Personal Investment OptionsBenefit Analysis of Obtaining a PhD EGR 403 Team 5 Jon Estanislao, Fady Mina Muhammad Rahman,Oscar Villa
Scenario Overview • MAIN GOAL:To determine how beneficial it is it to receive a PhD? • Examine 2 career paths - Work for a single engineering company until retirement - Work for a company while obtaining a PhD. Retire early from industry and work as a professor for a university.
Option 1 (no PhD): $89,742 starting at beginning of analysis Will work 30 more years till retirement After retirement the engineer will live off his savings and pension. Option 2 (PhD): Pursue PhD for 3 years - Receive stipend of $25,000/yr Returning salary $105,938 Will work industry until 55 (22 more years) Work for a university for 10 years - Starting salary $65,000 Scenario Overview
Scenario Assumptions • Inflation rate is 3.5% • Salary increase is 2% / yr • Interest rate on savings is 8%
Analysis Techniques • Future Worth Analysis - To calculate the future worth of salary, savings and pension. - Enable to compare earnings equivalently. • Uniform Annual Payment - Determine the equivalent retirement payment amounts received. • Sensitivity Analysis - To determine how affected results are to change
PhD Option • First 3 years are stipend pay - $25,000 • From age 33 – 55 working industry w/ salary increase of 2% / year • - Returning salary: $105,938 • - Ending salary: $163,778
PhD Option • Working for University from age 56 – 65 • - University Salary: $65,000 • At age 60 pension payments from industry begin • - Pension payment: $72,062 • - Salary from 60 – 65: $ 137,062
PhD Option • Complete Retirement from work force at 66 • Industry Pension: $72,062 • University Pension: $13,000 • Savings uniform payment (20 yrs): $17,680 • - Total Retirement compensation: $102,742 / yr
No PhD Option • No PhD starting salary: $89,742 • 2% / yr salary inc • Ending Salary: $165,806 • Salary Difference: No PhD makes $354,357.27 more
No PhD Option • At age 66 when both options are in retirement • - When both retired no PhD will be receiving $106,133.28 / year • No PhD receives a total of $67,820.40 moreduring retirement.
Sensitivity Analysis: PhD – Response of Earnings to 5% salary inc yearly With a 5% inc in salary the PhD makes a total of $720,506.46 more. If Masters Degree starts with a salary of $94,742 instead of $89,742 the PhD with a 5% inc in salary still makes $475,718 more in total.
Sensitivity Analysis: PhD – Response of PhD to 4% Inc in salary savings With a 4% inc in salary saved the PhD makes a lifetime total of $105,375 more.
Sensitivity Analysis: NoPhD – Response of Savings to a higher interest rate In total the Masters make $9,158 more then the PhD in life time earnings.