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Grad students should save for retirement

Started by pgher, August 29, 2021, 05:50:19 PM

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marshwiggle

Quote from: dismalist on August 30, 2021, 09:33:02 AM
Paying off debt is saving! [Consumption is less than income.]

Sure, and since the interest rate on debt is *higher, paying off debt is better financially. However, some people will have more of a mental disconnect between the two so that after the debt is paid, they won't automatically redirect those payments into savings. For those people, making small regular deposits to savings may help get them started.

*Of course, if student loans have interest paid by the government while they are still in school, then money put into savings generating some interest will actually be economically superior until the interest on the loan is no longer paid by the government.
It takes so little to be above average.

dismalist

I do not wish to discourage people from saving. I do wish to discourage them from being driven crazy by single minded savings fetishists.

The problem can be looked at it in this way: There are two people within us, our present self and our future self [Zwei Seelen hab' ich ach in meiner Brust. :-)] Let us accept that our present self is a week-kneed sloth who thinks only of the present and has no will power. Then, to prevent him from exploiting the future self by not saving, all kinds of commitment devices are suggested -- save a little to form a habit, set goals, reward yourself for saving, and so on. This is fine if it doesn't go too far. For, the situation is symmetric! The fetishists would have our future self exploit our present self! All the fun [consumption] is saved for later, while our present selves toil away. If people wish to live that way, they should at least be aware of what they are doing. 

Do not feed behemoth!
That's not even wrong!
--Wolfgang Pauli

wellfleet

I am extremely glad I started saving for retirement while in grad school. I've maximized compounding along the way and have managed to put pre-tax money into long-term savings every year since.
One of the benefits of age is an enhanced ability not to say every stupid thing that crosses your mind. So there's that.

Durchlässigkeitsbeiwert

One can view this article as a good way to highlight opportunity cost of grad school to both professors and prospective students.
The default (and IMO justified) response "it is impossible to follow this advice for most grad students" only confirms that even "full-ride" grad school  incurs long-term costs (that can be, of course, offset by a high-paying job afterwards).

arcturus

As someone coming from a less advantaged background, I knew that I needed to save money, but I did not know about retirement accounts. I had a few thousand dollars to my name when I graduated with a PhD, but was able to pay off my (deferred) undergraduate student loans within the first year of a postdoc (in part due to a decent salary in a very low cost of living location). I was not eligible to participate in the retirement plan at that first postdoc until after two years of employment. At that point, HR chased me down and explained how I was missing out on free money by not filling out some paperwork. While the total amount in that account is now dwarfed by my other (much longer term!) retirement accounts, it has been growing steadily over the years.

So, although the details in this article may be inappropriate for some graduate students, the general concept is a good one. If Roth IRAs had existed back then, it would have been beneficial for me to put those few thousand dollars into one as a graduate student, and most definitely I should have invested the excess salary I earned as a postdoc (if only I had known how!). Given those experiences, I talk with my graduate student RAs about funding Roth IRAs and the opportunity cost of remaining a graduate student for too long (particularly since RA stipends are not charged FICA). Our graduate student stipends are reasonable for the cost of living in our town, so students should be able to save some while still living the good life. YMMV.

Kron3007

This is pretty rich. 

I'm sure there are some grad students that can do that, but where I went to school and teach now, the stipend is well below minimum wage after tuition and fees are paid.  It is hard to make ends meet let alone save for retirement.

I also agree with Dismalist that it is not necessarily worth sacrificing the few luxury items you may splurge on as a graduate student in order to save a little more for retirement.  Perhaps that would be prudent if we were robots and only looking at spreadsheets, but assuming you are human and have emotions you also need to consider mental health.  A meal out with friends (or whatever) can be worth more than the money.   


mamselle

If I'd tried to save that much, given the rent base here, I'd have been homeless.

But I'd have had a nice nest egg for when I retired.

