As graduations are occurring across the country and many 18 year olds are starting their adult paths, I felt this was a very fitting post for this week. It was actually one of my friends (a teacher, see below) who suggested the idea to me. He works with these students daily. Many of whom will be going to college soon, and far too many of this college bound group are likely going without a plan.
Why go to college then, you may ask? Because that’s what you are suppose to do…Their parents, friends, teachers, and coaches have told them this was the correct/only path for the entirety of their lives. Why would they stray from that path now?
My Story
From a young age, I was told that to be successful, you needed to go to college. Why? I’m also not really sure. Likely in part because of what our grandparents and parents endured to get us to where we are. They wanted a better life for their children.
For me, my mom’s parents farmed. She was the only one to leave that lifestyle and go to college. My dad’s parents were a beautician and shoe factory worker. They all worked hard and beat their bodies up to provide for their families. In fact, my grandparents still farm today and they are nearing 90.
Along with working hard, my grandparents saved every penny. This is probably where my dad, and now me developed our frugal habits from. My grandpa was investing before it was cool.
My grandparents always put their family first and as a result they pushed their children towards a better life which then, was education.
Back then, college was the path to freedom, but is it still the only path to financial freedom?
My parents are both college educated and worked in education themselves. With their upbringing and career path, it only made sense that I was pushed to get an education.. When I was in high school, before I even knew what I was going to college for, I knew that I was going to college.
Thankfully, it worked out for me but I have had far too many friends and classmates attempt college only to make multiple major changes or drop out to pursue a trade.
Putting College Under the Microscope
With the apparently never ending rise in college tuition prices and the overwhelming debt young adults are leaving school with, I think it’s time to critically look at if the best path to FI is truly with the college route.
Obviously many people have made fortunes both with and without going to college, but I wanted to look at the average workers of both the college route and the trade route to compare and contrast their paths to financial independence.
Disclaimer: I fully understand that you many of you made your education choices based on wanting to love what you do, making a difference in the world, or wanting to experience the college lifestyle, but try to put all of that aside. I’m not saying those reasons are wrong, but for the purpose of this post, try to look with me at what the math says. It may even change your outlook because the faster you reach FI, the faster you can experience that lifestyle you want to live.
Also, I understand there are thousands of variations to each person’s path in life. I get it. To say that I will perfectly depict every path is a very large over statement. The below numbers are averages, assumptions, and thoughts that don’t represent everyone’s unique situation.
For simplicity sake, we are going to assume the path of least resistance for each candidates career path. Meaning, no extra degrees, post baccalaureates, or time off to volunteer, work, or build their resumes. Our candidates got into school and/or work on their first attempt. This will keep it as fair as possible between the candidates.
Further Assumptions:
- Graduate high school at 18
- 40 Hrs worked per week
- No Overtime
- 52 Weeks/yr
- 2018 Median Income According to the Bureau of Labor Statistics
- 2018 Tax rate
- No State Income Tax
- No Investing while in school
- 7% Average ROI (Return on Investment)
- 4% safe withdrawal rate to determine retirement age
- No Social Security
- 4.53% Undergrad loan interest
- 6.08% Graduate Loan interest
- Loan repayment starts upon completion of education
- In-State Public School Tuition
- Undergraduate Average Cost per year: $9,970*
- (For reference: Private $34,740, out-of-state $25,620)
*This is tuition alone, not food, room, school supplies and transportation
