school or your postdoc. Whatever money you manage to invest early in life is going to have an outsized impact on your wealth in your older years. So start early and save at as much as you reasonably can.

Of course, you’re not limited to investing for retirement to an early five-year period of life. I hope that you will continue to invest throughout your career in larger sums than $250 per month. That doesn’t take away from the importance of starting early.

Why You Should Use a Tax-Advantaged Retirement Accounts

That’s the case for investing in general. Now I’m going to tell you why you should use a tax-advantaged retirement account for your very long-term investments.

What do I mean by tax-advantaged retirement account? Basically, the federal government gives a tax break to incentivize people to fund for their own retirements in particular. Money that has been contributed to a tax-advantaged retirement account is shielded from income and capital gains taxes.

These tax-advantaged retirement accounts go by many names, such as Individual Retirement Arrangement or IRA, 401(k), 403(b), 457(b), Thrift Savings Plan or TSP, and there are even more.

If you invested in a regular taxable investment account, you would pay your full income tax on the money you invest, plus every year there might be some small bites taken by income or capital gains tax. How large the tax bites would be depends on what you’re invested in, how long you’ve held the investment, and how high your overall income is.

Instead, with a Roth tax-advantaged retirement account, you pay your full income tax on the money you contribute, and then the money grows tax-free while it’s in the tax-advantaged retirement account and you can withdraw it in retirement without paying any income or capital gains tax.

A traditional tax-advantaged retirement account allows you to deduct your contributions to it from your taxable income in the year you contribute. The money grows tax-free while in the tax-advantaged retirement account, and then you pay ordinary income tax on the withdrawals in retirement.

It is a great strategy to use a tax-advantaged retirement account for money that you’re sure you won’t need access to until your retirement. While in any given year the tax you might pay on investments in a regular account might be fairly small, the cumulative effect on your investment balance over decades of this is a bit like a death by a thousand cuts. Plus, once you are in your peak earning years, it’s quite a valuable tax break to be able to deduct your contributions to a traditional tax-advantaged retirement account.

The tax break on the growth in a tax-advantaged retirement account alone typically amounts to tens or hundreds of thousands of dollars over the course of an investing lifetime. This again demonstrates the power of compound interest, because the biggest part of the difference is not in how much you pay in tax, but in how much that money could compound and grow if you were able to leave it invested instead, which is what a tax-advantaged account does.

Add to your investment balance some hundreds of thousands of dollars more if you are able to use Roth and traditional tax-advantaged retirement accounts to selectively pay ordinary income tax in retirement and/or your lower-earning years instead of in your peak earning years.

What Is Contribution Room?

I hope I have convinced you of the power of investing and specifically inside a tax-advantaged retirement account.

Now, I’ll define a term I’m going to use quite a bit in the remainder of this episode: contribution room.

Contribution room is the maximum amount of money you are permitted to contribute to a tax-advantaged retirement account in a given year.

For example, graduate students and postdocs who are not employees of their universities or institutes are not extended retirement benefits, so their only tax-advantaged retirement account option is an IRA. If you are under age 50, the annual contribution limit to an IRA is $6,000 in 2020.

Graduate students who are employees of their universities or institutes are only very rarely extended retirement benefits; it’s worth checking into but don’t get your hopes up.

If you are an employee in the private sector, it’s typical to have access to a 401(k), perhaps even with a matching program. If you are under age 50, the annual employee contribution limit to a 401(k) is $19,500 in 2020. Your total contribution room between a 401(k) and an IRA is $25,500.

If you are an employee in the non-profit sector, such as at a university, it’s typical to have access to a 403(b), perhaps with a match or a fixed contribution by your employer. If you are under age 50, the annual employee contribution limit to a 403(b) is $19,500 in 2020. You might also have access to a 457(b). If you are under age 50, the annual employee contribution limit to a 457(b) is $19,500 in 2020. Your total contribution room between a 403(b), a 457(b), and an IRA is $45,000.

You can see that the contribution room available to you as a full-time permanent employee is much, much greater than if you are a fellow or graduate student. This is why there is such a focus on contributing to 401(k)s and similar and less so IRAs.

Now we come to the question of how to create more contribution room. Of course, you only need more contribution room if you are currently maxing out the contribution room available to you.

When I was in grad school, I never maxed out my IRA. So if you are maxing out your IRA as a grad student, please hear me: You are a rock star. I am not telling you that you have to contribute more. I’m only going to show you how you can if you already want to.

If you are maxing out a 401(k), etc., you are also a rock star. But if you want to contribute even more to make up for lost time or hasten your retirement date, I can show you how.