M. 
Forsake the foolish, and live; and go in the way of understanding.

Reprove not a scorner, lest they hate thee: rebuke the wise, and they will love thee.

Give instruction to the wise, and they will be yet wiser: teach the just, and they will increase in learning.

Caracal

Quote from: dismalist on August 30, 2021, 10:47:59 AM
I do not wish to discourage people from saving. I do wish to discourage them from being driven crazy by single minded savings fetishists.

The problem can be looked at it in this way: There are two people within us, our present self and our future self [Zwei Seelen hab' ich ach in meiner Brust. :-)] Let us accept that our present self is a week-kneed sloth who thinks only of the present and has no will power. Then, to prevent him from exploiting the future self by not saving, all kinds of commitment devices are suggested -- save a little to form a habit, set goals, reward yourself for saving, and so on. This is fine if it doesn't go too far. For, the situation is symmetric! The fetishists would have our future self exploit our present self! All the fun [consumption] is saved for later, while our present selves toil away. If people wish to live that way, they should at least be aware of what they are doing. 

Do not feed behemoth!

Yeah, I think that's right. There's a much greater danger of exploiting your present self when your present self is poor and young. The marginal decisions tend to be "do I want to go get a burger and drinks sometimes with friends instead of returning to my apartment alone and having pasta with jarred sauce." As you have a higher income, the decisions often shift in ways that make the "responsible choices" far less unpleasant.

One of the things we've always tried to do (my spouse deserves all the credit for this) is try not to mindlessly increase our spending with our level of income. It's one thing to decide that since you make more money, it is reasonable to spend more on something than you did before. The danger for me is that it would be easy to just spend more because there wouldn't be any immediate consequences. Putting a fair amount of the "extra money" into savings of various sorts has helped us get a sense of when we are spending more and evaluating whether the spending is worth it.

Kron3007

#23
Quote from: Caracal on September 01, 2021, 07:44:23 AM
Quote from: dismalist on August 30, 2021, 10:47:59 AM
I do not wish to discourage people from saving. I do wish to discourage them from being driven crazy by single minded savings fetishists.

The problem can be looked at it in this way: There are two people within us, our present self and our future self [Zwei Seelen hab' ich ach in meiner Brust. :-)] Let us accept that our present self is a week-kneed sloth who thinks only of the present and has no will power. Then, to prevent him from exploiting the future self by not saving, all kinds of commitment devices are suggested -- save a little to form a habit, set goals, reward yourself for saving, and so on. This is fine if it doesn't go too far. For, the situation is symmetric! The fetishists would have our future self exploit our present self! All the fun [consumption] is saved for later, while our present selves toil away. If people wish to live that way, they should at least be aware of what they are doing. 

Do not feed behemoth!

Yeah, I think that's right. There's a much greater danger of exploiting your present self when your present self is poor and young. The marginal decisions tend to be "do I want to go get a burger and drinks sometimes with friends instead of returning to my apartment alone and having pasta with jarred sauce." As you have a higher income, the decisions often shift in ways that make the "responsible choices" far less unpleasant.

One of the things we've always tried to do (my spouse deserves all the credit for this) is try not to mindlessly increase our spending with our level of income. It's one thing to decide that since you make more money, it is reasonable to spend more on something than you did before. The danger for me is that it would be easy to just spend more because there wouldn't be any immediate consequences. Putting a fair amount of the "extra money" into savings of various sorts has helped us get a sense of when we are spending more and evaluating whether the spending is worth it.

Yes, it is hard to avoid increasing spending as your income goes up.  I think this is especially true for many of us, who spent many years living in poverty as students, and then in many cases as postdocs (less impoverished, but...).  For me, it has been nice to finally be able to add a few luxuries to my life after more than a decade of relative austerity.  I have also shifted toward buying slightly more expensive items of higher quality, but I believe this often saves money in the long run so is a wise financial decision.