So Let’s Get Started
In light of me watching the Bachelorette, let’s meet our contestants:
- Construction Worker
- Lineman
- High School Teacher
- Dental Hygienist
- Physical Therapist
- Primary Care Physician
Construction Worker:
- Education: N/a
- Training: N/a
- Salary Pre-Tax: $34,810
- Salary Post-Tax: $29,600
- Time to Pay Off Debt: 0 Years
- Retirement Age with 10% Savings Rate: 58.50 Years Old
- Retirement Age with 30% Savings Rate: 41.33 Years Old
- Retirement Age with 50% Savings Rate: 32.5 Years Old
Lineman:
- Education: High School Diploma or equivalent
- Training: Apprenticeship (usually 7,000 hours or 4 years)
- Apprenticeship Salary Pre-Tax: $18.87 Median hourly wage, $39,124.80
- Apprenticeship Salary Post-Tax: $33,167
- Salary Pre-Tax: $65,880
- Salary Post-Tax: $53,047
- Retirement Age with 10% Savings Rate: 60.1 Years Old
- Retirement Age with 30% Savings Rate: 42.66 Years Old
- Retirement Age with 50% Savings Rate: 34.25 Years Old
Dental Hygienist
- Education Level: Associates Degree
- Education Length: 2 Years
- Education Cost Undergraduate: $22,692
- Salary Pre-Tax: $74,820
- Salary Post-Tax: $59,336
- Time to Pay Off Debt with 10% Save Rate: 4.3 Years with an extra $2332 paid in interest
- Time to Pay Off Debt with 30% Save Rate: 1.3 Years with an extra $726 paid in interest
- Time to Pay Off Debt with 50% Save Rate: .8 years with an extra $447 paid in interest
- Retirement Age with 10% Save Rate: 64.8 Years Old
- Retirement Age with 30% Save Rate: 45 Years Old
- Retirement Age with 50% Save Rate: 35.5 Years Old
High School Teacher
- Education Level: Bachelors Degree
- Education Length: 4 Years
- Education Cost: $39,880
- Salary Pre-Tax: $60,320
- Salary Post-Tax: $49,136
- Time to Pay off Debt with 10% Save Rate: 10.20 Years with an extra $9,929 paid in interest
- Time to Pay off Debt with 30% Save Rate: 2.9 Years with an extra $2,745 paid in interest
- Time to Pay off Debt with 50% Save Rate: 1.8 years with an extra $1,621 paid in interest
- Retirement Age with 10% Save Rate: 72.7 Years Old
- Retirement Age with 30% Save Rate: 48.4 Years Old
- Retirement Age with 50% Save Rate: 36.5 Years Old
Physical Therapist
- Education Level: Doctorate
- Education Length: 7 Years (4 Undergraduate + 3 Graduate)
- Education Cost Undergraduate: $39,880
- Education Cost Graduate: $88,942 (Average of Private and Public as Over 50% of PT schools are now Private)
- Salary Pre-Tax: $87,930
- Salary Post-Tax: $68,559
- Time to Pay Off Debt with 10% Save Rate: 32.5 Years with an extra $93,319 paid in interest
- Time to Pay Off Debt with 30% Save Rate: 7.2 Year with an extra $16,458 paid in interest
- Time to Pay Off Debt with 50% Save Rate: 4.1 Years with an extra $9,266 paid in interest
- Retirement Age with 10% Save Rate: 98 Years Old
- Retirement Age with 30% Save Rate: 56 Years Old
- Retirement Age with 50% Save Rate: 43.5 Years Old
Primary Care Physician
- Education Level: Doctorate
- Education Length: 11 Years (4 Undergraduate + 4 Graduate + 3 Residency)
- Education Cost Undergraduate: $39,880
- Education Cost Graduate: $36,755/yr Public In-State or $147,020 in Total
- Around $60,000/yr for private and public out-of-state
- Residency Salary Pre-Tax: $59,300
- Residency Salary Post-Tax: $48,418
- Salary Pre-Tax: $198,740
- Salary Post-Tax: $146,451
- Time to Pay Off Debt with 10% Save Rate: 17.4 Years with an extra $81,588 paid in interest
- Time to Pay Off Debt with 30% Save Rate: 3.6 Years with an extra $16,059 paid in interest
- Time to Pay Off Debt with 50% Save Rate: 1.7 Years with an extra $5,765 paid in interest
- Retirement Age with 10% Save Rate: 86.9 Years Old
- Retirement Age with 30% Save Rate: 56 Years Old
- Retirement Age with 50% Save Rate: 45.2 Years Ol
Further Assumptions
After running the math on this experiment, I realize that we are also assuming that someone with a smaller salary will be able to live off less money per year. For example, the math assumes that the construction worker with a 50% savings rate could live off of around $15,000 per year. Which may not always be possible given life circumstances and the cost of living of your area.
But, I would challenge that a primary care physician likely lives a more outlandish lifestyle than most construction workers. So again, to make it accurate to your own circumstances, please use your own personal numbers.