Self-Employment Retirement Accounts

The specific strategy I’m teaching you today is about self-employment retirement accounts and how they can supplement your IRA, 403(b), etc.

But to have a self-employment retirement account, you have to own a business. That could sound like a really fancy, complicated thing, but it definitely doesn’t have to be. All I mean is that you file a Schedule C with your tax return, assuming your business is unincorporated. You might describe yourself as a freelancer, an independent contractor, a gig worker, a solopreneur, or self-employed.

You know as well as I do that lots of graduate students and postdocs have side hustles to supplement their pay, and many of those, whether the person thinks about it this way or not, are businesses. Again, if you file a Schedule C with your annual tax return, this information is for you.

If you aren’t a business owner and have no plans to become one but you know a grad student or PhD who might be interested in this strategy, please share this episode with them!

I’ve covered the two main requirements you should check off before pursuing a self-employment retirement account: 1) that you own a business and 2) that you want more contribution room in tax-advantaged retirement accounts.

My Story and My Client’s story

I’ll tell you what motivated me to first investigate self-employment retirement accounts a few years ago.

When my husband and I were in grad school, as I mentioned earlier we never maxed out both of our IRAs. So even though I did have some self-employment income by the end of grad school, we had no need to open a self-employment retirement account.

We defended in 2014, and in the year following, my husband was a postdoc employee and I had self-employment income, so we had our two IRAs plus access to a 403(b), and we didn’t get anywhere close to maxing out that contribution room.

Halfway through 2015, my husband took a job at a start-up that offered a 401(k). That was when our household income really jumped up. We knew we would need more contribution room than just our IRAs to meet our retirement investing goal of 20%.

However, the 401(k) offered by my husband’s job was and is really expensive. It’s offered through Edward Jones and composed of American Funds, both of which are notorious for charging high fees. And the company doesn’t offer a match.

So in 2015, I read up about self-employment retirement accounts and opened one for Personal Finance for PhDs. We had a lot of options in where to open the account and which funds to purchase within it, so we could keep the costs really low. And that’s been our tax-advantaged retirement investing strategy for the past five years. We can meet our retirement investing goal using our IRAs and my self-employment retirement account. If we do ever need more contribution room than those accounts provide, we will use the expensive 401(k), but not until.

Your motivation to use a self-employment retirement account to increase your contribution room might be different from mine. Honestly, I didn’t imagine that any graduate students, for example, would want to contribute more than the $6,000 IRA ceiling.

But I was wrong. One of my recent coaching clients through The Wealthy PhD, a grad student, maxed out her 2020 IRA, but had some additional money that she was interested in getting into a tax-advantaged retirement account. She did freelance work on the side of her role as a graduate student, so I suggested that she look into self-employment retirement accounts.

Self-Employment Retirement Account Options

Our conversations throughout that program on this topic inspired me to create a new training inside the Personal Finance for PhDs Community titled “Self-Employment Retirement Account Options.” You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

As you can tell, I love to encourage PhDs to invest early on in their careers, even during grad school or a postdoc. I also love teaching about taxes. So this training is a perfect crossover point between my two favorite personal finance subjects, and it stretched me quite a bit as well as I learned lots of new things.

The objective for “Self-Employment Retirement Account Options” is to help you choose which self-employment retirement account type is right for you and your business. I haven’t mentioned it yet, but there are at least half a dozen high-level options and many of those have various permutations.

As I was sifting through these options to decide what to include in the training and in what depth, I kept in mind my coaching client who inspired the training. There is a lot of information out there about self-employment retirement accounts, but it’s largely intended for people who work full-time in their business, like I do, or even for small businesses with employees.

What I decided to do with the training in the Personal Finance for PhDs Community was to create it with a side hustler in mind instead—a solopreneur who has only a few thousand dollars in self-employment income—but who wants to maximize their retirement account contribution room even on that smaller income. When you frame the question that way, I believe the best choice becomes much clearer.

I included in the training detailed information about the three most popular self-employment retirement account types. The less popular account types are not ideal for a side hustler or solopreneur. The types I included are SEP-IRAs, SIMPLE IRAs, and one-participant 401(k)s.

Across these three account types, I compared the type of business they are ideal for; their employer, employee, and overall contribution limits and formulae; whether a Roth version is an option; and their deadlines to set up. For each account type, I also calculated the overall contribution limit for someone whose net business profit is $24,000 per year, an amount that highlights well the differences among the plans.

I also show you how contributions you or your employer make to a retirement account offered through your primary job affect your contribution room within each of the types of self-employment retirement accounts. This information is not the type you uncover by reading quick summaries of various account types, but it is crucial for a side hustler.