It is also hard to balance savings vs living.  For example, I am currently on sabbatical and decided to go with the family on a fairly long trip.  This ate a lot of our savings, but I feel that when it is all said and done I would regret not taking advantage of this opportunity to travel with the family more than I would value the money.  However, my retirement plans are largely based around my pension so it is all assuming it pays out as planned and I live a reasonably long and healthy life. 

apl68

Quote from: dismalist on August 30, 2021, 10:47:59 AM
I do not wish to discourage people from saving. I do wish to discourage them from being driven crazy by single minded savings fetishists.

The problem can be looked at it in this way: There are two people within us, our present self and our future self [Zwei Seelen hab' ich ach in meiner Brust. :-)] Let us accept that our present self is a week-kneed sloth who thinks only of the present and has no will power. Then, to prevent him from exploiting the future self by not saving, all kinds of commitment devices are suggested -- save a little to form a habit, set goals, reward yourself for saving, and so on. This is fine if it doesn't go too far. For, the situation is symmetric! The fetishists would have our future self exploit our present self! All the fun [consumption] is saved for later, while our present selves toil away. If people wish to live that way, they should at least be aware of what they are doing. 

Do not feed behemoth!

Concern for the ultimate future self is a big part of what that my signature line is about.  What we spend (money and other resources) today for others in showing them Jesus' love is sent ahead for the future self to enjoy, with a promise of considerable "interest" in addition.  And it's not like present self doesn't get some real enjoyment from that sort of altruism either.
The Spirit himself bears witness that we are the children of God.  And if children, heirs of God, and co-heirs with Christ, if we suffer with him that we may also be glorified together.
For I consider that the sufferings of the present time do not compare with the glory that will be revealed in us.

spork

Quote from: Durchlässigkeitsbeiwert on August 30, 2021, 12:07:34 PM
One can view this article as a good way to highlight opportunity cost of grad school to both professors and prospective students.
The default (and IMO justified) response "it is impossible to follow this advice for most grad students" only confirms that even "full-ride" grad school  incurs long-term costs (that can be, of course, offset by a high-paying job afterwards).


Yes. The author of that IHE article currently holds a job that does not require a PhD. And it's highly doubtful that he was earning an income equivalent to that of a full-time job during the 5-7 years he spent getting the PhD.

Worst of all, he wildly exaggerates the net return at retirement from investing in the S & P 500.
It's terrible writing, used to obfuscate the fact that the authors actually have nothing to say.

apl68

Quote from: Kron3007 on September 01, 2021, 08:54:08 AM
Quote from: Caracal on September 01, 2021, 07:44:23 AM
Quote from: dismalist on August 30, 2021, 10:47:59 AM
I do not wish to discourage people from saving. I do wish to discourage them from being driven crazy by single minded savings fetishists.

The problem can be looked at it in this way: There are two people within us, our present self and our future self [Zwei Seelen hab' ich ach in meiner Brust. :-)] Let us accept that our present self is a week-kneed sloth who thinks only of the present and has no will power. Then, to prevent him from exploiting the future self by not saving, all kinds of commitment devices are suggested -- save a little to form a habit, set goals, reward yourself for saving, and so on. This is fine if it doesn't go too far. For, the situation is symmetric! The fetishists would have our future self exploit our present self! All the fun [consumption] is saved for later, while our present selves toil away. If people wish to live that way, they should at least be aware of what they are doing. 

Do not feed behemoth!

Yeah, I think that's right. There's a much greater danger of exploiting your present self when your present self is poor and young. The marginal decisions tend to be "do I want to go get a burger and drinks sometimes with friends instead of returning to my apartment alone and having pasta with jarred sauce." As you have a higher income, the decisions often shift in ways that make the "responsible choices" far less unpleasant.

One of the things we've always tried to do (my spouse deserves all the credit for this) is try not to mindlessly increase our spending with our level of income. It's one thing to decide that since you make more money, it is reasonable to spend more on something than you did before. The danger for me is that it would be easy to just spend more because there wouldn't be any immediate consequences. Putting a fair amount of the "extra money" into savings of various sorts has helped us get a sense of when we are spending more and evaluating whether the spending is worth it.