But, because I love math let’s see what the numbers say if we assume each candidate spends the American annual average upon graduation from their highest level of schooling! According to the Bureau of Labor Statistics, the American consumer spent on average $58,569 annually (with education excluded). Yikes.
Age of Retirement
Construction Worker: Never
Lineman: Never
Dental Hygienist: Never
High School Teacher: Never
Physical Therapist: 18 + 7 years of school + 4.4 years to pay off undergrad + 12.9 years to pay off Grad school + 34.75 years to FI = 77.05 Years Old
Primary Care Physician: 18 + 11 years of school + 1.4 years to pay off both undergrad and grad school + 11.1 years to FI = 41.5 Year Old
So as much as this is a question about going to college or not going to college, retirement/financial independence really comes down to how long it takes to support the lifestyle you want to live. In other words, your savings rate.
*See my link for my recommended savings rate
Summary
I truly had no idea what I was going to see when I went through this exercise, but for me, the results were staggering. I understand that there is a large list of assumptions and every situation is different but the main thing I did, was a kept the math consistent with every candidate.
Even if you don’t agree perfectly with how I got there, which I completely understand, it was consistent and it gives us a good litmus test to find out how each career path leads us to financial independence even if there is some variance depending on which assumptions you wanted to make.
From where I sit, this shows me that more school and eventually more income doesn’t always lead us to a faster route to financial independence.
The Opportunity Cost of School
School has an opportunity cost due to it’s length along with the time it takes students to crawl out of debt. During this time, you aren’t investing while the person already working can. The person who took the labor, trade, or associates route doesn’t have nearly the time cost and can further take advantage of compounding interest even if their salaries won’t be as much as the doctors.
I’m not saying the 18 year old kid who starts working right out of high school will make the correct choices with his money, but the opportunity is there to retire before the doctor if they had the right financial understanding/literacy.
Debt
Debt leaves students with an uphill climb to get out of both financially and mentally. The mental climb might be even harder than the financial one because often times new graduates look at their mountain of debt and it seems impossible to overcome.
This leads to prolonged time spent making the minimum payments on this debt, making outlandish purchases as rewards for completing school, and ultimately living a lifestyle that pretends the debt doesn’t exist.
And please don’t act like this doesn’t occur, I can’t even count the amount of classmates social media posts I’ve seen where they are standing in front of a new car or house shortly following graduation.
I get school is hard and you feel like you earned these things, but this usually only leads to that much more opportunity cost due to increasing interest payments in the future.
Sadly, the Debt is Likely Worse…
Remember, this math is assuming the quickest route possible to a given education/career. We are disregarding the years off many students take to build their resume to get into school, the fifth year seniors, the students who changed career/major paths, the students who only got into the more expensive private or out-of-state school, or any of the living expenses that most students will also need to take more loans out for.
This is strictly just the education itself in the most direct route possible. So these results could be even more drastic and further widen the gap between the trade and college route if these other aspects were analyzed.
So Does this Mean I Shouldn’t Have Went to College?
I have been looking at this a lot lately because I have often questioned if I myself made the right life choice by pursuing increased education. Don’t get me wrong, I love what I do and couldn’t see my life any other way, but when looking strictly at the math, it does make one question if all of the teachers, coaches, and parents pushing me to go to college were right?
Ultimately, there likely isn’t a right answer. The right answer probably lies somewhere in having the correct financial information available to you in order make the right choice for you.
And again, whatever career path you choose, your time to financial independence is likely less linked to your career choices and more linked to how you choose to spend or save your money as shown countless times above.
A Possible Conclusion
Maybe, instead of pushing every child to go college, we should be pushing every child to learn about finances, and financial independence. Let’s educate our future generations instead of pushing them one way or the other.
Then they have the tools to make an appropriate choice for what they value in their own lives. Again, money isn’t everything, but I would argue that the freedom to spend your time how you best see fit is. And sometimes the route to get there isn’t as crystal clear as we possibly once thought.
Let me know what you think?
I understand this post may come with some criticism but I would love to hear your thoughts below. As always, if you have in personal questions, please feel free to contact me here!
**FI calculations were made using the Mad Fientist’s FI calculator and loan pay off’s were calculated using Calc XML