Ultimately, I recommended one account type over the others. I present whether that account type can be opened at 13 of the most popular brokerage firms today and a few specifics about the account at each of the firms where it is offered, such as what fees are charged. All of that is to save you a bit of research time when you are actually going to open your account.

I admit I did not do any research on the best place to open my self-employment retirement account. I opened it with Vanguard, which is where I had all my other investments. It was quite surprising to me when I looked around at other brokerage firms to find that Vanguard is not necessarily the best option.

The very last module in the training shows you how to use a certain IRS worksheet to calculate your contribution room, and I show four calculation examples. This module is really in the weeds, but should be super helpful for someone who trying to put as much money as legally allowed into their self-employment retirement account.

I actually didn’t know about this worksheet a couple of years ago when I accidently slightly overcontributed to my self-employment retirement account. Once I realized my mistake, I had to reverse that contribution in a slight panic right before the tax deadline. I don’t want anyone else to go through that process or overcontribute and not catch the mistake, so that’s why I included this module.

Summary

Let’s come back around to the compound interest illustration that I relayed at the beginning of this episode. Given the assumptions in that example, investing $250 per month for five years and then letting the portfolio grow for fifty years resulted in a balance of almost one million dollars.

Whatever your saving rate, increasing it by $250 per month is going to have a very impressive outcome, either in more wealth in retirement or achieving financial independence even earlier.

If your budget has no room for additional investing right now but you have a bit of time on your hands, consider pursuing a self-employment side hustle such as consulting; freelance research, writing, or editing; tutoring; baby or pet sitting; or gig work.

To invest $250 per month in the type of self-employment retirement account that I recommend, you only need to net $269 per month through your business. Let’s round it up to $350 per month to account for income and self-employment tax.

If you earn $15 per hour after expenses, you can earn $350 in 23 hours of work, or less than 6 hours per week.

At $25 per hour, that’s 14 hours of work in a month or between 3 and 4 hours per week.

If you charge $50 per hour, which is quite moderate for some of the types of work I mentioned earlier, you can earn $350 in just seven hours of work per month. Increase it to $100 per hour, and you’re down to less than 1 hour of work per week to meet your goal.

If you think that charging $50 or $100 per hour is outlandish, you’re probably anchoring against what you’ve been paid as an employee and/or for work outside of your unique skill set. Capitalize—literally—on the skills you built or are building during your PhD to command higher pay rates.

Do you think you can find between 1 and 6 hours per week to devote to a side hustle over just five years if it can become an extra million dollars fifty-five years from now?

If you’re already there with your self-employment side hustle or will be soon, please consider joining the Personal Finance for PhDs Community to take the Self-Employment Retirement Account Options training. You will learn which self-employment retirement account is best for you and your business and where to open one to protect your investments from taxes and maximize their growth over the decades. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

Taxable Compensation

March 8, 2015 by Emily

Note: The content in this article is outdated. As of January 1, 2020, there is a new definition of taxable compensation. You can read or listen to the details about the new definition in: Fellowship Income Is Now Eligible to Be Contributed to an IRA!

Not all PhD trainees are eligible to contribute to an IRA because IRAs require “taxable compensation” (formerly known as “earned income”).

“Generally, compensation is what you earn from working” (source) and includes wages, salaries, and self-employment income, among other few other types of income. A few types of income that are not earned are rental income, interest and dividend income, and pension income.

At first blush, it would seem that PhD trainee pay would fall under wages or working for someone who pays you. However, that is only true for PhD trainee pay that is compensatory. Non-compensatory pay may not be eligible for IRA contributions. Publication 590 states that “scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.” (See this explanation of how to calculate your taxable income for a discussion of compensatory and non-compensatory pay.)

The question of whether or not you can contribute to an IRA will come down to what kind of tax forms you receive in January. If you receive a W-2, you have taxable compensation and can contribute to an IRA from that income. If you receive a 1099-MISC, a 1098-T, a courtesy letter, or no notifications whatsoever, the form indicates that portion of your income is not eligible to contribute to an IRA.

Further reading: Earned Income: The Bane of the Graduate Student’s Roth IRA

Remember that you can contribute to an IRA up to your amount of taxable compensation for the year or $6,000, whichever is lower. If part of your income is compensation, you can contribute to an IRA from that portion – this may be the case if you switch funding sources between school years or between the academic year and the summer or if you have outside self-employment income. Also, if your spouse has taxable compensation, you can contribute to a Kay Bailey Hutchison spousal IRA (up to $12,000 between both IRAs).

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