Yes, it is hard to avoid increasing spending as your income goes up.  I think this is especially true for many of us, who spent many years living in poverty as students, and then in many cases as postdocs (less impoverished, but...). 

It's funny, but I find that after living frugally as a student for so many years I don't really want to spend a lot of money as my income has increased (Growing up in a somewhat frugal environment helped too).  My spending did go up over time, but not by that much.  I just got used to enjoying things that don't cost very much.  It leaves more to spend for other people, to the benefit of us both.  I'm actually kind of glad now for that reason that I had that experience of living frugally for so long. 
The Spirit himself bears witness that we are the children of God.  And if children, heirs of God, and co-heirs with Christ, if we suffer with him that we may also be glorified together.
For I consider that the sufferings of the present time do not compare with the glory that will be revealed in us.

Hibush

How widespread is the phenomenon that grad-student frugality leads to a lifelong habit of lower spending?

It is a time of life when you have more financial autonomy than as an undergraduate. Most of the people you associate with have similar means, while also being talented and having aspirations of great success in life. In that environment, people don't show off by spending money (like their contemporaries who became well-paid celebrities). Does one feel less need for the reward of spending money on oneself, or more resistant to the advertising that encourages that?

Kron3007

Quote from: apl68 on September 01, 2021, 10:48:49 AM
Quote from: Kron3007 on September 01, 2021, 08:54:08 AM
Quote from: Caracal on September 01, 2021, 07:44:23 AM
Quote from: dismalist on August 30, 2021, 10:47:59 AM
I do not wish to discourage people from saving. I do wish to discourage them from being driven crazy by single minded savings fetishists.

The problem can be looked at it in this way: There are two people within us, our present self and our future self [Zwei Seelen hab' ich ach in meiner Brust. :-)] Let us accept that our present self is a week-kneed sloth who thinks only of the present and has no will power. Then, to prevent him from exploiting the future self by not saving, all kinds of commitment devices are suggested -- save a little to form a habit, set goals, reward yourself for saving, and so on. This is fine if it doesn't go too far. For, the situation is symmetric! The fetishists would have our future self exploit our present self! All the fun [consumption] is saved for later, while our present selves toil away. If people wish to live that way, they should at least be aware of what they are doing. 

Do not feed behemoth!

Yeah, I think that's right. There's a much greater danger of exploiting your present self when your present self is poor and young. The marginal decisions tend to be "do I want to go get a burger and drinks sometimes with friends instead of returning to my apartment alone and having pasta with jarred sauce." As you have a higher income, the decisions often shift in ways that make the "responsible choices" far less unpleasant.

One of the things we've always tried to do (my spouse deserves all the credit for this) is try not to mindlessly increase our spending with our level of income. It's one thing to decide that since you make more money, it is reasonable to spend more on something than you did before. The danger for me is that it would be easy to just spend more because there wouldn't be any immediate consequences. Putting a fair amount of the "extra money" into savings of various sorts has helped us get a sense of when we are spending more and evaluating whether the spending is worth it.

Yes, it is hard to avoid increasing spending as your income goes up.  I think this is especially true for many of us, who spent many years living in poverty as students, and then in many cases as postdocs (less impoverished, but...). 

It's funny, but I find that after living frugally as a student for so many years I don't really want to spend a lot of money as my income has increased (Growing up in a somewhat frugal environment helped too).  My spending did go up over time, but not by that much.  I just got used to enjoying things that don't cost very much.  It leaves more to spend for other people, to the benefit of us both.  I'm actually kind of glad now for that reason that I had that experience of living frugally for so long.

Dont get me wrong, I am still quite thrifty but do enjoy being able to splurge on things I would not have in the past.  In fact, just the other day one of my friends (not an academic if it matters) made some remark about me being the only one of our friends more cheap than him.  In reality, I was just poor all these years (maybe cheap too?), but it has definitely become habit. 

That being said, while I am frugal in my day to day life, I plan to use those habits to support the odd larger ticket item (like the trip I referenced).   

Of course, the other challenge to this, at least for me, is that my expenses are also increasing as my children grow so it is hard not to increase spending even if i dont buy the fancy wine...which I dont.

dismalist

Quote from: Kron3007 on September 01, 2021, 01:53:03 PM
Quote from: apl68 on September 01, 2021, 10:48:49 AM
Quote from: Kron3007 on September 01, 2021, 08:54:08 AM
Quote from: Caracal on September 01, 2021, 07:44:23 AM
Quote from: dismalist on August 30, 2021, 10:47:59 AM
I do not wish to discourage people from saving. I do wish to discourage them from being driven crazy by single minded savings fetishists.

The problem can be looked at it in this way: There are two people within us, our present self and our future self [Zwei Seelen hab' ich ach in meiner Brust. :-)] Let us accept that our present self is a week-kneed sloth who thinks only of the present and has no will power. Then, to prevent him from exploiting the future self by not saving, all kinds of commitment devices are suggested -- save a little to form a habit, set goals, reward yourself for saving, and so on. This is fine if it doesn't go too far. For, the situation is symmetric! The fetishists would have our future self exploit our present self! All the fun [consumption] is saved for later, while our present selves toil away. If people wish to live that way, they should at least be aware of what they are doing. 

Do not feed behemoth!

Yeah, I think that's right. There's a much greater danger of exploiting your present self when your present self is poor and young. The marginal decisions tend to be "do I want to go get a burger and drinks sometimes with friends instead of returning to my apartment alone and having pasta with jarred sauce." As you have a higher income, the decisions often shift in ways that make the "responsible choices" far less unpleasant.

One of the things we've always tried to do (my spouse deserves all the credit for this) is try not to mindlessly increase our spending with our level of income. It's one thing to decide that since you make more money, it is reasonable to spend more on something than you did before. The danger for me is that it would be easy to just spend more because there wouldn't be any immediate consequences. Putting a fair amount of the "extra money" into savings of various sorts has helped us get a sense of when we are spending more and evaluating whether the spending is worth it.

Yes, it is hard to avoid increasing spending as your income goes up.  I think this is especially true for many of us, who spent many years living in poverty as students, and then in many cases as postdocs (less impoverished, but...). 

It's funny, but I find that after living frugally as a student for so many years I don't really want to spend a lot of money as my income has increased (Growing up in a somewhat frugal environment helped too).  My spending did go up over time, but not by that much.  I just got used to enjoying things that don't cost very much.  It leaves more to spend for other people, to the benefit of us both.  I'm actually kind of glad now for that reason that I had that experience of living frugally for so long.

Dont get me wrong, I am still quite thrifty but do enjoy being able to splurge on things I would not have in the past.  In fact, just the other day one of my friends (not an academic if it matters) made some remark about me being the only one of our friends more cheap than him.  In reality, I was just poor all these years (maybe cheap too?), but it has definitely become habit. 

That being said, while I am frugal in my day to day life, I plan to use those habits to support the odd larger ticket item (like the trip I referenced).   

Of course, the other challenge to this, at least for me, is that my expenses are also increasing as my children grow so it is hard not to increase spending even if i dont buy the fancy wine...which I dont.

Precisely, precisely.

Spending on children is an investment, financed by saving!

What I object to strenuously is the mantra that savings must exclusively go into financial assets. A house is an investment, financed by savings. An education is an investment, financed by savings.

Yes, there are tax preferred savings instruments and there are employer donated retirement plans. One should be aware of the tradeoffs between today and tomorrow are worth it to each individual.

And a dollar's worth of fun today is worth more than a dollar's worth of fun tomorrow. :-)
That's not even wrong!
--Wolfgang Pauli